Hindustan Paper Corporation Workers Allege 'Multi-Crore Scam', Write to CAG

While the Centre recently claimed it has allocated over Rs 4,000 crore to HPCL in the last few years, workers have been struggling to stop two of the company's four units from being declared bankrupt.

New Delhi: The Narendra Modi government’s recent disclosure that it allocated over Rs 4,000 crore to Hindustan Paper Corporation Ltd (HPCL) over the last four years has shocked hundreds of Central government employees, who are currently fighting a battle to stop two paper manufacturing units controlled by the public sector enterprise from going bankrupt over unpaid dues of only Rs 98 lakh.

HPCL, a nearly 50-year-old government-controlled manufacturer, has four major units under its control.

While work in two of its mills, the Cachar Paper Mill and Nagaon Paper Mill in Assam, has been suspended due to a lack of “working capital” between October 2015 and March 2017, one of its other subsidiaries, the Nagaland Paper and Pulp Company, has been non-functional since October 1999 due to the lack of funds.

Though the Centre had approved a revival package worth Rs 489 crore for the Nagaland unit in 2003, state chief minister Neiphiu Rio told PTI last year only Rs 100 crore was released initially. Out of this, Rs 60 crore was diverted by the HPCL management to other units “while the remaining Rs 40 crore was used to pay off salary arrears to the mill employees”.

He said, “At least four letters were written by former chief minister T.R. Zeliang (his predecessor) between 2015 and 2016” to the Centre to revive the mill, the only public sector unit in the state. Rio said he also wrote a letter to Prime Minister Narendra Modi in April 2016 on this, but nothing has moved since.

Only one of HPCL’s subsidiaries – Hindustan Newsprint Limited (HNL) in Kerala – has been functional between 2014 and 2018. But it too has been in a dire condition due to the paucity of capital. In June 2018, the Kerala government offered to take over the unit as it was “running at a loss for the last five years” and “had not received any financial help from the Union Government or the parent company – Hindustan Paper Corporation Limited.”

This move was also to stop the Centre from going ahead with its October 2016 decision to fully disinvest HNL and pass on its shareholding to a strategic buyer.

However, on July 9, 2019, the minister for heavy industries and public enterprises, Arvind Ganapat Sawant, through a statement in the Lok Sabha, noted that HPCL had been allocated Rs 1,141 crore in 2014-15, Rs 1,000 crore in 2015-16, Rs 1,000 crore in 2016-17 and Rs 1,000 crore in 2017-18, which adds up to Rs 4,141 crore.

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The minister’s statement – which was part of a broader detailing of Central government investment in public sector units between 2014 and 2018 – did not clarify under what heads the said sum was allocated to HPCL or its subsidiaries.

The employees union of the paper mills in Assam have now written to the Comptroller and Auditor General of India seeking a “high level investigation” into the matter, expressing “utter surprise” that even though such a large amount of funds had been released to HPCL, it had not stopped the National Company Law Tribunal from ordering a corporate insolvency resolution (CIR) process against the two units run by the PSU in 2018 for not being able to pay less than one crore to a creditor.

The letter, written by the Cachar Paper Project Workers Union (INTUC), copies of which were sent to the prime minister’s office and the state chief minister’s office, alleged that “no such funds were received by the HPC as reported” by the government in parliament.

On May 13, 2018, the NCLT – in response to a petition by Alloys and Metals (India), which was owed Rs 98 lakh – had directed initiation of the CIR process against HPCL under the Insolvency and Bankruptcy Code (IBC), 2016.

Thereafter, as per the provisions of IBC, the NCLT suspended the board of directors of HPCL and a resolution professional (RP) and a committee of creditors were put in place. Though the chairman and managing director of HPCL filed an appeal in the National Company Law Appellate Tribunal, it was dismissed on January 8, 2019.

On May 2, 2019, NCLT ordered for the liquidation of the two paper mills. In its order, the NCLT said the RP didn’t submit a resolution plan to it within the mandatory 270 days. After the time limit had lapsed, the NCLT felt that the application of the creditor “merits consideration”.

Due to the suspension of work in these two units in Assam, around two lakh people directly or indirectly associated with them lost their livelihood. Nearly 1,200 people employed directly by these mills have not been paid salaries for over 30 months.

Manabendra Chakraborty, the chief convenor of the HPC Paper Mills Revival Committee, told The Wire, “The hardship and struggle faced by the employees has so far led to the death of 57 workers.”

“The human cost of this decision has been enormous. Three of those deaths were cases of suicides. One of them left a note saying the government of India is directly responsible for his death,” Chakraborty said.

“Due to non-revival of the mills and not receipt of their salaries, many employees are working as daily wage earners. They are forced to pull out their children from medical and engineering courses as these require a lot of money. It means that the non-payment of salaries has not only affected us but our children too and yet the government is silent. We have met the heavy industries minister in the Modi I regime six times, also the then finance minister Arun Jaitley, the DoNER minister Jitendra Singh, and the state chief minister Sarbananda Sonowal at least 16 times. Each gave us assurances but nothing happened,” he added.

In his submission to the NCLT bench in New Delhi, additional solicitor general Sanjay Jain, as the RP, said though “a proposal for distributing salaries of the employees had been made under the consolidated fund, the provision for it in the budgetary allocation was not sanctioned by the cabinet pursuant to the CIR process being admitted.”

Following a fervent appeal to the president of India by the workers’ unions, the Modi government had come up with a Rs 90 crore worth consolidated fund to pay off the salaries in the Union budget in 2018. However, as corroborated by Jain, the sum was later not approved by the cabinet due to the liquidation proceedings at the NCLT.

HPC Paper Mills Revival Committee members distribute leaflets. Image: Facebook/Files

In the letter to the CAG, the employees union asked, “If that is the fact (meaning, that the Centre had allocated Rs 4141 crore between 2014 and 2018), then how the industries went for liquidation for non-payment of Rs. 98 lacks only, production of both the mills suspended due to dearth of working capital”, leading to loss of 57 lives?

The Cachar Paper Project Workers Union (INTUC) along with Hindustan Paper Corporation Officers and Supervisor Association, challenged the NCLT’s May 2 order. It submitted to it that the insolvency process brought against HPCL “was illegal as it was initiated by the person with malicious intents for the purpose other than resolution of insolvency or liquidation”.

In April 2019, in an interview with The Wire, Chakraborty had alleged that attempts were being made “to hand over both the units to private players”.

Taking note of the application, the NCLT, in another order passed on May 29, 2019, declared HPCL as a “going concern”.  Without interfering in its earlier order for liquidation as the time limit of 270 days had passed without the RP submitting a plan, the bench, in a 15-page order, asked the liquidator to “ensure that the ‘corporate debtor (HPCL) remains a going concern”.

It also felt that the liquidator “should approach the Union of India (central government) through the concerned department for the realisation of the funds to ensure that the ‘corporate debtor’ remains a going concern.”

The order said, “Union of India though not party before us, is expected to release certain funds from the Consolidated Fund, if permissible for ensuring that the ‘Corporate Debtor’ remains a going concern and scheme or arrangement may be reached under Section 230 of the Companies Act, 2013 or it can be sold as a going concern along with its employees/ workmen to a third party.”

In June 18, a delegation of the United Citizens Forum for Revival of Nagaon and Cachar Paper Mills met chief minister Sonowal in Guwahati to intervene on their behalf and push the Centre to reopen the mills in response to the NCLT order, besides clearing their pending dues.

A week prior to that, Sonowal, meeting Modi in New Delhi, reportedly told him that “the two mills were crucial in not only providing livelihood to more than 2,000 employees but also two lakh families that provide raw material to them. The revival of these units is crucial to industrialisation of the state.”

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The revival of the mills was also an electoral promise of the Bharatiya Janata Party in the run-up to the 2016 assembly polls. While campaigning, Modi himself addressed a huge rally on March 27, 2016, at Kalinagar near the Cachar Paper Mills, where he promised to revive the units. Since gaining power, Sonowal and other BJP state leaders have spoken about a revival plan.

Despite Sonowal’s assurance to the workers’ group, the heavy industries minister, in a written reply on July 16, told parliament that the Centre has not planned to release workers’ salaries, nor was it “considering to provide financial support to the employees of these paper mills”. The written reply was in response to an unstarred question by BJP MPs from the state, Rajdeep Roy and Kripanath Mallah. Prior to the 2019 Lok Sabha polls, both the MP candidates also promised to look into the matter and help sort it out.

On July 17, speaking to this correspondent from Silchar, Chakraborty stated, “We are waiting for 15 days for a reply to our letter to the CAG. Else, we will move the Supreme Court.”

He said, “To my mind, this is a multi-crore scam which begs the basic question, if such a sum was being diverted to HPCL by the Ministry, then why two of the units that are directly run by it have reached the state of liquidation only for its inability to pay Rs 98 lakhs and its subsidiary becoming non-functional also due to lack of working capital? Where was this money diverted?”

The Wire tried multiple times to contact the only functional unit, Hindustan Newsprint Limited, at its official numbers in Kottayam district but failed to establish any contact. The Wire has also written to the company’s public information officer and this story will be updated if and when a response is received. .

HNL’s annual report in 2016-17, available on its website, notes that the company’s working capital shrunk from Rs 6,189 lakh in 2012-13 to Rs 3,780 lakh in 2016-17.

The number of employees has also steadily gone down – from 640 in 2014-15 to 495 in 2016-17. As per information on the HNL site, while the actual capital expenditure incurred was Rs 23.73 crore during 2014-15, in 2015-16, it dipped to Rs 11.20 crore. In 2016-17 it was only Rs 2.79 crore, and it went further down to Rs.255 crore in 2017-18.