How to avoid flour lumps in the sponge cake? I have a sponge cake recipe which has been in our family for a long time:


  6 eggs
  1.5 cups icing sugar
  2.5 cups flour
  1 cup milk
     1 cup oil
    1 tsp baking powder
    cardamom and saffron
  
  Separate the eggs. beat egg whites until soft peak and set aside.
  beat yolks and add sugar then mix well until creamy. add cardamom
  while mixing. Add oil and continue mixing. add lukewarm milk and mix
  for a few minutes until thoroughly mixed. Add yolk mixture to the egg
  whites and mix quickly for one or two minutes. then fold in the
  (flour+baking powder +saffron) mixture which is sifted into the egg
  mixture.


I was wondering how do we actually fold during the process of making the sponge cake. Do we fold it very lightly or fold until all the flour is fully incorporated? whenever I fold it to fully incorporate it, the texture does not get too airy and the volume decreases. or do I fold it lightly to ensure maximum air volume but whenever I pour the batter into the mould, I see remnants of unincorporated flour. 
Also is it correct to use electric mixer to mix egg white mixture and egg yolk mixture, or do I need to fold one into the other?
Always fold, gently, by hand.  The more delicate the ingredient, the more critical it is; few culinary ingredients are as delicate as beaten egg whites.

The flour (you're using bleached cake flour, aren't you?) should be added in stages (about 1/4 to 1/2 cup at a time), preferably via a sifter.  Incorporate just to the point where the flour is mostly evenly dispersed and is wetted.  When transferring to the baking dish, keep an eye out for any unwetted or clumps and gently mix them in.

In addition, I always fold in all ingredients to beaten egg whites and would recommend you do the same when adding the yolk mixture.  You need fold just until it's mostly dispersed as you will be further folding when you add the flour.

If you are still having problems, you could try adding cream of tartar to the whites when beating to help stabilize them.  I don't use it generally myself, but 1/4 tsp should do the trick.