Uttar Pradesh government favoured Ponty Chadda, says CAG

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The Bahujan Samaj Party (BSP) government in Uttar Pradesh has been indicted in yet another scam, this one related to divestment of stake in 11 active sugar mills owned by the state'e sugar corporation.

The deal is believed to have caused a loss of at least Rs.2,000 crore to the state exchequer, according to the office of the Comptroller and Auditor General (CAG) of India.

Severely indicting the state government on several counts, the CAG has highlighted a large number of anomalies and discrepancies in the process of disinvestment in state-owned sugar mills.

In its 26-page report, the CAG has taken serious note of the fact that barely a month-and-a-half after taking power in May 2007, Chief Minister Mayawati-led BSP government initiated the process of divesting stake in the 11 operating sugar mills of Utar Pradesh Sugar Corporation.

The rules were openly flouted and the mills were sold to private entrepreneurs for peanuts, the report seeks to point out.

It severely indicts Wave Industries and PBS Foods -- both owned by liquor baron Gurpreet Singh Chadha alias Ponty Chadda, who was in the news recently for raids on his properties earlier this month.

The Central Board of Direct Taxes (CBDT) seized cash, jewellery and fixed deposits worth Rs.11.61 crore during the raids.

"Both these companies submitted demand drafts for purchasing tender form documents (with) the same date and consecutive serial numbers. The stamp papers containing power of attorney submitted by these two companies contained the same address, which, in fact, is the mailing address of the Wave industries," the CAG said.

"Also, the bank guarantee submitted by both the companies was issued by the same bank, same branch, (with) same date and consecutive serial number of bank guarantee forms," it stressed.

"Even three directors were common in both companies," the CAG report said.

The report states that these two companies were the only bidders for three units - at Bijnore, Bulandshahar and Saharanpur.

And since there was a cartel between the two, the state government fetched much less than the expected price and suffered a loss of Rs.124.70 crore, the report said.

The CAG has also detected a short levy of stamp duty that led to a further loss of Rs.40.35 crore to the state coffers.

Apart from it, the CAG has observed that owing to non-compliance of financial rules, the Uttar Pradesh government was poorer by Rs.12.61 crore.

The CAG caught a number of discrepancies including arbitrary fixation of expected price, undervaluation of land and buildings of the sugar mills by advisors, and non-inclusion of performance guarantee clause in the sale deed or the agreement to sale to ensure that the units would only be run as sugar mills.

This resulted in a loss of Rs.539.92 crore to the UP Sugar Corporation, indicated the CAG report.

The valuers appointed for valuation properties also did not do their job properly, causing a further loss of Rs.120.38 crore, the report added.

The CAG has pointed out that though 10 of the units in question were operating ones, the plant and machinery were valued as scrap. This led to a further loss of Rs.83.51 crore.

A senior government official associated with the disinvestment process said if the plant and machinery at the mills' sites were properly valued, the government would have received much more than what it got as a whole by selling all the 11 mills.

The report also mentions that surplus land with the sugar mills were simply overlooked to benefit the purchasers.

A consultative monitoring committee constituted by the state government in its meeting held of Oct 15, 2007 decided to sell unviable units as real estate property and viable units as running sugar mills for maximizing the sale consideration.

A glaring example cited in the report is that the Saharanpur sugar mill that had two types of land - the new sugar mill on 33.9820 hectare and old sugar mill on 27.8511 hectare land.

No production activity was being carried out in old area after the mill was shifted to new area.

Though an advice by the former advisor (Ernst & Young) to sell the old area as real estate, it was sold as a single unit, leading to financial loss of Rs.224.28 crore to the exchequer.

The beneficiary was the Wave Industries, whose owner was recently in news after his premises were raided by the income tax department.