Explained: The Rs 988-crore ESI scam in Andhra and why an ex-Min has been arrested

The Anti-Corruption Bureau has arrested seven people, including the state's ex-Labour Minister K Atchannaidu.
ESI scam
ESI scam
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The arrest of a former state Minister in Andhra Pradesh, belonging to the  opposition Telugu Desam Party (TDP) is creating political ripples in the state. Kinjarapu Atchannaidu, ex-Labour Minister close to party chief N Chandrababu Naidu, was arrested in a dramatic move by the Anti Corruption Bureau (ACB) for his alleged role in a multi crore scam in Employees’ State Insurance (ESI) scheme.

The ACB took over an investigation from the state's Vigilance and Enforcement department which said that it unearthed a scam that took place during the tenure of the TDP from 2014 to 2019, in the procurement of medicines and other items for ESI hospitals, labs and dispensaries monitored by the Directorate of Insurance Medical Services (IMS).

The allegations

Employees' State Insurance (ESI) is a scheme under the Union Labour Ministry, which provides social security and health insurance for workers earning a salary of less than Rs 21,000 per month in the industrial and service sectors.

Vigilance and Enforcement officials in Andhra Pradesh said that directors of the IMS, which oversees the scheme in the state, had placed purchase and work orders worth Rs 975 crore by "violating procedures and guidelines." This included the procurement of drugs, medical equipment, surgical items, lab kits and furniture.  

Officials also named three directors who served between 2014 and 2019 – Dr B Ravi Kumar, CK Ramesh Kumar and G Vijaya Kumar as the accused.

The allegation against Atchannaidu is that he allegedly directed the then IMS Directors to issue work orders to a company (Tele Health Services Pvt Ltd) without inviting open tenders.

'Fake bills, undue favours'

According to ACB Joint Director Ravi Kumar in the process of procurement of medicines, equipment and other services, funds worth Rs 150 crore were misappropriated.

The ACB JD said, "The Directors were found to have bought unwanted and low quality medicines while private individuals produced fake bills." The investigation claimed that sometimes low-quality medicines would be supplied and sometimes the transaction would end with the fake bills, with nothing being sold. 

The investigation officials also said that quotations for tenders had been fabricated. 

Stating that the writing on the envelope covers matched with the handwriting of two staff members who worked at the IMS (Pharmacist K Dhana Lakshmi and senior assistant E Ramesh Babu), they added, "The quotations were fabricated to avoid competitive bidding and to favour Non-Rate Contract firms of their choice."  

The V&E Department also earlier  said that drugs worth Rs 698.36 crore were bought from various firms despite the allocation of budget being Rs 293 crore, "to favour" certain firms.

The Directors were also accused of purchasing drugs from several firms at 'exorbitant rates'.  

Aided by allegedly fabricated quotations, the Directors are alleged to have purchased drugs worth Rs 89.58 crore from firms while they could have bought the same for Rs 38.56 crore, thereby causing a loss of Rs 51.02 crore.

V&E claimed in its probe that drugs and surgical items worth Rs 232.32 crore were lying without use for one year in dispensaries and were purchased without receiving 'indents' or requests from the dispensaries, which caused "wasteful and wrongful expenditure."

The V&E also said that an undue favour was done to the daughter-in-law of the pharmacist K Dhana Lakshmi, by placing a purchase order for supply of drugs worth Rs 9.50 crores.

Dr Ravi Kumar, one of the Directors, purchased  Rs 2.45 crore worth lab- equipment without calling open tenders, while another Director Dr CK Ramesh Kumar, purchased drugs without an indent, worth Rs 5.71 crores from two firms based in Vizianagaram and Narasaraopet, the investigation officials alleged.

The investigation also claimed to have found lab kits purchased from three firms at exorbitant rates were 36% higher than the normal market price. Surgical items worth Rs 47.77  crore were alleged to have been bought without open tenders, while another set of surgical items Rs 8.06 crore was allegedly bought without an indent.

Vigilance and Enforcement sleuths found that the Directors during their tenure, bought hundreds of biometric devices from a firm for Rs 70,670 per unit and paid Rs 53.67 lakh, though the market price was Rs 16,000 per unit.

Investigation officials also pointed out that furniture around Rs 6.62 crore worth furniture was bought by the Directors at rates that were 70% over market price. 

They also said that Directors Dr CK Ramesh Kumar and Dr Vijaya Kumar have paid Rs 4.15 crore and Rs 3.81 crore respectively for two different services, even after the service provider had violated the terms of the contract. 

Atchannaidu's alleged role

The core allegation against Atchannaidu is that he had ordered then Director Dr CK Ramesh Kumar to entrust a contract to 'Tele Health Services Pvt Ltd', which provides tele health services,without calling for an open tender. 

The V&E probe found that the Director issued a work order merely based on the letter of the then Labour Minister. The service provider claimed the bill by submitting call logs which were not verified for their genuineness and the amount was paid, investigation officials said.

ACB JD Ravi Kumar said, "These allegations were brought to our notice and will require further investigation."

The JD further stated that Atchannaidu is the only politician so far who is facing charges.

Two cases have been registered and seven people have been arrested. Atchannaidu is Accused number 2 in one of the cases, where Dr CK Ramesh Kumar is the main accused. The cases have been registered for 'Criminal Misconduct' under Prevention of Corruption Act and criminal breach of trust and forgery under the Indian Penal Code (IPC). 

TDP response

Atchannaidu is undergoing treatment in Guntur Government Hospital (GGH) as he recently underwent a surgery and was advised rest by doctors. Doctors said that the TDP leader's condition was stable. He is presently under 14 days of judicial custody.

The TDP has lashed out at the YSRCP for the arrest with Chandrababu Naidu stating that it was part of YS Jagan's "vindictive politics."

In February, when the allegations first came to light, Atchannaidu had denied any wrongdoing and said he merely implemented the directives of Prime Minister Narendra Modi.

"In 2016, the Prime Minister convened a meeting of ESIC and wanted the states to introduce tele health services and the Centre wrote a letter to all states in December 2016 on the same. We had decided to implement that and I asked our officials to follow the Telangana model and issued a note," Atchannaidu had said in a video message.

Maintaining that all relevant records were available, the minister had said that he was ready to face an enquiry.

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