Tottering to Divestment

CMC’s tryst with divestment has entered its final stages, but the
government-owned IT behemoth is struggling to stay on its feet. The terrible
troika of bureaucratic sluggishness, a slowing IT market and an uncertain future
will bring down the final selloff price for the PSU considerably. At last count,
14 of the 20 bids received had qualified to run the race–among them IBM,
Digital, Reliance Industries, the Tatas, Birlasoft, Wipro, and surprise entrant
Dharampal Satyapal, more known for Baba Zarda than for any achievements in the
IT arena. The task cut out for the new management (which will be decided a week
after September 28, when the bids will be opened)–overhaul a system that has
seen the organization’s competitive edge getting blunted over the years.

Perhaps the words of chairman and managing director SS Ghosh sum up the
situation best–"We have great values and tech knowhow. But how do we
compete with a private sector that steals away our people once we train them, by
simply offering them double their salaries? Where do I get the money from to
match those offers and retain my people?" A poignant picture, especially
when one considers the fact that CMC is the only profit-making IT PSU that has
had no budgetary or government support since 1984.

Now, there’s more trouble from a new source–a cross section of members of
Parliament have trained their guns on the company management, citing
"mismanagement" and "financial irregularities" as the
primary reasons for the drop in CMC’s performance. The MPs have dashed off
letters, copies of which are in the possession of Dataquest, to the powers that
be, including Prime Minister AB Vajpayee, IT minister Pramod Mahajan, new IT
secretary Rajeev Ranjan Shah, CVC N Vittal and a host of other officials.

The charges themselves are serious. In the letters, the MPs have cited some
specific instances of what they alleged are "financial mismanagement and
misappropriation". The audit report for 1999-2000, for the second year in a
row, noted that the entire "purchase system lacks transparency" due to
the "non-existence of purchase manuals" and "non-conformance with
accounting standards". It was also noted that all purchases were made from
a single vendor. CMC makes annual purchases of hardware to the tune of Rs
150-200 crore.

In a letter to CVC Vittal, the Samajwadi Party Lok Sabha MP from Firozabad,
Ramji Lal Suman, has written: "The cumulative losses on account of high
commission in hardware purchases runs into more than Rs 30 crore annually. Also,
SS Ghosh and another director made foreign trips paid for by this single vendor.
This calls for an immediate probe." Also highlighted is alleged Fera/Fema
violation by the company. "There are also irregularities," Suman has
claimed, "in BRI USA, a subsidiary of CMC." He elaborates: "There
exists a nexus between the CMD (SS Ghosh), who is also chairman of BRI, and
other officials of BRI USA. At one point, BRI owed Rs 30 crore to CMC, of which
over Rs 20 crore was outstanding for more than six months, in violation of Fera/Fema
norms. A case should be registered, and a probe ordered including irregularities
in the purchase of office space in the US worth $4 million, which is being
pushed by CMC and BRI chairman (SS Ghosh)."

Copies of this letter, dated 21 October 2000, have been circulated to N
Vittal, CVC, and VS Mathur, vigilance commissioner in the Central Vigilance
Commission.

Talented company, flagging performance…

There is no disputing the fact that CMC is a tech-talented company, but it is equally evident that the company’s performance is not living up to that talent. This year’s DQ Top 20 listings saw CMC falling out of our Top 20 list for the first time, moving from #16 last year to #23 this time. The company’s inability to react to changing market requirements saw its growth rate slipping. As a PSU, CMC remained slow in taking decisions and continued to focus on the less profitable domestic market, despite having the capability to tap lucrative global market segments. However, the company did successfully tide over a host of problems–largescale employee exodus, intense competition, private players and its own government-controlled character. As part of the plan to tap alternate markets, CMC set up independent profit centers in Europe, West Asia, Africa and East Asia. The company’s customer support division continued to be the biggest revenue generator at Rs 298 crore. It also became a major player in the systems integration business, which contributed Rs 83 crore to revenues. CMC’s education and training business earned Rs 59 crore, while overall turnover was pegged at Rs 552 crore, compared to Rs 469 crore in the previous 1999-00 fiscal. Per employee productivity (total strength 2,862) went up from Rs 16.32 lakh to Rs 19.84 lakh, but it was the growth rate that hurt–declining sharply from 35% to 18%.

In subsequent letters to Vittal, dated 8 January 2001 and
demanding the immediate suspension of CMD Ghosh and Saroj Vinayak, the chief
vigilance officer at CMC, the member of Parliament writes: "This letter is
in continuation to my earlier letters–dated 31 August 2000, 7 September 2000,
25 November 2000, 2 December 2000, 21 December 2000 and 2 January 2001–addressed
to you for urgent action against Ghosh, against whom there is documentary
evidence (attached) of largescale financial misappropriation, criminal
conspiracy, diversion or funds, nepotism and causing colossal wrongful financial
loss to the exchequer and CMC. I have not received a single reply so far, nor
have I been kept informed of the status of the action taken. The charges have
been substantiated after the preliminary investigations concluded by the CVO of
the IT ministry vide his report dated 16 October 2000… The case has since been
referred to the Vigilance Commission for advice and urgent action by the IT
minister himself, but has been still pending for more than three months."

Rajkumari Ratna Singh, the MP from Pratapgarh, Uttar Pradesh,
trains her guns on Saroj Vinayak, the chief vigilance officer for CMC. In a
letter to Vittal dated 16 January 2001, she writes, "The charges against
Shri Ghosh, ranging from corruption, financial misappropriation, Fera/Fema
violations and gross mismanagement of CMC are very serious. The active
connivance and involvement of your CVO, Saroj Vinayak, for which documentary
evidence exists on record, are more heinous in nature and she should be replaced
immediately. Some of the above charges have been substantiated in the report of
Subir Hari Singh, CVO, MIT."

Ramji Lal Suman has also written to the ministry about the
CVO, Saroj Vinayak, and sought penalty proceedings against her. "There is
definite evidence of collusion and conspiracy between the CMD (Ghosh) and and
the CVO (Vinayak), and the latter has failed to establish preventive vigilance
mechanisms and transparent systems and processes at CMC, during her more than
two years of tenure there," he wrote. The MP further claimed that this
collusion had led to:

• Serious audit observations by the statutory auditors for
  the second year in succession;

• Non-implementation of job rotation for sensitive posts in
  India and the US;

• Irregular appointment of P Dasgupta as ED, CMC, and
  subsequently as an insider candidate for the post of director, CMC;

• Issuance of unauthorized letters appointing merchant
  bankers for a public issue for CMC for raising Rs 250 crore in the first
  phase, which was not approved by MIT;

• Irregular appointment of general manager of the London
  trading office, set up in lieu of BRI Europe, which was liquidated and
  resulted in a loss to the exchequer of over Rs 100 crore. This is now being
  investigated by the CBI after the filing of an FIR and the issuance of
  chargesheets; and

• Failure to keep track of quality and time schedules which
  led to termination of contract and invocation of bank guarantee by Eurokai
  of Hamburg, Germany, causing a loss of Rs 1.6 crore and cumulative losses of
  over Rs 8 crore to CMC; irregular purchases of hardware and peripherals.

CMD Ghosh bluntly denies all the allegations. His clear response–"This is the handiwork of some of
our disgruntled employees, who are scared that the divestment process will see a
new management come in and expose their shortcomings. They have chosen a
critical time to lash out at an organization that has put up with them despite
their non-performance. These handful of employees, using the platform of their
unrecognized union, have misled some MPs using fake documents, to try and sully
the management. We had wind of what these people were up to–I have initiated
action against them." As for the auditors’ remarks, he says these related
only to an accounting practice and that "CMC has since been given a clean
bill of health".

Among others who have raised one or the other issue of
contention at CMC and written either to IT minister Pramod Mahajan, Prime
Minister Atal Behari Vajpayee, or former premier IK Gujral are members of
Parliament Abdul Rashid Shaheen, Rajkumari Ratna Singh, Pandurang Fundkar,
Indrajit Gupta, Bangaru Laxman, Sheela Gautam, Bandaru Dattatreya, Communist
Party of India’s AB Bardhan, Kirit Somaiya and A Balachandran.

Bangaru Laxman (BJP) has written to Ravindra Gupta, then DoE
secretary, about CMC DGM (admin and purchase) SK Choudhary. "Chaudhary has
several cases of corruption against him, but he has been flouting the law
criminally and demeaning some employees on a caste basis. Apparently, SS Ghosh
(then director, CMC) is encouraging this corrupt officer," he writes in a
letter dated 15 May 1998, which he ends by seeking action in the matter.

Controversy From Word Go

SS Ghosh’s appointment as CMC chairman and managing director itself created a storm. When he was appointed as CMD in 1998, the Appointments Committee of the Cabinet (ACC), under the government, expressed strong objection against the “bending of established appointment norms” by the Public Enterprises Selection Board. The post of CMC chief fell vacant on the retirement of KKK Kutty on July 31, 1997.  The PESB recommended Kutty for an extension, a proposal rejected outright by the ACC. Following this, the PESB conducted interviews of five candidates for the post on November 12. They included RP Jhunjhunwala, interim chairman, SPS Mahendru, V-P (defence), SS Ghosh, director (technical) and S Srinivas Shetty, general manager. The fifth was RK Arora, senior director, DoE. Of these nominees, the PESB recommended Ghosh and Arora, ignoring the claims of Jhunjhunuwala, who had not only been on the CMC board for eight years, but also had an impeccable record since he joined the company in 1976. While recommending the names, the PESB failed to take into cognizance several procedural aspects, among them the fact that the confidential reports (CRs) of three of the four candidates were not in place. Apparently, this was not ascertained by PESB prior to conducting the interviews. When this was brought to the attention of DoE secretary Shyamal Ghosh, he shot off a letter to Jhunjhunuwala on November 20, in which he wrote–“While assessing the performance of the candidates, the members of the Board were painfully surprised to note that the CRs in respect to CMC candidates was not completed.” He requested Jhunjhunwala to review the matter and ensure that a proper system was evolved to write out the CRs. Of the four CMC candidates, only Ghosh’s CR dossier was complete, making him the only candidate eligible for selection. And of the two candidates proposed by PESB, Ghosh was the only one from CMC. The candidature of the other, Arora, was under a cloud as he did not fulfil CMC norms for the post–a minimum rank of joint secretary. Although Arora was approved for promotion as joint secretary in May 1995, someone within DoE challenged this before the Central Administrative Tribunal, killing the process. Furthermore, following PESB’s recommendation of the names of Ghosh and Arora, Jhunjhunuwala moved the Delhi HC in April 1998, challenging the same. He alleged that his claims to the post were ignored. The court then stayed the selection process till the next hearing, slated for August. A month later, the government filed a caveat for modification of this stay and to get the selection process going. The court allowed the process to continue, on the condition that the appointment be subject to the final hearing in August.

In a letter to the Prime Minister dated 4 October 2000, CPI
general secretary AB Bardhan writes, "I wish to draw to your attention to
some very serious irregularities at CMC. CMC is an important unit in the IT
sphere–it has five strategic business units and five functional divisions. It
had reached the pinnacle in the IT sphere. Today, it is at its nadir. The matter
needs looking into and remedial measures taken."

Bangaru Laxman, Bandaru Dattatreya (then minister of state
for urban affairs and employment, in a latter dated 12 May 1998), Sheela Gautam
(letter dated 29 May 1998), Indrajit Gupta (letter dated 19 April 1998), G
Venkat Swamy (letter dated 22 November 1997), Pandurang Fundkar (Lok Sabha MP,
letter dated 22 November 1997) and Kirit Somaiya (letter dated 23 December 1999)
have all written either to Prime Minister Vajpayee, IT minister Pramod Mahajan
or former premier IK Gujral, alleging "iregularities in the appointment of
SS Ghosh as CMD, CMC" (See Box, Controversy from Word Go).

Abdul Rasheed Shaheen, Lok Sabha MP, in a letter dated 13
November 2000, outlines a specific instance of "criminal negligence and
loss of reputation"–the termination of an order and invoking of
counter-guarantee by Eurokai GmbH of Germany. Eurogate, the parent company of
Eurokai, had contracted CMC to develop, deliver and implement a Container
Logistic System (CLS) project in March 1997, with some further product and price
amendments made in January 1999 and July-August 2000. The total cost to Eurokai
was Rs 1.6 crore. After a review of the project in August 2000, Eurogate
cancelled the order.

In a letter dated 7 September 2000, Eurogate wrote:
"Relating to the progress of the CLS project, Eurogate and Arthur Anderson
undertook a review on the basis of work results delivered by CMC. To our
disappointment, such review disclosed that the current status and quality are
far from being satisfactory. Adding that the product would need a high degree of
modification and that the project was highly unlikely to be completed in the
prescribed time-frame, Eurogate terminated the agreement and moved to encash
both bank guarantees given by CMC (#BG/42/97-98, State Bank of Bikaner and
Jaipur, for DM 468,750, roughly Rs 94 lakh; and 41/97-98, State Bank of Bikaner
and Jaipur, for DM 325,000, roughly Rs 66 lakh).

The CMC union, led by Kamini Bhandari, has been building up a
case for years. "This is a tragic instance of a great company going to rot.
Favoritism rules the corridors–some people are overworked, others are given no
work. While some get repeated promotions and trips abroad, others sit in the
same grade for years, with no annual increments or any benefits. Nobody will
want to pay top dollar for a company that is slowing down and showing slackening
growth," she adds.

Rajeev Narayan in New
Delhi With inputs from Asim Raina/CNS

CMD Ghosh Hits Back

CMC chairman and managing director SS
Ghosh has rubbished all charges levelled against him and his company,
saying a "vilification campaign is being held at this critical time
of disinvestment by some disgruntled company employees". DQ asked him
some pointed questions on all the allegations made by the MPs in their
letters. We present his responses:

On his own appointment: "In the first place, I never wanted
to come to Delhi from Kolkata, where I was posted. And then I was not even
applying for the CMD’s post, when PESB called for applications. It was
Ramesh (RP Jhunjhunuwala, former director of CMC and interim director
after KKK Kutty’s retirement) who came to me one evening and asked me
also to apply. His logic was that if he didn’t get the top job, it
should go to a CMC insider rather than anyone from outside. As luck would
have it, I got the job and I think I have done a good job. My focus has
primarily been on the bottomline, rather than the topline."

On the auditor’s remarks in CMC’s annual report: "The
auditors were not aware of the industry practice pertaining to the
representation of education revenue in the balance sheet. We showed the
revenue exactly as per then prevailing industry norms. CAG did not agree
with the remarks of the auditors and hence did not say anything regarding
the same."

On the slow growth of the company: "To grow at a rate at
which the industry grew last year, you need funds. But we haven’t
received any budgetary support from the government since 1984 and our
equity is just Rs 15 crore. With that kind of money, what can you do? You
can do only so much and no more."

On the retirement age: "According to a government circular,
employees of profit-making PSUs need not retire at 58. They can continue
to work till 60. That means I still have two-and-a-half years of service
left. In profit-making PSUs, it is the board that decides on
retirement."

On the alleged irregularity in procurement of stores: "It
is true that CBI conducted a raid, but that was quite some time back.
Anyway, they did not find any irregularities and consequently, the case
was closed."

On employee retention: "An the entry level, there is not
much of a problem. My major headache is how to retain people with four to
six years of experience, basically the group leaders. I just cannot match
the salaries offered by the private sector. My people just have to walk
out with their salary slips, and companies like Infosys and Wipro offer
them 2.5 times their salary here, on an average. As a result, I lose out
on high-value contracts where the client first wants to see the resumes of
group leaders before giving the contract."

On the appointment of Dasgupta: "He was taken back just
like many others who leave and come back. He joined in the same grade as
he had left–we did not offer him a higher grade. In addition, his
appointment as executive director was ratified by the board."

On the association office-bearers: "The total number of
members in this so-called association of our employees, which we have not
recognized, are less than 10. Nobody in CMC outside of Delhi has even
heard of this association. The association members are basically
non-performers who are trying to ensure that the organization is not
privatized, for they are scared that once that happens and a new
management comes in, they will be exposed. We have now initiated
disciplinary action against association members."