Oil stain

A Special Judge orders further investigation into the role of Chief Minister Oommen Chandy in the 20-year-old palmolein import case.

WITH the first accused, former Chief Minister K. Karunakaran, dead and seven others, among them a former Minister and top civil servants, yet to face trial, the 20-year-old palmolein import case in Kerala found its unlikely first victim in P.J. Thomas when the Supreme Court quashed his appointment as the Central Vigilance Commissioner (CVC) in March this year.

The apex court said in its order that at the time of his selection as CVC, the charge sheet against Thomas (and the other accused) in the palmolein case was pending before the Vigilance Special Judge in Thiruvananthapuram; that the Kerala government had granted initial sanction for his prosecution in the case; and that the Supreme Court itself had observed in a March 29, 2000, judgment that the registration of FIR [first information report] against Shri Karunakaran and others cannot be held to be the result of mala fides or actuated by extraneous considerations. The menace of corruption cannot be permitted to be hidden under the carpet of legal technicalities and in such cases probes conducted are required to be determined on facts and in accordance with the law.

While invalidating Thomas' appointment, the Supreme Court also said that it considered the CVC an integrity institution', that the institution is more important than an individual, and though personal integrity too was relevant and certainly had a co-relationship with institutional integrity, when institutional integrity was in question, the touchstone should be public interest.

Since the Supreme Court's decision against Thomas, the palmolein case, now finally before the Court of the Inquiry Commissioner and Special Judge, Thiruvananthapuram, has been stalking fresh prey: Chief Minister Oommen Chandy.

Until recently, Chandy, as the then Finance Minister in Karunakaran's Cabinet, was only the 23rd witness in the case and had been well known as the leader of the inner-party campaign launched by the A.K. Antony group within the State Congress against Karunakaran, especially on the palmolein issue during the early 1990s, when the import deal first became a controversy.

The alleged irregularities in the import of palmolein by the State government in 1991 through a Singapore-based company selected arbitrarily without inviting tenders and supposedly at an inflated price and an excessive service charge and in violation of Central and State government norms was first brought to light officially by a report of the Accountant General, Kerala, in July 1993, a Comptroller and Auditor General (CAG) report in February 1994, and subsequently by a report of the Public Undertakings Committee of the Kerala Assembly in March 1996.

But even as early as March 1992, the palmolein corruption case had taken the State Assembly by storm, with the then Opposition Leader, V.S. Achuthanandan, leading the Left Democratic Front (LDF) campaign.

While the AG's and CAG's reports both took exception to the procedure adopted by the State government for the import of palmolein, the CAG report also pointed out that the agreement did not contain adequate safeguards to ensure that the imported oil would satisfy all the standards laid down in the Prevention of Food Adulteration Rules, 1956.

Assembly Committee report

The Assembly Committee on Public Undertakings, then headed by M.M. Hassan, a prominent Antony group leader of the State Congress, also significantly found the following major irregularities in the deal: (1) that the service fee of 15 per cent to meet the fluctuation in exchange rate was not negotiated and hence was excessive and that even the price of the imported product ought not to have been settled in U.S. dollars; (2) that the concerned department of the State had not invited tenders and had appointed M/s. Mala Export Corporation, an associate company of M/s. Power and Energy Pvt. Ltd., the company upon which the import order was placed, as handling agent for the import; (3) that the delay in opening of escrow accounts and in fixation of price, which were not in conformity with the circular issued by the Central government, had incurred a loss of more than Rs.4 crore to the exchequer; and (4) that under the pretext of plea of urgency, the deal was conducted without inviting global tenders and this had prevented other competitors from quoting lesser rates and that benefiting the State.

After an LDF government came to power in May 1996, a vigilance case was registered against Karunakaran and six others on March 21, 1997. (Thomas, who was the Secretary of the Food and Civil Supplies Department in Kerala at the time of the import, and a director of P&E Pvt. Ltd were included as accused subsequently.) Following a vigilance inquiry, a charge sheet was submitted to the Court of the Inquiry Commissioner and Special Judge, Thiruvananthapuram, on March 23, 2001.

However, the case dragged on endlessly, with Karunakaran filing writ petitions and appeals before the Kerala High Court and the Supreme Court, raising the plea of mala fides and eventually obtaining a stay order from the apex court in August 2007 on further proceedings before the trial court.

The appeal remained pending before the Supreme Court until Karunakaran's death in December 2010 a long period of suspense for the seven other accused in the case whose reputations were at stake, including former Food and Civil Supplies Minister T.H. Musthafa (a close associate of Karunakaran), former Chief Secretary S. Padmakumar (who, along with Karunakaran, allegedly met the Singapore-based company representative in New Delhi and agreed informally on the deal as early as October 1991), former Additional Chief Secretary Zacharia Mathew, former Managing Director of the Kerala State Civil Supplies Corporation Jiji Thomson, director of Mala Export Corporation V. Sadasivan, and director of P&E Pvt. Ltd Sivaramakrishnan, and P.J. Thomas.

The trial proceedings began at the special court in Thiruvananthapuram only after the Supreme Court vacated the stay on January 11, 2011, following the death of Karunakaran.

Significantly, thereafter, in a discharge petition filed before the trial court, among other things, Musthafa raised an argument that both he and Chandy had played very similar roles in the case by merely agreeing to place the note prepared by Padmakumar and Zacharia Mathew regarding the import of palmolein for the Cabinet's approval. Musthafa's argument was that the prosecution, who rightly did not find fault with the Finance Minister, has unjustly arrayed this petitioner as second accused for no fault of his, in the matter, from the very inception of the incidents.

Kerala has since been debating the real intention behind such a disarmingly innocent plea made by Musthafa in the background of an early opinion reportedly offered by a well-known legal luminary in the State, Subramanian Potty, that the case against all the other accused would be weakened effectively if Chandy too was included as an accused in the case.

An election-eve controversy regarding Musthafa's real intention behind raking up Chandy's name ensued, with the Congress unusually deciding to field Pradesh Congress Committee president Ramesh Chennithala too, along with Opposition Leader Chandy, as a candidate and, arguably, as a possible substitute for Chandy as Chief Minister if the need arose.

Vigilance report

Following this, the previous LDF government informed the court on February 26, less than two months before the 2011 Assembly elections, that further investigation was indeed required in the case. The State Vigilance and Anti-Corruption Bureau filed a report requesting the court's sanction for further investigation on four grounds: (1) that the then Finance Minister Oommen Chandy had admitted at a press conference on January 19, 2005 (in his previous stint as Chief Minister) that he knew everything about the palmolein deal and that his statements were reported in newspapers; (2) that Zacharia Mathew had disclosed in his discharge petition that the proposal for the import of palmolein using Power and Energy Pvt. Ltd as the intermediary and payment of 15 per cent CF value as service charge was placed before the then Finance Minister as he was the final authority to decide the financial propriety of the proposal; (3) that another witness (former Food and Civil Supplies Secretary) Jose Cyriac, who prepared the answers to certain specific questions of the Public Undertakings Committee, had stated that the proposal to purchase the palmolein was done with the approval of the then Finance Minister; and (4) that a file from the Finance Department placed before the Kerala Assembly also disclosed certain aspects (relating to the case) that had not been verified at the time of the investigation.

But despite the initial eagerness of the State Vigilance and Anti-Corruption Bureau during the fag end of the LDF rule to investigate the case further, especially with a focus on the role of Chandy, the report of the further investigation filed by the Bureau (significantly, on May 13, the day the Assembly election results were out) merely concluded that the Finance Department could not be considered as responsible for the irregularities in the import of palmolein and that the further investigation could not reveal the involvement of any other person in the case, other than who were arrayed as accused in the charge sheet already submitted before the court.

The further report' of the Bureau in fact said that the import of palmolein through Power and Energy company was decided by the Cabinet as a government policy and hence the decision could not be considered as a violation of the Store Purchase rules. It also said that after the Cabinet decision, the Food and Civil Supplies Department failed to seek concurrence from the Finance Department before issuing the government order for entrusting the import to the Civil Supplies Corporation, and that it had executed the agreement with P&E Pvt. Ltd, on November 29, 1991, even though the government order was issued only on December 2, 1991.

This reveals that the Civil Supplies Corporation and the Food and Civil Supplies Department have violated all the departmental procedures, rules of business and Secretariat circulars. Since the Civil Supplies Department has not forwarded the file concerned to the Finance Department, the (Finance) Department could not peruse the deal in detail and offer their remarks, the further investigation report submitted before the Special Judge said.

The report also said that even though the Finance Department had made an effort to get the file relating to the palmolein deal on February 3, 1992, from the Civil Supplies Department, the file was received only on February 29, 1992, and the Finance Department happened to return the file on the same day on the request of the Food and Civil Supplies Department for answering questions in the State Assembly before placing it to Finance Secretary, Commissioner and Secretary and the Finance Minister. The file was not received later at Finance Department for any action. Hence the Finance Department could not be considered as responsible for the irregularities in the import of palmolein.

The Bureau also said that Chandy had stated during his interrogation that the file relating to the import of palmolein had been received by him only on November 27, 1991, just before the Cabinet meeting, and that he had merely approved the suggestion made by the then Food and Civil Supplies Minister Musthafa that the matter be placed before the Cabinet as an outside agenda. Chandy also had said that he agreed to present it before the Cabinet as an outside agenda also because the note of the Additional Chief Secretary had talked about the urgency of palmolein import not only to the general people but also to the Civil Supplies Corporation and that the Chief Secretary had also opined that the palmolein is needed not only for immediate needs but also for the survival of the Civil Supplies Corporation and that we may do what other Governments like Tamil Nadu are doing.

Chandy is reported to have stated further that he had never seen the file of the Civil Supplies Department after the Cabinet decision even though as per the Rules of Business, once the Cabinet takes such a decision, the administrative department (in this case the Food and Civil Supplies Department) ought to have obtained the approval and concurrence of the Finance Department before issuing the Government Order. But in this case the Civil Supplies Department had not obtained the concurrence of the Finance Department and had issued the Government Order on December 2, 1991. So the Finance Department could not verify the matter in detail, Chandy is quoted as saying.

Right from 1991, when the agreement was signed to import palmolein, there were widespread allegations that Karunakaran and a few of his trusted officials had benefited financially from the deal. It is true that the Antony group in the State Congress, then led by Chandy, had a significant role in making this fact the crux of a major political controversy, subsequently taken up by the opposition LDF, and thus trying to rein in an all-powerful Karunakaran within the party during that period.

However, strangely, in November 2005, during his first stint as Chief Minister, it was a government led by Chandy himself that decided to withdraw the case (a decision overturned by an LDF government that came to power in 2006) soon after Karunakaran left the Congress to establish a party, the Democratic Indira Congress (Karunakaran), for his son.

As the trial finally begins in Thiruvananthapuram, what is proving to be a shocker for the Congress-led United Democratic Front government are the observations made by the Inquiry Commissioner and Special Judge, P.K. Haneefa, on August 8 while rejecting the further investigation report of the Vigilance and Anti-Corruption Bureau, and his order directing it to conduct further investigation into the involvement of CW23 (Oommen Chandy), the then Finance Minister, in the palmolein deal.

Special judge's observations

Discarding the investigating agency's claim that the Finance Department could not be considered as responsible for the irregularities in the import of palmolein and that the further investigation could not reveal the involvement of any other person in the case, the Special Judge made several significant observations that the opposition is now using to demand nothing less than the Chief Minister's resignation.

For example, the court said that though the further investigation was conducted to ascertain the involvement of Oommen Chandy in the impugned palmolein deal, the further report filed by the investigating officer does not say anything about his involvement despite the statements of the witnesses recorded by the investigating officers.

In the further report it is stated that the Finance Department could not be considered as responsible for the import of palmolein. But the involvement of the Finance Department in the deal was not at all a ground advanced by the prosecution when permission was sought for conducting further investigation. Permission was sought instead to probe the involvement of Oommen Chandy in the deal, the court said.

The judge also said pointedly that though the government is not accountable to the courts in respect of policy decisions, the persons who agreed or took the policy decisions are accountable for the irregularity and illegality in the policy decisions. It also said that the Finance Department and Finance Minister are distinct and separate.

The judge quoted extensively from the interrogation report of I. Somarajan, a former Under Secretary in the Department of Food and Civil Supplies, which had stated that the note prepared by Zacharia Mathew on November 27, 1991, had asked the then Chief Minister, Food and Civil Supplies Minister, Chief Secretary and Finance Minister to take a decision on two matters, namely (1) whether palmolein could be imported by choosing P&E company as the agent for import, and (2) whether 15 per cent service charge could be given to the said agent. Somarajan had said further that though Chandy saw the note prepared by Zacharia Mathew, he did not write any contra opinion on the note; he did not also write that he approved the said note only for the purpose of placing the same in the Cabinet as an outside agenda.

The judge records that the statement of Somarajan further shows that Oommen Chandy did not take any step for preventing the import of palmolein, even after the allegation of corruption in the import was reported in the newspapers on December 28 and 29, 1991.

In the order, which in some places almost reads like a clear indictment of the Chief Minister, the court also said that Chandy's statements manifestly and visibly showed that when the decision to import palmolein through P&E Pvt. Ltd paying 15 per cent service charge was taken in the Cabinet, Oommen Chandy was aware that the service fee of 15 per cent was not negotiated, that the concerned department had not invited global tenders and yet the P&E company was chosen as the handling agent for the import of palmolein, and that the import of palmolein was not in accordance with the conditions specified in the letters of the Central government.

Therefore, the court said the further report cannot be accepted and it directed the investigating officer to conduct further investigation into the involvement of Oommen Chandy in the deal and submit a report within three months (that is, by November 8, 2011).

The UDF government that came to power in May 2011 on a thin majority is thus facing its first major crisis, with the opposition quickly overcoming its initial confusion over its reaction to the court's order and unitedly demanding the Chief Minister's resignation on moral and legal grounds. Pressure is mounting, with the LDF also planning a State-wide agitation on August 23. Though Chandy is understood to have expressed his readiness to step down, the ruling coalition's leaders and the Congress high command have taken the position that there is no reason for him to do so merely because a court has ordered an inquiry. The Chief Minister has, however, transferred the vigilance portfolio under him to his trusted party colleague, Revenue Minister Thiruvanchoor Radhakrishnan.

As the palmolein case finally reaches the trial court, it is clear that a final resolution is still far away, with scope for appeal against decisions of lower courts still wide open. But it will be an irony if, after P.J. Thomas, Oommen Chandy, the man who once symbolised opposition within the State party against the import deal, becomes the second unlikely victim of the case that has already dragged on for over two decades.