May 24, 2001

    In view of unfounded inferences drawn in respect of the suspension of two senior officers of Air India Ltd. it has become imperative to present the facts. The factual position in this regard is as follows: -

    A report was forwarded by Shri M. B. Sagar, the then Acting CVO, Air India Ltd on 18.10.2000 regarding misuse of official position by senior officers of AI including Shri M.P. Mascarenhas, MD by showing undue favours to Welcome Travels, ex-GSA (General Sales Agent), UK.

    In the report, the following irregularities were alleged:

1. The PLI slabs for 1997-98 were substantially altered enabling the GSA to earn three Rs. Three Crore as additional PLI compared to what the GSA would have received if the slabs were to remain unchanged. This revision was done in May, 1998 for the financial year 1997-98 when all revenue calculations from UK were well known and additional PLI payment would not have led to any increase in passenger revenue.
2. The PLI has been paid on gross revenue and not on net flown revenue as contained in the agreement finalised in July, 1997.
3. The GSA was paid PLI and overriding commission given on Air India sales effected from Air India's own offices and by Air India's own staff.

    The report of the acting CVO was examined in the Ministry in detail. The comments of MD, AI on the report of acting CVO were asked. The comments of MD, Air India were received in November 2000 on the allegations in the report of Acting CVO. Further, additional information was also furnished by MD, Air India on various points as requested by the Ministry in February, March and April 2001. Some relevant documents on the issue were also furnished by Shri V K Verma, Director Corporate Affairs, AI who was earlier Commercial Director, in January 2001. In the meantime, the report of CAG was also received in April 2001 wherein it has been stated that "the payment of PLI amounting to 10.79 million pounds (equivalent to Rs. 57.02 crores…) made to GSA during the period 1987-2000 outside the scope of agreement in addition to the agreed 3% over-riding commission and 9% normal commission was not justified." It has been further stated that "flawed interpretation of the payment of PLI from first pound rather than at the rate applicable for each slab further resulted in an excess payment of 2.031 million pound (equivalent to Rs.13.82 crores…) during last three years ending 1999-2000." In this context, MD AI was asked to supply the copy of all agreements with GSA UK to verify the provisions in the agreement vis-à-vis the deviations in the payment.

    Based on an analysis of all the papers made available to the Ministry and based on an analysis of evidence advanced by Officiating CVO, documents furnished by a Director of the Company and taking cognisance of the observations of the draft CAG report, it stands prima-facie established that AI extended undue favours to M/s Welcome Travels over a period of time. The analysis makes it amply clear that the management of Air India over a period of time has been showing unwarranted generosity towards M/s Welcome Travels, London to the detriment of the commercial interests of Air India. There is no denying the fact that a commercial organisation has to adopt dynamic and flexible modules of decision making in order to further their vital commercial interests. But, if these modules are adopted for showering selective favours on a particular party or parties in the guise of furtherance of commercial interests, it is organisation which ends up as a loser. Unfortunately, this is what seems to have happened in the instant case. It could be that on some occasions there was ample justification for payment of PLI, even though the same had been paid in clear deviation from the text of written Agreement of AI and M/s Welcome Travels. However, there is for instance, no tangible justification, whatsoever for additional outgo on account of increased PLI from AI during 1992-93 and 1997-98.

    Main findings of the inquiry are as under :

1. The argument put forward by MD, AI for change in PLI structure that there was 42% reduction in capacity allocation during 1997-98 vis-à-vis 1996-97 is incorrect. As per actual capacity allocation, the reduction is even less than 3.5%. There have been many errors in the chart furnished by AI.
2. This has resulted in unwarranted excess payment of PLI to the extent of Rs.2.79 crores to M/s Welcome Travels, GSA, UK.
3. The increase in maximum payable rate for PLI from 5% to 7% during 1997-98 done in July 1997 is also irregular as it has been for GSA UK only and not for other GSAs. It should have been done for everybody as a policy if the idea behind it was to motivate GSA for increased net revenue beyond what is expected taking into account the growth on the actual of the previous years.
4. Even the earlier increase in maximum payable rate for PLI from 3% to 5% in 1992-93 was irregular as the reasons like depression in UK economy, temporary flight disruptions cannot justify such change. Moreover the reasons put forward now by Shri Mascarenhas that it was due to political disturbances and agitation by flight engineers is also incorrect as these events took place in December 1992/January 1993 and February/April 1993 respectively which is much after August 1992 when Shri Mascarenhas, the then Commercial Director, had agreed to review PLI increase in his discussions with GSA UK during his visit to London.
5. It is a curious coincidence that Shri Mascarenhas, Shri Uberoi, Shri P K Sinha and Capt. Behari were at the crucial posts both in 1992-93 and 1997-98 for deciding PLI change for GSA UK. Shri Satya Rao, the then RD UK was prematurely transferred to Mumbai in December 1997 within one year and Shri P K Sinha was posted as RD UK in his place.
6. The system of PLI payment on first pound basis rather than on incremental basis as per the slab is prevalent for GSA UK. This results in increased outgo to GSA in form of higher rate for the entire productivity rather than only on incremental productivity only.
7. There is no justification for change in PLI structure on the ground of capacity reductions etc as PLI is basically for making extra effort by GSA. If there is reduced capacity, GSA would not have to put any extra efforts for that part of the capacity which is no longer available.
8. There is no provision for payment of PLI in the agreement with UK GSA. Therefore all such PLI payments in the past have been irregular and outside the scope of the agreement. There is no provision of change in PLI structure to compensate GSA for change in capacity.
9. The inclusion of sale by AI staff and AI office for payment of PLI and Over-riding Commission (ORC) to GSA is not correct and the reason given by MD, AI that it is in vogue for many years may not be acceptable as it is against the interest of AI as it results in more PLI and ORC payments to GSA. CAG has also found the justification given by AI that GSA met a portion of the expenses of AI offices as untenable since it benefited the GSA for purposes of calculation of the PLI on entire net sales, besides over-riding commission on these sales.
10. In the CAG report also, it has been observed that Air India extended undue favour to its GSA UK by admitting PLI claims outside the terms of the agreement that too by working it on the amount of net sales from the first pound rather than at the rates prescribed for each slab. According to CAG’s letter dated 26.8.1999 to AI, total excess payment to GSA on all sectors including India/UK during the period from November, 1986 to September, 1998 in violation of the Agreement was 77.25 lakh pounds. It is to be noted that prior to sending this report to the Ministry of Civil Aviation, the CAG sent its observations to AI for their views. However, the CAG has found ‘AI’s reply not tenable’ according to the letter of Shri M P Mascaenhas dated 24.10.2000 to the Ministry

    In view of the above, there is prima-facie reason to believe that there could be a conspiracy to unduly favour M/s Welcome Travels, GSA UK not only in 1997-98 but also in 1992-93 and even earlier on the accounts mentioned above. Therefore, the entire matter has been entrusted to Central Bureau of Investigation (CBI) for investigation. Since the presence of these officers viz. S/Shri M.P. Mascarenhas, MD, AI and P.K. Sinha RD, India in office would impede fair and impartial enquiry/investigation they have been placed under suspension.