The Kuala Lumpur Sessions Court heard today that ex-Perwaja Steel managing director Eric Chia had claimed he could not adhere to a contract procedure that barred him from approving contracts at will, as he did not want to lose face.

Prosecution witness Nik Mohd Affandi Nik Yusoff told the court that on May 30, 1993 Chia had asked Perwaja's board of directors to defer the enforcement of the procedure stating it would hurt his pride if it was enforced.

"He (Chia) asked the board to defer enforcing the procedure which could make him 'lose face'. He said that, if enforced, it would give an impression to his subordinates and contractors he had dealings with - that he had committed wrongdoings and that the government no longer trusts him," he said.

"He had said he was willing to resign in April 1994 and hoped that the procedure would be deferred until then."

Nik Mohd Affandi said although he and the other board members had assured Chia that he would be given the bargaining power on behalf of Perwaja (in awarding contracts), the tycoon still declined to compromise.

He said the contract procedure became an issue when he noted (during his first month sitting on Perwaja's board in June 1993) that Chia had a free hand in deciding contracts and tenders for Perwaja without seeking the approval of the company's tender committee.

This practice went against the contract procedure drafted by the government and accepted by the company in February 1993.

Extreme discomfort

Nik Mohd Affandi was testifying against Chia who is charged with making an unauthorised payment of RM76.4 million to NKK Corporation (Japan) on Feb 22, 1994 via the accounts of Frilsham Enterprises Incorporated.

He also faces an alternative charge of illegally entering into an agreement with NKK to dispose the RM76.4 million without the approval from Perwaja's board of directors.

Chia ( photo ) is charged under section 409 of the Penal Code which carries a maximum 20-year jail sentence

Nik Mohd Affandi also said Chia's reluctance had caused him extreme discomfort as he believed that Perwaja should adopt a proper contract procedure.

"But at the same time, Chia's resignation would also cause problems to the company's management. He was a very dedicated managing director and the board believed that it was necessary for him to be in charge for at least three years for the company to succeed."

The Perwaja director then told the court that he sought the advice of the then finance minister Anwar Ibrahim via a memorandum in which he stated his conflict with Chia on this matter.

Procedure maintained

He also asked Anwar to decide whether the ministry should continue putting a representative in Perwaja's board who had a non-active role as most of the contracts are presented to the board merely as a formality.

"In the event the ministry believed that a representative from the ministry is essential, I had offered to be replaced as I believe that I - as a director of public sector companies monitoring division - cannot assume a non-active role in the board."

He said shortly after receiving the memorandum, Anwar sought a meeting with him on June 29, 1993.

"The minister told me that he was determined to have the procedure maintained. The minister also said that he would discuss the matter with the accused (Chia)."

Anwar had also advised him to continue sitting in the Perwaja's board room although he (Nik Mohd Affandi) had offered to withdraw following his conflict with Chia in maintaining a proper system in awarding tenders.

"The minister thought that I should continue to sit in the board and be as constructive as possible."

The hearing continues on Thursday.