CHAPTER 5
MINISTRY OF INFORMATION TECHNOLOGY

5.1    Undermining Parliamentary Financial Control

The unauthorised approval of the Ministry of Information Technology (MIT) to credit revenue receipts earned through its Standardisation, Testing & Quality Certification (STQC) Directorate on account of services offered to the electronic industry, outside the Consolidated Fund of India put the expenditure beyond the financial control of the Parliament. The decision of the Ministry was against the provisions of Article 266 of the Constitution of India, under which all revenues received by the Government of India, all loans raised by the Government by the issue of treasury bills, loans or ways and means advances and all moneys received as repayment of loans shall form one Consolidated Fund of India.

Standardisation, Testing and Quality Certification (STQC) Directorate is an attached office of MIT, erstwhile Department of Electronics (DOE). It operates laboratories/ centres through out the country and offers services including testing, calibration, certification, training, counselling and developmental assistance to the electronic industry. Prior to September 1994, money earned by STQC centres/laboratories was deposited into government account.

With the establishment of Society for Electronics Test Engineering (SETE) an autonomous body under STQC Directorate in February 1994 and with the concurrence of Integrated Finance Division (IFD) and approval of the Secretary, DOE, it was decided to entrust marketing and business development of STQC services to SETE in September 1994. Income generated from these services would be credited to SETE and would be utilised for meeting the requirements of STQC. In September 1994, STQC issued directives to all its laboratories that revenue earned on training, seminars, workshops, counselling, certification and specialised testing etc. should be deposited with SETE. A bank account (Service Account) was also opened by SETE in September 1994 in which the receipts from laboratories/centres of STQC was asked to be credited. Over the period 1994-2000, an amount of Rs 11.29 crore including interest had accumulated under this account.

In March 1999, Secretary, MIT permitted STQC to incur expenditure of Rs 9 crore out of these funds towards procurement of equipment of laboratories/centres. An amount of Rs 0.16 crore was also spent on revenue expenses. The balance amount of Rs 2.13 crore was credited to the Consolidated Fund of India.

The decision of DOE/MIT was questionable on the following grounds:

(i)    Being an attached office of a government department, the income generated by laboratories/centres of STQC was revenue of the Government. As per Rule 6 of the Receipt & Payment (R&P) Rules and Rule 3 of the General Financial Rules, all moneys received on account of revenues or receipts shall without undue delay be paid in full into the accredited bank for inclusion in Government account. The approval of the Secretary, DOE for crediting the Government receipts in other than Consolidated Fund of India violated the Financial Rules as well as Article 266 of the Constitution of India.

(ii)    As per Article 114 (3) of the Constitution of India, no money can be withdrawn from the Consolidated Fund of India except under appropriation made by law passed in accordance with that Article. Since the amount earned by laboratories/centres of STQC as revenue ought to have been credited to Consolidated Fund of India, no expenditure could be met against this, save with the authority of the Parliament. By incorrectly crediting receipts to the SETE service account and meeting the expenditure out of it, the Ministry by-passed the authority of Parliament. The decision also violated the R&P Rules since Government receipts are not to be utilized for meeting departmental expenditure.

(iii)    For any change in the accounting procedure, Department/ Ministry is required to consult the Comptroller and Auditor General of India. However, it did not consult the Comptroller and Auditor General of India before changing the Accounting procedure. Even the Controller General of Accounts was not consulted as it was mandatory under Rule 191 (2) of R&P Rules of the Government of India.

MIT stated in August 2001 that SETE services account was closed in 1998-99. However, it was seen in audit that the account was still continuing as of March 2001 with a closing balance of Rs 1.63 lakh.

A similar case had appeared as Paragraph 17.1 in Report No. 2 of 2000 (Civil) pertaining to Ministry of Textiles, where funds were kept outside Consolidated Fund of India and expenditure was incurred. The Public Accounts Committee had examined the case and had observed that by spending money without approval of the Parliament the action of the Ministry had the effect of bypassing the authority of Parliament.

5.2    Failure of department to safeguard financial interest of the State

Under appropriate Automation Promotion Programme of Ministry of Information Technology (MIT) erstwhile Department of Electronics (DOE), Centre for Development of Electronic Systems (CDES), at Central Electronics Engineering Research Institute (CEERI), Chennai, had developed state of the art electronic instruments and system for modernising the Indian Pulp and Paper industry. To prove its commercial worthiness, a programme was taken up to build a commercial system under the Technology Mission Programme of DOE in collaboration with the user industry. The objective of the programme was to enhance productivity of small/medium paper mills of the country at an affordable price. The methodology was used to demonstrate the concept of retrofit automation of existing paper mills with the electronics instrumentation and system for establishing a cost effective system. The implementing agency was CDES, at CEERI Chennai.

M/s Sidharth Paper Mills, a division of M/s Rollatainers Ltd., Faridabad was identified by DOE for this project. It was jointly agreed in December 1993 that the total cost of Rs 47.50 lakh would be shared between M/s Rollatainers Ltd. and DOE, their respective shares being Rs 25.00 lakh and Rs 22.50 lakh. The DOE share was given as initial project advance to be repaid by M/s Rollatainers in three yearly instalments without any interest after expiry of one year from date of handing over of the equipment to the company. Accordingly, DOE sanctioned a project titled “Retrofit Automation in paper sector (Sidharth Paper Mills)” in March 1994 at a total cost of Rs 47.50 lakh. The duration of the project was two years. The funds to the extent of Rs 20.25 lakh was released in March 1994 and May 1995 with the concurrence of the Integrated Finance Division (IFD) of the Department. The fully functional system was handed over to the firm in October 1997. As per the repayment terms of the retrofit project, M/s Rollatainers was to pay back Rs 20.25 lakh in three equal instalments, due in March 1998, March 1999 and March 2000. However, none of the instalments had been repaid to DOE as of May 2001.

Similarly, DOE sanctioned in December 1995 another project titled “Retrofit Automation in Paper Sector (Mysore Paper Mills, a State Government Undertaking)” at a total cost of Rs 45 lakh. The project time frame was two years. DOE contribution was Rs 20 lakh as an advance to be paid back on mutually agreed terms. Accordingly, DOE released Rs 20 lakh between December 1995 and December 1997. The duration of the project was extended up to March 1998. The retrofit automation system was taken over by the Mysore Paper Mills in July 1998 after satisfactory performance of all the sub-systems. According to mutually agreed terms, the firm was required to refund the advance without any interest in three instalments due in January 2000, July 2000 and January 2001. Audit found that the firm has not paid any instalment as of May 2001.

The Department in both cases, requested the firms for repayment. The crucial snag Audit noted was that DOE advanced these funds without signing any formal agreement and without obtaining security in the form of Bank guarantee/ bonds to safeguard the interest of government in the event of non-payment by the firms. This clearly points to a lapse in safeguarding the financial interest of the Department. The fact that the project was sanctioned after clearance from the IFD of the Department makes this omission more serious. It is noticed that no further action has been taken by DOE to obtain refund.

In reply, MIT in August 2001 stated that it was not felt necessary to obtain bank guarantees or bonds etc. as it was considered that the participating industries were also taking a certain amount of risk in this process and added that efforts were on to recover the funds from the firms. However, the retrofitting operation had been carried out successfully to the satisfaction of the firms and the systems helped them enhance production. MIT in September 2001 has added that when it started pressing the firms for payment, both the firms have avoided doing so citing non-satisfactory working of the systems. Thus, the recovery of funds advanced to the firms remains doubtful.

Thus, failure of DOE to safeguard interest of the Government while sanctioning funds to the firms resulted in extension of unintended benefit to them and also non recovery of Rs 40.25 lakh.

5.3    Non-recovery of unspent grant after completion of a project

The Ministry of Information Technology (MIT) erstwhile Department of Electronics (DOE) approved in March 1994 a mission mode project on fibre optic system and products at a total outlay of Rs 451.30 lakh for implementation in four years by three agencies including Centre for Development of Advanced Computing (C-DAC), Pune. The project was aimed at development of fibre optic products in the country. C-DAC’s share of project cost was Rs 180.50 lakh of which DOE’s contribution was Rs 117.50 lakh and C-DAC was to contribute Rs 63 lakh. While expenditure on equipment, travel, system engineering and market development were attributable to DOE, C-DAC was to defray the expenditure on consumables and contingencies. The staff salary component of Rs 43 lakh was to be shared, Rs 30 lakh by DOE and Rs 13 lakh by C-DAC.

Between March 1994 and October 1997, DOE released the entire quantum of Rs 117.50 lakh based on financial progress report submitted by C-DAC. The project was completed in December 1998 on which C-DAC had spent only Rs 124.75 lakh of which Rs 72.31 lakh was attributable to DOE. Thus, an amount of Rs 45.19 lakh remained unspent out of the grants given by DOE. Besides, C-DAC earned Rs 6.78 lakh by way of interest up to 1997-98 out of the grants released.

C-DAC did not refund the excess grant of Rs 45.19 lakh and accrued interest of Rs 6.78 lakh after completion of the project.

When audit brought this to the notice of MIT in July/August 2000 the Ministry directed C-DAC in March 2001 to refund the excess grant of Rs 45.19 lakh rejecting the argument of C-DAC that the excess release was for overhead charges. The C-DAC has not refunded the excess released grant so far (November 2001).

MIT stated in November 2001 that the excess grant of Rs 45.19 lakh would be recovered from the future releases to C-DAC.