The CAG report reveals how select members from the Services and the civilian administration, politicians and individuals connected with them, benefitted from the illegal construction of the 31-storey building in the heart of Mumbai
The Comptroller and Auditor General of India (CAG) has said that the Adarsh Co-operative Housing Society (Adarsh CHS) episode poses serious questions of probity, integrity and ethics in public life and among public servants, which need to be addressed by the polity and it also displays failure at all levels of governance.
In a report, submitted in Parliament today, the CAG said, "The entire process of allocation of land to the (Adarsh) society, obtaining no objection from the Army, obtaining modification to the Mumbai Metropolitan Region Development Authority (MMRDA) development plan, getting a no-objection certificate (NOC) for residential development in coastal regulation zone (CRZ), obtaining NOC from Brihanmumbai Electric Supply & Transport Undertaking (BEST) for transfer of developmental rights of the adjoining land, getting additional floor space index (FSI), raising the height of the building, was riddled with instances of decisions being taken by those who exploited their official capacity for personal benefit."
"The episode of Adarsh CHS reveals how a group of select officials, placed in key posts, could subvert rules and regulations in order to grab prime government land-a public property-for personal benefit. They resorted to falsification of records, suppression of facts, ruse of welfare of servicemen and their widows and children, flouting of acts and rules," the CAG noted.
It said that the case is particularly alarming as individuals across the governance system at many levels have participated in this deceit and benefitted from it. The public has trusted these public servants to safeguard its interests, but there is enough evidence that they betrayed the fiduciary trust and acted against all norms of public interest and probity, the report added.
In February 2000, Ramchandra Sonelal Thakur, a serving sub-divisional officer (SDO) in the Defence Estates Office (DEO), Mumbai, in his capacity as chief promoter of Adarsh CHS, wrote a letter to the chief minister of Maharashtra for allotment of 38,542 square metres of land in Block VI of Backbay Reclamation Scheme (BBR) at Colaba, for the construction of a residential building, for the welfare of serving and retired personnel of defence services.
"The letter of the chief promoter (RS Thakur) would clearly indicate the knowledge that the land was in the possession of the Army. However, the title of the land was never transferred to the Ministry of Defence. As subsequent events would prove, this fact of possession of land by the Army without holding the title of the land was exploited in full, to misappropriate the land for private benefit," the CAG observed.
From the very beginning, the welfare of the servicemen and ex-servicemen in one form or the other was used as a ruse to grab this piece of public land. In various correspondences from the Society, defence authorities and the Government of Maharashtra at different points of time, the prime reason for allotment of the land has been described as welfare of service personnel and ex-servicemen.
'Girls' hostel for wards of army officers posted in far flung areas', 'Welfare of Kargil war heroes', 'Welfare of widows of servicemen', 'Welfare of soldiers who have served their motherland' were used as grounds on almost all occasions for seeking relaxations in favour of the Society at different points of time.
The report by CAG said, "It would be only reasonable to conclude that though references to 'widows' and 'Kargil Heroes' was being repeatedly made, such could never have been the intention, as these individuals would not have the financial capability to meet the cost of apartments in this structure."
The chronology of the events shows the alacrity with which the varied requests of the Adarsh CHS were attended to. It illustrates how permissions were sought, and granted, on grounds, which do not now stand to public scrutiny. It also indicates how vague clearances, susceptible to multiple interpretations, were provided to facilitate the rather dubious intentions of the members and promoters of the Society.
The complicity, as is evident, is from the organs of the Maharashtra Government, the Armed Forces, the central government and local bodies, each of which is otherwise prone to be intransigent when approached by a common citizen, the report said.
According to CAG observations, all service officers except one, who held charge as General Officer Commanding Maharashtra, Gujarat and Goa Area, between February 1998 and July 2010, became beneficiaries as per the lists of members of the Adarsh CHS as made available by Collector of Mumbai city.
By 2002, Admiral Madhvendra Singh, former Chief of Naval Staff, and Lt Gen GS Sihota, had become members of the Adarsh CHS, apart from many other officers from the Army and the Navy. Eventually, General NC Vij and General Deepak Kapoor, former chiefs of army staff, also became members of the Adarsh CHS.
"Notable among the service officers who became members of the Society at a later date were two former Chiefs of Army Staff, General NC Vij and General Deepak Kapoor. Both of them were allowed to be members of the Society as 'one-time special case' keeping in view their noteworthy service in the Indian Army and their social status," the CAG said.
The list of the members as intimated by Adarsh CHS to the Mumbai City Collector, on 10 April 2000, indicated that the Society largely comprised members belonging to the defence services and civilian organisations related to defence. Out of the 40 members, 30 were serving and retired service officers, eight belonged to Defence Estates Office, one officer belonged to the Military Engineer Services (MES) and one was a widow of a retired MES employee. However, the final list of 102 members as of 2010 included 37 defence officers, including civilians, 15 retired government servants, eight Members of Parliament or state legislatures and 42 individuals, who were mostly relatives of government officers and politicians.
At almost every stage, the Maharashtra government extended significant concessions in favour of the Adarsh CHS. Many officers-both civilian and services-who were dealing with the case and were instrumental in taking those decisions, eventually became members of the Society. In some cases, relations of these officers became the members.
The Urban Development Department (UDD), in April 2002 approved modifications to the MMRDA development plan, deleting a 60.97 metres wide road leading to the south Colaba harbour link and reducing the width of Captain Prakash Pethe Marg from 60.97 metres, to a mere 18.40 metres, and the inclusion of the deleted area in the residential zone, parade ground, helipad, garden and BEST Depot.
However, the CAG said, "During the audit, it was noticed that on past occasions, the Government of Maharashtra had decided against allotment of the land for genuine welfare of ex-servicemen on the ground that the land was earmarked for widening of the very same road."
On 17 March 2003, Mr Thakur wrote a letter for allotment of additional FSI of adjoining plot of 2669.68 sq metres used by BEST as approach road to its depot on payment of reasonable charges. "Interestingly, in his letter, the chief promoter termed the use of the land by BEST as 'unauthorized' and also stated that BEST cannot use the FSI of this land for expansion of depot due to CRZ restrictions," the report noted.
Initially, BEST was reluctant to transfer the FSI to Adarsh CHS. However, Ramanand Tiwari, principal secretary of the UDD gave a proposal to BEST, which the public undertaking could not fulfil and subsequently agreed to transfer the FSI to Adarsh CHS.
"It would be clear from the meetings that the proposal of the Principal Secretary to ask BEST to pay for the land, amounted to a threat which possibly compelled BEST to succumb to agree with the proposal of the Society. Asking a public utility to pay the market price of the land essentially to compel them to agree to transfer the FSI in favour of the private society was blatant violation of all norms of public interest. While BEST was asked to pay the cost of land at the market rate, the Society paid only Rs6.14 crore," the CAG report noted.
Read the complete CAG report on the Adarsh Co-operative Housing Society case
Larger banks being made to bear the burden of the failure of poorly regulated co-operative banks
The only beneficiaries of the deposit insurance premium collected by the Deposit Insurance and Credit Guarantee Corporation (DICGC) are badly-run and politically-influenced co-operative banks.
Since its inception, the Corporation has paid out about Rs4,051 crore in claims to depositors after bank failures. As much as a quarter of this-a whopping Rs1,025 crore-has been paid out in the past three years, from April 2008 to March 2011, which was given to 83 banks. And all of these 83 banks were co-operative banks.
This payment is to honour the guarantee of Rs100,000 per holding combination (individual/joint) provided by the Corporation on deposits of all commercial banks, including the branches of foreign banks functioning in India, local area banks and regional rural banks.
The payment is possible because DICGC collects the insurance payment from banks to guarantee deposits up to Rs1 lakh per account holder. The DICGC collects a premium from 2,249 banks, of which a whopping 2,080 are co-operative banks.
Here is the irony. Less than 200 commercial banks account for 88% of the insurance premium collected and co-operative banks account for under 8%. Yet, when it comes to payment on account of failures, 100% of the money is paid on account of co-operative banks.
What is worse, co-operative banks are poorly regulated under the dual regulation of the Reserve Bank of India (RBI) and the Registrar of Cooperatives. It is an open secret that RBI's supervision is completely ineffectual when it comes to co-operative banks, because of the enormous political influence wielded by their promoters.
Even recently, when the RBI finally acted against the Maharashtra State Co-operative Bank by appointing an administrator, after years of dithering, the Nationalist Congress Party (NCP) in Maharashtra accused it of bias. Poor supervision and low accountability has led to a series of failures among co-operative banks and huge losses to depositors. In fact, Moneylife Foundation our affiliate involved in financial literacy, cautions savers about keeping big chunks of their hard-earned income in these banks.
Here are some numbers on the DICGC website. Banks have to pay an insurance premium up to a maximum of Rs0.15 per Rs100 of insured deposits to DICGC every year to avail of the deposit insurance cover. As at the end of March 2010, DICGC had a deposit insurance fund of Rs20,152 crore made up from premiums received from banks and interest earned on the fund corpus. Commercial banks account for 88% of the total insured deposits for the period 2009-10 and co-operative banks account for just 8% of this. Hence it is clear that a majority of the premium amount comes from commercial banks.
According to DICGC's annual report for 2009-10, the value of insured deposits among 2,249 insured banks was Rs23,69,483 crore at the end of the financial year, covering 14,238 lakh depositor accounts. About 2,080 co-operative banks are presently covered by DICGC's insurance cover. The maximum deposit claims are paid out to liquidated co-operative banks.
Despite the numbers that are freely available on the DICGC website, the Damodaran Committee on banking customer services foolishly suggests that deposit insurance for banks should be raised from Rs1 lakh to Rs5 lakh and that the government must also consider insuring the entire deposit.
It says, "With the rise in general income levels resulting in increase in the size of individual bank deposits, this ceiling of Rs1,00,000 is considered insufficient. The Committee is of the view that this cover should be raised to at least Rs5,00,000 so as to encourage individuals to keep all their deposits in a bank convenient for them and in fact the Committee felt that, a way should be found out to insure 100% deposit by making necessary amendments in the relevant Acts."
However when Moneylife examined the data pertaining to the claims, it was clear that only the co-operative banks alone benefit through the insurance policy.This is like robbing the better-run nationalised, private and foreign banks to pay for the sins of the poorly regulated co-operative sector. It is interesting that the Damodaran Committee hasn't found it fit to recommend better regulation of co-operative banks, which, despite the guarantee of Rs1 lakh, end up causing huge losses to savers because of poor awareness and financial literacy in India.
Though there are numerous problems in extending deposit insurance cover to co-operative banks even under a separate scheme, still there may be compulsions to do so. For the viability and effectiveness of the deposit insurance system for co-operative banks, it is essential that the deposit insurance system be set up within a prudential framework.
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There are 240 schemes with different flavours, combinations and sectors. An ordinary investor would find it difficult to decide which scheme to buy and when, given the current market volatility. Debashis Basu, Trustee, Moneylife Foundation, told the audience on how to analyse each sector and pick the right scheme for specific needs
The high volatility in the market and the huge drop in the indices recently have left many investors confused. Investors are wondering if they should exit the market, or if they should look at the situation as a buying opportunity. Newbie investors are pondering if this is the right time to start investing in the market—or should they wait?
All these questions were answered at the 75th seminar conducted by Moneylife Foundation. The Foundation’s trustee, Debashis Basu, enlightened investors today on how to be safe and smart in selecting the right mutual fund scheme.
Financial products are not designed for easy use, pointed out Mr Basu. Investors need to constantly have to evaluate these financial products. In the seminar, Mr Basu gave the participants a detailed perspective on mutual funds and how investors should choose the right mutual fund schemes.
The participants were explained about the different types of schemes available, like equity funds, ELSS (equity linked saving schemes), bond funds, liquid funds and SIPs (systematic investment plans). Mr Basu explained the benefits and the risks associated with each of these plans and investment strategies.
Mutual funds allow investors to diversify over shares and bonds of different kinds. Investors in a mutual fund have a professional fund manager who would make investment decisions on their behalf. However, some fund managers are no better than amateurs and this can be evaluated through their fund’s performance. The money of an investor is left at the mercy of the manager.
As every investment comes with a cost, mutual funds come with a cost as well. Presently there is no entry load—but soon, investors may have to shell out as much as Rs150 if they invest more than Rs10,000 in mutual funds. Apart from this, there are fund management charges that are deducted in the form of units. Even if investors plan to exit, they would have to pay an exit load.
Mutual funds, however, are a safer way for those who would like to invest in the capital market compared to putting all their investments only in one stock. One can start with an investment as low as Rs500. Open-ended funds are highly liquid and can be converted into cash easily. Investors can avail of tax benefits as well through investing in ELSS.
SIPs (systematic investment plans) are a good option, but are flawed if they are not adjusted for the growth option. Investors usually don’t consider inflation and invest the same amount over years. In fact, the value of money falls over the years, therefore, investors should incrementally increase their investment amount.
Mr Basu introduced the idea of value averaging, a better option compared to SIP. It is a strategy through which investors should buy more when the NAV (net asset value) is less and vice-versa, thus increasing returns.
On how to choose the best equity scheme, ideally, returns over a five-year rolling period should be considered to analyse the performance of a fund. Moneylife regularly puts out such analyses. There are usually just four-five fund houses that consistently register good performance. A portfolio which is diversified across all sectors should be chosen; therefore, sector funds should be avoided. Investors should avoid NFOs (new fund offerings) and funds with fancy names.
A safe and smart option for investors—who don't have any experience about the markets and don't want to make any effort either—is making money from the market through index funds.