Seen here is a part of the Tuli Paper Mill photographed on February 10, 2015. After the string of unfulfilled promises made about the mill, it is facing imminent closure. (Morung File Photo)
CAG says Hindustan Paper Corporation Limited diverted Rs 52.37 crore meant for mill’s revival
Morung Express News
Dimapur | August 27
Fund diversion by the Hindustan Paper Corporation Limited (HPCL), in violation of standing government orders, has been revealed as the reason for the failure to revive Nagaland state’s sole heavy industry—the Nagaland Pulp and Paper Company Limited (NPPCL) or Tuli Paper Mill.
More than half of the fund meant for the mill’s revival was diverted by HPCL, pointed out the Comptroller and Auditor General (CAG) of India in its Report No. 11 of 2018 (Compliance Audit Observations) of the Union Government (Commercial) released earlier this month.
The Report contains 53 individual observations relating to 31 Central Public Sector Enterprises (CPSEs) under 13 Ministries/Departments and covered till the financial year ending March 31, 2017, CAG said.
HPCL, of which the NPPCL is a subsidiary, diverted Rs 52.37 crore out of the Rs 100 crore released by the Government of India (GoI) as part of a revival package in June 2013.
The CAG adjudged this as “improper conduct” and adversely affected implementation of the mill’s revival plan.
The NPPCL was incorporated on September 14, 1971 as a joint venture company of the Government of Nagaland and HPCL, a wholly owned CPSE under the administrative control of the Department of Heavy Industry.
It started commercial production on July 1, 1982. Subsequently, the company started making losses and was referred to the Board of Industrial and Financial Reconstruction (BIFR) in April 1992, after which it was declared as a ‘sick industrial company’ in August 1998. Subsequently, the BIFR ordered the mill to wind up operations in March 2002.
The Revival Plan
A Departmental Standing Committee on Industry took the initiative of reviving the company in April, 2002 and a proposal for revival was approved in November 2006 with a capital outlay of Rs 552.44 crores.
The revival plan was subsequently revised, envisaging an investment of Rs 679 crore in two phases (Phase I: Rs 489 crore; and Phase II: Rs 190 crore).
For first phase, it was decided in June 2013 that the Government of India would infuse Rs 309.38 crore (Rs 202.38 crore as equity and Rs 107 crore as grants-in-aid); Rs 156.50 crore would be raised by the company from banks/ financial institutions with government guarantee and the balance Rs 23.12 crore would be infused by the Government of Nagaland.
The company was under explicit instruction that no fund should be diverted under any circumstances and utilisation certificate was to be furnished by it within a period of one year from the date of issue of the sanction.
The company was also instructed to follow an escrow account mechanism – an arrangement where a third party holds and regulates payment of the funds required for two parties involved in a given transaction – for ensuring proper utilisation of the sanctioned funds.
The release order stated that the Chairman and Managing Director (CMD), HPCL would be “personally responsible for proper utilisation of these funds and specifically instructed that no funds should be diverted under any circumstances and that the CMD, HPCL would be held responsible for any diversion or misappropriation of funds.”
It was also specified that the utilisation certificate would be furnished within one year from the date of issue of the sanction.
After communicating the approved revival plan to the NPPCL along with explicit instructions on fund utilization, the HPCL received Rs 100 crore from the government in September 2013.
HPCL violated govt directives
After receiving the funds, none of the instructions were followed by HPCL, the CAG report found.
It instead observed that while Rs 47.63 crore has been utilised on implementation of the revival package, the balance of Rs 52.37 crore has been diverted by HPCL.
“Neither was the escrow account mechanism followed nor was utilisation certificate submitted by HPCL in violation of government orders,” the CAG noted, violating the government’s specific stipulation.
Audit examination revealed that Rs 52.37 crore was diverted to “meet exigencies” in HPCL.
“The CMD, HPCL who was personally responsible for proper utilization of the funds and accountable for diversion or misappropriation, allowed the diversion of funds meant for NPPCL to HPCL,” the CAG stated.
It further revealed that HPCL had not submitted any utilisation certificate to the GoI as of November 2017 though it was required to furnish the same within one year (i.e. by September 2014).
Halting of operations
In the meantime, the CAG said that NPPCL floated tenders for 14 major packages that had been identified for revival of its plant (October 2013 to April 2014) and placed work orders for seven of these packages (July 2014 to March 2015).
However, owing to non-release of funds by HPCL, NPPCL could not clear the outstanding dues of the contractors. NPPCL reported in February 2016 that as it had not been able to clear contractors’ dues, the working contractors demobilized and did not make fresh commitment for their bought out items, which brought the project activities to a halt.
“So far, only two of these packages for survey and soil investigation and dismantling and demolition works have been completed,” the CAG found. It was also observed that works of the balance five packages for paper machine refurbishment, captive power house, switchyard, civil and structural works and re-causticising plant have been suspended, with unpaid liabilities of Rs 6.29 crore.
The NPPCL Board was informed in March 2017 that since August 2015, all outstanding activities on these packages were at a standstill. The CAG observed that this is “likely to lead to obsolescence of plants, equipment and inventories in respect of these five abandoned packages.”
According to the CAG, the HPCL management has accepted the audit observation that a portion of the funds had been diverted “for their own exigencies.”
It was also revealed that according to the management “no action had been initiated for fixing responsibility in this regard and fund utilisation certificate has also not been sent to GoI.” It was also asserted that the work was kept on hold as the cost of project had “increased substantially and required approval of the revised cost from the Ministry.”
The CAG said that the management’s response needs to be viewed with the facts that funds were diverted violating the government’s directives and responsibility for it had not been fixed.
Meanwhile, the CAG informed that the Ministry of Heavy Industries accepted the diversion of funds had taken place. The Ministry informed that a “committee constituted to examine all aspects relating to diversion of funds and prima facie fixing the responsibility had submitted its report and the action on the report was being taken.”
The Ministry however did not specify as to what the action entailed.
Currently, HPCL has been referred to NCLT (National Company Law Tribunal), which has ordered the initiation of a corporate insolvency resolution process against the HPCL. According to a notification dated June 28 passed by NCLT’s Interim Resolution Professional in Kolkata, corporate insolvency resolution process had commenced from June 13 and is estimated to close on December 9, 2018. The last date of submission of claims (from creditors) was July 10, 2018.