Report No.

CA 24 of 2009-10

CHAPTER XIII: DEPARTMENT OF PUBLIC ENTERPRISES

Andaman and Nicobar Islands Integrated Development Corporation Limited, Electronics Corporation of India Limited, Engineers India Limited, Garden Reach Shipbuilders and Engineers Limited, National Buildings Construction Corporation Limited, MECON Limited, Neelachal Ispat Nigam Limited and Steel Authority of India Limited 13.1.1 Irregular payment to employees The Companies irregularly paid ex-gratia in lieu of bonus and reward/cash award to ineligible employees in contravention of DPE guidelines. The Department of Public Enterprises (DPE) issued instructions on 20 November 1997 to all public sector undertakings (PSUs), interalia, directing that the employees of PSUs drawing wage/salary exceeding Rs.3500 per mensem (increased to Rs.10000 per mensem w.e.f. April 2006) would not be paid bonus, ex-gratia, honorarium, reward and special incentive etc., unless the amount was authorised under a duly approved incentive scheme. The payment of ex-gratia by a large number of PSUs to their ineligible employees has been pointed out earlier in the various Audit Reports (Commercial). The matter was referred (February 2005) to DPE for seeking clarification as to whether such payment of ex-gratia was consistent with DPEs instructions. The DPE while clarifying (December 2005) that the payment of ex-gratia to the ineligible employees was not allowed as per its Office Memorandum dated 20 November 1997 and that there was no provision for DPE/administrative Ministry to approve the payment of ex-gratia/bonus to the ineligible employees in PSUs, advised (December 2005) the Ministry of Power to take suitable action. However, the PSUs continue to make payments of ex-gratia/cash award to their employees irregularly ignoring the instructions issued by DPE in November 1997 and December 2005. The Comptroller and Auditor General of India again highlighted the irregularity involving irregular payment of Rs.281.89 crore in the Reports in respect of the following Companies:
Sl. No. 1. 2. 3. 4. 5. 6.

Para 4.4.1 4.4.1 14.2.1 1.1.1 14.4.1 20.3.1

Audit Reports 11/2007 11/2007 11/2007 11/2007 11/2008 11/2008

Name of Company Indian Airlines Limited (IAL) Pawan Hans Helicopters Limited (PHHL) NTPC Limited (NTPC) Electronics Corporation of India Limited (ECIL) Hindustan Petroleum Corporation Limited (HPCL) Steel Authority of India Limited (SAIL)

Amount (Rs. in crore) 14.33 2.11 116.88 7.48 76.26 21.29

Reports of the Comptroller and Auditor General of India (Commercial) No. 3 of 1994, 1995, 1999 to 2004 and Report No. 13 of 2006. 83

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7.

4.3.2

11/2008

Indian Airlines Limited (IAL) Total

43.54 281.89

No corrective action was taken by the administrative Ministries/Companies to control the irregular payment to the employees of PSUs except the ECIL. However, in the Action Taken Note, ECIL accepted the audit observation and showed partial recovery of Rs.45.00 lakh (March 2007) from the ex- employees against the payment of Rs.7.48 crore to the employees and stated that balance would be adjusted against anticipated pay revision of the employees. It was further observed (April-June 2008) in Audit that in violation of the DPE guidelines the following eight Companies have paid reward/cash award of Rs.589.97 crore for overall excellent performance and ex-gratia of Rs.8.23 crore in lieu of bonus to ineligible employees without any approved incentive scheme:Sl. No. 1. Name of the Ministry Ministry of Defence Name of the Company Garden Shipbuilders Engineers (GRSE) Nature of payment Period 2005-06 Amount (Rs. in crore) 3.37

Reach Reward/Cash award for and overall excellent Limited performance Reward/cash award for overall excellent performance Reward for overall excellent performance Ex-gratia in lieu of bonus and Performance Linked Award Ex-gratia in lieu of bonus Ex-gratia in lieu of bonus

2.

Department of Atomic Energy Ministry Steel Ministry Steel Ministry Commerce Industry of

Electronics Corporation of India Limited (ECIL) Steel Authority of India (SAIL) MECON Limited

2007-08

3.74

3.

2004-05 to 2007-08 2005-06 to 2007-08 2004-05

569.00

4.

of

6.35

5.

of &

Neelachal Ispat Nigam Limited (NINL) Andaman and Nicobar Islands Integrated Development Corporation Limited (ANIDCO) National Buildings Constructions Corporation Limited (NBCC) Engineers India Limited (EIL) Total

0.59

6.

Ministry of Home Affairs

2001-02 to 2006-07

0.73

7.

Ministry of Urban Development Ministry of Petroleum and Natural Gas

Ex-gratia in lieu of bonus and Special Performance Linked Award Performance Reward Linked

2006-07 to 2007-08 2001-02 to 2007-08

1.27

8.

13.15

598.20

The Management of ECIL, GRSE and the administrative Ministry of SAIL in their replies stated that payment of cash award/reward was granted as one time benefit and payments were made as per the guidelines issued by DPE. This contention was not
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tenable as the Companies were not authorised to grant such cash award categorised as part of perquisite and allowances unless payments were made under duly approved incentive scheme. The Management of MECON Limited stated (July 2008) that the payments made were performance related payments and hence were not irregular under the head ex-gratia. The reply was not tenable in view of the DPE guidelines which stated that the payment of ex-gratia to the ineligible employees was not allowed and there was no provision for DPE/administrative Ministry to approve the payment of ex-gratia/bonus to the ineligible employees in PSUs. The Management of NINL stated (May 2008) that the amount of ex-gratia was disbursed as an incentive with the approval from the competent authority. The contention of Management was not tenable as no scheme for payment of ex-gratia had been approved by the Ministry which was the competent authority in such matter. The Ministry of NINL and GRSE had endorsed the reply of the Management. The Management of ANIDCO accepted (May 2008) the fact of payment of ex-gratia in lieu of bonus to the ineligible employees and stated that an incentive scheme would be drafted in accordance with the DPEs guidelines. The Management of NBCC (November 2008) and the administrative Ministry of EIL stated (July 2007) that the Government had delegated (January 1994 and October 1988) enhanced financial and administrative powers to Memorandum of Understanding (MoU) signing Companies with regard to incentive/reward schemes subject to the condition that the total bonus and incentives shall not exceed 35 per cent of the wages and these payments did not exceed limit. The reply was not tenable as DPE guidelines issued in October 1988 did not delegate any financial and administrative powers to the MOU signing Companies to evolve an incentive scheme for the employees not covered under the Payment of Bonus Act. Thus, payment of ex-gratia and reward/cash award to ineligible employees by these Companies in contravention of DPE guidelines resulted in irregular payment of Rs.598.20 crore.

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Bharat Dynamics Limited, Bharat Pumps and Compressors Limited, Electronics Corporation of India Limited, FCI Aravali Gypsum and Minerals India Limited, HMT Bearings Limited, HMT Limited, ITI Limited, Mishra Dhatu Nigam Limited, National Fertilizers Limited, National Mineral Development Corporation Limited and Rashtriya Chemicals and Fertilizers Limited
13.2.1 Excess expenditure due to incorrect regulation of leave encashment In disregard of the Department of Public Enterprises directives, ninteen Companies incurred excess expenditure of Rs.37.13 crore during April 2004 to March 2008 due to adoption of 26 days as a month instead of 30 days for computing encashment of earned leave. According to the Department of Public Enterprises (DPE) instructions of April 19871, an individual public enterprise may frame leave rules for its employees keeping the broad parameters of the policy guidelines laid down in this respect by the Government of India (GOI). Some of the Companies adopted 26 days as a month for the purpose of computing earned leave encashment instead of 30 days though no such provision existed in the Central Civil Service (Leave Rules), 1972. Successive Reports2 of the Comptroller and Auditor General of India (CAG) highlighted this irregularity involving excess expenditure of Rs.53.62 crore in respect of the following eight companies: 1. 2. 3. 4. 5. 6. 7. 8. MMTC Limited (MMTC), The State Trading Corporation of India Limited (STC), PEC Limited (PEC), Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), Bharat Earth Movers Limited (BEML), Kudremukh Iron Ore Company Limited (KIOCL), and Bharat Heavy Electricals Limited (BHEL).

In Action Taken Notes, the DPE intimated (August-September 2006) that BEML and KIOCL had modified their rules and brought them in conformity with the prescribed rules. MMTC, STC and PEC did not amend their leave encashment rules and incurred an expenditure of Rs.2.78 crore3 from April 2004 to March 2008 on the ground that their leave rules were approved by the respective Board of Directors and they do not follow Fundamental and Supplementary rules of the GOI. On the basis of the draft para included in the CAGs reports, BEL and HAL changed their rules governing encashment of leave. However, the same could not be implemented as their employees union had obtained stay orders from courts and matter was still under litigation (October 2008). This resulted in further excess expenditure on leave encashment of Rs.17.81 crore (BEL-Rs.5.17 crore
1 2

Department of Public Enterprises O. M. No 2(27)/85-DPE(WC) dated 24 April 1987 Para no 16.1.3 of Report No 3 of 2004, para no 16.1.1 of Report No 12 of 2006 and para no. 11.1.2 of Report No 11 of 2007 of Union Government (Commercial) 3 MMTC-Rs.1.83 crore, STC-Rs.0.71 crore and PEC-Rs.0.24 crore 86

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and HAL-Rs.12.64 crore) till March 2008. Action Taken Note has not been received (October 2008) from BHEL. DPE did not direct these non-compliant Companies to amend their leave rules although it clarified in September 20051 and again in May 20062 that for the purpose of leave encashment in public enterprises, a month is to be taken as 30 days as was the practice in Central Government. Audit further observed that 14 other companies continued to make payment of leave encashment based on 26 days as a month and incurred excess expenditure of Rs.16.54 crore during April 2004 to March 2008 as detailed below: Sl. No. 1. 2. 3. 4. 5 6. 7. 8. 9. 10. Name of the Company Bharat Dynamics Limited (BDL) Bharat Pumps and Compressors Limited (BPCL) Electronics Corporation of India Limited (ECIL) FCI Aravali Gypsum and Minerals India Limited (FCIAGMIL) HMT Limited and its four subsidiaries3 ITI Limited Mishra Dhatu Nigam Limited (MIDHANI)4 National Fertilizers Limited (NFL) National Mineral Development Corporation Limited (NMDC) Rashtriya Chemicals and Fertilizers Limited (RCF) Total Excess payment (Rs. in crore) 1.11 0.46 1.70 0.07 2.06 2.72 0.34 4.91 1.51 1.66 16.54

RCF stated (December 2007) that adoption of 26 days as a month for encashment of leave was a long standing practice. It further stated (March 2008) that the method of computing earned leave encashment was followed by the entire fertilizer industry and any changes affecting monetary benefits might create problems. NMDC, ECIL and BDL intimated that the leave rules had been framed in the light of a Supreme Court Judgment of 1980 in respect of Payment of Gratuity Act, 1972. MIDHANI intimated that the rule had since been amended in January 2007. BPCL, HMT Bearing Limited and ITI intimated that payment was being regulated in accordance with the rules approved by their Board of Directors. Response was awaited from two companies (NFL and FCIAGMIL). The replies of the Companies were not tenable as the Board of Directors were delegated powers to frame leave rules within the broad parameters and guidelines given by the Government of India while the practice of treating 26 days as a month adopted by these Companies for leave encashment was not in line with the Government rules/guidelines.
1 2

Department of Public Enterprises O.M. No. 2(2)/05-DPE(WC) dated 20 September 2005 Department of Public Enterprises O.M. No. 2(2)/85-DPE(WC) dated 2 May 2006 3 HMT Limited Rs.60.01 lakh, HMT Machine Tools Limited Rs.128.56 lakh, HMT Chinar Watches Limited Rs.0.98 lakh, HMT Bearing Limited Rs.9.02 lakh and HMT International Limited Rs.7.11 lakh. 4 Up to January 2007 only 87

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Further, the judgment of apex court was with reference to the Payment of the Gratuity Act, which had no relevance to the leave rules. Thus, due to adoption of 26 days as a month instead of 30 days for computing encashment of earned leave, in disregard of the directions of Department of Public Enterprises, 19 Companies incurred excess expenditure of Rs.37.13 crore. Some of such Companies were continuing to incur excess expenditure on leave encashment. The additional benefit was not only irregular but also beyond the powers delegated to the Board of Directors of the public enterprises. In response, the DPE again issued (December 2008) instructions to all PSUs that they should adopt 30 days month for the purpose of calculating leave encashment. The DPE also advised (December 2008) the administrative Ministries/Departments concerned with PSUs on case to case basis to adopt 30 days as month for the purpose of leave encashment.

Bharat Heavy Electricals Limited, Indian Oil Corporation Limited, National Insurance Company Limited, The New India Assurance Company Limited, Oil and Natural Gas Corporation Limited, The Oriental Insurance Company Limited, Steel Authority of India Limited and United India Insurance Company Limited
13.3.1 Recoveries at the instance of Audit During test check, several cases relating to non-recovery, short recovery, excess payment etc., by central public sector undertakings (PSUs) were pointed out. In 31 such cases pertaining to eight PSUs, Audit pointed out that an amount of Rs.13.94 crore was due for recovery. The Management of PSUs had recovered an amount of Rs.13.51 crore during the year 2007-08 as detailed in Appendix-II.

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