Lt Gen Bhatia's report calls for probe by agency like CBI into Technical Services Division set up by former Gen VK Singh; report with PMO. (PTI)

Misusing secret service funds to destabilise the Omar Abdullah government in Jammu and Kashmir, to pay off an NGO to try change the line of succession in the Army top brass, to buy off-air interception equipment, to conduct "unauthorised" covert operations  a string of alleged irregularities by the Technical Services Division (TSD), a controversial Military Intelligence (MI) unit set up by former Army Chief General V K Singh in May 2010, should come under the scanner of an external agency like the CBI.

Related: Rs 8 crore missing from unit set up by ex-chief V K Singh, Army tells MoD

This is a key recommendation of a secret Board of Officers inquiry report into the functioning of the TSD. The inquiry was led by Lieutenant General Vinod Bhatia, DG, Military Operations.

Related: MI unit under probe on verge of closure

The report, which includes original Army documents and notings, was submitted to the then Defence Secretary Shashi Kant Sharma around March this year. It has rattled the security establishment and prompted a series of measures to curtail MI's powers, tighten monitoring of its covert operations and its use of secret service (SS) funds.

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Government and Army sources have confirmed to The Indian Express that a summary of the report has been put up by the Ministry of Defence to Minister A K Antony who is understood to have instructed that its contents be brought to the notice of the Prime Minister's Office. The report has been examined, sources said, at the "highest levels" in the MoD and the PMO. March 4, 2012: Govt probes 'snooping' by Army equipment

National Security Advisor Shiv Shankar Menon is known to have chaired more than one high-level meeting to discuss the report and follow-up action.

Sources said the report contains financial details of withdrawals of SS funds from accounts of the State Bank of India that match payments claimed by TSD officials  in their statements to the Board  for specific operations. It, however, cautions that given the covert nature of these operations, there is an element of "deniability''.

Significantly, the Board of Officers inquiry took detailed testimonies of key personnel of the Army's Intelligence Corps who were attached to TSD units, including Colonel Hunny Bakshi, who handled its key operations.

There are also statements from other senior MI officials who were not associated with TSD but have confirmed what they described as "siphoning'' of large sums of money for purchase of snooping equipment and operations.

The Indian Express has learnt that the report cites testimonies of officials on money taken from SS funds for operational expenses by the TSD at the expense of other commands and field units. These claims include:

* Rs 1.19 crore given to Ghulam Hassan Mir, presently Agriculture Minister of Jammu and Kashmir, to engineer a change of Governmrnt in Jammu and Kashmir. When contacted by The Indian Express, Mir called the charge baseless.

* Rs 2.38 crore was given to one Hakikat Singh on orders from Army Headquarters. Hakikat Singh set up an NGO named "Jammu and Kashmir Humanitarian Service Organisation (JKHSO)," which was linked to "Yes Kashmir," another NGO which filed a PIL against then Army Commander Bikram Singh (who is now the Army Chief) in the alleged fake encounter case in Jangalat Mandi when Bikram Singh was a Brigadier. That PIL, which was later dismissed, was widely seen as an attempt to scuttle Bikram Singh's appointment and change the line of succession in the top brass.

* Rs 8 crore was spent on purchase of interception equipment from a Singapore-based company in November 2010 ostensibly meant to be deployed in the J&K 15 Corps. In March 2012, following orders of the then DG, MI, Lt Gen D S Thakur, the equipment was physically destroyed. Incidentally, this happened days after a report in The Indian Express on the illegal use of this equipment in New Delhi.

* Frequent foreign travel by TSD officials to places like London and Dubai using their personal and not official passports and of specific TSD officials "doctoring'' documents to tarnish Army officers.

Officials in the MoD and PMO familiar with the Bhatia inquiry report told The Indian Express that with such details, the Army could well have initiated action against serving and retired officials but it has instead submitted the original records to the Ministry, leaving the final decision to them.

Indeed, when contacted, the Army spokesman said: "The case (the Bhatia report) has been closed from our side."

Said a top PMO official: "The problem confronting us while dealing with the TSD report has been two-fold. One, those running the TSD appear to have covered their tracks well and destroyed crucial evidence; two, the statements contained in the inquiry report have no legal sanction. In fact, if they are faced with a court martial or CBI inquiry, these officials can turn around and deny everything they have admitted before General Bhatia.''

Sources also said that before he demitted office in May, then Defence Secretary Sharma gave instructions that MI should now submit a quarterly statement of expenditure of SS funds to the Ministry of Defence.

The Government has also taken up the issue of a strict charter and mandate for the MI given that the agency is required to engage itself in only counter-intelligence and anti-militancy operations on the border and not conduct any covert or clandestine operations like the TSD did. Also, instructions have been given that, henceforth, no special units, such as the TSD, are to be raised without authorization from the Ministry of Defence.

INTERMEDIARY TELLS EXPRESS: GEN SINGH SAID YOU WILL GET IT IN THE NECK IF YOU PUBLISH

FORMER ARMY Chief General V K Singh was contacted on telephone by The Indian Express on September 17 but did not respond to calls or text messages. The next day, he was sent a set of questions seeking his comments on the TSD and the findings of the inquiry report.

TO CONFIRM the email's receipt and to again try and reach Singh, The Indian Express contacted Kunal Verma, a photojournalist commissioned by Singh  when he was Army Chief  to write a set of three pictorial books on the North-East.

ON SEPTEMBER 19, Verma called this reporter early in the morning with an offer to fix a meeting with Singh. A few hours later, he said Singh had told him to convey that "he does not wish to speak to The Indian Express and should the newspaper write anything about me they will get it in the neck".

VERMA CLAIMED that Singh was unable to read the email since he was shifting residence and could not access it on his phone since it was not functioning. Verma asked for the email to be copied to him which The Indian Express declined to do.

LATER IN THE EVENING, however, PTI reported Singh as saying: "This (an apparent reference to the Bhatia report) is simple vendetta as some people are not comfortable with me sharing the dais with Narendra Modi to espouse the cause of ex-servicemen in the country."

HE TOLD PTI that if anyone has recommended a probe into the functioning of the unit, then that person is "talking through his hat" as its operations were meant to be secret.

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