COMMITTEE OF PRIVILEGES

FIFTY-SEVENTH REPORT

(Presented on the 13 th December, 2011)

RAJYA SABHA SECRETARIAT NEW DELHI December,2011

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C O N T E N T S

PAGES

1. Personnel of the Committee (i) -(ii)

2. Report of the Committee 1- 25

*3. Minutes of the Meetings of the Committee

*4. Annexures

I. Letter dated 16 January, 2010 of Shri Rajiv Pratap Rudy, Member, . II Letter dated 18 February, 2010 of Shri Atul Kumar Rai CEO & MD IFCI Ltd. In the matter. III Comments of Shri Rajiv Pratap Rudy dated 9 March, 2010 on the Reply of Shri Atul Kumar Rai IV Communication dated 22.10.2010 from the Department of Financial Services. V Communicated dated 19.1.2011 from the Department of Financial Services. VI Office Memorandum dated 23 August, 2011 from the Department of Personnel & Training

*To be appended at the printing stage

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COMMITTEE OF PRIVILEGES

(w.e.f. 29.9.2010)

1. Shri K. Rahman Khan Chairman 2. Shri Rama Chandra Khuntia 3. Shri Rishang Keishing 4. Shri Birender Singh 5. Shri S.S. Ahluwalia 6. Shri 7. Shri Balbir Punj 8. Dr. Akhilesh Das Gupta 9. Shri Sitaram Yechury 10. Smt. Kanimozhi

SECRETARIAT

1. Dr. V.K. Agnihotri, Secretary-General 2. Shri N.C. Joshi, Secretary 3. Shri Mukul Pande, Director 4. Dr. Saket Kumar, Assistant Director

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COMMITTEE OF PRIVILEGES (w.e.f. 24.9.2009)

1. Shri K. Rahman Khan - Chairman 2. Dr. Abhishek Manu Singhvi 3. Shri S.S. Ahluwalia 4. Shri Ravi Shankar Prasad 5. Shri Balbir Punj 6. Shri Sitaram Yechury 7. Shri Jai Prakash 8. Vacant 9. Vacant 10. Vacant

SECRETARIAT

1. Dr. V.K. Agnihotri, Secretary-General 2. Shri N.C. Joshi, Secretary 3. Shri Mukul Pande, Director 4. Dr. Saket Kumar, Assistant Director

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RAJYA SABHA

FIFTY – SEVENTH REPORT OF THE COMMITTEE OF PRIVILEGES

I, the Chairman of the Committee of Privileges, present this Fifty-seventh Report of the Committee to the House. The report deals with the case of alleged breach of privilege arising out of the complaint of Shri Rajiv Pratap Rudy, Member, Rajya Sabha, against Shri Atul Kumar Rai CEO & MD, Industrial Finance Corporation of Ltd. (IFCI) for allegedly misbehaving with him when he had gone to meet Shri Rai in his office on 14 January, 2010, in connection with the rehabilitation of a sick Sugar Mill, namely, Marhowrah and Padrouna Sugar Works Ltd. 2. Shri Rajiv Pratap Rudy, Member, Rajya Sabha, in his letter dated 16 January, 2010 (Annexure - I) had mentioned that in his erstwhile Parliamentary Constituency in Chapra, , a sugar industry, namely, Marhowarah and Padrouna Sugar Works had gone sick and the Board for Industrial and Financial Reconstruction (BIFR) had, on 10 July, 2008, appointed IFCI as the Operating Agency to advertise, within 30 days, for rehabilitation of the said sick unit. He further mentioned that as he was pursuing the matter, he had gone to meet Shri Atul Kumar Rai, CEO & MD of IFCI in this connection on 14 January, 2010. He presented the case with papers and wanted to know the latest position in the matter. According to Shri Rudy, when he pointed out certain discrepancies in the statement of the CEO, IFCI and raised certain queries about the order of BIFR dated 10 July, 2008 in which the IFCI was under an obligation for seeking a bid for the sick sugar unit, Shri Rai showed him a note and read out the things which were not related to the issue. When Shri Rudy stated that the points which he had raised were incorrect and that the court orders were different and that his office was not producing the correct facts, Shri Rai allegedly reacted by saying that he would not listen to anything about his office. According to Shri Rudy, Shri Rai was loud and argumentative in his

5 conversation and made abusive gestures and also said that he would not tolerate such a person (Shri Rudy) in his room. When Shri Rudy asked him to exercise restraint, Shri Rai allegedly started screaming at the top of his voice and threatened to call the security and get Shri Rudy thrown out of his office. On the basis of the above mentioned allegation of misbehaviour by Shri Atul Kumar Rai, CEO & MD of IFCI, Shri Rajiv Pratap Rudy requested that the case may be examined by the Committee of Privileges, Rajya Sabha, to ascertain full facts and do justice in the matter. 3. Shri Atul Rai, to whom the complaint of Shri Rudy was forwarded, in his comments furnished vide letter dated 18 February, 2010 (Annexure - II) received through the Department of Financial Services in the Ministry of Finance, submitted, inter alia, that he had the highest regard for Shri Rajiv Pratap Rudy, Member, Rajya Sabha, both at personal level and as a Member of Parliament. He further stated that Shri Rudy had called him earlier to request him to initiate action for sale of a sugar unit in which IFCI was appointed as an Operating Agency by the BIFR. According to Shri Rai, when Shri Rudy came to his office, he was received with all courtesy, treated with dignity and respect due to him as a Member of Parliament, at all times. He further stated that he did not utter a single word which was in any sense disrespectful. According to him, he took all manner of insults quietly and humbly and said or did nothing in the course of the meeting to arouse even a suspicion of anything but the highest regard for Shri Rudy. Shri Rai further informed that, subsequently, Shri Rudy lodged a complaint in the local Police Station against him and he had also been interrogated by the police in this connection. He further mentioned that following the meeting with Shri Rudy, it was decided to approach BIFR with a request to appoint another agency as Operating Agency with reference to the case and relieve IFCI from the assignment, which, according to Shri Rai, was the outcome of the meeting and in accordance with the wishes of Shri Rudy. Shri Rai, in

6 the end, submitted that in spite of his best endeavours to show highest degree of respect and courtesy to the Hon'ble Member, if there was a sign of suffered injustice on his own part, which caused Shri Rudy the slightest irritation, he tenders his unconditional and unequivocal apologies for the same. He, accordingly, requested that the matter may be treated as closed. 4. Shri Rudy, to whom the comments of Shri Rai were forwarded, vide his letter dated 9 March, 2010 (Annexure - III) expressed dissatisfaction over the reply of Shri Atul Kumar Rai. He alleged that Shri Rai's response skirted the main issue and tendered a misleading apology. According to Shri Rudy, Shri Rai preferred to ignore the main charge and instead, in the garb of carefully drafted words, he had chosen to cast aspersions on him. Shri Rudy observed that, in his letter, Shri Rai had stated that he (Shri Rudy) had requested IFCI to initiate the sale of sugar unit, while the fact was that he had requested Shri Rai to implement the court orders of BIFR, which had been deliberately delayed. Shri Rudy further observed that, in his letter, Shri Rai had stated that he took all manners of insult quietly and humbly. Countering this statement, Shri Rudy contended that it was he who was aggrieved and who had complained at all levels, not Shri Rai. Shri Rudy further stated that Shri Rai, by tendering unconditional apology, had contradicted his own stand that nothing ever happened. In this backdrop, Shri Rudy made the following specific submissions:- (i) Shri Rai outrightly rejected the charges without giving an explanation; (ii) Shri Rai preferred to blame Shri Rudy instead of acknowledging his mistake; (iii) Shri Rai contradicted himself by offering an apology and stating that nothing had ever happened; (iv) Shri Rai further advantaged the incumbent by being instrumental in initiating another legal process by offering to be relieved as an Operating Agency and hence ensuring further delay in the implementation of Orders of BIFR and vindicating Shri Rudy's charge; and (v) The statement of Shri Rai was not only false and misleading but also mischievous once read carefully.

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5. Shri Rudy further stated that the purpose of his visit was in no way personal but was to represent the case of farmers whose legitimate requests were being deliberately delayed and more so because the undertaking in question was a Sugar Industry, which belonged to the Government of India, and his submission related to the grievance of sugarcane farmers and to the opening of a Sugar Mill, which was declared sick by BIFR. Shri Rudy pleaded that if such instances and misdemeanours were ignored and allowed to go scot- free, then the people, who have great faith in the august Parliamentary Institutions, would be completely shattered. He also submitted that any pardon without examination of facts, which impaired his parliamentary obligation, would adversely affect the morale and credibility of all those public representatives, who intended to discharge their parliamentary responsibilities with dignity and respect. Shri Rudy finally argued that since the response of Shri Atul Kumar Rai, CEO & MD, IFCI, was far from the truth, he would request to get the entire matter examined by the Privileges Committee. 6. The matter was placed before the Chairman, Rajya Sabha, along with the aforesaid facts, who, under rule 203 of the Rules of Procedure & Conduct of Business in the Council of States, referred it to the Committee of Privileges for examination, investigation and report. 7. The Committee of Privileges held 9 sittings to consider the instant matter. At its sitting held on 26 April, 2010, the Committee acquainted itself with the facts of the case and decided to examine Shri Atul Kumar Rai, CEO and MD of IFCI in the matter. At its sitting held on 14 May, 2010, Shri Atul Kumar Rai appeared before the Committee. Shri Rai categorically denied the allegation that he misbehaved with Shri Rajiv Pratap Rudy, Member, Rajya Sabha, when the member had gone to meet him in his office on 14 January, 2010 and stated that if his attitude had hurt the Member in any manner, he apologized for the same. Shri Rai, in the course of his examination, admitted the fact that

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BIFR had on 10 July, 2008, appointed IFCI as the Operating Agency in the matter of rehabilitation of a sick unit of the Marhowrah Sugar Works, but the scheme could not be advertised till October, 2008 by IFCI. Explaining the reason, Shri Rai submitted that to bring out an advertisement for the sale of a Unit, details about its assets and liabilities were needed, which were not made available by the concerned unit. On being asked about the shareholding pattern of the IFCI, he informed that 27 per cent of the share holding was from the Public Sector and LIC and rest of the shareholdings in IFCI belonged to the general public. Shri Rai also submitted that before joining IFCI, he was an officer of the Indian Economic Service and, while working as a Director in the Ministry of Finance, he was nominated to the Board of IFCI. He informed that after taking voluntary retirement from the Indian Economic Service, he was appointed CEO & MD by the Board of Directors of IFCI, which was ratified by the shareholders. Shri Rai further stated about the status of IFCI as follows -

“Sir, I only wanted to submit to you the formal position of this company. When you said that this is a Government company and you are a public servant, on that I wanted to say that I have taken retirement and I am no longer a public servant and that the IFCI is not a Government company under the Constitution of India or under Section 619 of the Companies Act, etc., and so on and so forth. This is not a Government company. This is what I wanted to submit.”

In view of this observation of Shri Rai, the Committee was constrained to go deeper into the matter, including the circumstances relating to the appointment of Shri Rai as the CEO & MD of the IFCi.

8. During the course of the examination of Shri Rai, the Committee noted that the tone and the tenor of his answers to the questions posed by the Committee were highly improper and, therefore, cautioned him to behave properly. Shri Rai realized his mistake and apologized for the same.

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9. In the light of the submissions made by Shri Atul Kumar Rai, the Committee directed him to furnish details in writing, in chronological order with documentary proof, if any, about the appointment of IFCI as Operating Agency by BIFR, correspondence with BIFR and further events in the matter of rehabilitation of concerned sick unit of Marhowrah Sugar Works. Shri Rai furnished these details, vide his communication dated 17 June, 2010. Further, in view of the technicality of the matter, after recording the statements of Shri Rai, which raised many questions of administrative and legal nature pertaining to the legal status of IFCI and appointment of Shri Rai as its CEO/MD, the Committee decided to examine the officials of the Department of Financial Services in the matter. 10. At its sitting held on 19 August, 2010, Shri R. Gopalan, the then Secretary and other officials of the Department of Financial Services appeared before the Committee. On the issue of legal status of IFCI, the Secretary submitted that the Ministry of Finance had consulted the Ministry of Corporate Affairs as well as the Ministry of Law and Justice. The Ministry of Corporate Affairs was of the opinion that as per Section 617 of the Companies Act, 1956, IFCI was not a Government Company, as the Government did not hold 51 per cent or more of the shares of IFCI. He further stated that the Ministry of Corporate Affairs was also of the view that IFCI was not a government company because section 619 of the Companies Act, which mandated the appointment of an Auditor by the Comptroller and Auditor General of India for a Government Company was not applicable in the case of IFCI. He also informed that the Ministry of Law had concurred in with the views of the Ministry of Corporate Affairs. 11. The Committee, inter alia , put the following questions before the Secretary: - (i) whether the Government had a substantial interest in the IFCI and whether the Government exercised any

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supervisory powers in the Company and if so, what was the nature of that power; (ii) if IFCI was not a Government Company, then in what capacity the two Directors are nominated by the Government in the Board of IFCI; (iii) whether all the procedural requirements with respect to acceptance of voluntary retirement of Shri Atul Kumar Rai and grating him permission to take up commercial employment in IFCI were fulfilled, and (iv) under article 12 of the Constitution, the Central Government, the State Government and a host of other bodies are covered. Whether various public bodies, having some kind of public mandate, can be brought under the ambit of article 12 for the purpose of invoking article 226 of the Constitution. Shri Gopalan submitted before the Committee that as most of these questions involved core legal and factual issues, he would not be able to reply to them during the meeting itself. The Committee then directed him to furnish the requisite information later. 12. Shri Gopalan, in reply to a question, informed the Committee that the paid-up capital of IFCI is 737.8 crore and, as on date, the amount released by the Government under financial assistance to IFCI, after it became a Company in 1993, was about 3332.31 crore, out of which Rs. 400 crore were convertible debentures, Rs. 523 crore were loan in the form of optionally convertible debentures and remaining was provided in the form of grant-in-aid. In addition, the Government had given guarantees through various bonds. The outstanding guarantee was Rs. 2338.8 crore and the Government guarantee for foreign currency loan was Rs. 523.82 crore. He further clarified that the said financial package was for three companies, namely, IDBI, IFCI and IIBI. Financial assistances to the tune of Rs. 2521.81 crore, Rs. 5220 crore and Rs. 143 crore were respectively given to IDBI, IFCI and

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IIBI. Once these institutions started making profit in 2007-08, further releases of financial assistance were stopped. He further informed that, in view of the commitment of the Government for the aforementioned amounts, the Cabinet, at that time, took the decision that it should monitor the performance of the IFCI so that the situation of future bailout did not arise again. 13. The Department of Financial Services later furnished comments, vide its communications dated 22 October, 2010 and 19 January, 2011, ( Annexures – IV & V ), on the specific questions put by the Committee during the meeting with the Secretary of that Department. It was informed that in respect of the question on the nature of the governmental control over IFCI, they had sought the opinion of the Ministry of Law, which in turn had decided to consult the Attorney General of India. The Department of Legal Affairs, in consultation with the Attorney General of India interpreted the Industrial Finance Corporation of India (Transfer of Undertaking and Repeal) Act, 1993. As per Section 11(1) of the 1993 Repeal Act, on the appointed day, the Industrial Finance Corporation Act, 1948 stood repealed. Sub-section (2) of the same section lays down that notwithstanding the repeal of the Industrial Finance Corporation Act, 1948, the company shall, so far as may be, comply with the provisions of Sections 33, 34, 34A, 35 and 43 of the Act so repealed for any of the purposes related to the annual accounts of the Corporation. It was opined that by virtue of Section 11 (2) of the 1993 Act, the provisions of the 1948 Act, that empowered the Central Government to exercise control over the Company's financial audit, continue to apply. According to the Department of Legal Affairs, this peculiarity distinguishes IFCI from other companies incorporated under the Companies Act, 1956 and underscores the substantial control and interest of the Central Government over the company. The Department of Legal Affairs further opined that because of Section 11 (2) of the 1993 Repeal Act, the Government has extensive financial investment in IFCI and, therefore, has wide powers

12 of control over IFCI Ltd. It nominates two Directors on IFCI's Board, who play a role in the management of IFCI. The deep and pervasive control of the Central Government over IFCI's operations is peculiar to IFCI because the powers of such control flow from the particular statute by which IFCI was created and are to be exercised in relation to IFCI only. The Department of Legal Affairs further advised that Government of India has a substantial interest in IFCI and that it is an instrumentality of State covered under article 12 of the Constitution. 14. With regard to past services of Shri Atul Kumar Rai, the Department of Financial Services informed that he worked as a Director in the Ministry of Finance, Department of Financial Services from 1.11.2002 to 31.5.2007. While serving in the Department, he dealt with matters concerning financial institutions, including IFCI, for the same period. He was also the government nominee Director on the Board of IFCI from 21.8.2005 to 31.5.2007. On 5 February, 2007, Shri Rai gave an application, under rule 48 A of CCS (Pension) Rules, 1972 seeking voluntary retirement from service w.e.f. 28.2.2007 citing personal and family grounds. His application was forwarded by the Banking Division to the Department of Economic Affairs, his Cadre Controlling Authority, for necessary action, on 7 February, 2007. The IES Cadre Division of the Department of Economic Affairs, being the competent authority in this regard, gave the approval for accepting the notice of voluntary retirement from service of Shri Rai w.e.f. 30 April, 2007 or the date from which he was relieved, whichever was earlier. Subsequently, on 1 June, 2007, the matter of relieving Shri Rai w.e.f. 31 May, 2007 was agreed to by the IES cadre Division and conveyed to the Banking Division. 15. It was further informed that Shri Rai sought post retirement employment from the Banking Division in a note dated 30 April, 2007, informing that the Board of IFCI at its meeting held on 7 March, 2007, passed a resolution to make an offer for the post of a Whole Time Director of the Institution to him and he sought permission to take up

13 the said employment after retirement. It was categorically stated that since his application dated 30 April, 2007 for taking up employment with IFCI was submitted while he was still in service, he did not fulfill the condition stipulated in the Department of Personnel and Training's O.M. dated 19 August, 1986, according to which if any officer submits his application seeking permission for post-retirement commercial employment, before his retirement, such application shall not be entertained and the applicant should be advised to apply afresh after his retirement. 16. The Department of Financial Services, in reply to another query, informed that there was no cooling off period specified in the rules for taking up a commercial employment by a retired government servant. However, if a Group A Officer wishes to take up commercial employment within one year of his retirement, he has to obtain previous sanction of the Government to such acceptance by submitting an application in Form 25, which, inter alia , contains a provision that the officer has not been privy to sensitive or strategic information in the last three years of service, which is directly related to areas of interest or work of the organization, which he proposes to join or the areas in which he proposes to practice or consult. It was further stated that Shri Rai did not give the said declaration as part of his application in Form 25 while applying for permission. 17. It was further informed that the then Joint Secretary in the Department of Financial Services dealing with administrative issues in the matter of permission for commercial employment to Shri Rai, inter alia , recorded on the concerned file that the rule applicable in the case was that if a Public Financial Institution appoints a retired Group 'A' officer as CMD, MD/Director in a Company where the management continues to be in private hands, then although the appointment is a commercial appointment, since it is to protect the interest of the Public Financial Institution, the approval of the Government for permitting the officer may be presumed [Under Rules 10 (6) (ii) of CCS (Pension)

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Rules, 1972]. Regarding the aspect of 'conflict of interest' between the policies of the office Shri Rai held, and the interests of IFCI, it was further opined by the then Joint Secretary that IFCI had been at a stand-still operationally for the last five years with the only Government involvement being package of financial assistance, which had been approved by the Union Cabinet. The proposal of granting permission to Shri Rai was approved by his Cadre Controlling Authority, i.e. Department of Economic Affairs, subject to his giving a mandatory declaration provided under DoPT notification dated 23.11.2006. Finally, the then Finance Minister approved the request of Shri Rai to join as Whole Time Director of IFCI on 30.5.2007. On 31 May, 2007, Shri Rai's retirement from service was notified by the Banking Division. On the very date of his retirement from Government service, i.e. on 31.5.2007, Shri Atul Kumar Rai filed a declaration. As per DoPT guidelines in O.M dated 5 December, 2006, Shri Rai did not give an undertaking in the form of an affidavit that clauses (b) to (f) of amended sub-rule 3 of Rule 10 of CCS (Pension) Rules, 1972 did not come in the way of considering his application. The Department of Financial Services further submitted that veracity of the said declaration of Shri Rai which, inter alia , included that he had not been privy to sensitive or strategic information in the last three years of service, which was directly related to the areas of interest of the work of the orgnaisation he proposed to join, was not examined and the matter of non-filing the required affidavit was also not brought out on file. The declaration as given on a plain piece of paper was accepted on face value by the concerned official. 18. The Committee at its sitting held on 28 October,2010 considered the comments furnished by the Department of Financial Services on the issues raised by the Committee pertaining to the legal status of IFCI and appointment of Shri Atul Kumar Rai as CEO and MD of IFCI. The Committee noted that the Industrial Finance Corporation of India (Transfer of Undertaking and Repeal) Act, 1993, under which the

15 erstwhile Industrial Finance Corporation of India, which was under the Government control, was converted into a company under the Companies Act, 1956, has certain provisions applicable to the new company, namely, the IFCI Ltd. The Committee raised apprehensions on whether the provisions of the Repeal Act of 1993 as applicable to the IFCI, particularly those pertaining to the financial audit of its annual accounts under sections 33, 34, 34-A, 35 and 43 of the repealed Industrial Finance Corporation Act, 1948, were being followed. The Committee also noted that there were stark procedural and administrative irregularities in the appointment of Shri Atul Kumar Rai as CEO and MD of IFCI. 19. The Committee, at its sitting held on January 25, 2011, again heard Shri Atul Kumar Rai, CEO & MD, IFCI and the Secretary, Department of Financial Services. The Committee asked Shri Atul Kumar Rai whether he still held the view that the Government had no substantive interest in IFCI and whether he was aware of the fact that, notwithstanding the repeal Act of 1993, the erstwhile Company shall comply with the provisions of Sections 33, 34, 34 A, 35 and 43 of the Industrial Finance Corporation Act, 1948 for any of the purposes relating to the annual accounts of the Corporation. Shri Rai replied that as per his understating, IFCI was not a Government Company and the Government had no ownership interest in it. He, however, admitted that since the issue involves complicated legal interpretations, he would not be able to give a definite answer to the question. He further stated that he was not aware of a continuing interest of the Government in IFCI from statutory point of view except that the concerned provisions of the Repeal Act empower the Government to call for information, look at the audit and so on. 20. On being asked whether he was a member of the Board of IFCI when the decision to fill up the post of Managing Director of IFCI and issue of an advertisement for the purpose was taken and whether he was a party to that decision as a Board member, Shri Rai replied that

16 he was not a party to the Board’s decision and he would have to check up from records whether he was a Member of the Board at that time. He further submitted that as a normal practice observed in such cases, the interested director does not participate in such meetings and he did not participate in the Board meeting when the decision regarding his appointment in IFCI was taken. 21. On being asked whether he formally applied for the post of CEO & MD of IFCI, Shri Rai replied that he did not apply for the job. The Committee then asked him if he did not apply for the job in IFCI, how his appointment was made by IFCI. Shri Rai replied that since his appointment was made by the Board of IFCI, the Board, at that time, would be in a better position to answer that question. The Committee then asked Shri Atul Kumar Rai, whether he, before joining the post of CEO & MD of IFCI, obtained prior sanction of the Government by submitting a declaration in Form 25, as required under Rule 10 of the CCS (Pension) Rules, 1972. Shri Rai replied that he, while taking up the job of CEO & MD of IFCI, complied with all the rules, regulations and formalities required and that he neither suppressed nor misrepresented any facts. 22. Shri R. Gopalan, Secretary, Department of Financial Services, informed the Committee that the Board of IFCI, at its meeting held on 28 November, 2006, had constituted a Sub-committee of Directors for selecting and recommending to the Board a suitable name for the post of CEO & MD, which had fallen vacant. The Sub-committee received five nominations. After reviewing the candidature of all five candidates, the Board unanimously decided to recommend the name of Shri Atul Kumar Rai for the post. He further informed the Committee that as per a DoPT Circular dated 19 August, 1986, if any officer submits his application for post-retirement commercial employment before his retirement, such application should not be entertained. 23. At its sitting held on 6 July, 2011 the Committee heard Shri Shashi Kant Sharma, the new Secretary, Department of Financial

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Services, in the matter. Shri Shashi Kant Sharma, clarified that as per normal procedure, Shri Atul Kumar Rai should have applied for taking up the job of CEO/MD of IFCI after his retirement but he applied for it before retirement, that too without Form 25, which is required under the relevant rules. On being asked by the Committee whether any infirmities were pointed out by any officer in the matter of commercial employment of Shri Rai post-retirement, the Secretary informed that the Director (Administration), had, inter alia , noticed several infirmities, including that the contents of the declaration given by Shri Rai were not examined on merit and he was given permission on 01 June, 2007 for commercial employment, subject to mandatory declaration whereas he had already submitted such a declaration on 31 May, 2007. 24. From the proceedings held so far before it, the Committee came to a conclusion that its earlier apprehensions about gross irregularities in the matter of voluntary retirement of Shri Rai, his employment in IFCI immediately thereafter and possibility of a collusive effort on the part of the decision making powers in the Ministry of Finance, during critical period in the Year 2007, were based on some material facts on record. The Committee, therefore, decided to hear the views of the Department of Personnel and Training and the Department of Financial Services over the corrective action, if any, they proposed to take on these particular issues related to the instant matter. 25. At its sitting held on 29 September, 2011 Shri D.K. Mittal, the present Secretary, Department of Financial Services, and officers of the Department of Personnel and Training appeared before the Committee. Shri Mittal informed the Committee that they have sought advice of the Department of Legal Affairs on the whole issue. He assured the Committee that after they receive the advice, action will be taken against the concerned officials in the Department as well as against Shri Atul Kumar Rai, in consultation with the Department of

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Personnel & Training. Ms. Mamta Kundra, Joint Secretary in the Department of Personnel & Training, informed the Committee about the possible actions that could be taken in the case of retired officers. She further stated that the Department of Financial Services should first conduct a fact finding inquiry into the matter and, thereafter, the Department of Personnel and Training will consider the possible action that could be taken against the errant officials. The Committee in this regard took note of the DoPT’s Office Memorandum dated 23 August, 2011 (Annexure VI) to the Department of Financial Services wherein the DoPT had, inter alia, pointed out following deficiencies which were not examined while seeking the approval of the then finance Minister or conveying the Government’s permission to Shri Rai for taking up commercial employment in IFCI: -

(i) Shri Rai applied for permission for post retirement commercial employment on 30.4.2007 i.e. while in Government Service. Under Rule 10 of the CCS (Pension) Rules, 1972, only a ‘pensioner’ can seek Government permission for taking up post-retirement commercial employment.

(ii) Shri Rai did not inform the Government of the offer of commercial employment he had received from IFCI immediately after resolution of IFCI Board to this effect in March, 2007. This was a misconduct. This point was not examined in the file while processing his application seeking permission for post-retirement commercial employment in IFCI.

(iii) A note was submitted by the then Joint Secretary, Department of Financial Services, that the permission could be presumed in terms of DP & AR OM dated 16 October, 1979 which was factually not correct. This was pointed out by the then Finance Minister but the subsequent note to Finance Minister did not discuss this point and sought Finance Minister’s approval without ensuring that mandatory documents have not been furnished by Shri Rai.

(iv) Approval in post-retirement commercial employment cases can be given only after all required documents are

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complete and it would not be subject to furnishing any documents after the approval is given. Even this condition was not fulfilled while granting permission to Shri Rai on 01.06.2007.

The Committee also noted the comments of the DoPT in the above OM to the effect that the action taken by the Department of Financial Services did not conform to the procedure for considering the request for post-retirement commercial employment.

OBSERVATIONS AND RECOMMENDATIONS 26. The Committee, at the outset, would like to make it clear as to why in the instant issue, which pertains to the question of breach of privilege arising out of the alleged misbehaviour by Shri Atul Kumar Rai with Shri Rajiv Pratap Rudy, Member, Rajya Sabha, it could not restrain itself from some sort of deviation from its main issue. As a matter of fact, due to certain disclosures which emerged during the examination of Shri Rai and the officers of the Department of Financial Services, the Committee felt that, apart from the issue of breach of privilege, there were certain other issues of a more serious nature underlying the whole matter. The Committee, therefore, endeavoured to go deep into those issues instead of keeping them aside. The Committee feels that while examining and investigating the issues of breach of privilege of Parliament and its Members, if certain issues which smack of undue favour to some individuals in blatant violation of rules by those at the helm of affairs in the Government crop up, it becomes the responsibility of the Committee, being the representative of the highest institution of democracy, to seriously consider such collateral issues too. It was for this reason that the Committee seriously considered the issues like voluntary retirement of Shri Atul Kumar Rai, his appointment in IFCI

20 immediately thereafter, huge financial assistance given to IFCI by the Government, control of the Government on IFCI, etc. 27. In so far as the core issue pertaining to the complaint against Shri Rai for his alleged misbehaviour and thereby, causing breach of privilege of the Member, Shri Rudy, is concerned, the Committee notes that initially, Shri Rai, through written reply, submitted, his ‘unconditional and unequivocal apologies’ for the incident. Though in the same letter, he has admitted that Shri Rudy had also filed an FIR against him in the local Police Station, following the incident. Further, in his written reply he stated that he took all manner of insults quietly and humbly. During his oral evidence before the Committee, he categorically denied that he misbehaved with Shri Rudy and also expressed apology if his attitude had hurt Shri Rudy in any manner. The Committee finds that there is contradiction in the statements of Shri Rai and, therefore, doubts their truthfulness. The Committee is of the view that had there been no incident of misbehaviour or if the tenor of proceedings when Shri Rudy was talking to Shri Rai had not turned acrimonious, Shri Rudy would not have gone to file an FIR with local Police and, thereafter, given a notice of breach of privilege to the Chairman, Rajya Sabha. In the given circumstances, the Committee would have accepted and appreciated a straight forward expression of regret and submission of an apology from Shri Rai, instead of giving various contradictory explanations, denying the very facts of the incident and then apologizing before the Committee. The Committee, therefore, does not accept his unconditional apologies which are, in fact, conditional apologies. 28. The Committee is, therefore, of the opinion that Shri Rai must have said or done things which had hurt the dignity of a Member of Parliament and his rude behaviour had prompted Shri Rudy to not only give a notice of breach of Privilege but also file an FIR with the local Police. The Committee affirms its belief that Shri Rai must have

21 misbehaved with Shri Rudy on the basis of the unbecoming behaviour that was observed by the Committee when he appeared before it. 29. When Shri Rai appeared before the Committee on 14 May, 2010, and the Committee put some preliminary questions to him, he replied to them in a conspicuously arrogant manner. He was argumentative and, in utter disregard of the august body, kept his tone and tenor at a high pitch, though later he apologized on being cautioned. The Committee expects that Shri Rai, who had been in responsible positions during his service in the Government, must be aware of the manner in which a Parliamentary Committee should be treated and, therefore, expresses its displeasure over the behaviour of Shri Rai while being examined by the Committee. 30. While being examined by the Committee, Shri Rai categorically stated that IFCI was not an instrumentality of the State and there was no substantial interest of the Government in IFCI. The Committee fails to understand that despite being at the helm of affairs in IFCI, Shri Rai was quite unaware of the fact that these questions were under consideration of the Delhi High Court and IFCI was a petitioner in one case and respondent in another case. The Committee notes that in the Delhi High Court Judgments delivered on 9 July, 2010 and 17 August, 2010 in WP (C) 7097/2008 and in WP (C) 4596/2007 respectively, the IFCI has been held to be a Public Finance Institution, a public authority under Section 4A of the Companies Act. IFCI has also been held to be under substantial control of the Central Government by the decision of 17 August, 2010 of the Delhi High Court. The Committee feels that Shri Rai could have given this factual information to the Committee and restrained himself from giving his own decision on the core issue. The Committee would have appreciated had Shri Rai simply abstained from answering the specific question in this regard and stated that the matter was under

22 consideration of a Court of law. Even on 25 January, 2011, long after the decisions of the Delhi High Court, when he appeared again before the Committee, he maintained his earlier stand on the legal status of IFCI. The Committee is not only surprised at the attitude of Shri Rai on this issue but also holds him guilty of misleading the Committee on account of his sheer arrogance and blatant denial of the facts. 31. Shri Rai, during his submission before the Committee on 25 January, 2011 while replying to a specific question, categorically denied that he formally applied for the post of CEO & MD of IFCI. The Committee notes the submission of Shri R. Gopalan, former Secretary, Department of Financial Services, given before it on the same day in this respect. Shri Gopalan informed the Committee that the Board of IFCI had constituted a Sub- Committee on 28 November, 2006 for selecting and recommending a suitable name for the post of CEO & MD. He further informed that the Sub-Committee had received five nominations and, after reviewing the candidature of all five candidates, decided to recommend unanimously the name of Shri Atul Kumar Rai for the post of CEO& MD; and the Board passed a resolution to this effect on 7 March, 2007. The Committee is surprised to find that all these events were happening while Shri Atul Kumar Rai was a Director nominee in the IFCI Board. The Sub-Committee of the Board received five nominations for the post of CEO & MD, which obviously included the name of Shri Rai. The Committee is not at all convinced with Shri Rai’s statement that he did not formally apply for the post. Though the details about the advertisement for the post, the manner in which Shri Rai applied/submitted his nomination for the post and the authority in his Department who forwarded his nomination to the Sub-Committee of Directors of IFCI, etc are still unknown, whatever facts that were available in this

23 regard, as per Committee’s expectations, should have been revealed to it by Shri Rai rather then by the Secretary, Department of Financial Services. Shri Rai, however, preferred to give evasive replies and intended to create an impression as if the post of CEO/MD of IFCI came to him out of the blue, when he submitted before the Committee that since his appointment was made by the Board of IFCI, the Board at that time would be in a better position to answer that question. The Committee is, therefore, constrained to observe that Shri Rai suppressed factual information pertaining to his appointment as CEO/MD of IFCI. 32. When the Committee asked Shri Rai whether he, before taking up employment in IFCI, obtained prior permission of the competent authority by submitting the mandatory declaration in Form 25 in accordance with Rule 10 of CCS (Pension) Rules, 1972, Shri Rai replied, in no uncertain terms, that he complied with all the rules, regulations and formalities required and that he neither suppressed nor misrepresented any fact in this regard. The Committee notes the comments of Department of Financial Services and also the oral evidence of the Secretary of the Department on this particular issue. The Committee observes that Shri Rai gave the said declaration on a plain piece of paper, without any accompanying undertaking in the form of an affidavit to the effect (as per the DoPT guidelines vide Office Memorandum dated 5 December, 2006) that factors mentioned in clauses (b) to (f) of the amended sub-rule (3) of Rule 10 of CCS (Pension) Rules did not come in the way of considering his application. The Committee is at a loss to accept Shri Rai’s assertion that he complied with all rules, regulation and formalities while submitting his application. The Committee is amazed to note that even as an officer at a senior level in the Ministry, Shri Rai was ignorant about the basic service rules. The Committee, therefore, has reasons to doubt whether there was an element

24 of deliberateness on the part of Shri Rai in not complying with the necessary formalities and, at the same time, holds the view that Shri Rai not only kept his Department in the dark but also misrepresented facts on this count before the Committee. 33. So far, the Committee has discussed two aspects of the behaviour of Shri Atul Kumar Rai. One aspect pertains to his misbehaviour with Shri Rajiv Pratap Rudy, Member, Rajya Sabha, which is the core issue and basis of this report. The other aspect pertains to his misbehaviour and misconduct before the Committee. In the first issue, the Committee concludes that Shri Rai misbehaved with Shri Rudy. However, from the stand point of Parliamentary privileges, the Committee would like to observe, as it has held in earlier such cases that, in interpreting privileges, regard must be given to the general principle that the privileges of Parliament are granted to Members in order that they may be able to perform their duties in Parliament without let or hindrance. They apply to individual Members only insofar as they are necessary in order that the House may freely perform its functions. In other words, privileges are necessary for the proper exercise of the functions entrusted to Parliament by the Constitution. As in the instant case, Shri Rudy had gone to meet Shri Rai in connection with the rehabilitation of a sick Sugar Mill, he cannot, therefore, be said to have been performing any parliamentary function. The Committee, therefore, while strongly disapproving the behaviour of Shri Rai with Shri Rudy, cannot invoke the privilege jurisdiction of the House and, accordingly, holds that there is no breach of privilege involved in this case. 34. So far as the aspect of behaviour of Shri Rai before the Committee is concerned, the Committee concludes that Shri Rai not only misbehaved with the Committee but also misled the Committee on certain issues by misrepresenting the facts. This amounts to his

25 misconduct before the Committee. These findings certainly hold Shri Rai of committing a breach of privilege and Contempt of the House and, therefore, tend to invoke the privilege jurisdiction of the House. However, as all these misbehaviour/misconduct of Shri Rai arose on the issues not exactly concerned with the core issue under examination and investigation of the Committee, the Committee would, while deploring the conduct of Shri Rai in unequivocal terms, like to consult its own dignity and leave it to the Government to take appropriate legal action on all the misdemeanours of Shri Rai while seeking voluntary retirement and taking up commercial employment in IFCI. 35. On the ancilliary issues that arose during the examination of the instant case, the Committee expresses its serious concern over the fact that despite a huge bailout financial package running into crores of rupees to IFCI, the Ministry of Finance does not have any control over the functioning of IFCI. The Committee further notes that the Repeal Act of 1993, which empowers the Government to conduct financial audit of the accounts of IFCI, establishes beyond any doubt that the Government has substantial interest in IFCI. From the evidence tendered before it by the officials of the Department of Financial Services, the Committee is constrained to observe that there is complete lack of interest in the Ministry to monitor the functioning of IFCI and to exercise its supervisory control over it to the extent mandated under the Repeal Act of 1993. 36. In so far as the question of voluntary retirement of and permission to take up commercial employment in IFCI by Shri Rai is concerned, the Committee is of the view that while dealing with both the issues, there were gross irregularities, by way of wrong interpretation of rules to give undue favour to Shri Rai and that his applications were not examined in the light of the relevant service rules. The Committee is surprised to learn that contrary to the official

26 guidelines, Shri Rai’s application for seeking permission to take up the job of CEO/MD of IFCI was entertained when he was still in service. The Committee notes that Shri Rai had given personal and family grounds to seek voluntary retirement. He sought permission to take a commercial employment when he was still not relieved/retired. In Committee’s opinion, at this stage, his request for seeking voluntary retirement on personal and family grounds should have been reviewed and the veracity of facts examined by the Senior officers in the Department, in the light of his subsequent request for taking up the job of CEO/MD of IFCI. The Committee is of the view that to seek voluntary retirement from service and to take up the lucrative offer of CEO/MD, IFCI was a calculated move of Shri Rai which got ample support from his superiors in the Department of Financial Services. 37. The Committee observes that while seeking permission to take up commercial employment in IFCI, Shri Rai did not submit the mandatory declaration in Form 25. He also did not submit an undertaking in the form of affidavit as required under the relevant rules. Despite these infirmities, he was permitted to take up the said employment and his voluntary retirement was also notified. The Committee has seen the personal file of Shri Rai which was produced before it by the Department of Financial Services. From a perusal of the relevant file notings, particularly by the then Joint Secretary and Secretary, Department of Financial Services, the Committee is constrained to believe that in a collusive effort, undue favour was given to Shri Rai by wrongly interpreting the Civil service rules and by ignoring the necessary formalities to be fulfilled by Shri Rai. 38. The Committee, from a perusal of the personal file of Shri Rai, and also from the evidence tendered before it by the Secretary, Department of Financial Services, is quite amazed to

27 see the swiftness with which the file moved among the ‘higher- ups’ in the Department. All the vital decisions, including the views of the Secretary of the other Department and approval of the then Finance Minister, were taken between 30 May and 1 June, 2007. This swiftness, in view of the Committee, underscores the weightage given by concerned officials to the matter of Shri Rai. This view of the committee is based on the fact that everybody in the Department of Financial Services, including the then Joint Secretary and the then Secretary, knew very well that Shri Rai was a serving officer of the Department when he applied for permission to take up commercial employment and that he was a nominee director in IFCI Board when the Board offered him the job of Whole Time Director. Further, his application was processed by wrongly interpreting the relevant rules, silence of the Director nominees in the Board meetings of IFCI despite knowing fully well that Shri Rai could not be offered the job of Whole Time Director, approval of his voluntary retirement, granting him permission to take up the said commercial employment within 24 hours despite the Finance Minister’s specific query, all these facts point towards a definite collusive effort on the part of the Joint Secretary and Secretary to accord undue favour to Shri Rai. The Committee, therefore, feels that a separate probe needs to be carried out to investigate the role played by these two senior officers in the Department in the whole matter. 39. At the end, the Committee notes that perhaps due to the continued pursuance by the Committee, even though belatedly, the Department of Financial Services is seized of the matter of gross irregularities and violation of rules in the voluntary retirement and subsequent commercial employment of Shri Atul Kumar Rai. Due to repeated questioning by the Committee, the Department has assured to conduct an inquiry in order to the fix the responsibility in the whole issue. The Committee feels that if the persons heading the public

28 financial institutions like IFCI happen to get their appointments by giving false declarations, misleading facts and suppressing vital information before taking up such employment, this will only give a helping hand to the increasing corruption in the country. It will not only reflect badly on the integrity of the person heading the organization but would also encourage those indulging in corruption in the organization. The Committee, therefore, recommends that its observations pertaining to the whole issue mentioned in the preceding paras be given serious consideration and properly examined for a CBI probe in the whole matter by the Government to find out the facts and fix responsibility at the higher level in the then hierarchy of officers in the Department of Financial Services pertaining to the irregularities mentioned in this report within a time frame. 40. The Committee, at its sitting held on December 7, 2011, adopted this report.

K. Rahman Khan, New Delhi Chairman , 7th December, 2011. Committee of Privileges

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