In the aftermath of the controversial demonetisation move and the Narendra Modi government’s subsequent speed-printing of two high-value currency notes, the Finance Ministry’s vigilance department has begun investigations into an alleged case of corruption in the procurement of a German currency paper manufacturing machine.
Official documents and complaints in possession of The Quint reveal that the Voith security paper manufacturing machine, running at the Security Paper Mill, Hoshangabad (Madhya Pradesh) since June 2015 has been producing barely 100 Metric Tonnes (MT) of currency paper in one month while the German company had promised that it would manufacture 500-600 MT. The machine was inaugurated by Finance Minister Arun Jaitley.
The machine, which was purchased for Rs 350 crore, was found to be faulty when earlier this year a glitch caused the production of several thousand Rs 1,000 currency notes at the Nashik Currency Note Press without the security thread. Shockingly, the defective notes without the security threads, one of the most sensitive and key features on any note, were allowed to be legal tender.
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Voith’s Defective Machine
Subsequently, an internal investigation revealed that the “machine’s sensors were not working in perfect condition, as a result of which there was a critical security lapse which led to manufacturing of faulty security paper without security thread, which may have been printed at the Currency Note Press in Nashik and subsequently may also have come to the circulation of local market through RBI/retail banks.” The probe found that there was “imperfection in the working of the concerned sensors”.
A second source confirmed this and added that “even as there was 15-20 percent rejection (of feed) by the fully automatic Voith machine, there was a lot of pressure on the Hoshangabad mill officials to increase production.” To get over this problem, senior SPMCIL officials suggested that the “parameters be relaxed”.
Voith’s currency note manufacturing machine was rejected by the Finance Ministry in 2009 when it was found that it supplied the same machine to Pakistan. This step, taken after a report was submitted by the Home Ministry, was the result of an examination of the tender documents which specified that foreign suppliers need to give assurance that they do not supply the same models to countries such as Pakistan and North Korea.
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Full Payment Made
The documents reveal that even as the major fault was detected well after its installation, Security Printing and Minting Corporation of India Ltd (SPMCIL), which is under the Finance Ministry, went ahead and made the payment in full. It has also come to light that a “balance 20 percent amount” – Rs 70 crore – was released.
The commission due to Voith’s India agent, Vijay Raja, who runs the Mumbai-based Standard Trading Company which offers “consultancy services” to companies “seeking to market raw materials, finished products and machinery in the field of high-end security printing and coining”, was also paid.
When contacted for a response, SPMCIL Officiating Chairman and Managing Director Pravin Garg retorted, saying: “I won't respond.”
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Production Affected
SPMCIL sources familiar with the Voith deal revealed that not only was the machine found to have developed major defects, which has affected the production of indigenous currency manufacturing paper at the Hoshangabad mill, it was delivered much later than the agreed date.
For this, the then SPMCIL General Manager at Hoshangabad, Sudhir Sahu, slapped a Rs 38 crore penalty for liquidated damages (LD) on Voith. LD is an amount the parties to a contract designate for the injured party to collect as compensation in the event of a specific breach, including late performance.
However, even though full and final payment of Rs 350 crore was made to Voith, no effort was made by SPMCIL to seek replacement of the faulty machine while “satisfactory performance certificate” was hastily issued to it once TR Gowda took over as GM at Hoshangabad.
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Previous GM’s Stand
Sahu, who was served a show-cause notice by former SPMCIL Chairman and Managing Director MS Rana, is said to have provided detailed evidence of the “wrongdoing” to the corporation as well as the Finance Ministry. Interestingly, as GM in Hoshangabad, Sahu is said have held himself back from according the satisfactory performance certificate.
RBI sources asked why Voith was paid the full amount when production was “far below the desired target”. They revealed that the same machine was functioning well and producing 500 MT of security paper at the plant of Mysuru-based Bank Note Paper Mill India Ltd, a joint venture company between SPMCIL and Bharatiya Reserve Bank Note Mudran Pvt Ltd (BRBNML).
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