CHAPTER 15
MINISTRY OF MINES

Hindustan Copper Limited

In October 1999, HCL invited tenders for sale of 8000 MT of reverts, a residue from production processes in its smelter at Khetri. The reverts contained copper content (about 30 per cent), which required further treatment and refinement abroad to produce copper. The Company has been selling the copper content contained in the reverts at London Metal Exchange (LME) price of copper, less treatment charges and refinery charges (TC & RC) quoted by the bidders. Therefore, the bidder quoting lowest rates for TC & RC was considered best bidder for the sale.

The Company received (November 1999) techno-commercial bids from six parties, of which two were found unsuitable. Price bids of the remaining four parties were opened/evaluated on 18 January 2000 and MMTC Limited (MMTC) was found best bidder at its quoted rates of US $ 78 per DMT for TC and US cent 7 per pound for RC. However, the Company asked (January 2000) MMTC to reduce the TC & RC rates, ostensibly on the grounds that another party SWIL Limited had quoted lower rates earlier in March 1999. Incidentally, SWIL Limited had failed to lift any material at its quoted price. MMTC did not agree to reduce the rates and the validity of their offer expired on 28 January 2000.

The Company negotiated the rates again with all the bidders and obtained their revised offer in April 2000. However, no one offered the rates better than the ones originally offered by MMTC. Finally, the Company placed (May 2000) the sale order on MMTC for 8000 MT of reverts (+ 10 per cent) at their revised rates of US$ 101 per DMT for TC and US cent 10.2 per pound for RC. MMTC lifted 7811 MT reverts in two lots in July 2000 and December 2000.

The delay in finalising tenders and placing sale order on the best bidder within the validity period, without any sound reason, led to the increase in TC & RC rates and consequent loss of revenue of Rs. 1.01 crore.

The Management, while admitting the loss on account of increase in TC & RC rates, stated (June 2000) that the ultimate sales realisation was higher because of increase in LME price (about 2.93 per cent) as well as depreciation of Rupee against US Dollar (about 4 per cent) compared to LME price and exchange rate of December 1999.

The Management’s contention is not tenable as:

1. it was never an issue before the Company to make speculative gain by small fluctuations in the LME price and the exchange rate; and
2. the delay in placement of sale order by about four months delayed the realisation of sales revenue. Therefore, the gain because of depreciation of Rupee was offset by loss of interest on the funds.

It is thus observed that the delay in finalisation of order was neither justified by the circumstances nor was it a prudent commercial decision and ultimately it caused a loss of revenue to the Company because of the increase in TC and RC.

The matter was referred to the Ministry in July 2000; their reply was awaited (October 2001).

National Aluminium Company Limited

Due to despatch of material to a customer without verifying approval of Indian Bankers Association to the transporter, which was one of the preconditions to the validity of letter of credit, the Company failed to recover the dues from the customer and sustained a loss of Rs.1.46 crore.

In April 1998, National Aluminium Company Limited (NALCO) received an order from M/s. Savitri India Limited (SIL) for supply of 9000 MT of aluminium. In terms of the order placed by SIL, the material was to be handed over to SIL’s nominated transporter Express Shipping & Carriers Limited (ESCL). Payment was to be made by letter of credit (LC). SIL established (March 1998) the LC with State Bank of Patiala, New Delhi which, inter alia, provided that the despatches would be made only through a transporter approved by Indian Bankers Association (IBA).

The validity of IBA approval to ESCL had expired in June 1998. Although the Company was aware of this fact, it despatched 12 consignments of aluminium (174.17 MT) valuing Rs.1.43 crore to SIL through ESCL between 15 and 31 July 1998. In fact the last few consignments of aluminium (28.064 MT) were dispatched on 31 July 1998 on the basis of an undertaking given by ESCL on 30 July 1998 that they would furnish IBA extension letter within a day or two. However, this was never done.

When the Company negotiated (September 1998) the LC through State Bank of India (SBI) for realisation of payment, State Bank of Patiala refused to accept lorry receipts issued by ESCL in July 1998 for want of IBA approval and returned the documents without payment. Consequently, SBI reversed (October 1998) the credit of Rs.1.43 crore already allowed to the Company and debited its account with overdraft interest (Rs.2.88 lakh) and bank charges (Rs.0.36 lakh).

The Company could not realise its dues from SIL despite frequent follow-up. It was only in March 1999 that the Company filed a criminal case in court of law against SIL and ESCL as it was found that both these firms were promoted by the same person and acted in collusion to deceive the Company.

Thus due to despatch of material to the customer without verifying IBA approval to the transporter, as required under the terms of LC, the Company failed to recover the dues and sustained a loss of Rs.1.46 crore (including interest and bank charges).

The Management stated (April 2001) that there was no procedure in vogue for verification of IBA approval to transporters before this incidence, as normally all dispatches took place only through the transporter nominated by the customer.

This reply is not tenable because the Company was aware that IBA registration of transporter was a precondition to the validity of LC and that the registration of ESCL with IBA had expired on 30 June 1998. By allowing ESCL to despatch the material on its false assurance, without actual verification of the extension of IBA registration, the Company failed to recover its dues which were secured through LC.

The matter was referred to the Ministry in May 2001; their reply was awaited (October 2001).