Castigates the company for fraudulent practices in winning an aided project in Tamil Nadu

The World Bank has barred Larsen & Toubro (L&T) from doing any business with it or the projects funded by it for six months, after finding that a senior executive of the conglomerate has indulged in fraud.

The debarment will continue till September 6, making L&T ineligible for being awarded contracts for any World Bank-funded projects, from receiving any loan proceeds made by the Bank or participating in any Bank-financed project.

The sanction order, dated March 7, said L&T’s ineligibility would continue across the entire World Bank group and had been imposed on L&T ‘for fraudulent practices’ as per the bank’s procurement guidelines against fraud and corruption.

During the debarment period, L&T as well as any of the entities controlled directly or indirectly by it cannot be nominated even sub-contractor, consultant, manufacturer, supplier or even service provider to an otherwise eligible firm being awarded a World Bank-financed project.

The matter pertains to a bid submitted by L&T through the regional business head of its medical equipment and systems unit to a World Bank-financed project in Tamil Nadu.

In January, 2005, the World Bank Group had entered into a development credit agreement with the Indian Government to provide $110.83 million of International Development Association credit for the Tamil Nadu health systems project.

It was set up to improve the effectiveness of health systems in the State by increasing access to critical health services for poor, disadvantaged and tribal groups.

In July, 2008, bidding documents were issued by the Tamil Nadu Medical Service Corporation for a contract to supply 130 ultrasound scanners under the project, following which L&T submitted a bid on September 3, 2008, through the said regional business head.

Upon technical and financial evaluation, L&T’s bid was found to be the lowest-priced, but a complaint was received later that some of the certificates submitted with the bid might have been forged.

The bid contained a total 115 performance certificates purportedly issued by medical facilities stating that the ultrasound scanners supplied by L&T were working well.

After the company was asked to explain, the regional business head said that some medical facilities might have mistakenly denied issuing the certificates and requested that L&T “not be viewed as (having) indulged in fraudulent practice.’’

In December, 2008, L&T was informed that the tender had been cancelled and the contract was awarded to another firm through a new bidding process.

After looking into the matter, the World Bank’s Integrity Vice Presidency (INT) alleged that L&T “engaged in fraudulent practices by submitting forged performance certificates with its bid.”

In its 24-page order, the World Bank Sanctions Board said that L&T was given an opportunity to present its case, wherein the company said that it should not be held liable for the fraudulent act of the regional business head.

The company argued that the said employee had acted on his own and “without management’s awareness, approval or instructions.’’

It also asserted that there was no precedent of adjudicated misconduct before the World Bank or any other bilateral or multilateral development bank or organisation, and it had no history of indictment or convictions for fraud or corruption, including by its employees and officers.

The company also said that it was “widely acknowledged to be one of the most highly regarded companies in India with respect to integrity and compliance.’’

Rogue employee

The Bank, however, held that the company’s ‘rogue employee’ defence lacked merit and the executive’s actions were within the scope of his authority, with the knowledge of the management and in the absence of any corporate governance training or controls.

“The record reveals that the regional business head was in charge of managing the medical unit’s commercial, marketing and bid activities at the regional level, and was respondent’s authorised representative for the bid in the present case,” the Bank said.

“Nothing in the record suggests he acted out of any motive other than to serve the company; to the contrary, his interview statements support a finding that he submitted the bid with the forged certificates with the intention of carrying out his duties to the respondent,” it added.

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