Alarm bells ring,contract is off after detection of faulty banknotes

Shortly afterwards,the Reserve Bank of India received a letter from De La Rue,dated October 22,2010,that “internal investigations” had confirmed that supplies to India were “out of specification” and it was not possible to establish the extent to which “historic supplies” had been affected.

By the time the company admitted to their paper failing on four of the 31 security parameters,during testing both in their UK laboratory as well as in Hoshangabad,1,370 metric tonnes of watermarked paper had already been stockpiled at different printing presses.

Besides this,around 735 metric tonnes of banknote paper is currently lying in godowns in India for transportation to presses and around 500 metric tonnes is lying with De La Rue for dispatch to India. De La Rue has been denied security clearence for future currency paper contracts.

Raising an alarm,officials in the Finance Ministry’s newly created Directorate of Currency said in a recent internal note: “The unprecedented inflow of FICN (Fake Indian Currency Notes) which has now grown to the extent of assuming the gravest ever threat to the country’s economic stability might have been inadvertently facilitated by De La Rue by supplying the inferior banknote printing paper as admitted by it… that the testing,sampling and calculation of results prior to 19th July 2010 were not in strict accordance with the contract with BRBNMPL (Bharatiya Reserve Bank Note Mudran Private Ltd,which signs the currency note contracts on behalf of the RBI).”

While the Ministry of Finance promptly informed the Ministry of Home Affairs of the matter,crucial issues such as what should be done with hundreds of tonnes of delivered paper and the supplies that are ordered,as well as the legal remedies to be taken,are hanging fire.

Incidentally,when the Ministry of Finance sought the opinion of the Law Ministry on the issue,it was in for a shock. The first opinion (by Deputy Legal Advisor R J R Kasibhatla) received on July 5,2011,revealed that the contracts signed between De La Rue and BRBNMPL had no provisions for termination on grounds of the paper not meeting specifications.

“When there is a contract on mutually agreed terms and conditions,the same needs to be honoured as long as there is no breach as per the agreed terms and conditions,” the opinion reads.

Kasibhatla also felt that there does “not appear to be any legal bar to use the De La Rue stock (of 1,370 metric tonnes) unless there are cogent reasons to the contrary”.

In an unusual move,officials said a decision was taken at the level of Finance Minister Pranab Mukherjee that a second opinion of the government’s seniormost Law Officer,Attorney General Goolam Vahanvati,should be sought.

That opinion,dated September 6,2011,has since been received by the Finance Ministry and is quite categorical on the implications of the sub-standard supplies. The AG,in his opinion,available with The Indian Express,has stated: “I fail to see how supplies from De la Rue can be resumed and how the stock which is lying can be used. The problem with regard to fake Indian currency notes is grave… after the withholding of security clearance from the Ministry of Home Affairs in October 2010 De La Rue has not even been considered for tenders for 500 and 100 Rupee note denominations and other tenders also. In this state of matters and in absence of security clearance from the Ministry of Home Affairs,supplies cannot be resumed and stocks cannot be used.”

The Attorney General also added that since the government has no “direct” role to play in implementation of the De La Rue contracts,it was for BRBNMPL to take legal recourse.

The company has informed the RBI that “owning responsibility”,De La Rue’s Chief Executive Officer,Currency Division Director and Director of Sales have resigned while several other “errant” employees are being subjected to “appropriate disciplinary process”.