43. Loss due to transfer of production and rejection 

Ordnance Factory Board (OFB) placed development extracts for manufacture of 15,160 rounds of ammunition 'X' in 3 versions on Ammunition Factory, Kirkee (AFK) in April 1977 and August 1979. During 1986-87 to 1990-91 AFK manufactured 15,063 rounds of the ammunition of which 11,131 were issued to the Army, 3035 rounds were rejected and the remaining 897 were expended in proof. The development charges to be absorbed in future production amounted to Rs 1.32crores.

AFK also manufactured 35,591 rounds of this ammunition during 1988-89 to 1991-92 against regular extracts for manufacture of 50,790 rounds of which 25,455 were issued to the Army, 240 were spent in proof, 988 were broken down and adjusted against another work order and 8908 rounds valued at Rs 220.50 lakhs were rejected . Although AFK had manufactured 35,591 rounds of Ammunition 'X' against regular extract, the development expenditure of Rs 1.32 crores was not absorbed as required in the manual of Cost Accounting in Ordnance and Clothing Factories.

Due to high percentage of rejection, the production of two versions of ammunition 'X' were transferred to Ordnance Factory, Dehu Road (OFDR) in 1991-92 and consequent to an accident at AFK in April 1992, the production of the third version was also diverted to OFDR . However, due to difference in production process in OFDR, 12,959 empty shells including those retrieved from the rejected ammunition valued at Rs 2.16 crores were lying at AFK as of June 1994. In January 1993, Controllerate of Quality Assurance (Ammunition) , Kirkee agreed to use the stock of empty shells for production of another version of Ammunition 'X' which was being manufactured at Ordnance Factory , Chanda (OFCh). However, the same could not be utilised as the stock-holding of empty shells at OFCh was itself in excess.

Besides holding 12,959 empty shells valued at Rs 2.16 crores AFK was holding another component valued at Rs 6.68 lakhs procured from trade during March 1988 to July 1990 for manufacture of ammunition 'X'.

Ministry stated in January 1995 that of the 8908 rounds of rejected ammunition, 216 rounds were consumed in proof. However, loss statements valued at Rs 62.50 lakhs for all the 8908 rounds after recovery of main items valued at Rs 158.00 lakhs were prepared.

The case revealed the following :

(1) Due to transfer of production of ammunition 'X' from AFK to OFDR where the production process was different, empty shells and components valued at Rs2.22 crores were lying at AFK without any prospect of utilisation.

(2) The development charges valued at Rs1.32 crores were left unabsorbed due to diversion of production of ammunition 'X' to OFDR from AFK.

(3) Loss of Rs 62.50 lakhs on account of rejection of 8908 rounds of ammunition was awaiting regularisation as of January 1995.

OFB stated in December 1993 that the empty shells lying at AFK could be utilised for ammunition 'Y' the present requirement of which was less. OFB's expectation was not justified in view of the huge stock holding of empties for ammunition 'Y' at OFCh against the outstanding extracts. Ministry further stated that they were pursuing the matter with the Army to increase orders for ammunition 'Y' , so that the stocks of empty shells at AFK could be utilised and financial repercussion avoided. However, there was no change in the position as of January 1995.

  Foot Note : Development Charges

Before a component/Ammunition is under taken for bulk production it is essential to establish the production process . Accordingly a factor} undertakes manufacture of few quantities under the authority of 'Development Extract' issued by Ordnance Factory Board and the expenses incurred against the 'Development Extract' is classified as 'Development Charges'.


44. Uneconomical production of cast iron ingot moulds 

Metal and Steel Factory, Ishapore (MSF) procures cast iron ingot moulds (moulds) of specification 'A' from Ordnance Factory, Muradnagar (OFM) as well as from trade. These are used for production of shell bars Between June 1990 and February 1992, MSF received 63 moulds from OFM at a total cost of Rs 45.92 lakhs i.e. Rs 72,897 each (average ledger rate).

 MSF also received 72 moulds between May 1990 and February 1991 from firm 'X' against an order of November 1989 at Rs 26,408 each. MSF thus suffered a loss of Rs 29.28 lakhs towards the procurement of 63 moulds from OFM.

Ministry stated in July 1994 that to maintain continuity of production it was essential to have a second source of supply and also the available capacity of OFM could not be kept fully idle by off-loading to trade. Ministry also stated that it would not be prudent to depend on a new source for supplying of 100 per cent of the requirement.

Ministry's contention was not tenable in view of the fact that firm 'X' was a proven source whose past performance was satisfactory.

Thus the uneconomical production of 63 moulds at OFM resulted in an avoidable expenditure of Rs 29.28 lakhs.


 45. Short Closure of inter factory demands 

Ordnance Factory, Kanpur (OFC) manufactured and supplied forged steel shells (forgings) of an ammunition to sister factories for filling till November 1990 against Ordnance Factory Board's (OFB) central demands and corresponding Inter Factory Demands (IFDs) placed by sister factories between 1972-88.

In November 1990, OFB instructed OFC to stop production of forgings with immediate effect in view of reduced requirement of the ammunition by the Army. OFC in turn requested Metal Steel Factory, Ishapore (MSF) in November 1990 to stop further supplies of alloy steel bar (store) required for the empties at the quantity of 123 tonnes supplied till November 1990, against their IFDs of September and December 1989 for a total quantity of 555 tonnes of the store. MSF, however, did not accept the request for short closure of the IFDs placed by OFC at that stage, as the entire quantity of the store had already been processed and were under various stages of inspection.

In December 1990, OFC cancelled/shortclosed the IFDs at the quantity of 191.606 tonnes already supplied. MSF, however, despatched the total finished quantity of 383.131 tonnes of the store upto February 1992 as agreed to repercussion was assessed to be Rs 115.84 lakhs due to short closure/cancellation of IFDs. Further, for manufacture of the store, MSF received 2379 tonnes of steel blooms (steel) during 1983-84 to May 1991 from Field Gun Factory Kanpur ( FGK) against their IFD of August 1982.

Out of the said 2,379 tonnes of steel, MSF utilised 2,273 tonnes during 1983-84 to February 1992 for manufacture of the store. Of the remaining quantity of 106 tonnes of steel valued at Rs 16.47 lakhs , 32 tonnes were consumed till November 1994 by MSF for an alternate use and a quantity of 74 tonnes of steel valued at Rs 11.51 lakhs has been lying in the stock of MSF as of November 1994 for alternate utilisation in 1995-96.

As the production of the item had been discontinued, the possibility of utilisation of the stores lying in the factory is remote. Hence the financial repercussion representing the cost of stores worth Rs115.84 lakhs needs regularisation under the orders of the competent authority.

OFB stated in January 1994 that MSF was exploring the possibility of utilising the material to safeguard the interests of the state.

Ministry stated in December 1994 that efforts were still being made to utilise the store gainfully and its utilisation against some other orders could not be ruled out.

The fact, however, remained that there was no issue of the store after February 1992 and no change in the financial repercussion of Rs 115.84 lakhs as of December 1994.


46. Loss due to failure in productionisation of a rifle 

Based on Director of Ordnance Services, Army (DOS), indent of September 1982, Ordnance Factory Board (OFB) placed an extract in February 1983 on Rifle Factory, Ishapore (RFI) for production of 264 rifles designed by Armament Research and Development Establishment, Pune (ARDE) to be delivered to the Central Ordnance Depot, Jabalpur (COD) by March 1984. Even after lapse of over eight years, RFI could not establish production of the rifle till November 1991 as acute difficulties were being experienced by RFI in achieving proper functioning and inter-changeability of the magazine.

In November 1991, Director of Quality Assurance (Armaments), New Delhi (DQA-Armt) informed ARDE that the project of the rifle should be dropped as the item was not being introduced into service.

Accordingly, in February 1992 OFB ordered RFI to suspend manufacture of the rifle and to intimate the financial repercussion to the indentor/DOS and ARDE.

RFI had incurred an expenditure of Rs20.44 lakhs by way of manufacture of semis for the rifle, and raw materials valued at Rs1.81 lakhs were lying in stock. RFI stated in September 1994 that the semis were out of manufacture specifically as per design of the rifle and thh could not be utilised elsewhere.

Ministry stated in December 1994 that there were some discrepancies in the design aspect of magazine experienced by RFI in course of manufacture. While the magazine was made ready for practical trial after carrying out required modification the project was dropped.

The case revealed that a rifle designed by ARDE failed during productionisation at RFI and this resulted in a loss of Rs 22.25 lakhs.


 47. Blocking of capital due to short-closure of orders 

Mention was made in Paragraph 32 of the Report of the Comptroller and Auditor General of India, Union Government Defence Services (Army and Ordnance Factories) for the year ended 31 March 1993, about adverse financial implications to the tune of Rs 218.68 lakhs for 400 tonnes of semi-finished steel billets (billets) becoming surplus to requirement at Metal and Steel Factory, Ishapore (MSF) due to short-closure of two Inter Factory Demands (IFD) placed by Ordnance Factory, Ambajhari (OFAj).

A further examination of the case revealed that MSF received 517.40 tonnes of steel ingot (ingot) between April 1989 and March 1991 from Field Gun Factory, Kanpur (FGK) against their IFD of December 1988 for manufacture of billets. Of the 517.40 tonnes of ingot, MSF utilised 95.20 tonnes during November 1989 to March 1990 in production of billets leaving a balance of 432.20 tonnes of ingot valued at Rs 50.33 lakhs inclusive of opening balance of 10 tonnes as on April 1989. While assessing the adverse financial repercussion, MSF had taken into account only the value of 400 tonnes of semi-finished billets for Rs 218.68 lakhs but the value of 432.20 tonnes of ingot was not considered.

Ministry stated in December 1994 that consequent upon phasing out/discontinuation of 105 mm IFG ammunition, 432.20 tonnes of ingot procured from FGK was lying in stock of MSF. Ministry further stated that for gainful utilisation of the stock the item had been circulated and attempts had been made through trade enquiry but no encouraging response having been received. The item had been referred to Director General of Ordnance Stores (DGOS) for disposal action in January 1993 . Follow up action taken by DGOS was not on record.

Thus the stores are lying in stock as of December 1994 resulting in blocking of capital to the tune of Rs 50.33 lakhs.



48. Abnormal level of rejection of an ammunition 

Ammunition 'X' is a regular item of production in Ordnance Factory Khamaria (OFK) since 1979-80. During 1983-84 to 1987-88, against three manufacturing warrants OFK manufactured 3,34,500 rounds of ammunition including 34,500 rounds (11.5 %) provided for proof and unavoidable rejection, out of which 1,33,480 rounds were rejected by the Senior Quality Assurance Establishment Armament, Khamaria (SQAE-A) due to failure of the ammunition in proof. Of this 98,980 rounds valued at Rs 94.41 lakhs were beyond the level provided for in the standard estimates.

Although the rejection of 1,33,480 rounds ammunition 'X' occurred during 1983-84 to 1987-88, the preliminary investigation for identifying the causes o1 rejection was completed only in July/November 1988 and November 1990 as ammunition exhibiting behavior beyond acceptable limits at first proof was not taken as final rejection and inspection authority was approached for reproof. The preliminary investigation carried out by the Technical Board, however, could not pinpoint any reason for the failure of the ammunition. A Board of Enquiry (BE) constituted under the orders of the General Manager in July/September 1992 opined in July 1994 that rejections against the three warrants were mainly on account of circumferential rupture, case split, gas escape, cracked cap and blown cap . The BE suggested the following remedial measures :

1) Use of a composition in place of existing mixture in consultation with the Authority Holding Sealed Particulars as a regular measure.

2) Metallurgical aspect of brush cups are to be carried out to keep an adequate check/ input material.

 3) Production technology should be paced at par with the just -in- time production technology to minimise the rejection.

4) Lead-time for starting of the production till proving should be kept as minimum as possible.

5) Modern quality control techniques should be practiced for effective improvement in the quality.

The value of rejections against the three warrants worked out by the BE was to the tune of Rs 94.41 lakhs .

Ministry stated in January 1995 that investigation trials were being carried out simultaneously and did not wait for the formal BE and as a result of their trials cap composition was changed. Ministry also stated that loss statement would be prepared only after closure of Cost Card and declaration of final rejection Kept Out of Production (KOP) in the Annual Accounts.

The case thus revealed that the loss of Rs 94.41 lakhs due to abnormally high level of rejection was fully investigated by a BE after 10 years from the first occurrence of such anomalies in production 


49. Rejection of brass cups 

Ordnance Factory, Khamaria (OFK) placed an Inter Factory Demand (IFD) in January 1988 on Ordnance Factory, Katni (OF Kat) for procurement of 20,000 Kgs. of brass cups of a particular specification required for an ammunition.

Against the above IFD, OF Kat manufactured 17,000 Kgs. of brass cups and supplied 10,000 Kgs. in September 1988 and 7000 Kgs. in October 1988 to OFK duly passed in inspection,

The entire 17,000 kgs. of brass cups were rejected by OFK in January 1989 due to various defects.

In August 1991 OFK returned the entire quantity of 17,000 Kgs. of brass curs to OF Kat.

In February 1993 OF Kat stated that the segregation of the brass cups was in progress and methodology was being worked out to carry out the rectification of these rejected brass cups.

Ministry stated in December 1994 that the cups were converted to OFK specification and sent back to OFK in December 1993/January 1994 and gainfully utilised after conversion. The cost of conversion as intimated by Ordnance Factory Board in January 1995 was Rs 14.81 lakhs.

Thus defective manufacture of 17,000 Kgs. brass cups resulted in a loss of Rs 14.81 lakhs on account of cost of conversion.


 50. Abnormal rejection during proof 

Ordnance Factory Board (OFB) placed an extract on Ordnance Factory, Dehu Road (OFDR) in October 1988 for manufacture and supply of 25,000 rounds of an ammunition to Central Ammunition Depot, Pulgaon (CAD) by 1990-91. OFDR manufactured and despatched 25,000 rounds of the ammunition during 1988-91 to CAD duly passed in stage inspection by Controllerate of Quality Assurance (Military Explosives) (CQAME), Dehu Road and subsequently cleared by Gun Development Team (GDT), Jabalpur based on proof performance of the same.

Although no rejection percentage was provided in the estimates for proof, 4965 rounds of the ammunition valued at Rs 122.26 lakhs were rejected by the GTD working at Gun Carriage Factory, Jabalpur (GCF) during 1988-91. The rejected ammunition were knocked down by OFDR before 31 March 1993 in order to afford credit of the serviceable components to the current warrants for the ammunition.

The net loss on account of these rejected ammunition after deducting the value of serviceable components as worked out by Accounts Office was Rs 79.49 lakhs. Two loss statements were prepared by OFDR in October 1993 to regularise the loss of Rs 79.49 lakhs . The loss was not regularised/sanctioned as of December 1994.

The case revealed that there was a loss of Rs 79.49 lakhs due to rejection of 4,965 rounds ammunition by GDT at GCF which were earlier passed by the inspectors of CQAME, Dehu Road.

Ministry stated in December 1994 that QAE(ME), Dehu Road was responsible only for the stage inspection during process and the responsibility of sentencing the lot on the basis of dynamic proof rested with the GTD at GCF being the Authority Holding Sealed Particulars for the ammunition.

Ministry's contention could not obviate the Audit conclusion that quality assurance procedures were deficient.


 51. Excess consumption of materials 

The Standard Estimate (SE) provides inter alia, the quantum and description of materials required to manufacture the ordered quantity of a product, and also covers a percentage for unavoidable rejection. However, in exceptional circumstances, to cover some sundry jobs of a non-recurring nature, material over and above that provided in the SE can also be drawn through Non-Recurring Rate Forms for Materials (NRM).

It was noticed in audit that between January 1991 and December 1992, Ordnance Factory, Varangaon (OFV) had drawn components valued at Rs 36.06 lakhs in excess of that provided in the SE through NRMs for packing of an ammunition. The drawals were necessitated due to defective charger clips, leakage in Box H2A, defective carriers, rusty/broken links, etc.

OFV stated in March 1994 that the NRMs were issued to cover up the excess consumption of the material as the components were defective. They added that materials required in production were received from sister factories or trade in bulk and their inspection was carried out on sampling basis, and the possibility of some quantity of defective materials getting accepted in the process could not be ruled out. They further mentioned that the materials were sophisticated and delicate items which could be damaged during transportation. The damaged materials were kept aside and fresh material was taken for production to keep continuity in production activities and accumulated rejections were regulated through NRMs. The contention of the factory is not tenable as none of these items could be classified as either delicate or sophisticated as they were essentially packing items for packing ammunition. Further, damaged stores could have been identified during receipt inspection and claims raised within the warranty period which was not done. Further, minor rejections were covered by the unavoidable rejection percentage provided in the standard estimates.

Ministry stated in September 1994 that the stores were such that some of the defects did occur during the transit i.e. loading/unloading of the store from one place to another place. These defects were pointed out when the store was taken for use. In such cases these defects led to increase in the percentage of defective components in the particular lot which went beyond unavoidable rejection catered for in the warrant and SE and the same were required to be regularised through NRMs.

The case revealed that the expenditure of Rs 36.06 lakhs towards excess consumption of materials was not adequately justified and the claims against the supplier for defective material was not raised within the warranty period.


52. Manufacture of defective blanks  

Ordnance Factory, Varangaon (OFV) placed an Inter Factory Demand (IFD) in July 1985 on Metal and Steel Factory, Ishapore (MSF) for supply of 60,000 steel blanks (blanks), later increased to 3,00,000 blanks in April 1990. Between February 1988 and September 1992, MSF supplied only 1,00,641 blanks to OFV, of which 51,217 were accepted. The remaining 49,424 blanks valued at Rs 14.87 lakhs were rejected due to high weight, variation in dimension and composition and profile of blanks not complying with specifications.

When OFV proposed in March/April 1992 to back-load the rejected blanks , MSF requested OFV not to back-load the rejected blanks on the ground that the hardness and weight, which were guiding factors for undertaking the production at their end were not incorporated in the drawings given by OFV, and no specific drawings were supplied initially to them and they manufactured the blanks as per the standard practice followed for other calibres of cartridges.  To an Audit query on the progress of utilisation of the rejected blanks OFV stated in March 1994 that they were holding 49,424 rejected blanks valued at Rs 14.87 lakhs and also stated that the case was under correspondence with MSF and Ordnance Factory Board to get their guidelines for disposal of the defective blanks.

Ministry stated in December 1994 that the blanks were being indigenised for the first time against the data supplied by a Foreign Government and the problems faced were therefore one normally to be anticipated in development phase.

Ministry's contention was not tenable in view of the fact that the IFD placed by OFV in July 1985 was not a development order and was increased from 60,000 to 3,00,000 blanks. Ministry admitted that the defective blanks could not be used for manufacture of cartridge cases and were required to be disposed of.

The case revealed that proper specification and dimensional details were not incorporated by OFV in the drawings supplied to MSF resulting in manufacture of defective blanks valued at Rs 14.87 lakhs.


 53. Abnormal rejections not investigated 

Fuze 'A' required for ammunition 'X' is an established item of production at Ordnance Factory, Chanda (OFCh) since 1970.

During production of the fuze at OFCh in 1991-92 against a warrant of January 1991, there was an abnormal rejection of 8,576 filled fuzes valued at Rs 19.86 lakhs.

Again in 1992-93 against another warrant of March 1991, there was another occurrence of abnormal rejection of 9,433 filled fuzes valued at Rs 22.08 lakhs.

Although a directive was issued by the concerned Member of the Ordnance Factory Board (OFB) in January 1987 to OFCh and others that any abnormal rejection observed should invariably be investigated through a Board of Enquiry (BE), it was noticed by Audit that no BE was set up to look into these cases of abnormal rejection since the cause of rejection was investigated at shop floor level by suitable technical members from the factory and inspectorate as per the normal procedure in the factory.

The factory stated in April 1993 that filled lots of the fuzes were rejected in dynamic proof and rejection of filled fuzes during dynamic proof could not be ruled out. However, all the 18,009 rejected fuzes were rectified by the factory during November 1992 to March 1993 at a cost of Rs 16.43 lakhs and utilised.

Ministry stated in December 1994 that the rectification charges were not considered as loss since design could not ensure 100 percent Acceptance Quality Level for empty and filled proof. Ministry further stated that 18,009 rejected fuzes formed part of a total of 1,20,650 fuzes amounted to 15 percent which was an acceptable rejection percentage. This was not acceptable in Audit in view of the fact that the rejection of 18,009 fuzes against the two warrants was beyond the permissible limit of 8 percent provided in the Standard Estimate, which would include the contingencies enumerated by OFB.

The case reveals that abnormal levels of rejection recurred in the factory due to non-investigation of the causes of initial rejection by a BE. The rejected fuzes could be utilised only after rectification at a cost of Rs 16.43 lakhs which constituted excess expenditure


54. Loss in manufacture of a component  

The component Fuze Mine Combination (FMC) is used in conjunction with Mine APM (Anti-personnel Mine). Ammunition Factory, Kirkee (AFK) manufactures FMC as per specification 'A' which provides that the FMC should exhibit a Delay Time within stipulated limits. The manufacture of the delay composition used in the FMC is earned out as per specification 'B'. During 1992-93 and 1993-94 (upto December 1993) AFK rejected 45,309 FMCs, of which 30,118 were accepted after rework at a cost of Rs 24.40 lakhs, 15,000 FMCs valued at Rs18.32 lakhs after retrieval of empties were finally rejected and remaining 191 were under rework. 

The rejections occurred as these production lots exhibited a Delay Time beyond the limits as stipulated in specification.

 To an Audit query as to why the delay composition was not tested for Delay Timings as stipulated in specification 'A' before using it for bulk filling in FMCs, AFK stated in March 1994 that the specification 'A' did not provide for such a test. AFK was carrying out certain adjustments to the delay composition during its production to achieve the Delay Timings. However, although at laboratory scale, improved performance was observed , the same could not be achieved in bulk production.

Ministry stated in January 1995 that Delay Time was governed by number of variables. The effect of process parameters and other variables could be checked only with the end stores after filling. This was therefore a normal production and rejection.

The case revealed that the specification governing the manufacture of delay composition did not provide for testing its performance as regards 'Delay Timings' before it was used for bulk filling leading to a loss of Rs 42.72 lakhs which required regularisation.


55. Suppression of loss in production 

According to the instructions issued by OFB in September 1990, the extra allowance required on account of unavoidable rejection should be calculated with reference to the quantity ordered .

Filling and assembly of an ammunition was a regular item of production at Ordnance Factory, Chanda. Normal rejection (NR) percentage allowed in the estimate in respect of primer of the ammunition was three per cent.

During audit it was seen that in respect of a warrant of September 1990 against ordered quantity of 50,000 primers, 57,500 primers was drawn for processing against 51,500 required to be drawn. Similarly, against another warrant of January 1991, against ordered quantity of 20,000, 23,200 primers were drawn for processing against 20,600 admissible. Thus, there was an excess drawal of 8,600 primers valued at Rs 16.31 lakhs against the two warrants of September 1990 and January 1991.

The excess drawal of 8,600 primers valued at Rs 16.31 lakhs against the two warrants was however sought to be regularised by issue of two Non Recurring Rate Forms Materials (NRMs) in March 1991.

Ministry stated in January 1995 that against the said two warrants there had been certain unusual feature which was of non-recurring type and this non-recurring type of event was decided to be treated as non-recurring and for which NRMs were provided.

Ministry's contention is not correct since Ministry of Defence letter dated September 1990 clarified that excess drawal of materials in a warrant could not be adjusted against less drawal of another warrant.

Thus excess consumption of primer would require regularisation as loss in production.


Provisioning of Stores and Machinery  


 56. Imported stores lying rejected 

A contract was entered between Government of India and a foreign Government in July 1982 covering the transfer to the Government of India, the licence, technical documents, etc., for manufacture of two varieties of a weapon in India at a cost of Rs 45.59 crores.

The supplier was to guarantee the customer, the quality of the material, within the guarantee period not exceeding twelve months from the date of its arrival at a port in India. Furthermore if the material turned out to be defective within the guarantee period , the supplier would rectify or replace the defective part free of cost only if it was returned within 120 days.

Against this contract, 1380 1C tubes (tubes) of various dimensions were received during October 1988 to January 1990 by Opto Electronic Factory Dehradun (OLF), out of which 470 tubes valued at Rs 142.88 lakhs were rejected.

Due to the non-availability of testing equipments, the tubes could only be subjected to functional trials after assembly of equipment one to three years after receipt, and hence, the rejected tubes could not be returned within the time stipulated for free replacement/rectification . It would thus appear that delayed testing due to lack of equipment has led to a loss of Rs 142.88 lakhs. Rectification of tubes at OLF is not possible since the manufacture of tubes pertain to entirely different technology not established at OLF.

Ordnance Factory Board stated in August 1994 that the matter was being taken up with the foreign Government for replacement.

The case was referred to the Ministry in April 1994; their reply is  awaited as of December 1994.


 57. Delay in procurement leading to loss of productivity  

Ordnance Factory, Varangaon (OFV) recommended in February 1982 separate AC plants for two of the four buildings and sent their recommendations to Ordnance Factory Board (OFB) in March 1982 because the centralised unit installed in 1966-67 at OFV for filling of ammunitions was found inadequate in 1977-78. OFB directed OFV in August 1984 for initiating procurement action.

Accordingly, a tender enquiry (TE) floated in October 1984 to seven firms for supply, erection and commissioning of three AC plants for the two buildings and one as standby unit. Four firms quoted in November 1984 as under :-

          (i)     Firm 'A' Rs 20.53 lakhs

(ii)    Firm 'B' Rs 15.75 lakhs

(iii)    Firm 'C' Rs 17.21 lakhs

(iv)    Firm 'D' Rs 27.95 lakhs

            The offers were valid upto the end of January 1985.

The offers of firm 'A' and 'C' were found to be acceptable to the factory and the case was referred to OFB in January 1985 for consideration. OFB took decision after seven months i.e. in July 1985 for considering the case by the Tender Purchase Committee (TPC) at OFV and forwarding the recommendation of the TPC to OFB. OFV floated the second TE in October 1985 against which only two quotations were received. Hence a third TE was floated in March 1986 and opened in May 1986 against which three firms quoted as under:

Firm 'A'        Rs 39.77 lakhs

Firm'B'         Rs 31.21 lakhs

Firm 'C'        Rs 39.23 lakhs

The offer of firm 'B' was recommended by OFV for acceptance and the case referred to OFB in July 1986 for obtaining sanction.

The TPC in its meeting held at OFB in July 1986 decided to accept the offer of firm 'B' being the cheapest and technically acceptable and authorised OFV to conclude the contract. Accordingly a contract was concluded in May 1987 with firm 'B' for supply, erection and commissioning of only one AC plant at OFV at a total cost of Rs 31.21 lakhs. The site was handed over to the firm in May 1987 and as per contract the plant was to be commissioned by January 1988.

According to the terms of payment of the contract, 80 per cent of the contract price against receipt of material at site in good condition was to be paid. The firm had supplied only 14 items against 25 items of contract, out of which 12 items were accepted. The remaining 11 items of the AC plant were still to be received by the factory till October 1994 although payment of Rs15.75 lakhs was made to the firm by December 1991. The AC plant was not commissioned in the proposed buildings as of January-1995. Ministry stated in January 1995 that due to non-airconditioning the utility of the buildings for production was affected to the extent of 25 to 30 per cent during rainy and summer seasons.

Ministry also stated that OFV could send the proposal to them duly indicating acceptance of only two offers in January 1985.The case, however, could not be approved by them immediately due to the fact that the proposal had to be cleared by the Finance. Also, provision of requisite fund and certain technical clarifications were sought from OFV. Ministry further stated that all these had led to delay in placement of order which could be considered as procedural and beyond control.

The reasons cited by Ministry for the delay in decision-making and placement of order were not acceptable in Audit because OFB was conversant with all procedural formalities in procurement of such plants.

Thus the delayed placement of order for the AC plant resulted in an avoidable increase in expenditure of Rs 14 lakhs and the payment of Rs 15.75 lakhs made to firm 'B' proved unproductive for want of remaining 13 items of the AC plant.


Inter Factory Demand 

58.  Uneconomical manufacture of a packing box 

Ordnance Factory, Kanpur ( OFC) had been procuring wooden packing boxes ( boxes) conforming to a particular specification since 1987-88 for packing an ammunition. During 1990-92, OFC procured 30,000 boxes from two trade firms against three orders placed on them at rates ranging between Rs 67 and Rs 68.36 each plus taxes. During 1991-92 , OFC also manufactured 4587 boxes at Rs 461.72 each to meet the deficit of their requirement.

Thus due to incorrect assessment of the requirement of packing boxes, the OFC incurred an avoidable expenditure of Rs 17.92 lakhs being the difference in cost of boxes produced in the factory as compared to those procured from trade.

Ministry stated in October 1994 that the supplies of the boxes from trade firm were not forthcoming and OFC decided to take up manufacture of packing boxes to avoid delay in despatch of the ammunition to filling factory. Ministry's statement is not acceptable in view of the facts that trade firms supplied 30,000 boxes during 1990-92 and 4,015 boxes are still held in stock since March 1993.


59.  Rejection of stores procured from sister factory due to long storage 

Gun and Shell Factory, Cossipore (GSF) placed two Inter Factory Demands (IFD) on Rifle Factory, Ishapore (RFI) in September 1980 for manufacture and immediate supply of 30,000 safety caps and 1,000 bodies of a fuze. For manufacture of safety caps and bodies of the fuze, RFI in turn placed two IFDs on Metal and Steel Factory, Ishapore (MSP) in October 1980 for 31,500 die castings 'A' and 42,000 die castings 'B'.

RFI received 31,500 die castings 'A' between April 1982 and August 1985 and 42,500 die castings 'B' between December 1981 and January 1985 from MSF.

Due to uneven supply of die castings by MSF and since certain tooling equipments required for manufacture of the safety caps could not be made ready, supply could not be started by RFI.

Since no supply of safety caps was made even after lapse of three years, GSF in August 1984 proposed to RFI that their IFDs be cancelled as they wanted to manufacture the die castings at their end.

Further in October 1984 GSF cancelled their IFD for bodies and intimated that die castings 'B' procured from MSF would be acceptable to them.

RFI issued 31,500 die castings 'A' valued at Rs1.62 lakhs in April 1986 and 42,000 die castings 'B' valued at Rs 6.36 lakhs in July 1986 to GSF leaving the remaining 500 die castings 'B' valued at Rs 0.07 lakhs in their stock.

In June 1987 GSF rejected the entire quantity of 31,500 die castings 'A' and 42,000 die castings 'B' and back-loaded the same to RFI. In February 1992 RFI again sent back the above stores to GSF since GSF did not raise any discrepancy report on RFI.

The rejected die castings 'A' and die castings 'B' valued at Rs 7.98 lakhs were lying at GSF as of April 1994 without any prospect of utilisation. In addition, 500 die castings 'B' valued at Rs 0.07 lakhs were also lying at RFI.

Ministry stated in January 1995 that the die castings were found to have white rust due to long storage and GSF was making efforts to salvage the same. Ministry further stated that due to change in design there was no requirement of the fuze in GSF for which the die castings were required.

Thus, failure to manufacture safety caps and bodies of the fuze by RFI led to non-utilisation of die castings valued at Rs8.05 lakhs for more than eight years and the prospect of utilisation was also remote as these were rejected by GSF.

60.  Uneconomic procurement of vehicle component from a sister factory 

Vehicle Factory, Jabalpur (VFJ) placed an Inter Factory Demand (IFD) on Gun Carriage Factory, Jabalpur (GCF) in January 1991 for the supply of 500 driver's cabin assembly (cabin) for Shaktiman vehicle. GCF manufactured and supplied 518 cabins to VFJ during 1992-93 at a cost of Rs 43,576 each. During the same period VFJ also procured 1,845 cabins at the rate of Rs 23,032 each from a trade firm.

The manufacture of 518 cabins by GCF was uneconomical to the extent of Rs 106.42 lakhs in comparison to the trade cost.

Similarly, VFJ placed two IFDs in November 1990 and February 1991 on GCF for the supply of 1,000 steel floor assembly (floor assembly) for Shaktiman vehicle. GCF manufactured and supplied 842 floor assemblies to VFJ during 1992-93 . The cost of production of each floor assembly was Rs 24,707. VFJ also procured 1,438 floor assemblies without Military fitments valued at Rs 1104 per floor from another trade firm during 1992-93 at the rate of Rs 12,500 each.

The manufacture of 842 floor assemblies by GCF was, therefore, uneconomical to the tune of Rs 93.49 lakhs compared to trade cost.

In order to utilise factories capacities optimally, Ordnance Factory Board (OFB) issued a circular in August 1992 stating that order should be placed on the sister factories if the additional cash expenditure viz. cost of material, 50 per cent of labour cost and 30 per cent of variable over head , was equal to or less than the trade cost.

The Ministry in their Action Taken Note on Paragraph 38 of the Report of the Comptroller and Auditor General of India (Army and Ordnance Factories) for the year ended March 31, 1990 (Report NO. 8 of 1991), stated in September 1993 that in cases where components and materials ex-trade were cheaper than the IFD costs, the factory should go for procurement from trade, to reduce the unit cost of final product to make it more competitive.

Ministry stated in December 1994 that it took time to make a policy effective and the OFB's policy of August 1992 was being followed scrupulously. Ministry further stated that with the clear guidelines available, it was hoped that Ordnance Factories would reduce cases where production was resorted to even with cheaper products available with trade.

Ministry's contention was not acceptable because it was contradictory to their statement of September 1993 in their Action Taken Note on Paragraph 38 of Report No.8 of 1993 and also Ministry's decision was given after the issue of OFB's circular in August 1992.

Thus the fact remained that the procurement of the above two items by VFJ from GCF instead of procuring them from trade firms were contrary to the policy laid down by Government and had resulted in an extra expenditure of Rs 199.91 lakhs.



61.  Defective equipment lying without any use 

OFB placed an indent on Director General Supplies and disposals (DGSD) in January 1986 for the procurement of two dosing equipments (equipment), one each for automatic filling of ammunitions 'X' and 'Y' at Ordnance Factory, Khamaria (OFK). Later on in July 1986 OFB recommended DGSD for procurement of only one equipment for ammunition 'X'. Accordingly, DGSD placed an order on firm "A" in December 1986 for import of one set of equipment manufactured by firm 'B' from its foreign Principal in West Germany for automatic filling of ammunition 'X' at a cost of Rs 16.75 lakhs including foreign exchange (FE) expenditure of Rs 15.93 lakhs. The equipment was to be delivered to OFK by firm "A' by February 1988 amended to June 1988.

The equipment was received in OFK in November 1990 after the inspection carried out by DGSD at maker's premises in March 1990 The equipment was rejected in November 1992 even after carrying out certain modification due to the failure on the part of the manufacturer to commission it to the entire satisfaction ofOFK.

Further , based on another indent of June 1987 of OFB for the procurement of one remote controlled filling equipment required by OFK for ammunition 'Y', DGSD concluded a contract with firm 'A' in August 1988 for importation of the same of make of firm 'B' from the same foreign Principal in West Germany at a total cost of Rs 53.11 lakhs including FE of Rs 46.72 lakhs. The equipment was to be delivered in twelve months from the date of opening of letter of credit and. receipt of sample components.

The equipment was received in OFK in July 1990 after carrying out inspection by the DGSD inspector at the manufacturer's premises in Germany with some powder convenient to the supplier and not with inert materials supplied by OFK . The manufacturer could not commission the equipment in January 1991 because the inert powder of OFK was according to them too fine and sticky. This equipment was also rejected in August 1991 from the safety and operational point of view.

OFB stated in August 1993 that both sets of equipment deviated from the technical offer furnished by firm 'A' resulting in their malfunctioning. OFB also stated in February 1994 that in the absence of the equipments the requirements were being met by hand filling. Ministry confirmed the facts and figures in January 1995.

The case revealed that due to improper inspection of the equipments carried out by the DGSD inspectors at makers' premises technically defective equipments were accepted and the sets of equipment procured at a cost of Rs 69.86 lakhs have been lying at OFK without any use. The filling of ammunitions 'X' and 'Y' were still being done by hand instead of automatic filling.


62.  Unproductive investment on commissioning of a machine. 

Ordnance Factory Project, Medak (factory) placed a demand in October 1989 on Armoured Vehicle Headquarters' Avadi (AVHQ) for a Computerised Numerically Controlled (CNC) Double Column Vertical Turning and Boring machine (machine) required for production of turret for a heavy vehicle.The AVHQ after obtaining the sanction in June 1990 from Ordnance Factory Board (OFB) placed an order on a foreign firm in June 1990 for the machine at a total cost of Rs 321.87 lakhs including cost of spares and accessories. The date of delivery of the machine was 13 months from the date of opening of the letter of credit, which was opened in August 1990.

The consignment of the machine arrived at Madras in November 1991. Out of the seven packages that arrived five were received in damaged condition. The damaged packages were received in the factory in December 1991 and it was noticed that the tool changing system was damaged and four varieties of spares valued at Rs 0.37 lakh were missing.

The engineers of the firm arrived in March 1992 and completed the erection of the machine in July 1992. The engineers left the factory in July 1992 and promised to depute another team for final commissioning. In spite of repeated reminders and final notice served in December 1993 the firm did not turn up. Factory stated in November 1993 that the firm was under lockout.

Consequently the factory decided in July 1993 to commission the machine through an Indian firm which was stated to have the requisite expertise and knowledge of similar machines. The case was finalised by OFB in March 1994 and a contract for commissioning of the machine at a total cost of Rs 22 lakhs was concluded with the firm in April 1994. As per contract the commissioning was to be completed by June 1994 but actually completed only in September 1994.

According to the Bankers, the total amount debited to the subject procurement was Rs 293.35 lakhs. In addition, an amount of Rs 13.17 lakhs was paid towards customs duty for spare parts imported.

Ministry also stated in November 1994 that the foreign firm was under lock out since January 1993 and the machine was commissioned by an Indian firm in September 1994.

Thus the investment of Rs 306.52 lakhs remained unproductive for more than two years .


 63.    Abnormal delay in commissioning of furnaces 

Based on an indent placed by Ordnance Factory Board(OFB) in December 1986, Director General Supplies and Disposals (DGSD) concluded a contract with a firm in April 1988 for supply, erection and commissioning of three furnaces for Ordnance Factory, Varangaon (OFV) at a cost of Rs 107.50 lakhs plus taxes. These furnaces were required for annealing the inter stage components of an ammunition.

According to the contract amended in March 1989, the furnaces were to be supplied by March 1989 or earlier and erection would be done within three months by mutual delineation. Commissioning of the furnaces was to be completed immediately after erection. Five types of components were required for trials and as per amendment of March 1989 OFV supplied two types of components and the firm was to manufacture the remaining three types for conducting the trials.

After initial inspections of the furnaces at firm's premises in March 1989, the furnaces were received in OFV in April 1989. The erection was completed in February 1991.

Though the firm had been trying to commission the furnaces since February 1991, it was unable to commission them even after continuous trials and modifications. The main reasons for delay in commissioning of the furnaces were stated to be non-achievement of the rated output, inability of the furnaces to anneal the components uniformly, breakage of ceramic fixtures frequently, etc.

Non-commissioning of these furnaces had resulted in complete hold-up in processing the components. Further processing of components in presses procured in June 1990/May 1991 from another firm at a cost of Rs 334.27 lakhs was also affected since the operation was sequence based. In April 1989, 90 per cent payment valued at Rs 116.87 lakhs was made to the firm on proof of despatch. Meanwhile Ordnance Factory, Khamaria (OFK), had cancelled their Inter Factory Demands (IFDs) on OFV for the ammunition except the IFD for development due to cancellation of order for the ammunition.

In their reply of December 1994 Ministry accepted the facts mentioned in the paragraph and stated that in the special review committee meeting held in August 1994, it was decided to extend the delivery period of the furnaces upto 31 March 1995 by giving a performance notice and the firm would extend their bank guarantee upto 30 April 1995.

The case thus revealed that the furnaces received in OFV in April 1989 could not be commissioned even after a lapse of five years although a sum of Rs116.87 lakhs was paid to the firm in April 1989. Further, non-commissioning of the furnaces, presses procured at a cost of Rs334.27 lakhs could not be fully utilised and the production of an item of ammunition was adversely affected.



 64.  Rejection due to Inadequate Inspection 

Ordnance Factory Board (OFB) placed a Central Demand in November 1987 on Ordnance Factory Itarsi (OFI) for supply of 1,20,000 numbers of propellant charges (charges) for an ammunition to Ordnance Factory Khamaria (OFK) without any delivery schedule. OFI issued 27000 charges during May 1988 to November 1988. Before despatch, the charges were cleared in physical and chemical parameters by Quality Assurance Establishment, Military Explosives (QAE) and were also cleared in Gun proof by Central Proof Establishment, Itarsi (CPE). Out of 27000 charges received by OFK, 25875 charges valued at Rs 275.25 lakhs were backloaded in February 1991 to OFI due to difficulty faced at the time of loading of these charges. OFB stated in October 1993 that the factory had been advised to look into the possibility of utilisation of the charges after due rectification in consultation with Authority Holding Sealed Particulars .

OFB further stated that the inspection was carried out as per the laid down parameters and the charges met the requirement in all respects. The end requirement of the user was known only when the specific problem was brought to the notice of OFI and after investigations the gauge used for checking the diameter of the charge used in the filling factory was adopted in specification of propellant.

A Board of Enquiry constituted by OFB in September 1990, recommended the use of these rejected charges in other ammunition. Ministry stated in December 1994 that of the 25,875 charges 24,231 were rectified at a cost of Rs 0.58 lakh , 99 charges valued at Rs 0.65 lakh issued for check proof and the remaining 1641 charges valued at Rs 17.46 lakhs although despatched by OFK to OFI were not received at OFI and discrepancy voucher had been raised in this regard.

The freight charges involved for despatching of 25,875 charges from OFI to OFK and back to OFI was to the tune of Rs 0.38 lakh.

The case revealed that charges inspected and cleared by QAE of OFI and also cleared in proof by CPE Itarsi before despatch, were rejected by OFK during filling. Thus due to the failure of the inspection authorities at Itarsi to detect the defects in the charges, OFK returned 25,875 charges to OFI for rectification and in this process there was a loss of Rs 19.07 lakhs to the Government which required regularisation.

OFB stated in September 1994 that there was no clause for checking the diameter of the final charges presumably because the size of the bags were fixed the necessity of checking the loadability with a gauge, issued by OFK was not felt till this specific problem was reported.

The point however remained that due to shortcomings in the method of inspection of the charges there was a loss of Rs 19.07 lakhs in the transaction.

Foot Note:

Authority Holding Sealed Particulars :

"Sealed Particulars" means - Specifications and diagrams if any, of the material/item to be manufactured/procured . The sealed particulars are always held by the Director General, Quality Assurance/Wings functioning under DGQA. Hence the Authority which is holding safe custody and ensuring the quality of production as  per specified sealed particulars is called Authority Holding Sealed Particulars of AHSP. DGQA is the AHSP for all Army Stores.


65.  Loss due to inadequate inspection facility 

Gun and Shell Factory, Cossipore (GSF) sustained a loss of Rs 20,13 lakhs as abnormal rejection in the production of a shell during 1989-91 As per the preliminary investigation report carried out by GSF at shop level the rejection was due to pit mark in the cavity of the shell forgings (forgings) received from Ordnance Factory, Kanpur (OFC), which was detected at the time of final inspection.

A one-man Board of Enquiry (BE) stated in his report of February 1992 that the rejection was due to inherent material defect as received from OFC and suggested that in the receipt and inspection stages of the forgings their bore dimensions and condition of finish should be checked thoroughly even though they were passed by OFC.

OFB stated in November 1993 that the pit marks could not be detected before machining at GSF and could be detected while processing after sand blasting. OFB also stated that the loss of Rs 20.13 lakhs was written off by the General Manager.GSF in November 1992.

Ministry stated in December 1994 that the forgings were issued after due inspection as per standard and the shell bodies were rejected due to pit marks inside the cavity and GSF had no devices to detect the inherent pit marks in the finished cavity forgings.

In the absence of a suitable device both in OFC and GSF defective forgings were passed in inspection at OFC and issued to GSF. This resulted in a loss of Rs 20.13 lakhs towards abnormal rejection in further processing-of the forgings.


Other cases 

66.  Loss of store due to fire 

At Ordnance Factory Bhandara a fire accident occurred in the Ammonium Nitrate godown in October 1990. A Board of Enquiry (BE) set up by the Ordnance Factory Board (OFB) observed that bags of Sulphur had been placed in close proximity to bags containing Ammonium Nitrate, some of which had partially opened out causing spillage. The BE noted that it was against the principles of "Chemistry of Hazardous Materials" to store these two chemicals in proximity. The BE surmised that the two chemicals may have reacted spontaneously leading to generation of heat as a result of which Sulphur caught fire.

The BE also observed that doors within the godown which should have been securely closed to separate two chemicals had in fact remained non-functional for a long time.

The BE concluded that personnel of the Stores Section had not exercised proper control of storage conditions. The fire resulted in a loss of Rs 11.33 lakhs being the value of 175 tonnes of Ammonium Nitrate.

Ministry stated in January 1995 that factory initiated a disciplinary action against the responsible staff and loss statement was being processed to regularise the loss in question.


67.  Unintended benefit given to a foreign firm 

In June-July 1986 Gun and Shell Factory, Cossipore ( GSF) placed two supply orders (SOs) on a foreign firm 'A' for supply of 94 types of forgings and 55 types of finished components required for production of a gun at a total cost of Rs 104.34 lakhs to be delivered within 4 to 12 months from the date of firm order and advance payment.

As per terms of the SOs, GSF paid an advance of Rs 33.11 lakhs to firm 'A' in October 1989 against bank guarantee, the validity of which expired after December 1990.

The firm supplied only 38 items valued at Rs 8.29 lakhs upto January 1991, and the remaining amount of Rs 24.82 lakhs was lying with the firm. However , no action was taken to revalidate the bank guarantee. Due to imposition of an embargo by the Government of India in December 1989, further supplies against the SOs were stopped.

Meanwhile in January 1991 firm 'A' was merged with another foreign firm 'B' on an equal share basis to form a new firm 'C' which came to the knowledge of Ordnance Factory Board (OFB) in November 1991. However, in February 1992, a foreign Government took over all the shares of firm 'C' and all the top management and Board of Directors ( Board ) were changed. In March 1992 the new Board took a decision that the name would be changed from firm 'C' to firm 'A'.

In October 1992, OFB concluded that further suplies from the firm were unlikely due to imposition of an embargo by the Government of India. The amount of advance lying outstanding at Rs 24.82 lakhs has yet to be recovered. This has been jeopardised due to the bank quarantee having been allowed to lapse.

Ministry stated in September 1994 that the bank guarantee lapsed because the validity of letter of credit could not be extended in the name of firm 'A' due to its marger with the firm 'B' to form a new firm 'C' . Ministry further stated that OFB was not authorised to make any correspondence with the firm 'A' as the embargo was still in operation.

The case revealed that if advane payment was made in July/August 1986 after placement of firm orders, the firm could have supplied the items in full by December 1989, when the embargo was imposed.

OFB stated October 1994 that considerable time was expended to satisfy Associated Finance and the decision in favour of advance payment could be taken only in September 1989.

OFB's contention was not tenable in view of the facts that the reasons given by them for the delay in making advance payment were of routine nature.


68.   Huge deficiency of empty grenades in stock 

In February 1992 a case of excess drawal for proof of 15,879 hand grenades valued at Rs 17.19 lakhs by manufacturing section at Ammunition Factory, Kirkee (AFK) was pointed out by Audit. OFB stated in June/September 1992 that the excess drawal was used to cover up excess rejection. This was admitted as being a lapse and corrective action was taken. OFB issued instructions to factories in July 1992 to incorporate changes made in proof requirement in the material estimates.

Simultaneously OFB's stock verification group carried out the stock verification at AFK for 1991-92 cycle and detected in March 1992 a deficiency of 2,70,387 empty hand grenades valued at Rs 2.44 crores.

Earlier stock verifications upto the one for the year 1990-91 had not detected any shortage of the item.

The reasons for the deficiency were called for by Audit in November 1992 and again in October 1993. OFB accepted the deficiency but stated in February 1994 that the case was under an enquiry and the report was awaited.

Ministry stated in January 1995 that the deficiency in stock occured due to drawal of the quantity by production section against temporary receipts (TRs) to make good the actual rejections against that provided in the estimates and for which production section could not issue regular Demand Notes (DNs) against the running warrants during 1991-92 and if TRs drawals had been regularised by regular DNs there would have been no deficiency.

A one man Fact Finding Board constituted to investigate the matter had reported that rejection of grenades bodies all these years had resulted in heavy accumulation of such rejection. OFB had stated in September 1994 that it would become necessary to regularise the deficiency by preparation of loss statement.

The fact, therefore, remained that a total of 2,70,387 hand grenades could not be accounted for resulting in a loss of Rs2.44 crores.


69.  Shortage of jerricans 

In Small Arms Factory, Kanpur (SAF) the closing balance of jerricans of 20 litre capacity (jerrican) manufactured against a work order as on 31 March 1987 was 47,411 as per production ledger card. The closing balance as per semi statement of 1986-87 was only 38 jerricans. Thus there was a discrepancy of 47,373 jerricans valued at Rs61.81 lakhs between the two sets of documents.

When this was pointed out in December 1987, SAF stated in October 1988 that the opening stock of jerrican as on 31 March 1987 was 47,411 and discrepant items were shown as issued. The relevant issue vouchers were called for by audit in September 1989 but the same could not be produced by SAF even by January 1994.

Ordnance Factory Board (OFB) stated in December 1988 that inadvertently no semi statement for jerricans was prepared during 1980-81 to 1985-86 and the physical balance of jerricans as per finished semi statement as on 31 March 1987 was only 38 against 47,411 produced. OFB also stated that the ground balance of the jerricans was reconciled as 47,411 and arrangement was being made to issue them at an early date as per the requirement of indentoRs In other words the OFB was saying that 47,411 jerricans were in stock and were to be issued bul that the semi statement of 31 March 1987 showed only 38. OFB's statement leaves room for doubt since it has not been able to furnish to audit documentation to establish that despite the semi statement of 31 March 1987 showing only 38 jerricans, infact 47,411 jerricans were in stock.

Ministry stated in November 1994 that the jerricans were issued to indentors as per 'P' issue vouchers . When the relevant documents were called for in audit from factory management/Accounts Office , the same could not be produced for verification as of December 1994.

Audit on its own could verify only two vouchers which showed completely different details as compared to the information given by the Ministry in their reply.

In sum 47,373 jerricans valued at Rs61.81 lakhs were issued the details of which could not be verified in audit.

Foot Note : Semi statement

"A list showing the finished items of manufacturing which have passed inspection but could not be despatched by the factory on 31 March."


70.  Unintended benefit to a supplier 

The non-commissioning of a Horizontal Machining Centre (HMC) procured by Heavy Vehicles Factory, Avadi (HVF) in March 1989 from a private firm at a cost of Rs 59.78 lakhs was mentioned in Paragraph 55 of the Report of the Comptroller and Auditor General of India, Union Government-Defence Services (Army and Ordnance Factories) for the year ended 31 March 1992. Ministry of Defence (Ministry) in their reply stated in September 1992 that the matter regarding repair and upkeep of this machine for its eventual transfer to Ordnance Factory, Trichi (OFT), was being actively pursued and the same would be transferred to OFT for its gainful utilisation.

Although as per the Ministry the HMC of table size 630 x 630 mm procured in March 1989 against an order of February 1988 was to be off-loaded to OFT after due rectification by the firm, the firm was not able to rectify the damaged HMC. The firm, however, offered a different model of table size 500 x 500 mm in August 1992 and requested not to reject the damaged machine supplied in March 1989 and press for the refund of the amount paid.

The offer and request of the firm was considered by the Tender Purchase Committee (TPC) in September/ November 1992 and the TPC recommended as under :

(i) that an order for 500 x 500 mm model HMC be placed on the firm for OFT at a total cost of Rs 81.43 lakhs ;

(ii) that the order for the earlier HMC received in March 1989 be short closed ; and

(iii) the rejected machine be returned on obtaining a bank guarantee from the firm for the value equivalent to the payment already made to them excluding the special toolings valued at Rs 10.38 lakhs.

HVF accordingly placed a fresh supply order in November 1992 on the same firm for the supply of an HMC of 500 x 500 mm size to OFT at a total cost of Rs81.43 lakhs (excluding taxes and excise duty) with date of delivery by December 1992 and short closed the earlier supply order of February 1988 at Rs10.38 lakhs , being the value of special toolings in December 1992.  This machine was received in OFT in January 1993 and was commissioned and was taken over for production in June 1993 . The earlier HMC was returned to the firm by HVF in December 1992.

This transaction resulted in an extra liability of Rs23.68 lakhs to the Government and an unintended benefit to the firm .

Ministry stated in November 1994 that the orders of February 1988 and November 1992 were for two different models of machines and hence their comparison was not in order.

This was not tenable in Audit in view of the fact that the machine of smaller table size had to be procured by HVF to settle the transaction as the firm failed to rectify the damaged machine supplied by them against the order of February 1988 and as a result an unintended benefit was given to the firm causing an extra expenditure of Rs 23.68 lakhs to the Government.


 71.  Payments towards fraudulent consignment  

Small Arms Factory, Kanpur (SAF), placed a supply order in March 1991 on a firm for supply of 1000 gas cylinders(cylinders) of a particular specification for production of a gun. These were valued at Rs 11.80 lakhs excluding excise duty and central sales tax. The delivery date stipulated in the supply order was October 1991, after approval of advance sample by July 1991 or earlier. The firm submitted 800 cylinders for inspection/acceptance to the authorised inspector, at firm's premises in November 1992 which were accepted in November 1992 and inspection note issued in December 1992 for 795 cylinders. Five cylinders were withheld as control sample. 795 cylinders were despatched in four wooden packages through railways in November 1992. At the time of unloading the packages by railways at Kanpur on 14 December 1992, all the four packages were found in intact condition but the contents were giving rattling sound and red dust was seen to be oozing out of crevices. The deficiency was recorded by railways on 14 December 1992. The firm was paid Rs 9.84 lakhs on 17 December 1992 being 98 per cent of the payment due against proof of despatch.

Ministry stated in November 1994 that SAF had no information about recording of discrepancies on 14 December 1992 as the factory was closed from 8 December 1992 to 15 December 1992 on account of curfew.On 24 December 1992 stores staff of the factory noted the date of arrival of the consignment from the Military consignment arrival register as 22 December 1992 and on suspicion demanded open delivery from the railways.The discrepancy/deficiency was finally recorded by railways only on 15 March 1993.The claim lodged with the railways on 1 June 1993 for Rs10.70 lakhs is yet to be settled.

Open delivery was granted by the railways on 15 March 1993 when each package was found to contain 20 bricks in place of the cylinders.

The case revealed that the substitution of the contents of the packages was clearly a fraudulent act and needed investigation by a high level committee.


72.  Undue benefit granted to a firm 

Ordnance Clothing Factory, Shahjahanpur (OCFS) had floated a limited tender enquiry (LTE) for the procurement of 1,66,240 Kgs of Yarn in October 1992 and an open tender enquiry for 41,555 kgs of Yarn of the same specification in September 1992. The specification for packing was mentioned in the LTE as wooden packing .

The LTE was opened in November 1992 and the offers of four firms 'A', 'B', 'C' and 'D' were found to range between Rs 39 to Rs 47.75 per kg excluding Central Sales Tax (CST). Firms 'A' and 'C' offered a discount of Rs 3 and Rs 4 kg respectively for gunny bag packing instead of wooden box packing as specified. However, firms 'B' and 'D' did not make any such offer. As there was difference of about 10 per cent in the quoted price from the last purchase the Tender Purchase Committee (TPC) decided in December 1992 to hold price negotiation meetings with all the firms in January 1993.

In the meeting held in January 1993, firms 'C' and 'D' did not turn up and firm 'A' sent a letter indicating no change in the quoted price and firm 'B' attended the meeting and offered Rs 47 per kg against their earlier offer of Rs 47.75 per kg, if order was placed for a minimum quantity of 4 lakh kgs. The TPC decided not to place orders on firms 'C' and 'D' and recommended placing Supply Orders (SO) on firms 'A' and 'B' as under :-

(a discount of Rs3 per kg for gunny bag packing) 10,000 Kgs Rs45+Taxes (a discount of Rs3 per kg

for gunny bag packing) Fim-l.'B1 4,00,000 Kgs Rs47 + Taxes

Accordingly , OCFS placed SO on firm 'A' in January 1993 for the supply of 15,000 Kgs and 10,000 Kgs of Yarn at the rates of Rs 39 and Rs 42 per Kg respectively after availing a discount of Rs 3 per kg for gunny bag packing. OCFS placed another SO in January 1993 on Firm 'B' for 4 lakh Kgs of Yam. At this stage firm 'B' had approached OCFS in February 1993 for amendment in the packing and marking clause, on the plea that against the previous orders the supplies were being made in gunny bags covered with polythene film for propel preservation. OCFS referred the case to Ordnance Equipment Factories Group Kanpur (QEF HQRs) in March 1993 recommending for the acceptance of Yarn in gunny bag packing on the ground that the trend of rise in price of Yarn and the hand to mouth position of Yarn in Blanket Shop. OEF HQRs accepted the request of firm 'B' and the existing clause for packing in the SO was amended in April 1994, i.e packing of Yam in gunny bags duly covered in polythene film and adequate quantity of napthalene balls for proper preservation instead of wooden packing.

While accepting the request of firm 'B' regarding the supply of Yarn in gunny bags packing instead of wooden packing no discount was offered by the firrm as had been done by the firms 'A' and 'C'. Hence an undue benefit amounting to Rs12 lakhs was granted to the firm. This was unjustified and raises serious issues regarding the integrity of the tender process.

Ministry stated in January 1995 that the matter was being probed further through a Board of Enquiry.


Research and Development Organisation 

73.  Procurement of defective weather systems 

Interim Test Range, Balasore (ITR) placed two supply orders (SOs) in April and October 1988 and also concluded a contract with a trade firm in December 1987 for procurement of three systems'A', 'B' and 'C' respectively for weather forecasting at the Range, at a total cost of Rs 41.82 lakhs plus taxes and other charges. The systems were to be supplied during April 1988 to April 1989.

As per terms of the SOs/contract the firm was responsible for successful installation/commissioning of the systems.

The firm supplied the systems during June 1988 to February 1989 and as per terms of the SOs/contract, ITR paid a total sum of Rs 38.92 lakhs to the firm during March 1988 to February 1989 on proof of despatch of the systems. The firm failed to install/commission the systems and the warranty period for them had expired by June 1989 and February 1990.

In April 1990 ITR observed :

(i)     the system 'A' was functioning within a very short distance, even less than a km , when it was supposed to work for 20 km radius at least;

(ii)    the system 'B' was completely out of order since June 1989 and no service was done by the firm and

(iii)    the system 'C' was completely down since June 1989.

In order to initiate legal action against the firm, ITR reported the matter to the Directorate of Defence Research and Development Organisation (DRDO) in May 1993.

Ministry stated in December 1994 that the DRDO had stopped procurements from the firm and advised the ITR to initiate action against the firm in the appropriate consumer court.

Thus, the systems procured by ITR at a total cost of Rs 38.92 lakhs remained non-functional/unutilised for more than five years since their receipt and the prospect of utilisation/functioning is remote resulting in loss of Rs 38.92 lakhs.


74.  Loss due to non-realisation of insurance claim 

In December 1988 Interim Test Range, Chandipur (ITR) concluded a contract with a foreign firm 'A' for procurement of three items of equipment 'X', 'Y' and 'Z' required for photo processing, at a total cost of Rs 36.37 lakhs including spares valued at Rs 5.50 lakhs. The firm despatched all the equipment items in eight cases by air in July 1989 duly covered under transit insurance with an Indian firm 'B'.

On receipt of the consignment at Calcutta Airport, the representative of firm 'B' and ITR observed in July 1989 that out of the eight cases, one case was broken,one case was broken and top renailed, one case with broken mark on top, one case had its top re-nailed and the remaining four cases were intact. The four damaged cases contained mostly the parts of equipment 'Y'.

All the cases were transported to ITR in July 1989, and an attempt was made to commission all the three equipments after a lapse of one year in July 1990.

Equipments 'X' and 'Z' were commissioned successfully in July 1990 and March 1991 respectively. However, due to non-serviceability of the parts contained in the four damaged cases, equipment 'Y' valuing Rs 14.27 lakhs could not be commissioned.

In February 1991, after a lapse of more than one year, ITR lodged claim for Rs 5.37 lakhs on firm 'B' towards transit damage as the nature and extent of loss was assessed only at the time of commissioning.

Firm 'B' however, repudiated the claim in November 1993 on the ground that the consignment was received at Chandipore in July 1989 and that further inspection/survey was arranged after a lapse of one year when the installation and commissioning of the unit was already done. Also the insurance policy ceased to operate on arrival of the consignment to the final destination (Chandipore); for subsequent loss beyond the period of transit they were not at risk.

Thus , failure to recover the cost of damaged parts from firm 'B' resulted in a loss of Rs 5.37 lakhs and the damaged parts equipment 'Y' valued at Rs 14.27 lakhs remained unutilised since July 1989.

ITR stated in July 1994 that the commissioning of the equipments was delayed since the chilled water plant and other installation works were not ready.

ITR further stated that attempt was made to recover the loss of Rs 5.37 lakhs from the Insurance Company but they did not agree to make good the loss. Due to non-functioning of equipment 'Y', photo-processing work was managed manually which was time consuming and best quality of print was not available for evaluation.

The case was referred to the Ministry in June 1994; their reply has not been received as of January 1995