denovoS Polyesters Ltd
(i) Introduction
. The company, belonging to S Group, was incorporated in January 1996 for manufacture of polyester filament yarn. It was financed by a consortium of 10 banks led by A Bank. Various facilities were originally sanctioned by the branch in August 1997 with 7.50% share in working capital, 12% share in TLs and 13.34% share in DPGs. The account was last renewed on February 20, 2002. The existing exposure was restructured by the ExecU ve Committee vide the renewal note sanctioned on February 20, 2002.
(ii) Circumstances under which the account became NPA
The company’s operations were satisfactory till 1995-96. Thereafter industry margins declined due to various reasons viz: Asian crisis, lowering of domestic customs duty and substantial capacity expansion. This, in turn, affected the profitability of the company. The company incurred a net loss (including depreciation) of Rs 75.81 crore and Rs 63.40 crore for 1996-97 and 1997-98 respectively. It diverted about Rs 83.87 crore (as on March 31, 1998) to its group concerns viz: S S L , S I Ltd (C Divn) and issued corporate guarantee of about Rs 1.00 crore on behalf of such concerns. The promise of the company to bring in promoters’ contribU on of Rs 9.00 crore before March 28, 1998 was not ensured. All the efforts of the consortium for bringing back the diverted funds in working capital circulation failed. The company was operating on low inventory which depleted its DP and the working capital accounts turned irregular. There were devolvements of all 9 DPG instalments issued in favour of M UK plc (by D Bank on behalf of all consortium members) and the branch had to reimburse D Bank its share. The last instalment of DPG (Rs 1.12 crore) had devolved on February 16, 2001. The accounts of the company which were rendered irregular since May 17, 1996 slipped into NPA category as on March 31, 1997.
Further, the company suffered a net loss of Rs 28.08 crore during 2000-01 and Rs 72.22 crore during 1999-2000. The decline in net loss during 2000-01 was mainly due to reliefs and concessions given to the company by FIs/Banks during restructuring facilities approved by EC on March 28, 2001 with effect from April 1, 1999. An interest of Rs 1.92 crore had been waived and credited to CC account.
Though the approval for restructuring was approved by EC on March 28, 2001, the terms and conditions under the restructure were effected by the branch only on March 28, 2002. As per the extant guidelines, the revised limits under restructuring terms (from the date of restructuring) must be watched for one year before upgradation of the account to standard. But the bank classified it as standard as on March 31, 2002 itself after three days of restructuring the facilities in the account. As a matter of fact, the account should have been upgraded only on March 28, 2003 after watching its performance for one year from March 28, 2002. Incidentally, the statutory auditors, in their LFAR, stated that the account should not have been upgraded before March 28, 2003.
(iii) Recovery Efforts made by the bank
The branch was merely following the line of action adopted by the I Ltd and A Bank (Lead FI/Bank). The persistent irregularities from May 2000 to December 2000 were reported in February 2001. The conduct of the account was not satisfactory. The branch had not been able to make any recovery in MTL/DPG devolved accounts. The total outstandings in the account aggregated Rs 44.76 crore as on December 31, 2001. The limits of the company were restructured in March 2002 vide EC’s approval dated March 28, 2001. The terms of sanction reduced the rate of interest from April 1, 1999 to December 2000 whereby the company was given a benefit of Rs 1.92 crore by way of waiver of interest and this was credited to the CC account. A highly concessional rate (9%) was applied for WCDL and Term Loan repayable in 32 equal instalments commencing from June 15, 2002. Interest free FITL (to be repayable in 32 equal instalments commencing from June 15, 2002) was sanctioned contrary to the guidelines issued by . In case of CC, the RO at 12.5% with quarterly rests till cash flows permit the company. In terms of the existing guidelines, the company (if NPA), during reschedulement must remain in the same category as at the time of reschedulement and must be upgraded only after watching the account for one year. In this case, the repayments in the accounts will start only in June 2002 but the account was upgraded in March 2002 itself without even a single repayment received in the account. Further, although the EC had given approval for restructuring on March 28, 2001 the same could not be given effect as the bank failed to clear the overdue interest of Rs. 2.19 crore before March 31, 2001 as per the terms of restructuring approved. The bank has given time upto Sept 30, 2001 to clear the dues but the company again failed to meet the commitment till March 2002. Hence, the performance of the account could not be construed as satisfactory in the year 2001-02. Apart from this as per terms and conditions of restructuring proposal approved, the company was required to enhance the authorized share capital upto Rs. 175.00 crore, the bank did not ensure compliance with this condition before actually giving effect to the proposal on March 28, 2002. In terms of extant guidelines , in case there is a sacrifice involved in the amount of interest in present value terms, the amount of sacrifice should either be written off or provision made to the extent of the sacrifice involved. This was not ensured by the branch. The branch thus upgraded the account (on the basis of approval by EC) contrary to the extant guidelines . The account is therefore classified as D2 (as classified by the bank as on March 31, 2001 before reschedulement) as per IRAC norms and a provision of Rs 8.41 crore is recommended.
The WCTL and MTL were irregular due to non-servicing of interest for quarters ended December 2001 and March 2002.
L S Industries Ltd. (LSIL) WRITTEN OFF
Introduction :
The account was commented upon in the previous inspection report. The above Company (formerly known as G T and P P . Ltd.) belonging to L Group of companies was incorporated on April 27, 1970 for manufacture of designing, fabrication of chemical process equipments, air drying system and other projects on turnkey basis. The Company was converted to Public Ltd. Company in 1986. The total cost of the project appraised in 1997 by I was estimated originally at Rs.3.26 billion and enhanced to Rs.5.52 billion in March 1999 for expansion of the project. For the working capital requirements, the Company was sanctioned fund based limits of Rs.10.92 crore and non-fund based limits of Rs.25.60 crore by the bank on July 7, 1995 towards its share of 4.93% under a consortium arrangement of 13 banks led by Bank
Circumstances under which the account became NPA :
The company had been incurring losses for the past several years. The account which had been rendered irregular in 1999 due to default in servicing interest was regularised by transferring the margin money held in respect of LCs and BGs. There was further deterioration in the performance of the Company in 1999-2000 causing serious liquidity crunch. 19 LCs aggregating Rs.6.09 crore and 2 BGs for Rs.6.72 crore got devolved/invoked on the bank. The sales turnover declined by 40.07% from Rs.813.95 crore to Rs.487.77 crore during the year 1999-2000. Resultantly, there was increase in loss by Rs.82.93 crore to Rs.294.06 crore during the financial year ended March 31, 2000. During the year 2000-01, FBGs amounting to Rs11.64 crore were invoked. The depressed market conditions in steel industry, slow movement of business, lack of demand, general downtrend in automobile industry and imports at cheaper rates led the company to continuous losses from 1998 onwards and the account became NPA on March 31, 2000.
The Company at the instance of I appointed E to undertake a restructuring exercise for steel business of the LG which submitted its report in March 2000. The report pointed out serious discrepancies in valuation of current assets by the Company such as physical stocks and the stocks as per records were not reconciled, non moving and slow moving stocks had not been properly identified, valuation of inventories was not done in accordance with the revised accounting standards, etc. The I convened a meeting of consortium members on February 14, 2002 to discuss the restructuring proposal of the company based on the report compiled by (EY). EY broadly proposed bifurcation of the activities of the company into two entities viz Steel related activities and other activities. The period of business considered for paying off the entire facility (i.e.Rs 2798.15 crore comprising Share swap among group companies – Rs 275 crore, ,interest to be written off – Rs 131.76 core, Equity/preference share in lieu of debt – Rs 1590.33 crore and loans (TL/FTL) – Rs 801.06 crore) from 2002-03 to 2013-14 (repayment commencing from 2005-06). During the period, no capital outlay was envisaged. Additional WC expected to be sanctioned by the banks would be Rs 97.16 crore during 2002-03 which would increase to the level of Rs 122.77 by 2011-12. This facility would be at an interest rate of 12% per annum. There was no response to the proposal from the members of the consortium since the company was already registered with B and directions were awaited from B in this regard.
Comments on recovery efforts :
The current ratio of the company fell to 0.15 as on March 31, 2002 and the bank did not initiate any serious / concerted efforts towards recovery in the account. On the contrary, the Company was roU ng its transactions through other banks.
Position of court suits/D s/ B proceedings :
A suit was filed by the bank with D for Rs.45.26 crore on March 21, 2001.Consequent upon erosion of net worth as on March 31, 2001, the company referred the case to B on June 29, 2001 which was registered on July 11, 2001. The suit filed by the bank was stayed due to reference of the case to B and the bank requested B to allow them to pursue the suit filed on March 21, 2001. B had not communicated the date of first hearing in the matter.
Comments on staff accountability :
taff accountability aspects were yet to be formally examined in the account. However, the bank reported no staff lapses to the Board while reviewing the position of the NPA account for the quarter ended March 31, 2002.
Comments on any other matter :
he bank generally followed the procedure of applying depreciation on fixed assets @10% per year. In the instant case, the depreciation was carried out in a special way in accordance with the provisions of Company’s Act, 1956 by applying varying rates on different items of assets as certified by auditors. The auditors had also certified that the provision had not been arrived at in accordance with Income Tax Act. A suit had been filed
R S Ltd.WRITTEN OFF
Introduction
The borrower company, established in May 1991, was engaged in the production of solvent oil, Vanaspati and refined oils. The bank had enhanced fund based limits from Rs.12.00 crore to Rs.14.40 crore and non-fund based limits from Rs.6.30 crore to Rs.17.10 crore in March 2000. The borrower was financed by a consortium with the bank being the leader with 60% share. Bank was the other consortium member. The borrower was sanctioned long-term loans by R and I aggregating to Rs.24.80 crore. The date of last sanction was March 28, 2000 and the account was last reviewed on November 13, 2001.
Circumstances under which the account became NPA
The company was facing liquidity problem on account of unstable prices of edible oils and vanaspathi. The term loan instalments were overdue from July 1999. The enhanced limits, though sanctioned by S , were not sanctioned by S (40% share). Although the bank had stated in its proposal for enhancement that there were no overdues in the long term finance, it later transpired that instalments to term lenders were due from July 1999 onwards. Similarly, although it was submitted to the ExecU ve Committee on May 5, 2000 that the overall financial indicators and working results (except for net profit) were satisfactory, the position had altered significantly by July 2000. The company had incurred a loss of Rs.25.97 crore as against a profit of Rs. 2.28 crore in the previous year. The company had also withdrawn share application money of Rs.3.05 crore although at the time of enhancement of limits it was specified that it should not be withdrawn and should be converted to paid-up capital at the earliest. A stock audit conducted in July 2000 also revealed that the company was reporting inflated stocks and there was a gap of Rs.2.50 crore between the figures reported to the bank and as per the assessment of the Stock Auditor. The market value of stocks as per the stock statement dated May 31, 2000 was Rs. 25.80 crore as against Rs.3.22 crore as per the stock statement dated January 2001 indicating an erosion in primary security to the extent of Rs.22.58 crore during the year apart from steep increase in receivables. Sundry creditors showed an abnormal increase in comparison with the previous year. The bank had given substantial enhancement in fund and non-fund based facilities from Rs.30.50 crore to Rs.52.50 crore in March 2000. This included enhancement in usance LC facility from Rs.9.00 crore to Rs.27 crore. 146 bills amounting to Rs.16.38 crore and 2 BGs amounting to Rs.0.40 crore devolved. The account finally slipped into NPA on October 1, 2000.
Comments on recovery efforts
No recoveries were made in the account during the period under review excepting reversal of Interest Suspense for an amount of Rs. 1.19 crore . However, a sum of Rs 0.05 crore was recovered in the account on April 1, 2002.
Position of legal recovery proceedings
A suit was filed against the borrower company on September 17, 2001 at D Similarly Bank the other consortium member had filed a suit for recovery in February 2001. The company approached B on September 10, 2001 The bank is seeking permission from B for continuing the case with D .
Comments on Staff Accountability
Staff accountability was examined and no lapses observed.
Comments on other matters
R entered into an agreement with M/S P O L (POL), to run its R Plant on job work basis and POL to pay a minimum of Rs 0.15 crore per month to the bank towards the job work charges. In this regard, the bank had issued a “No Lien Certificate” (NLC) on November 24, 2001 valid upto February 2, 2002. The other member of the consortium i.e. S had also issued NLC on December 31, 2001 subject to similar approval from the term lender The bank advised the company to deposit Rs 0.15 crore per month as agreed upon. But a sum of only Rs 0.05 crore could be recovered by the bank during the period under review as explained above. In the meantime B advised the bank to offer its submissions before May 14, 2002 and the bank sought time upto June 10, 2002. No developments were reported thereafter. The bank did not compute provision in relation to security correctly and hence an additional provision of Rs 0.08 crore is recommended.
A. Ltd
ntroduction :
A Ltd. (formerly known as A (P) Ltd.) was incorporated on January 30, 1989 for manufacture of Antenna, Masts required for HF, VHP and VAF in the field of radio communication equipment, etc. While the Company availed of long term finance from I , the WC facilities were provided to the company by three banks under consortium arrangement with S as the leader with its share of 40%. Credit limits sanctioned by the bank on October 31, 1994 were allowed to continue till July 7, 2000 without any renewal. No critical review was carried out even in the wake of declining trend in sales turnover. Further, the Company availed of a Term Loan of Rs.5.00 crore from B B on January 24, 1996 (by creating Ist charge on F.As of the Company) without the consent of consortium banks for its working capital requirements. The bank had renewed the limits, on July 8, 2000 by accepting ambitious sales projections despite slump in sales turnover and overlooking the poor financials of the Company.
Circumstances under which the account became NPA :
The performance of the Company which was satisfactory up to 1994-95 but got adversely affected due to liquidity problems arising out of implementation of cable project, deferment of public issue, acute shortage of working capital, non receipt of expected orders, low pace of modernisation and imposition of ban by DOT, market recession, etc. Consequently, there was erosion of net worth by 50% as on June 30, 1999 and its accumulated losses stood at Rs.40.99 crore. Despite selling its Cable Division to S T Ltd. in 1997-98 for Rs.28.00 crore and its equity share (35.5%) in T L N for Rs.15.00 crore, its financial position did not show any signs of improvement. The conduct of OD (BCC) limit of Rs.2.00 crore which was sanctioned in 1994 was unsatisfactory and not in tune with the bank’s extant guidelines as power of attorney was not registered, bills discounted were handed over directly to the company for despatch, bills were not honoured in time, bills pending beyond the stipulated period were removed from the cover and DP was permitted by accepting fresh bills. This facility was closed after the renewal of credit facilities from July 24, 2000. (The Company diverted short term funds to long term uses to the extent of Rs.4.00 crore in 1997-98 and Rs.1.35 crore in 1998-99 as pointed out by credit audit report dated February 10, 2000). The account was rendered irregular due to frequent devolvement of bills drawn under LCs during 1998-99 and 1999-2000. As many as 144 LCs aggregating Rs.10.02 crore in 1998-99 and 156 LCs aggregating Rs.14.16 crore devolved on the bank in 1999-2000. Despite this, the bank went on establishing LCs to accommodate the borrower. LCs opened in favour of S S L ., H Z S T , P h I U , S R I , S R and E ., etc. were frequently devolved. Discrepancies in compilation and submission of stock statements were noticed by the statutory auditors in LFAR for the year ended March 31, 2000. Unpaid stocks and stock received under LCs were not deducted for arriving at DP to facilitate excess finance to the borrower It was beyond doubt that the Company availed more finance beyond the DP limit during the period 1999-2000. The outstandings in CC accounts were regularised by allowing DD purchase facility to the borrower on regular basis though there was no such sanction by the H.O. The branch Manager blatantly transgressed the delegated authority while purchasing DDs /Banker’s Cheques regularly and no permission was obtained from the Controller in this regard. Though the matter was regularly reported to the Controller for ratification of branch action, the Controller never advised the branch to refrain from such acts. The DD purchase facility availed by the company tantamounted to sanction of additional facility/limit for regularizing the long outstandings in CC account. The accumulated losses of the company for the year ended June 30, 2000 was to the extent of Rs.15.85 crore. Strangely, the bank enhanced working capital limits from Rs.12.00 crore to Rs.12.87 crore on July 8,2000 including WCTL limit of Rs.2.47 crore in conversion of excess borrowings. This was done on the basis of unreasonable and unrealistic projection made by the company for 2001-02 overlooking the highly unsatisfactory past financial indicators. Despite all these, the CC account continued to be irregular and the account was overdrawn for more than 332 days during 2000-01. The CC account was adjusted as on March 3, 2001 but became irregular soon after and was irregular as on March 31, 2001, April 30, 2001 and May 31, 2001. The bank had also sanctioned a DPP limit of Rs.2 crore for purchase of prepaid instruments issued by B , PSUs etc. outside the ABF limit during 2000-01. Due to existence of such glaring irregularities, the inspection as on March 31, 2001had classified the account as NPA with effect from March 31, 2000.
The bank did not comply with the observations made by regulatory authorities in their report for financial year ended March 31, 2001 and went ahead to treat the account as standard as on March 31, 2001. On the other hand, the company continued to demonstrate its declining trend and recorded its accumulated losses at Rs 28.34 crore and current ratio at 0.82 as can be evidenced from the balance sheet as on March 31, 2001.
During the year under review also, there were frequent devolvements of LCs which rendered the working capital facilities continuously irregular for 360 days out of 365 days. Only around the balance sheet date, the account was regularized by a solitary credit/fewer credits, that too, carved out of purchasing a bill or a cheque (outside ABF) for the company. The account was continuously irregular for more than 180 days as on March 31, 2002. Even after the balance sheet date i.e. March 31, 2002, the account was overdrawn (at maximum Rs 9.31 crore against the limit of Rs 2.08 crore) on more than four occasions until June 30, 2002. Added to this, the bank issued a NOC to U bank to facilitate the borrower to avail one-time ad-hoc bill discounting facility of Rs 5.00 crore to regularize its own CC account. This bears testimony to the fact that the NOC was issued with the sole intention of bailing out the company from acquiring NPA status. Apart from this, the bank enhanced its fund-based facilities from Rs 12.87 crore to Rs 15.40 crore on February 20, 2002 (ECM-793) by immobilizing Rs 5.00 crore from the existing LC facility of Rs 8.00 crore. By this process, the bank increased its fund based exposure to the company which was rated as S -6 in blatant violation of its own policy which lays emphasis on the instruction that no enhancement in credit limits should be considered in existing accounts which are rated below S 5/S TL5. Despite all the points enumerated in the foregoing paragraphs, which showed that the account was to be classified as NPA from March 31, 2000 onwards the account was being maintained as Standard by the bank.
Comments on recovery efforts :
The bank did not initiate any steps towards recovery of its dues. In fact, the irregularities in the CC account were increasing due to frequent devolvement of bills drawn under LCs right from 1999 to 2002.
Position of court suits/
The Company’s net worth already got eroded. When the company would approach B is only a matter of time. Contrarily, the bank appeared satisfied with the performance of the company and treated the asset as a standard asset instead of initiating action against the company..
Comments on staff accountability :
Staff accountability was not examined as the account was treated as standard asset.
Comments on any other matter
The statutory auditors of the Company pointed out (on the audited financial statements as on June 30, 1999) that the valuation of raw material and components, determination of material lost for valuation of work in process was taken at gross value for which MODVAT was claimed. The valuation was improper. The Company did not make any provision to the extent of Rs.38.87 crore in the P&L account for the year 1998-99. This speaks of the credentials of the borrower as identified by the statutory auditors way back in 1999.
The inspection team treated this account as D1 as on March 31, 2002 depending on the age of the asset (Date of NPA being March 31, 2000) and a provision of Rs 3.51 crore is recommended.
Cement Corporation of India Limited
Introduction
. The company was incorporated on January 18, 1965 as a GOI undertaking for manufacture and sale of cement. The company was financed by the banks under a consortium arrangement with S in the lead. The credit limits originally sanctioned by the bank in the year 1975 were subsequently renewed from time to time towards its share (fund based 18.33% and non fund based 18.26%). The limits were last renewed on Nov 7, 1993 and were being continued on hold on basis till date.
Circumstances under which the account became NPA
The account was rendered irregular during 1995-96 due to devolvement of LCs, reduction of DP on account of depletion of stocks etc. and finally slipped into NPA category as on March 31, 1997. The Company which became sick due to cost overrun went to B in 1996. B , in its order dated March 8, 1996, declared the Company as sick and appointed I as Operating Agency (OA) with the instructions to prepare a revival scheme. A viability study was conducted by (DCL) who suggested reschedulement of the dues by secured creditors which was not agreed to by the banks. The consultants also suggested closure of three units (out of ten units of the Company) namely M , A and C D since they were unviable. Subsequently, based on the Company/GOI’s proposal for OTS, B circulated a draft rehabilitation scheme (DRS) on June 12, 1998 but the same did not materialise due to lack of firm commitment by GOI regarding infusion of requisite funds. B in its meeting held on March 1, 1999 directed OA to draw an updated DRS which was submitted on Nov 11, 1999 envisaging a cost of Rs.410.00 crore to be met by different means. In the B hearing held on July 28, 2000, the Bench observed that except for 4 units, the viability of the remaining ones was doubtful and would require to be closed down and sold off to some private parties. The OA had appointed S Caps, for arranging sale of unviable plants. The GOI was however yet to indicate its views on rehabilitation / sale of individual units of the Corporation. In the B hearing held on March 27, 2001 the Govt of India representative stated that a decision had been taken by the group of ministers that CCIL was identified for sale. It was reported that the process of sale of assets is in progress and is expected to be completed by the end of 2002.
Comments on recovery efforts
The bank was following up with the consortium leaders, S and I for sale of plants to realize its dues. It was reported that there were 35 bids received in response to the global tenders called for. The company evinced interest in reviving its units. The company which hitherto had no brand name of its own, has reportedly floated 4 brands in the recent past and claimed to have lifted its standards at par with its counterparts in the market through quality control measures. A consortium meeting was held on March 13, 2002, the official of the company informed members that in view of the confidentiality being maintained by S C , the details of responses received from global bidders could not be disclosed to them. It was also informed to the members that updation of valuation of assets was also being looked into by S C . The OA ( I ) is in the process of finalisation of the DRS and it would be circulated to all the members.
Comments on legal recovery proceedings
A reference was made to B by the company on April 25, 1996. As observed by B , excepting B , R , T and A units, the viability of remaining units was doubtful. The B noticed that the company and its promoters were very sincere in formulating the process of DRS but enjoying undue protection under SICA. B /vide their letter dated November 13, 2001 ordered for issuance of show cause notice to the promoters/company asking them as to why the Board should not form the opinion for winding up of the company under section 20(1) of SICA since they failed to fulfil the required timely commitments. B is yet to pass further orders in the matter.
B H
Introduction
The company (formerly known as H ) was established in 1947 for manufacture of phenolic resins, moulding materials, polyester resins, industrial and decorative laminates etc. In 1982, the company was taken over by D G resulting in reduction of Govt. shares to the extent of 15.92%. the credit limits, as stated above, were last sanctioned in April 1998 under a consortium arrangement of 6 banks with S in the lead with 45%. However, the revised limits were not released due to non-compliance with tie-up arrangements/non-sharing of the enhanced limits of other members. The limits were renewed on Feb 13, 2001 after restructuring the account whereby the earlier fund-based limits (Rs.30.04 crore) were bifurcated to WCTL (Rs.19.54 crore) and WC limits (Rs.10.50 crore). The WC limits were now to be shared between 3 banks with the bank’s share at 61% while its share in WCTL was 36%.
Circumstances under which the account became NPA
The company’s performance was under strain from 1990s when its brand faced competition from many small companies. The liberalization of imports in 1995-96 eroded the margins completely leading to losses and irregularity in the accounts. In order to sustain the business and fund losses short term funds were U lised. As a result, there was depletion of stocks. The CC account was irregular since June 30, 2000 and the interest for June, September and December 2000 was not serviced and was classified as substandard as on September 30, 2000. Even earlier, the CC account was irregular and continuously overdrawn for 5 months upto February 2000 due to devolvements of LCs and shortfall in DP. To regularize the account as on March 31, 2000 the bank resorted to restoration of additional DP limits to the extent of Rs.4.00 crore against book debts upto 180 days with effect from Feb 29, 2000 which amounted to sanction of fresh limits around balance sheet date with a view to avoiding the classification of the account as NPA. The limits which were last sanctioned on April 22, 1998 were restructured on Feb 13, 2001 converting the earlier CC limit of Rs.13.50 crore to Rs.6.40 crore CC and Rs.7.10 crore to Working capital term loan with the moratorium period upto Sept 30, 2002. The previous felt that in view of the fact that the restructuring was carried out while the account was classified as substandard, it continues to remain substandard for a year not withstanding the payment of interest/instalments subsequently and needs to be provided accordingly. However the bank did not implement the suggestions and continued to treat the account as Standard asset as on March 31, 2001 but it had classified it as “Sub Standard” as on September 30, 2001 though the account remained as NPA from September 30, 2000 as classified by the previous inspection (AFI 2000-01).
Comments on recovery efforts
The credit audit conducted in August 1999 pointed out serious irregularities in the performance of the account and had identified the account as borderline NPA. It specifically pointed out that the company’s performance was not as projected and that limits under LC and BG were on the high side. The unsatisfactory post sanction supervision was also mentioned. The bank was yet to obtain second charge on fixed assets for the enhanced limits sanctioned in 1998. The bank allowed drawing power on the basis of July 2000 stock statement even until January 2001 since the company was not submitting stock statements. The provisional stock statement as on 15th March 2001 submitted by the borrower indicated lower DP, however, the bank continued to assess DP on the basis of July 2000 statement even in March 2001. The FFR statements were not submitted since March 2000. It was also observed by the bank that the company was not roU ng all its sale proceeds through it. Against the estimated loss of Rs 7.88 crore, the company suffered a loss of Rs 43.62 crore as on March 31, 2001 which led to complete erosion of its net worth.
Comments on D / B / legal recovery proceedings
The company got itself registered with B . It had submitted a restructuring plan on March 6, 2002. The company had been advised by the bank to get the plan vetted by one of its approved consultants. The company was yet to respond to the requirement of the bank. In the consortium meeting held on March 23, 2002, the company requested the bank to consider sale of certain surplus fixed assets valued at Rs 6.11 crore for which there were ready offers. The bank approved it on May 17, 2002 subject to certain conditions. No further progress was noticed thereafter.
Comments on Staff Accountability
The bank had stated that no staff lapses were observed.
Comments on any other matter
One of the members of the consortium, S of T , filed a suit with D on June 8, 2001. The bank had erroneously classified the account as NPA w.e.f. Sept 30, 2001 instead of Sept 30, 2000. Consequently, the account had to be categorized as D 1 as on March 31, 2002 and recommended an additional provision of Rs. 1.31 crore.
I P (I) Ltd.WRITTEN OFF
Introduction
The borrower company, belonging to I group was incorporated on Aug 29, 1995 for manufacture of light and medium steel structures and profiles. The company availed loans from FIs and banks to set up a factory near P and also availed working capital limits under a consortium with S as the leader. The bank’s share was 10 %.
Circumstances under which the account became NPA
The company faced teething problems due to faulty design, rise in cost of raw materials, cut throat competition with the change in import policy and inappropriate product mix. The steel industry as such is plagued with excess supply and recession. After granting the first rehabilitation package in 1991-92, the account was classified NPA in 1993-94. Its performance improved subsequently and the asset was upgraded to standard category. However, the company could not achieve sales target thereafter and incurred losses continuously since 1995-96 which resulted in erosion of net worth in March 2000. The second rehabilitation scheme in 1997-98, which was implemented by S in March 2000, did not help in improvement of company’s performance. The company was reportedly writing off losses against revaluation reserves and the value of fixed assets was also increased on revaluation. The factory was under lockout since November 2000. The CC account was continuously irregular from 13th February 1999 while the term loan was irregular from 1 October 2000. Interest on CC and TL aggregating Rs. 0.43 crore for quarter ended Dec 31, 2001 was not serviced till March 31, 2001. The asset was therefore Classified as NPA w.e.f. Sept 30, 1999 and Doubtful (D-1) with effect from March 31, 2001 as per 2001. Accordingly as per age of NPA, it is required to be categorized as D 2 as on March 31, 2002.
Comments on recovery efforts
There was no recovery during the period under review excepting that an amount of Rs. 0.06 crore out of Rs. 0.48 crore lying in Interest Suspense account was reversed. The viability study conducted revealed that revival of the company was a remote possibility. In the consortium meeting held on September 4, 2001 (to discuss on the financial restructuring plan submitted by the company during July 2001), all the member banks were of the view that there was no possibility of revival of the unit as the promoters were not prepared to bring in the funds to meet labour dues and other essential expenses. During September 2001, the company approached the bank for issuance of export realization certificate in favour of DGFT for obtention of DEPB licence promising that the sale proceeds of DEPB licences would be routed through the bank’s account. There appeared a little scope for any further recovery. The EC approved recalling the advance and filing of a suit.
comments on B /D /Court proceedings
A suit was filed in the account on January 8, 2002. The presiding Officer of D granted injunction in respect of hypothecated securities and mortgaged securities. The bank issued a notice to the company to assist them for taking over of inventory held by them (company). In the meantime, the company referred its case to B on January 24, 2002. Court proceedings could not proceed further due to reference of the case to B .
Comments on Staff Accountability
Staff accountability in the account had been examined and no staff lapses were observed..
Comment on any other matter
The company revalued its fixed assets in the balance sheet submitted on March 31, 1995. The fixed assets were revalued again vide balance sheet as on March 31, 1998. In the balance sheet submitted on September 30, 2001 the fixed assets (net block) were valued at Rs 437.12 crore as against the net block of Rs 246.43 crore valued as on March 31, 1993 (prior to revaluatin). As a prudent measure, the net block as on March 31, 1993 was taken into account and depreciation was calculated upto March 31, 2002 and the net block was arrived at Rs 100.19 crore as on March 31, 2002 of which the bank’s share was 1.72% i.e. Rs 1.72 crore. If we have to go by revalued figures as per the balance sheet (revalued for the second time in March 1998) as on September 30, 2001 , the value of net block as on March 31, 2002 would be Rs 415.27 crore (after depreciation for six months) and the bank’s share would be Rs 7.14 crore (1.72%). The provision required as on March 2002 (based on balance sheet of September 2001) would be Rs 4.27 crores. Since this is not a prudent method of arriving at the realizable value of assets, the net block as given in Balance sheet as on March 31, 1993 is reckoned for arriving at the net block as on March 31, 2002 by applying prudent depreciation accounting method. The bank had however made sufficient provision.
A Finance Ltd. WRITTEN OFF
Introduction :
R
The borrower company, an NBFC, established in May 1985, is engaged in leasing, hire-purchase & consumer financing, bill discounting and portfolio management. It was financed by a consortium of 13 banks led by Union B amounting to a total fund based limits of Rs.115 crore and non-fund based limits of Rs.28.81 crore. The bank had sanctioned limits of Rs.11.00 crore towards CC and WCDL (Date of last sanction being June 16, 1997).
Circumstances under which the account became NPA
The company’s account became irregular from Dec 31, 1999 and the interest remained unserviced from March 2000 onwards. The company was not performing well as was evident from the decrease in gross income by 12.26% between June 30, 1999 and June 30, 2000 which was preceeded by a decrease of 16.81% in the gross income in the previous year. The company had incurred a net loss of Rs27.23 crore as on June 30, 2000 as against a net profit of Rs. 8.81 crore as on June 30, 1999. There were no transactions in the account since July 2000 and the borrower did not submit stock statements after July 2000 to the bank. The unaudited balance sheet for June 30, 2000 was submitted in January 2001. There had been a raid by I.T. authorities in September 2000 and all records had been sealed. The bank had also issued an LC for Rs.80.10 lakh which had devolved. The account was finally classified as NPA on September 30, 2000 by the bank.
Comments on recovery efforts
There were no transactions in the account from July 2000 onwards. The company credited an amount of Rs 15 lakh into the account on June 29, 2000 . The interest for the December 1999 quarter was paid in March 2000. There were no further transactions in the account.
Position of legal recovery proceedings
D had filed a suit for recovery of their dues and S had filed a petition for winding up of the company. The bank had also filed a suit in D , M on March 28, 2002 for recovery of its dues.
Comments on Staff Accountability
Staff accountability was yet to be examined.
Comments on other matter
The account was classified as Loss asset by the bank as on March 31, 2002 due to inadequate security coverage
R M G
Introduction :
. The above Company was incorporated on February 10, 1993 for manufacture of cast steel, rolled products, seamless tubes and pipes, etc. The project, appraised by D in 1992-93, was originally estimated at Rs.220.00 crore and scheduled to be completed by March 1995. Later on, the cost of the project was increased to Rs.241.20 crore due to addition of some equipments. There was delay in implementation of project due to cost over- run and infrastructure problems (delay in supply of some critical equipment, delay in delivery of machinery, technical problems in the tube plant and re-heating furnace etc.). The cost of the project was re-appraised by D in July 1996 with an addition of Rs.31.66 crore (taking the total costs to Rs.272.86 crore) which was to be met by promoters ( through rights issue), FIs/Banks by sanction of additional term loan and funding of interest along with reschedulement of existing term loan.
Circumstances under which the account became NPA :
The Company faced various problems during the implementation of its project and became sick as it could not sustain continuous production, heavy cost burden and depreciation, etc. The project could not be completed. The Company which had started its trial run operation suspended it in 1997 due to increase in power tariff, cost of production, change in Govt. policy, etc. The unit was shut down during April 1997. Resultantly, the account was rendered irregular on account of devolvement of LCs and non-payment of quarterly interest from June 1997 onwards and slipped into NPA category as on March 31, 1998.
Comments on recovery efforts :
There was no recovery in the account during 2001-02.
Position of court suits/D / B proceedings :
As the Company could not complete the project and due to erosion of its entire net worth as on April 20, 1999, it approached B to be declared as sick unit. B in its hearing held on Aug 10, 1999 declared the Company as sick and appointed D as Operating Agency to formulate a rehabilitation scheme. The Company submitted a revival proposal to the O.A and the same was referred to M for viability study by D . The unit was found to be viable subject to its obtaining certain reliefs/ concessions. Based on the M ’s report and observations by the banks, a revised rehabilitation proposal was discussed in a meeting held on Jan 23, 2001 and the scheme of revival was accepted in principle by all banks and FIs except S of T and (BOR ) which indicated their unwillingness to participate in the rehabilitation scheme proposed by D . B , vide their letter December 4, 2001 circulated the DRS among all the concerned. The ExecU ve Committee of the bank in its meeting held on March 20, 2002 approved conveying the bank\s consent to the DRS circulated by B in line with the other secured creditors, particularly S , with the right of the recompense, subject to certain conditions. The opinion of the bank was conveyed to B on April 2, 2002. In the B hearing held on April 29, 2002, it was observed that both S and BOR were agreeable to extend certain reliefs and concessions as envisaged in DRS but they were not agreeable to sanction additional WC. The bench observed that in case S and BOR would insist on not sanctioning the additional WC facilities to the company, the Bench might consider that these banks would not be getting equal treatment for repayments along with the other secured creditors. The bank had requested OA to sort out these issues and the joint meeting of the banks is yet to be convened.
Comments on staff accountability :
The bank stated that no staff lapses had been observed and that the company had turned sick due to delay in implementation of the project. A detailed examination of staff accountability was however yet to be taken up by the bank.
Comments on any other matter :
NIL.
S S LPG
Introduction
. The above company was incorporated on July 13, 1993 for import, bottling, distribU on and marketing of LPG. The total cost of the project, appraised by I , was estimated at Rs.116.00 crore. To part finance the project, the company was sanctioned a term loan of Rs.7.75 crore on May 1, 1995 by the bank towards its share of 25% under a consortium arrangement with I in the lead, repayable in 20 quarterly instalments with effect from April 1996. The company started its commercial production from Jan 1, 1995. The bank sanctioned WC limits of Rs.2.40 crore in a consortium arrangement under its leadership with a share of 60%.
Circumstances under which the account became NPA
During the year 1995-96, the company diverted short term funds to an extent of Rs. 2.91 crore towards investments in associate concerns and for the extension without matching contribU on from long term sources. The company incurred loses due to increase in the import of LPG price by more than 100% over the previous year without corresponding increase in the sale price of cylinder. It incurred losses to the extent of Rs.2.05 crore in 1995-96 and Rs.0.93 crore in 1996-97 due to operational bottlenecks. The company modified the project resulting in reappraisal of the same by I . The company resorted to diversion of short-term funds of Rs.6.57 crore during the year 1998-99. The account was classified as NPA as on March 31, 1998 in view of rephasement of term loan after commencement of commercial production. Subsequently the bank upgraded the account as on April 1, 1999 on the ground that the company paid the term loans and interest upto March 1999 though the account continued to be irregular till March 31, 2000 due to devolvement of bills drawn under LCs to the extent of Rs.4.46 crore upto January 2000. Therefore the account was classified as NPA as on March 31, 2000.
The company had entered into an agreement with C FED, Kerala, for uninterrupted supply of LPG refills to the customers of C FED at the rate charged by Govt. Oil Companies. In terms of the contract, the company provided BGs in favour of CONSUMERFED at Rs.3000/- per connection which aggregated to a total of Rs. 5.10 crore from the bank and Rs.1.60 crore from PNB. C FED invoked all the guarantees thus increasing the irregularity in the CC account. The company filed a suit against C FED and the bankers and the matter was pending till date. The bank was holding the amount of the invoked BGs pending a final decision in the matter.
I had recalled the advance on July 20, 2001 but in the consortium meeting held on August 20, 2001. The company had not disclosed this fact in the meeting which was resented later by all the members of the consortium. The company came out with different requests with regard to regularization of the account but it was observed by the bank that the company was not serious in settling the issue. The members of the consortium are contemplating to file a joint suit against the company.
Comments on recovery efforts
A sum of Rs 0.10 crore was recovered from the company during the period under review.
Position of court suits/D / B proceedings
The bank is contemplating filing a joint suit with other members of the consortium.
Comments on Staff Accountability
The bank had submitted to its Board that no staff lapses had been observed.
Comments on any other matters: NIL
A Credit C WRITTEN OFF
Introduction :
The company, a NBFC, availed banking facilities under consortium arrangement from 21 member banks. The bank sanctioned a sum of Rs 10.00 crore in the nature of CC/WCDL in March 1994 repayable on demand. In addition, the bank also had an exposure to NCDs of the company to the extent of Rs 4.00 crore.
Circumstances under which the account became NPA
The company had serviced interest upto 30th Sept 2000. The company stopped sending stock statements, FFRs and other relevant account statements and did not co-operate with the bank for conducting the stock audit. The bank did not comply with any of the requirements of the banks under consortium. The company started reporting huge operating losses from March 31, 2001 onwards. As the interest was not being serviced in the account, the account was classified as NPA as on September 30, 2001 and was placed in D1 category due to inadequate security.
Comments on the recovery efforts
A sum of Rs 0.41 crore was recovered by the bank during the period under review. The bank had also proposed an OTS offer but the company was not in a position to make any settlement. S & M had already filed suit for recovery of their dues. An injunction order restraining alienation of property/receivables had been passed by D and as such the chances of entering into OTS by the company with individual banks are curtailed. The company came up with a proposal that they are agreeable to pay Rs 1.35 crore within ten days of passing of necessary orders by D permitting payment of the amount from no-lien account maintained with (S ) the lead bank in which the collection are pooled up. The legal implications of the proposal are being examined by the bank.
Position of court suits/D s/ B proceedings etc.
The MD of the bank accorded approval on September 1, 2001 to file suit against the company individually in D , Chennai, to implead the bank in the above case to have access to the information/orders of D and also to safeguard the bank’s interest.
Comments on staff accountability
Staff accountability aspect was not examined in the matter.
Comments on any other matter
The bank had classified the account as a loss asset as on March 31, 2002 and fully provided for.
P I L
(i) Introduction
(PIL) (formerly known as P S L ), belonging to P group of companies and engaged in manufacture of CR Steel Strips started its operations in 1988 at its Isnapur factory, H . The company availed term loan from FIs ( I and D ). The company was enjoying WC facilities from May 31, 1996 from a consortium of banks led by S (56.64%). The share of S in WCDLwas 14.63%. PIL acquired the facilities of (NSL) with effect from April 1, 1997 who were also enjoying WC limits with the branch under a consortium. The company was operating two units i.e. at P (NSL) and Isnapur (PIL). Since merger of NSL, two of existing banks in the consortium i.e. S and A B (of erstwhile NSL) wanted to opt out from the consortium and had been following up for repayment of their dues.
(ii) Circumstances under which the account became NPA
Recession in the economy and increased competition in the major end-user segments of PIL i.e. White goods and auto sector had a negative impact on the company’s performance and profitability. The company made a nominal profit of Rs 0.30 crore from a turnover of Rs 230.00 crore during 1999-2000 and incurred a loss of over Rs 19.00 crore from a turnover of Rs 125.00 crore during the first nine months of 2000-01. For a major part of the year 2000-01, the account was irregular due to LC devolvements and non-payment of quarterly interest charges. The conduct of the account with other member banks of the consortium was also not found satisfactory. As on March 31, 2002, the outstandings of the company were Rs 8.33 crore while the DP was Rs 6.33 crore. The due date of renewal of the account was May 31, 1996 but operations were allowed by ExecU ve Committee on the basis of hold on operations upto March 30, 2002 and later it was allowed to be continued thereafter. The company in consultation with the branch had engaged M/S D H & S , Management Consultants, for preparing a comprehensive plan for Business Transformation and Financial Restructuring together with a thorough Techno Economic Viability Study. The consultants suggested change of product mix to other value added products, de-merger of units, disposing Isnapur plant, infusion of promoters’ funds and certain sacrifices by FIs/Banks etc,. The company however continued to suffer mounting losses during 2001-02. Since the unit was not found viable, it slipped into non-performing category as on September 30, 2001.
(iii) Comments on Recovery Efforts
A sum of Rs 0.04 crore was recovered from the P branch in March 2002, being 10% of the credits received into the account. No much improvement was made thereafter. The FIs ( I and D ) had restructured their liabilities based on the report of the Management Consultants. The branch had also sent a proposal for restructuring of limits which was approved by Head Office vide their letter dated March 26, 2002. In the meantime, D approached with CDR FORUM, referred the structure under CDR system and a restructure proposal under CDR mechanism was emerged in the course of deliberations/discussions held at the meeting on April 5, 2002 which mainly comprised (a) de-merger of business and hive off of T , I and P plants (b) upfront inductment of promoters’ contribU on (c) Interest on FITL to be at 10% instead of 8% (d) Interest on WCTL to be at 13.5% p.a. (e) sale proceeds of Isnapur unit to be U lized for payments to all lenders etc,. A consortium meeting was held on April 24, 2002 to discuss these issues. The minutes of the meeting had not been received by the bank so far.
(iii) Position of Court suits/D / B proceedings
One of the consortium members, A B , had filed a suit against the company in D , H , This issue was also discussed in the consortium meeting held on April 24, 2002. S advised Andhra Bank vide their letter dated April 24, 2002 with a copy endorsed to all the members that they should convey their decision with regard to their participation in the CDR scheme. Further progress in this regard is awaited.
(iv) Comments on Staff Accountability
There was no record of any staff accountability study having taken place in respect of the account.
(vi) Comments on any other matter - - Nil -
M.T.
Introduction :
. The above Company, a Public Sector undertaking, was incorporated in 1953 for manufacture of machine tools, die-castings, printing machines, presses, watches, lamps, etc. The Company availed of working capital finance for its three divisions (Machine tools, press and lamp) under consortium arrangements with UCO bank in the lead. The bank sanctioned its share(17.36%) of working capital limits on Sept 9, 1966. The credit facilities, as mentioned above, were last sanctioned in 1996. The limits allocated to four different branches of S (IFB , O B , H , Sa Branch and K Branch, H ) were consolidated and monitored at In Branch of the bank.
Circumstances under which the account became NPA
The Accounts of the Company were rendered irregular since June 1995 due to non-servicing of quarterly interest, return of cheques in clearing and devolvement of LCs the accounts finally slipped into NPA category as on March 31, 1997. The Company as a whole was incurring losses for the last 4-5 years and some of the divisions had been converted as subsidiary companies as part of its restructuring exercise.
Comments on recovery efforts :
An OTS proposal was approved by the bank on Feb 13, 2001 which involved an amount of Rs.12.25 crore of which 25% was required to be paid immediately and the balance in 5 quarterly instalments. The bank had recovered Rs.3.06 crore on March 31, 2001 towards upfront amount. The bank had also decided not to take any further exposure to the company after the OTS. The company paid Rs 0.15 crore during November-December 2001 and promised to pay the OTS instalments after securitisation of land property standing in the name of the company. The company also agreed to pay penal interest at 2% over S PLR for the delayed period of payment of instalments. The company did not stick to Its repayment schedule (last instalment due in June 2002) but paid only Rs 0.10 crore on April 3,2002. The branch advised the Head Office that the company’s plan of raising funds through bonds issue may be materialized only after June 2002 as per information submitted to it.
Position of court suits/D s/ B proceedings :
The bank had not filed any suit for recovery of its dues.
Comments on staff accountability :
The bank stated that no lapses on the part of the staff.
Comments on any other matter : NIL
M Cottex WRITTEN OFF
Introduction
. The borrower company, a 100% export oriented unit incorporated in August 1994 was engaged in weaving and processing of cotton fabrics. It had buy-back arrangements with a Belgian Company which had supplied the machinery. The company availed Term Loan from D (Rs.13.52 crore) and the bank with D as the lead institU on. The bank initially sanctioned the term loan of Rs.6.00 crore in 1995 and later, in 1998, funded the overdue interest on Term loan to the extent of Rs.1.14 crore. The frequent LC devolvements were met by the branch by overdraft in current account. The company was almost defunct since May 1999. It was declared sick by B in November, 2000.
Circumstances under which the account became NPA
Cost and time overrun resulted in non-completion of the project as well as inability to achieve a break-even level of production. The liquidity problem faced by the company led to frequent devolvements of LCs and non-servicing of interest in respect of loans. The borrower had not repaid instalments/interest from March 1997 and failed to regularize the overdraft in current account. The techno economic viability study arranged by the bank revealed that the company’s management was inexperienced and the mismanagement and the poor quality of the products (which resulted in non-payment of most of the inland bills) led to the sickness of the company. The company maintained another current account with I Bank. It had also availed loans from NBFCs, the purpose and status of which was not known to the bank. The company had not submitted any stock statements/operational data after March 1999. Delayed implementation of the project resulting in time and cost over-run, lack of experience of promoters and quality disputes led the account to NPA as on March 31, 1998.
Comments on recovery efforts
A sum of Rs 0.02 lakh was recovered in the account during the period under review. The bank had filed a suit on September 26, 2000 before D , H against the company and the guarantor(except M P The B had declared the company sick in November 2000 and appointed D as the operating agency with directions to examine the viability of the company and formulate a rehabilitation scheme for the company, if found viable. As directed by B , the company submitted a revival plan which was forwarded to the bank by D during January 2002. The proposal envisaged capital expenditure of Rs 2.04 crore for installing the balance items of plant & machinery in the processing section of the company and reschedulement of dues of FIs/Banks. The comments of the bank were forwarded to OA on February 21, 2002 stating that they were not interested to take any further exposure in the company and the promoters should bring their contribU on of Rs 3.40 crore as envisaged in the proposal. OA advised B accordingly on March 1, 2002. The hearing of B was slated for June 19, 2002. In the meantime, the company advised OA that a revised rehabilitation proposal prepared by them would be submitted to them on or before June 10, 2002. OA advised the bank accordingly. The bank stated that the earlier proposal was not acceptable to them and the revised proposal, if found acceptable, would be conveyed to OA in due course of time. It was also reported that the company would also put forth a OTS proposal and the details are awaited in this regard.
Comments on legal recovery proceedings
A suit had been filed with D on September 26, 2000. The company put forth compromise/OTS proposals which were under consideration of the bank.
Comments on Staff Accountability
No staff lapses were observed by the bank.
Comments on any other matter
D had recalled its advance and filed recovery suit against the company in August 2000. A claim of Rs 1.93 crore submitted to ECGC on April 29, 2000 recorded some progress during the year as the final inspection of records had been completed by ECGC officials and the related papers had been submitted to Mumbai office of ECGC for consideration. Final outcome in this regard is awaited.
H A
Introduction
. The borrower company, a Public Sector undertaking , wholly owned by the State Govt., was established in 1942 to manufacture refrigerators, heavy vehicles body fabrications, LPG cylinders, furniture, watches, etc. It was financed by a consortium of banks led by the S of H since 1990. Consequent upon the company turning sick, a scheme for the rehabilitation of HAL envisaging rehabilitation-cum-amalgamation/merger of HAL with Voltas Ltd was approved by the B on April 4, 1994. The scheme provided for transfer of the Watch Division and Auto Division (either by sale or lease) along with their assets and liabilities to the newly formed companies, viz, (AWL) and (AAL) under the State Government subsequent to the merger. The scheme also envisaged that the V Ltd would ensure revival of the Refrigerator, Steel furniture and LPG Divisions, while the AP state Government would ensure revival of the Watch Division and Auto Division through AWL and AAL. In October, 1998, the V Ltd requested the B for modification of the above scheme by way of transfer of part of A business to EVL), a joint venture co-promoted by V with E , The first phase of sale of the Co.’s W and B units had taken place on October 1,1998 at a consideration of Rs. 11,940.00 lakh. However, the bank had not extended approval to Voltas to alienate assets (refrigarator and compressor unit) from HAL in the absence of compliance by the State Government with the conditions of the scheme. The Government also could not implement the scheme in respect of AWL and it permitted closure of the unit from February 29, 2000. In addition, various financial concessions were given by the bankers subject to issue of bank guarantee by the State Government and payment of up-front fee. The liabilities of the bank continued in the name of H A The liabilities were bifurcated only notionally and the loan documents continue to be executed by the borrower company. Rehabilitation package was yet to be implemented with regard to issue of guarantee by the State Government V had subsequently sold the refrigerator unit to its joint venture with AB Electrolux without obtaining permission from the bank.
Circumstances under which the account became NPA
Since the company incurred losses continuously since 1991-92 it did not service the periodical interest and account remained continuously irregular. The account was classified as NPA as on March 31, 1993.
Comments on Recovery efforts
There was no recovery made by the bank during the year under review. Though the rehabilitation package approved in April, 1994 by the B had stipulated state Government guarantee towards shortfall in security and margin for Term loans, the same was yet to be obtained. The bank had taken up the matter in the B hearing held on February 14, 2001, as also consortium meeting of February 20, 2001. Subsequently in the joint meeting held on March 30, 2001by the FIs and banks it was decided that the AP Government should not be absolved from the responsibility of guarantee. D and S were to file written petitions to this effect before B on behalf of the FIs and banks respectively. Detailed inspection of the stocks of watches held by the A Watches could not be made by the bank since all the machinery in respect thereof held by the division were kept in sealed rooms owing to defunct status of the unit. It was, therefore, decided in the consortium meeting held on January 5, 2001 to conduct a joint inspection by S of India and S . No such inspection was conducted till date.
Position of Court Suits/ D s/ B proceedings
The company was declared as a sick unit in January, 1993 by B and D was appointed as the Operating Agency (OA) . The rehabilitation package submitted by the OA was approved by B in April 1994. The last review hearing of the B was held on February 14, 2001 and compliance to many directions given therein was yet to be furnished. eg. matter regarding State Government being absolved from guarantee obligations to S and D , submission of detailed list of assets as on March 31, 2000 along with its present market price and reconciliation of banks accounts in respect of dues to Voltas Ltd. B issued a show cause notice to H , V Ltd and GO to show cause within three weeks as to why action should not be taken against them for non-implementation of the scheme, failing which it would be open for B to take further action according to the law. GO submitted its reply vide their letter dated December 31, 2002. V Ltd and H submitted their replies to B separately. No further decision was taken by B on the show cause notice issued by them. In the mean time, B vide their orders dated May 7, 2002 permitted Vo Ltd to sell their refrigerator plant at N and compressor plant at S to be sold to E V for a consideration of Rs 55.90 crore and agreed to the request of the FIs/Banks that GO is to guarantee the entire dues of all the FIs/Banks. The bank is contemplating to prefer an appeal to AAIFR against the decision taken by B with regard to sale of units of V Ltd to E .
Comments on Staff Accountability
There was no record of any staff accountability study having taken place in respect of the account.
Comments on other matters :
- Nil -.
M P
Introduction
The company was established in 1992 for the manufacture of casein, whey protein, lactose and pure ghee in collaboration with V E Ltd . The project was appraised by D . The total long term limits granted by institU ons and banks aggregated to Rs.24.60 crore as on March 31, 2000. The bank had sanctioned Rs.7.40crore limits as 40% share in funded working capital limits, Rs.1.10 crore as Medium Term Loan and non-funded limits of Rs. 1.20 crore and Rs.0.64 crore as BG limit. S of P was the leader of the consortium and D the lead institU on.
Circumstances under which the account became NPA
The company’s products, particularly casein, were mainly intended for export markets. However, the company was not able to export casein on account of quality problems and the company also felt that the technology adopted had failed. The other products were not generating sufficient cash flows. Inventories of whey protein etc. were piling up and the company was not in a position to service the debt. The audited balance sheet for the year ended March 31, 2000 which was submitted to the bank on Jan 15, 2001 showed that the company had incurred loss of Rs.0.16 crore as against the profit of Rs.1.61 crore which was reported by the company in the FFR submitted on May 2, 2000. A stock audit of the company taken up by the consortium revealed several serious irregularities eg. non-moving stocks, under-insurance of stocks, substantially higher holding of stocks as compared to previous years, over-valuation of inventory and a higher level of consumption of raw materials. The account was classified as NPA as on December 31, 2000. The term lenders had initiated measures to realize their dues through filing of suits.
Comments on recovery efforts
A sum of Rs 0.04 crore was recovered by the bank during the period under review. The branch had been advised to get in touch with the lead bank (P ) to arrange TEV study by a competent consultant but no progress was made by the bank in this direction so far. A meeting was organized on February 7, 2002 with the promoters of P to discuss about the payment of interest. The company expressed its inability to service the interest due to fall in sales of their product “casein”. Consequently, P withheld a portion of credits towards interest dues. The company stopped operations with P and started roU ng their business through other banks. Meanwhile, the branch addressed a letter to the B on February 2, 2002 about the financial condition of the company. Despite having a series of meetings with the company by the branch officials, response from the company was not positive.
Position of court suits/D s/ B proceedings etc.
The company made a reference to B in February 2002. The bank and P appraised B about the affairs of the company. The B is yet to schedule its first hearing in respect of the reference made by the company. The bank is not in a position to proceed against the company legally since a reference is made before B .
Comments on Staff Accountability
The staff accountability aspect was yet to be examined.
Comments on any other matter
The sanctioning authority of the bank on March 28, 2002 approved continuation of “holding of operations” in the account up to June 30, 2002 by deducting 5% of credits received into the accounts towards adjustment of irregularities.
S pharma .WRITTEN OFF
Introduction
. The Company, incorporated on August 23, 1993 for manufacture of pesticides and neem based bio-pesticides had availed Term loans from D (Rs. 4.00 crore) and S (Rs. 2.80 crore) and working capital solely from S during 1995-96. The cost of the project (for setting up manufacturing facilities at IDA, .) was estimated at Rs.17.65 crore and the means of finance were proposed to be met by equity Rs. 10.40 crore (Promoter-Rs.5.33 crore, Public- Rs.5.07 crore), Term loan (D Rs.4.00 crore, S Rs.2.80 crore) and others Rs.0.45 crore. The implementation of the project got delayed due to time and cost overrun on account of delay in tying up of balance of term loan, change in scope of project, under subscription of public issue. The company completed its project in February, 1997 with delay of one year and four months. The bank sanctioned WC limit of Rs. 4.00 crore on January 23, 1997 towards its share (60%) under a proposed consortium arrangement leaving the balance 40% to be tied up with U . However, the same did not materialise as U backed out subsequently.
Circumstances under which the account became NPA
The Company declared its commercial production in May 1997. But it incurred operational losses due to low level of operations. The Company approached D as well as the bank in 1997/98 to rephase the term loan. The bank rescheduled the term loan on March 31, 1998 and sanctioned FITL of Rs.0.56 crore ( to the extent of time overrun pending appraisal by D ). The entire TL and FITL was to be paid in 6 years commencing from July 1998. D neither rescheduled the term loan nor considered the additional funding for WC. The MTL account was rendered irregular due to non-servicing of quarterly interest/instalments with effect from April 1,1997. Finally, the account slipped into NPA category as on March 31, 1998. The Company diverted sale proceeds through U Bank in 1997-98 and 1998-99. An inspection was conducted by the branch on July 22, 2000 and it was observed that the Company was operating only one plant out of its 5 plants. It was also observed that the stocks U lised for job work were old and non-moving. Delay in implementation of the project, low capacity U lization, increased interest burden were some of the factors which contributed to the account becoming NPA.
Comments on recovery efforts
The Company was undertaking job works only for S C Ltd. As per the directions of B , the bank was permitting 95% withdrawal by impounding 5% of receipts towards irregularity. However, no recoveries were reported in the account during the period under review. The limits were continued on “holding on operations” till December 31, 2001.. The audited balance sheet as on March 31, 2001 was submitted by the company.
Position of Court Suits/ D s/ B proceedings
As the net worth of the Company got eroded as on March 31, 1999 due to accumulated losses, it went to B which declared the Company as sick in its hearing dated May 26, 2000. D was appointed as Operating Agency to examine the techno economic viability of the Company and prepare a revival scheme with cut off date as March 31, 2000. The D had appointed ITCO, a firm of consultants, to carry out the above study. The consultants observed that the company’s operations cannot become viable unless secured creditors make huge sacrifices besides infusing additional funds. The revival plan suggested by the consultants envisaged reliefs/concessions far beyond parameters besides infusing fresh working capital to the tune of Rs 1.16 crore. The plan also suggested a promoter’s contribU on of 7.5% as against 30% in terms of guidelines. The bank declined to support any rehabilitation scheme. Secured creditors also requested B to issue winding up orders in case no viable proposal is received from the promoters.and also permit them to initiate legal action against the company. Response from B was awaited. In the mean time, the company submitted a proposal requesting the bank to permit them to lease out its neem plant to P P P L and to enter into MOU with S W A C for execU on of job works. The bank requested D and APIDC to offer their views in the matter.
Comments on Staff Accountability
No staff accountability study was undertaken although the account had turned NPA soon after the sanction.
Comments on any other matter
Nil
F C
Introduction
The company, a public sector organisation was engaged in the manufacture and sale of fertilizers. .The plants located at K and G of the company were closed since 1974 and 1990 respectively. T and R units have been kept under maintenance since April 1, 1999. All the manufacturing activities at these plants have been stopped except production of nitrogen to save the plant from corrosion and to keep it in a state of readiness. Sindri plant had been functioning and the Jo r mining plant was making profits. It has 4 plants out of which 3 plants at T , R and G are closed. The fourth plant at S is operational. The last sanction in the account was approved on April 18, 1999 and a regular renewal exercise was carried out on December 31, 2001 as the account was continuously in excess of the drawing power from September 30, 2000 to March 31, 2001.
Circumstances under which the account became NPA
The company had been incurring losses persistently on account of technical problems at the plants, aging of plants and accidents, irregular supply of power and under U lisation of capacity. Although the problems were identified, the company did not take any corrective measures.
The bank classified the account as NPA as on March 31, 2001 as the account was continuously out of order from September 30, 2000 to March 31, 2001.
Comments on the recovery efforts
It was decided in the consortium meeting that S (Lead Bank) would receive 10% of the sale proceds, pool them and share with the other consortium banks towards adjustment of irregularity in the account. In the process, a sum of Rs 1.13 crore had been recovered in the account during the period under review under 10% cut-back arrangement. The company was advised to arrange Government of India Guarantee at the time of last sanction. But the Government had not extended any guarantee for the company so far but the company had been able to obtain assistance from the Government to run its day-to-day operations.
Position of court suits/D s/ B proceedings etc.
The company’s case was pending before the B since 1992 and in the meeting of B held on Feb 28, 2001 it was observed by the Bench that the Govt had not taken any decision for the revival of the company and neither the company nor the Govt. had taken any initiative regarding framing a rehabilitation proposal. In the circumstances, the B directed that a show cause notice be issued to the company/GoI for winding up the company. Aggrieved by the orders issued by B for winding up, the corporation appealed to AAIFR. The AAIFR on January 29, 2002 observed that instead of accumulating further loss by postponing the decision, GOI should work out a proper settlement of dues of workers and consider disposal of units which are not functioning. The bench permitted two months to GOI to take a view
in the matter. The bench also confirmed that there was no infirmity in the orders passed by B . The company, at the consortium meeting held on May 23, 2002 informed that it has filed a writ petition in Delhi High Court against the orders issued by AAIFR. The bank had not received any notice from the High Court so far.
Comments on staff accountability
The staff accountability aspect had not been examined by the bank.
Comments on any other matter
Nil
G T Ltd.WRITTEN OFF
Introduction :
. The borrower company (GTL) a 100 % EOU was set up for manufacture and export of knitted socks. The borrower was sanctioned a DPG limit of US$ 2336.563 /- equivalent to Rs. 7.48 crore in December 1993 in consortium arrangement with B in the ratio of 60 : 40 to enable it to avail of foreign currency loan from S New York. The working capital facilities were sanctioned in September 1996 and last approved in March 2002 for continuation as holding on operation.
Circumstances under which the account became NPA :
The commercial production originally scheduled to commence from Sept.1994 got delayed due to delay in receipt of machinery from the overseas supplier resulting in cost overrun. The Company commenced its commercial production in July 1996. However, the buy-back arrangement envisaged with the South Korean collaborators for the production did not materialise. In the meantime, the instalments of DPG devolved at half-yearly intervals starting from June 1996 and were paid by debit to current A/c-DPG. The Company was sanctioned fund based limits of Rs. 0.90 crore in September 1996 with the condition that it should bring Rs.0.75 crore towards margin for the cost overrun and working capital margin in three instalments before December 1996. However, the company could infuse Rs.0.22 crore only. Due to poor capacity U lisation, delay in installation of machinery (commercial production commenced in July 1996 after a delay of 11 months), failure of buy back arrangements etc, the Company was not able to reach the breakeven level and incurred losses right from its inception. Due to non payment of quarterly interest / DPG instalment etc the account slipped into NPA category as on March 31, 1997.
Comments on recovery efforts
A viability study of the unit was conducted by S Management Consultants Pvt. LTD in January 2000. The viability study suggested financial restructuring with improved capacity U lisation, market development, establishment of strategic alliance with global parties etc. The borrower was being allowed to operate the account on holding on basis till September 30, 2002. The bank convened a consortium meeting on February 2, 2002 in which the company was advised to furnish required information in its rehabilitation proposal (submitted by the company on November 9, 2001) for an early formulation of DRS.
Position of court suits/D s/ B proceedings :
Since the net worth of the Company got completely eroded as on March 31, 2000 on account of accumulated losses to the extent of Rs.9.80 crore, it made a reference to B in July 2000. B had declared the company as sick at the B hearing held on 20.2.2001 and designated the bank as Operating Agency. The borrower had submitted a rehabilitation proposal to the bank’s Head Office in April 2001 followed by a revised proposal on November 9, 2001. The bank is contemplating for an early formulation of DRS.
Comments on staff accountability :
Staff accountability aspects were yet to be examined in the account.
Comments on any other matter :
The shares held as collateral security (Rs 0.31 crore) had no market value and hence the value of these shares was treated as Nil.. The overdraft in current account-DPG (Rs 7.09 crore) was due to devolvement of DPG on the bank and BOB in 60:40 proportion. The current account (overdraft) maintained in the name of the company was also overdrawn due to devolvement of LC bills, charging of interest on bills, packing credits, ECGC premiums etc,.
T India .WRITTEN OFF
Introduction :
. The borrowing company was set up for manufacturing terry towels with the project finance extended by D . The bank had sanctioned DPG of Rs.2.68 crore in November 1994 for import of machinery. The bank also financed the WC requirements of the Company in June 1996 and last approved for continuation upto September 30, 2002 in April 2002.
Circumstances under which the account became NPA ;
The project which was to be implemented by April 1994 was completed in Dec. 1995 due to delay in receipt of imported machinery substitU on of imported loop dyer and delay in public issue. The Company commenced its actual commercial production w.e..f. October 1, 1998 (as accepted by D ) though it had started production earlier on a low scale. The account was rendered irregular due to non-repayment of DPG instruments to the tune of Rs.2.10 crore during 1996-97 and finally slipped into NPA category as on September 30, 1997. The irregularity got further increased due to devolvement of 20 bills drawn under ILCs aggregating Rs.1.47 crore between Sept.1998 to Aug. 1999. Consequent upon rescheduling of dues and funding of interest by D , the bank also restructured the credit limits of the Company by converting the outstandings in CA (OD) / DPG devolvements into WCTL and term loan in September 1999. Despite the above, the performance of the Company did not improve and its net worth got completely eroded as on March 31, 2000 due to accumulated losses. The financial position of the company did not improve thereafter.
Comments on the recovery efforts :
The bank had approved restructuring of the dues in September 1999 as a measure to rehabilitate the company . The company had made a reference to B in July 2000 due to the erosion of its net worth.
Position of court suits/D s/ B proceedings :
B had appointed D as the Operating Agency in its hearing held in March 2001 and the draft rehabilitation scheme was prepared in April 2002 on the basis of proposal ;submitted by the company. Many reliefs and concessions sought by the company were found to be beyond parameters. B is yet to sanction a rehabilitation scheme for the company.
Comments on staff accountability :
Staff accountability was examined in March 2001 and it was concluded that no staff lapses were observed.
Comments on any other matter :
There was a fire accident at the factory site on August 30, 2000 causing substantial loss to the finished goods. The company booked an income of Rs 2.43 crore as income on account of insurance claim during 2000-01 and arrived at a net loss of Rs 7.48 crore. The insurance company rejected the claim of the company and the company approached the National Consumer Forum (NCF), Delhi for payment of the claim. The claim is pending before the NCF. If the claim amount is set aside, the loss would be Rs 9.91 crore for 2000-01; Balance sheet for March 31, 2002 was not submitted by the company.
B W L
Introduction :
. The above Company ( was incorporated on June 22, 1971 for manufacture of different types of wires with a capacity of 24,000 MTs per day. The Company commenced its business with effect from Aug 8, 1973. The cost of the project (for setting up a manufacturing unit at Shogi Industrial Area, H.P) appraised by S capital market was estimated at Rs. 29.38crore and means of finance was proposed to be met by issue of fully convertible debentures for Rs.5.75 crore, public issue Rs.6.00 crore, Rupee Term Loan Rs.7.63 and Forex Suppliers Credit for Rs.10.00 crore. To part finance the project, the bank sanctioned TL of Rs.3.00 crore (repayable in 24 quarterly instalments with effect from April 1, 1996 with a moratorium period of 18 months) and CC of Rs.2.00 crore on Nov 23, 1994 towards its share of 40% under a consortium arrangement with S in the lead. The credit limits, as mentioned above, were last sanctioned on December 31, 2001.
Circumstances under which the account became NPA :
The account was rendered irregular since June,1997 due to non-payment of quarterly interest, devolvement of LCs to the tune of Rs.1.20 crore. Lack of proper production planning, control system, market research, poor maintenance of plant & machinery, diversion of working capital funds for purchase of fixed assets, under-U lisation of installed capacity and delayed realization of bills contributed to slippage of the account into NPA category as on March 31, 1998.
Comments on recovery efforts :
No recoveries were made by the bank during the period under review. The bank could not make any progress in recovery due to non –co operative attitude of the promoters/management.
Position of court suits/D / B proceedings :
The company approached B on October 22, 1999 to declare it as a sick company but B vide their order dated May 8, 2000 dismissed the company’s claim as sick. The company appealed to AAIFR and again made a reference to B based on audited financial statements as on March 31, 2000. B passed order again on December 19, 2000 holding the second reference also as non-maintainable. At the hearing held on January 24, 2002, B directed D (OA) to prepare an execU ve summary envisaging the creditors on the basis of SIA report and the company’s comments thereto. The OA was also directed to convene a joint meeting and circulate the minutes thereof. The joint meeting is yet to be convened. In the meantime, S vide their letter dated February 11, 2002 brought to the notice of B about the adverse features like depletion of stocks due to on-going diversion of stocks by the promoters. The leader bank (S ) requested B to permit them to file recovery proceedings against the company and guarantors. The bank also
fell in line with the decision taken by the leader. The company filed a petition in the High Court of Mumbai against the consortium banks for the recovery of Rs 48.41 crore alleging delay on their part in releasing credit facilities. The banks are contesting the claim of the company in the High Court of Mumbai.
Comments on staff accountability :
Staff accountability aspects were not examined till date. It was stated that the staff accountability aspect will be looked into at the time of recalling the advance.
Comments on any other matter : NIL.
P Al ., Ltd WRITTEN
(I) Introduction
. The borrower, a Public Ltd company established in September 1989 for manufacture of Aluminium rolled/wire products started its commercial production in December 1993 with two divisions viz: Strip Division and Conductor Division. The facilities were sanctioned in December 1993 for manufacture of aluminium scrips and conductors by a consortium of banks led by S . The account was last renewed in November 1995 and allowed to be continued upto June 30, 2002. The bank held a 7.20% share in the working capital finance extended to the company.
(II) Circumstances under which the account became NPA
After deregulation of the aluminium industry, the company could not effectively meet the competition in the domestic/overseas market. In addition it could also not reduce its high interest burden and rise in input costs. The account became irregular in December 1996 owing to devolvement of LCs and depletion of DP. The company incurred heavy cash losses and at the end of September, 1997 its net worth was fully eroded. It was declared as a sick unit by B on August 27, 1998. D was appointed as the OA for submission of revival plan. The unit was allowed a special current account facility for cycling of the current assets as per B directions with 5-10% cut-back. The workers of the company went on strike in December 1999 for payment of bonus which was called off after two months. The strip plant only was stated to be operating and that too at a very low key on job-work basis. Due to changes in the Govt. of India policy on imported raw materials, reduction in prices in international markets, high interest burden, rise in input cost, the account slipped into NPA category as on March 31, 1998. The conductor plant was closed since July 1999 and the workers were paid without any work.
(III) Comments on recovery efforts
No recoveries were made in the account during the period under review. Hindalco, (AAA) and (member of S group) submitted their proposals in response to the advertisement inviting bids for take over of the company. D (OA) convened a joint meeting on November 8, 2001 to discuss the developments on the take over proposals. D suggested in the consortium meeting held on September 27, 2001 that the proposal of Danimetal was worthy of consideration since it assured speedy recovery prospects. D suggested that the sale considerations against fixed assets should go towards term loan liabilities and the consideration against current assets should go towards WC liabilities. S and the branch suggested that payment would have to be shared between FI and banks in proportion to the outstandings. No final decision was taken in this regard. It was reported that the CEO of the company left for Germany in mid-June 2002 to hold further discussions with Danimetal after which a clear picture is likely to emerge.
iv) Position of Court suits/D s/ B Proceedings
The company was declared as sick by B vide its hearing on April 27, 1998 since the accumulated losses exceeded its net worth. B directed OA (D ) to arrange for TEV study on stand alone basis and also to simultaneously issue advertisements in newspapers calling for bids for take over of the company. Accordingly, OA issued paper notification on May 29, 2000. TEV study conducted by TECS revealed that there was enough market
in India and abroad for aluminium strips. The company was found viable subject to sale of surplus freehold land and conductor plant, waiver of interest on long term loans etc,. Bids were called as mentioned in the foregoing paragraphs but the developments for take over of the plant are still awaited
(v) Comments on Staff Accountability
There was no record of staff accountability study having taken place in respect of the above account It was reported by the bank that the staff accountability aspect will be looked into at the time of recalling the advance.
(vi) Comments on any other Matters - NIL
V Cotspin WRITTEN OFF
Introduction :
The above Company was incorporated on May 17, 1993 for manufacture of good quality cotton yarn at Industrial Estate, . The cost of the project, appraised by the bank’s SIB Department in 1994, was estimated at Rs.5.34 crore for installation of 8064 spindles. To part finance the project, a term loan of Rs.3.50 crore was sanctioned on March 10, 1994 which was subsequently shared with CB in ratio of 60:40, (bank’s share being Rs.2.10 crore i.e TL-I Rs.0.43 crore and TL-II Rs.1.67 crore). The project was reappraised in 1995 and estimated at Rs.16.09 crore due to cost overrun for delay in implementation as well as expansion in project for increase in spindles from 8064 to 12096. Accordingly, TL-III (Rs.0.55 crore of bank’s share) was sanctioned on March 11, 1995 and TL – IV of Rs.4.81 crore was also sanctioned under consortium arrangement (with the bank in the lead) with CB and K State Industrial Investment & Development Corporation. The project also suffered time overrun and the Company could not install machinery by October 1997. On the request of the Company, the term loan was rescheduled and FITL of Rs.0.33 crore (bank’s share) was sanctioned on March 5, 1998 and continuation in the account was obtained upto July 31, 2002.
Circumstances under which the account became NPA :
The Company started its commercial production from Jan 17, 1995. The performance of the Company got affected due to delay in execU on of the project. Even after commencement of full scale production, the Company suffered on account of high labour turnout, high cost of production and lower sale prices. It incurred losses from its inception and its tangible networth got eroded completely as on March 31, 1999 due to accumulated losses to the extent of Rs.11.60 crore. The account was rendered irregular since October 1998 due to devolvement of LC bills, depletion of security and non servicing of periodical interest and instalments. Due to recession in textile industry, high cost of production/lower capacity U lization and disproportionate debt burden and failure on the export front resulted in slippage of the account into NPA category as on September 30, 1999.
Comments on recovery efforts :
The bank allowed holding on operation by impounding 5% of credits towards reduction of outstandings as per the direction of B . In the process it recovered a sum of Rs. 0.31 crore during the period under review.
Position of court suits/D / B proceedings :
The Company made a reference to B on September 10, 1999 to be declared as sick under the provisions of SICA. B in its hearing dated March 30, 2000 declared the Company as sick and appointed S as Operating Agency with a direction to assess the techno-economic viability of the Company and submit a revival plan. The techno economic viability study concluded that the company is not viable at its present level of operation and
with the present debt structure. The TEV study and the company’s rehabilitation proposal were discussed in a consortium meeting but no consensus could be reached since the other consortium member, CB preferred change of management or OTS. SIIDC also was not agreeable to the reliefs sought by the company. Subsequently , B was requested to persuade secured creditors to consider revival proposal with reliefs beyond parmeters but without additional exposure, and if this was not possible, to pass appropriate orders for change of management. The company submitted a OTS proposal by offering Rs 7.36 crore against an outstanding of Rs 18.53 crore (as on March 31, 2001) to all the consortium banks. A joint meeting was convened by the bank on May 30, 2002 to discuss the issue. It was felt by the consortium that the OTS offered was very low and needed to be improved. The consortium advised the company to recalculate the workings and come out with an acceptable level of OTS. Response from the company is awaited.
Comments on staff accountability :
Staff accountability aspects were stated to be nil.
Comments on any other matter :
The bank had issued a bank guarantees favouring Assistant Commissioner of Customs, for an amount of Rs.0.16 crore on May 5, 1996 for a period of 6 years for the payment of customs duty on import of machinery under EPCG scheme. The BG was invoked by Customs Authority on January 4, 2001 but was kept in abeyance as the company preferred an appeal for stay on the invocation. On the request made by the Commissioner of Custom and Central Excise (Appeals), , the bank renewed the BGs for a further period of 2 years in view of the company's registration with B .
B L .WRITTEN OFF
Introduction:
. The above Company was incorporated on July 14, 1994 for manufacture of sterile bulk drugs (cefazolin sodium, oxacillin sodium, ampicillin sodium) and bulk drugs intermediaries in technical collaboration with Chementechno SRL of Italy. The project, appraised by Industrial Training Corporation ( ITCO) was estimated at Rs.22.00 crore and was proposed to be financed through equity shares of Rs.14.00 crore (promoters-Rs.7.50 crore + public- Rs.6.50 crore) and a term loan finance of Rs.8.00 crore from banks. The project originally envisaged for manufacture of sterile bulk drugs was completed up to oral grade stage. The Company was sanctioned MTL of Rs.5.00 crore on January 19, 1995 (under consortium arrangement with the bank in the lead, its share being 62.5%), repayable on 20 instalments with the repayment commencing from March 1997 after one year moratorium towards the project finance. The bank sanctioned WC limit of Rs.1.55 crore on July 11, 1995 to the Company to meet its working capital requirements. The date of last sanction/review of the account was April 25, 1997 and no review was undertaken thereafter.
Circumstances under which the account became NPA :
The commercial production of the Company for oral grade bulk drugs started in Sept. 1996 with a delay of 8 months due to delay in transfer of technology, obtention of collaborator’s approval for modifications in design. However, the operations of the Company got stopped from January 1997 on account of downward sliding of prices of finished goods and delay in realisation/non-realisation of sale proceeds. The account was rendered irregular due to non-servicing of quarterly interest / instalments, devolvement of LCs, return of bills, etc and it had been classified as NPA as on April 30, 1996.
Comments on recovery efforts :
The Zonal Office submitted a proposal to H.O. to transfer the outstandings in the account to Advances Under Collection Account (AUCA) in Mar 2000 which was rejected by the H.O. on the ground that the suit was not one year old. The account was not transferred to AUCA even as of March 2002. No recoveries were made by the bank during the period under review.
Position of court suits/D / B proceedings :
A joint suit was filed before D , B on March 1, 1999. Subsequently, the suit got transferred to H consequent upon the establishment of D and was posted to July 17, 2000. The bank also filed a suit separately at D , H regarding the recovery of its share in invoked BG amount i.e Rs.0.40 crore. Advocate Commissioner was appointed to take inventory of stocks, plant & machinery lying in the factory premises as per the
direction of the Presiding Officer, D , H . The Advocate General inspected the unit on December 29, 2001 and January 5, 2002 and submitted his inspection/inventory report to the D on January 18, 2002. Efforts are being made by the bank for sale of the assets.
Comments on staff accountability :
Staff accountability aspects in the account were examined by the bank and no lapses were reported.
Comments on any other matter :
The realizable value of Land, Plant & Machinery was valued at Rs 1.33 crore as on March 31, 1997 and the same was valued at Rs 12.34 crore as per the valuation report dated February 8, 2001 indicating over 800% appreciation. The bank is advised to look into this aspect to protect its interest.
S Textiles (I) Textiles Divn
(II) Paper Division
(I) Introduction
. The company belonging to S group was incorporated on November 1, 1979 for paper, processing of synthetic and cotton textile goods on job work basis. The company was having two divisions viz Textile Division and Paper Division. The credit facilities to Textile Division were initially sanctioned by the bank in 1979. Subsequently, the working capital facilities for both the divisions were assessed by the bank as the leader of consortium at Rs 15.00 crore in 1996 with its share of 35%. The company was sanctioned in February 1995 facilities for taking over a sick unit in Assam ( ) as its Paper Division and the limits were released without meticulously fulfilling all terms of sanction such as tie-up of funds with consortium members, availability of security cover for Paper Division etc,.
(II) Circumstances under which the account became NPA
The account was rendered irregular due to non-servicing of accounts of Paper Division since March 1997 and the accounts of the Textile Division were irregular since September 30, 1998 due to depletion of stocks. The account thus slipped into NPA category on September 30, 1997. The company took over on lease a sick unit, A Paper Mills Ltd at Jo a, for its revival in April 1998 without any registered lease deed. The branch sanctioned the WC limits without subjecting the loan proposal to analytical and need based finance. The transactions in the accounts of Paper Division were not routed through the branch. As the company could not successfully implement the rehabilitation and various irregular practices such as unauthorised sale and lease back of machinery/non-payment to creditors, diversion of funds meant for housing purpose (Rs 5.00 crore sanctioned S Home Finance Ltd) etc,. were alleged to have been followed, the unit was seized by Govt. of in February 1999. The company had filed a suit demanding compensation with the Civil Judge, B , against the Government of Assam. S Home Finance Ltd had filed a suit in C High Court against the company for recovery of its dues. The Ca High Court had ordered on November 19, 1999 for appointment of Official Receiver. As per audited balance sheet for March 31, 2000, the company was a sick unit under SICA, 1985. The company had not approached B in view of its legal case pending against the Government of and the same was pending before the Court. The unit was being run by Soneka paper and Industries Ltd during the last two years.
(III) Comments on recovery efforts
The paper division was not functioning whereas the Textile Division was functioning with about 25% of its capacity. There were no recoveries in the account of paper division. The interest was not serviced since March 1997. Tangible net worth of the company was eroded to Rs 2.23 crore as on March 31, 2000 from the previous corresponding year. Audited balance sheet of the company for March 31, 2001 was not submitted by the company. The company had submitted on December 23, 2000 an OTS for Rs 0.70 crore
in regard to outstandings of the paper Division. The bank had advised the company on January 23, 2001 to improve the offer to Rs 2.53 crore. The company had submitted on April 10, 2001 its revised offer for Rs 2.50 crore repayable in 7 years. The company had once again submitted a revised OTS offer of Rs 4.00.00 crore (for Paper and Textile divisions) to be payable in 12 monthly instalments from the date of approval. The proposal was recommended by the branch to H.O. in April 2002. The proposal was under consideration of the bank.
(iv) Position of Court Cases/D / B proceedings
The company had filed a suit demanding compensation of Rs 6.76 crore against Government of Assam towards reimbursement of investment and loss made by the company in view of its seizure by the latter. S Home Finance Ltd also filed a suit against the company for recovery of its dues and obtained a dictate order for the possession of Plant and Machinery and other assets of Textile Division. It was observed that the realizable value of assets of textiles division may not be substantial since these assets are used only for the purpose of processing job works. With regard to the machinery pledged to the bank, it was observed that considering the nature of industry and the obsolescence rate, the equipment owned by the company may not fetch a decent price in the market in case of distress sale. This is also a factor for suggesting an increased provision by the inspection.
(v) Comments on Staff Accountability
There was no record of staff accountability study having taken place in respect of the above account
(vi) Comments on any other matter
The plant& Machinery of Paper Division was pledged with the bank. However, the same was taken over by the Official Receiver as per C High Court order dated November 19, 2000 in a case filed by S Home Finance Ltd against the company. The bank had reckoned collateral security of Rs 5.00 crore by way of pledge of machinery pertaining to Textile Division. The audited balance sheet (March 31, 2000) of the company did not disclose the above mentioned pledge, On the branch taking up the matter with the company, the company vide their letter dated April 21, 2001 stated that the pledge of Plant & Machinery was not disclosed in favour of S in the above balance sheet but it will be done so in the next balance sheet (March 31, 2001). But the company did not submit the balance sheet for March 31, 2001 till completion of the present inspection. The bank filed a petition at C High Court on August 29, 2001 as a secured creditor. However, for the purpose of provisioning, this cannot be taken into account in the absence of disclosure of the same in the balance sheet of March 31, 2000 and non-submission of balance sheet for March 31, 2001. The balance sheet of March 31, 2000 also disclosed unsecured loans under hire purchase from Cholamandalam
nvestment & Finance, DCL Finance Ltd, Esanda Finance Ltd and term loan from S Home Finance Ltd. The balance sheet of March 31, 2001 was not available for scrU ny. Hence the value of Plant and Machinery was treated as negligible. Further, the bank had not calculated the date of NPA correctly i.e. the bank had reckoned the date of NPA as March 98 instead of September 1997. Since the value of plant and machinery was treated as negligible in view of the facts mentioned above, an additional provision of Rs 0.40 crore is recommended.
P Profiles WRITTEN OFF
(I) Introduction
The account was commented upon in the previous two inspection reports. The borrower, a Public Ltd company ( ) established in August 1988, was engaged in manufacture of Aluminium extrusions. The parent company was a loss making unit until December 1993 when it was taken over by the P Group. It was sanctioned the above facilities in January 1995, in consortium with S (Leader bank) and V . The share of S in the consortium was 40%. The commercial production commenced in February 1996. The account was last renewed on June 24, 1997 and thereafter on continuation basis upto December 31, 2001.
(II) Circumstances under which the account became NPA
The company had incurred losses since 1996-97 i.e. from the first year of its operation due to adverse domestic market conditions and competition. In order to reduce the irregularities, the branch was allowed (Head Office approval dated September 22, 1998) to effect operations with 5% cut back to be increased to 10% by January 1999. The Head Office vide their letter dated November 26, 1999 advised the branch to explore the possibility of recovery in the account. The branch was advised again to increase the cut back to 10% vide Head Office letters dated December 11, 1999 and January 19, 2000. However, the branch allowed the account to be operated in an irregular manner during 1999-2000 through unauthorised bill purchases, transfer of funds between banks/sister concerns etc,. During this period, the branch regularly allowed further irregularity in the account by freely permitting transfer of funds to the company’s account maintained with V . As the net worth of the company eroded completely as of December 31, 1998, it referred itself to B on March 27, 1999 and was declared as a sick company on July 27, 1999. The branch however classified the account as standard as on March 31, 2000 mainly on the ground that outstanding in the account was within the limit. The account which was irregular from August 16, 1999 was brought within the limit on March 31, 2000 by unauthorisedly purchasing foreign bills worth Rs 1.10 crore (no FUBD limit sanctioned). Immediately during the subsequent two months a total amount of Rs 1.49 crore was allowed to be drawn without a single credit entry rendering the account irregular since April 27, 2000. During the year 2000-01 the credit summations were only Rs. 0.88 crore evidencing that all sales were not routed through the cash credit account. There were no credits since October 2000. In fact the account had been irregular since 1997-98 and the previous inspection had classified the account as sub-standard with effect from March 31, 2000 and the bank in their compliance submitted to did not dispute with the observations of . The bank had erroneously classified the account as “sub-standard” instead of D1 as on March 31, 02. Consequently there was shortfall in the provisioning to the extent of Rs 2.11 crore.
The I was appointed as OA for examining the techno-economic viability and submission of rehabilitation scheme. As per B directions, the company submitted a rehabilitation proposal which was discussed in the joint meeting on January 20, 2000. The proposal envisaged OTS of bank’s dues against BG for going in for ECB. However, the proposal was not accepted by the banks/FIs. Later the company had identified in June 2000, a German Company viz: O&S (OSMG) for revival. The latter had expressed willingness to invest about USD 1.20 mn (Rs 5.46 crore approx) as additional equity and interest free unsecured loan. The borrower, on the basis of above, had proposed another rehabilitation proposal on July 12, 2000 envisaging OTS which asked for waiver of interest from January 1, 1998 to December 31, 2000. However, the proposal was rejected vide bank’s HO letter dated September 20, 2000. In the joint meeting held on November 17, 2000, it was decided that the I (OA) would submit a draft rehabilitation scheme to B since all secured creditors except S had agreed to rehabilitation proposal giving full details. The bank had again asked the company to improve the OTS offer.
(III) Comment on recovery efforts
No recovery was made in the account during the period under review. The German company O&S (who were in the trade of aluminium extrusions and evinced interest in revival of PPL by infusion of Rs 3.22.crore as additional equity and interest free unsecured loan of Rs 8.76.crore. The company proposed to settle the dues to banks (S & S ) and FIs through OTS. Banks were requested to waive 90% of interest for the period from January 1998 to December 2000. The bank expressed its inability to sacrifice the amount of interest and instead proposed two alternative options to the company There was no positive response from the company to these options. Further, OSMG has proposed to change the rehabilitation scheme proposed earlier (July 12, 2000) due to adverse developments in the market of extrusions. The overseas company is expected to submit a revised plan to I shortly.
(vii) Position of Court Cases/D / B proceedings
- Nil -
(v) Staff Accountability
There was no record of staff accountability study having taken place in respect of the above account. The bank had stated that the staff accountability aspect will be looked into at the time of recalling the advance.
(vi) Comments on any other matter :
The account which was continuously irregular from Aug 16, 1999 was regularized on March 31, 2000 by unauthorisedly purchasing foreign bills worth Rs. 1.10 crore although there was no limit sanctioned for FUBD. The account had became irregular again from April 27, 2000. There were no credits in the account from October 2000. Hence, the account was treated as NPA w.e.f. March 31, 2000 in AFI 2001.The bank had however, reckoned the date of NPA on March 30, 2001 instead of March 31, 2000 and classified it as Sub-Standard instead of D 1. Hence, an additional provision of Rs. 2.11 crore is recommended.
B Vegetable
Introduction :
B Vegetable was incorporated on June 11, 1991 for manufacture of vanaspati & refined oils. Subsequently, Company got converted into Public Limited on May 26, 1992. The cost of the project was estimated at Rs.5.65 crore and was proposed to be financed by the equity (Promoter – Rs.1.51 crore and public issue Rs.2.60 crore) and term loan of Rs.1.54 crore loan from State Cooperative Bank. The Company started commercial production from Sept. ’94. The bank initially sanctioned WC limits of Rs.2.00 crore on July 26, 1995. Subsequently, the Company was sanctioned FLC limit of Rs.1.00 crore on April 17, 1996 for import of Palmolien/Sunflower/Cottonseed oil. The credit limits, as mentioned above, were last renewed on Dec 17, 1998 with a ceiling on overall outstandings of Rs.6.25 crore.The last sanction was approved in the account as on March 31, 2002.
Circumstances under which the account became NPA :
The conduct of the account was not satisfactory and the account was rendered irregular due to devolvement of LCs amounting to Rs.1.61 crore from Sept. 1998, diversion of funds to the tune of Rs.2.10 crore for modernisation of the equipments/acquiring machinery and finally slipped into NPA category as on Sept 30, 1999.The Company was subjected to stock audit in 1999 by K. Ramesh & Co., Chartered Accountants. The audit report revealed discrepancies as regards to improper maintenance of stock records/inventory records, excess reporting of stock position/DP (reporting of DP at Rs.5.40 crore as on Feb 28, 1999 as against estimation of Rs.3.12 crore for the same period by the Auditors .Poor financial management and diversion of working capital funds towards modernization and upgration of technology were the factors which led the account to be slipped into NPA category as on September 30, 1999. As per age of NPA the account is required to be classified as D 2 instead of the bank classifying it as D 1.
Comments on recovery efforts :
The bank decided to recall the advance on April 24, 2000 and the approval of EC was obtained for the same on July 8, 2000. No recoveries were made during the period under review.
Position of court suits/D / B proceedings :
A suit was filed with D , H on October 9, 2000 for recovery of dues. The company filed a petition before the B on January 2, 2001. However, banks and FIs pleaded with B to proceed legally against the company as the promoters had misled the B by producing false information. B had appointed the bank as the operating agency to conduct special investigation and submit the report within 2 months. M/S S S i Associates were appointed to audit the accounts and in their interim report was submitted by the bank to B on November 2001. B in their hearing held on March 28, 2002 stated that the secured creditors can proceed against the company legally for recovery of their dues. Further developments are awaited.
Comments on staff accountability :
The staff accountability aspect was not examined.
Comments on any other matter :
The branch had classified the account as D1 instead of D2 and hence an additional provision of Rs 0.25 crore is recommended.
M Alloy
Introduction
M Alloy ) (formerly known as M Steel was incorporated on August 14, 1989 to manufacture PC stands, PC Wire, GI Wire, MS Wire etc. The company was subsequently converted into a public limited company on July 18, 1994. The company was initially sanctioned CC of Rs.0.40 crore and IUBD of Rs.0.20 crore on September 7, 1993. The credit limits were subsequently renewed with enhancement in Nov 1995, March 1997, August 1998 and September 1999.
Circumstances under which the account became NPA
During an inspection of the unit on December 24, 1998, the branch came to know that the unit was closed from Nov 24, 1998 to December 17, 1998 due to a raid by Excise Department. The books of the company were also reported to have been seized by the Excise Officials. The unit was re-opened on December 18, 1998. The account which had shown signs of irregularity earlier became highly irregular from December 31, 1998 due to non-payment of interest debited. The irregularities further increased due to frequent devolvement of bills drawn under Letters of Credit (which were established contrary to bank’s procedures/extant instructions, etc) during January to March 1999. The branch opened 18 L.Cs to the extent of Rs.3.09 crore (out of which 10 L.Cs aggregating Rs.1.96 crore devolved) in favour of C.N.Traders, a partnership firm, in which Shri C. Naveen, Director of the MAIL was a partner. The bank did not exercise necessary checks and control to ascertain the address of the firm (which was fictitious ) and the genuinness of L.Cs in the above case. The bank also opened L.Cs in favour of Hira Steels Ltd. Aditya Ispat Ltd as against sanction stipulation for opening L.Cs in favour of established manufacturers such as RINL,SAIL, TISCO, etc. and honoured bills accompanied by L.Rs. of transport operators which were not on the approved list of IBA in contravention of sanction stipulations. Four L.Cs aggregating Rs.0.46 crore opened in favour of the above firms / companies also devolved on the branch. The account finally slipped into NPA on September 30, 1999.
Comments on recovery efforts
The unit stopped submitting stock statements after Feb.1999 and was undertaking job work at low scale. The bank issued legal notice to the company on June 7, 1999 to regularise their accounts. The company also submitted a compromise proposal on August 17, 2000 which was rejected by the bank on the next day as the offer was too meagre. The bank gave a paper publication in the Deccan Chronicle dated August 20, 2000 caU oning the people not to enter into any transaction of alienation with the company in regard to the properties mortgaged to the bank for availing of loan. The company had submitted another proposal for Rs.3.60 crore under OTS but this too was rejected by the bank. No recoveries were made in the account during the period under review.
Position of court suits/D s/ B proceedings
The bank had issued a recall notice on September 8, 1999 demanding its dues. A suit was filed at D , H on December 15, 1999 against the company to recover bank’s dues. As the borrower did not respond positively, the bank issued a recall notice on September 8, 1999 on the borrowers dues. The outstandings have been transferred to Protested Bills account on December 16, 1999. In the meantime, the company got itself registered with B on April 17, 2000 to be declared as a sick unit under the provisions of SICA. The B vide their order dated June 23, 2000 dismissed the reference of the company. Although the company appealed to AAFIR, the appeal was rejected. In view of rejection of company’s application by B , D proceedings are being revived.
Comments on staff accountability
Staff lapses with regard to establishing of L.Cs in favour of a trading concern and non-reputed manufacturers, honouring of bills accompanied by L.Rs of transport operators, etc. were examined by Credit Department, H.O and staff accountability had been fixed. Action against erring employees had been initiated by the bank.
Comments on any other matter
Nil.
G Appliances Ltd.
Introduction
. The above Company was incorporated on July 20, 1987 to manufacture household items like pressure cookers, stainless steel vacuum flasks, etc. The Company was sanctioned fund based limits of Rs.7.00 crore on October 18, 1994 towards its share of 30.96% under a consortium arrangement with Indian Bank in the lead. The credit facilities were last sanctioned by EC on January 21, 1999 and continuation was obtained upto August 31, 2002.
Circumstances under which the account became NPA
The performance of the Company which was satisfactory upto 1995-96 got affected due to non-availability of stainless steel sheets, irregular supply of alumunium circles by HINDALCO. It incurred a net loss of Rs.4.40 crore in the year 1996-97 and its net worth got completely eroded as on 31.3.1998 due to accumulated losses to the extent of Rs.19.21 crore. The account was continuously irregular since September 1997. General economic recession during 1997-98, labour unrest, stiff competition, high interest burden, high cost incurred in implementation of non-stick cookware production, heavy market development expenditure resulted in slippage of the account to NPA category as on March 31, 1998.
Comments on recovery efforts
10% of the credits received into the account were being impounded towards recovery of interest dues. In the process, a sum of Rs 0.16 crore had been recovered during the period under review.
Position of court suits/D s/ B proceedings
The Company made a reference to B which declared it as a sick unit under SICA. In terms of rehabilitation package, approved by B on July 27, 1999, working capital facility along with interest of Rs.4.11 crore were converted into WCTL repayable in 7 years including a moratorium for 2 years and repayment to commence in 2000-01. Further, the bank sanctioned additional fund based limits of Rs.0.64 crore and NFB of Rs.1.20 crore towards its share of 30.96% as per the rehabilitation package. In the meantime, Indian Bank (Lead bank) issued a legal notice to the company on April 26, 2002 recalling the advance on the instructions of their Head Office without consulting the member banks which was resented in the consortium meeting held on May 16, 2002. It was decided that a TEV study be carried out and Indian Bank resume operations with the company. Indian Bank stated that they would refer the issue to their HO. The company was advised to submit a revised proposal by end of June 2002. Reply from the company is awaited. The bank had decided not to increase its exposure to the company any further.
Comments on staff accountability
Staff accountability aspects were looked into and no lapses were observed.
Comments on any other matter
I , the Monitoring Agency for the rehabilitation scheme, recalled its advance to the company in December 2000 and filed a suit for recovery on April 29, 2001. The unilateral decision of I had affected the rehabilitation programme and interests of the consortium banks which had taken additional exposure to the borrower as part of the revival strategy. The bank had proposed to seek B intervention in the matter immediately. At a consortium meeting held on July 11, 2001, the company stated that it would submit a modified revival plan shortly to B . Accordingly, the company submitted a rehabilitation plan envisaging therein huge reliefs and concessions from WC banks and FIs besides sanction of need based working capital to the tune of Rs 5.09 crore from banks. As the requirements were on the higher side, the company was advised to submit a revised plan by the end of June 2002 which is awaited.
S l Agros .WRITTEN OFF
Introduction :
. The Company ( was incorporated in 1991 to engage in extraction and refining of multiseed edible oils. The Company was sanctioned a term loan of Rs.2.00 crore by the bank on Sept 20, 1994. The bank rescheduled the term loan payments by sanctioning FITL for Rs.0.50 crore in March 1997. The WC requirement of the Company which was sanctioned by the bank in March 1996 towards its share of 50.17% under a consortium arrangement with S (share of 49.83%) was released in June 1997.
Circumstances under which the account became NPA :
The commercial production started from June 30, 1997 instead of April 1995 as scheduled originally. The performance of the Company was not satisfactory due to poor sales turnover in 1997-98 and 1998-99, slump in the oil market, poor realisation of book debts, low capacity U lisation etc. Resultantly, the Company incurred losses and its net worth got eroded to the extent of Rs.2.24 crore as on March 31, 1999.The account was rendered irregular due to non-roU ng of its sale transactions with the bank and non-servicing of interest from April 1997 onwards and finally was classified into NPA category on October 30, 1997.
Comments on recovery efforts :
Operations in the factory got suspended from April 17, .1999. The Company sold stocks of Rs.0.57 crore between February to June '99 which were not routed either through the account of the bank or S . No recoveries were made in the account during the period under review.
Position of court suits/D / B proceedings
A suit was filed against the Company on March 23, 2000 with D , H to recover the bank dues. A reference was made to B on February 26, 2001 by the company. At the meeting held on May 24, 2002, the bank submitted that it has no objection to the company being declared as sick. The bank requested to pursue the suit already filed against the company. I (OA) also concurred with the views of the bank. B after taking the views of the banks/OA into consideration declared the company as sick and directed the OA to issue advertisement for change of management within 15 days. After examining the response received within 6 weeks, the OA was required to submit a status report to B . The company was permitted to respond to the advertisement, with or without a co-promoter. B fixed the cut off date as September 30, 2002.
Comments on staff accountability :
The Staff accountability aspect was examined and no lapses on the part of the operating staff were found.
Comments on any other matter : -- NIL --.
N Finance
Introduction :
The borrower, a non banking financial company engaged in leasing, hire purchase, consumer credit, bill discounting business etc., belonging to the Nagarjuna group, was sanctioned credit facilities by a consortium of banks with S as leader. The bank’s share was 12.13%. The limits were last sanctioned on November 19, 1996. The company stopped its business activities on account of adverse market conditions since 1998.
Circumstances under which the account became NPA
The CC account became irregular since October 13, 1999 due to reduction of drawing power owing to depletion of HP/Lease receivables on account of industrial recession. The company had stopped accepting public deposits with effect from December 10, 1998. Although it had taken a decision to cease its financial activities in HP, leasing and merchant banking business, it continued to pursue the collection of receivables arising out of financial services activities of previous years. Interest of December 2000 and March 2001 quarters were not serviced and therefore the account was treated as NPA. No stock statements had been submitted from November 1, 1999.
Comments on the recovery efforts
The company credited Rs.46 lakh on October 3, 2000 towards reduction of irregularity. EC had approved a compromise proposal of Rs 4.72 crore subject to the condition that the company has to pay upfront amount of 10% of OTS offer of Rs 4.72 crore immediately on conveying the approval and the balance within three months from the date of approval i.e. July 21, 2001 along with interest @12% simple on OTS amount from April 1, 2001 till the date of settlement. The company did not stick to the OTS schedule. A sum of Rs 0.25 crore only could be recovered from the company during the period under review. Since no repayments were forthcoming, the branch was advised by HO on April 25, 2002 to recall the advance.
Position of court suits/D s/ B proceedings etc.
The bank did not file any suit for recovery.
Comments on staff accountability
The staff accountability aspects were not examined by the bank.
Comments on any other matter
The account was treated as substandard as on March 31, 2001 and provided for accordingly. However, in view of the fact that there were no securities, the previous inspection treated as Doubtful asset and further provision of Rs.4.77 crore was recommended. Accordingly, full provision was made by the bank as on September 30, 2001 treating the asset as loss.
Sri Vi P Industries Ltd
Introduction
The account was commented in the previous inspection report. SVIL, a public limited company established in 1991 for manufacture of cold sheets/coils, was sanctioned on March 4, 1999 a MTL of Rs 5.00 crore by the branch to enable the company to meet a part of its enhanced project cost. The project cost was originally estimated at Rs 165.70 crore. Subsequently, it was revised thrice in 1995 (Rs 175.36 crore), 1997 (Rs 300.00 crore) and June 1999 (Rs 395.00 crore). The project also suffered time over-run; initially it was to be completed by October 1998 and thereafter by March 2000. However, it was yet to be completed. The other sources of finances were foreign currency loan and Rupee term loan from FI’s (D , I , I . I ) and State subsidy. Though the branch had sanctioned MTL of Rs 5.00 crore, it had disbursed Rs 2.99 crore on January 3, 1996, which was repayable in 28 quarterly instalments commencing from April 1997.
.
(ii) Circumstances under which the account became NPA
The project had suffered both time and cost over run. The project work started in 1994 and continued normally till 1996 but there after it stagnated and stopped altogether in October 1997 primarily due to non-mobilisation of funds by the promoter. The other reasons for delay in implementation of project was delay in the arrangement for the foreign currency loan, sudden withdrawal of co-promoter, non-clearance of imported machinery due to non production of guarantee in favour of DGFT and deferment of public issue due to recessionary conditions in the capital market. The foreign collaborator did not co-operate because of non-payment of their bills. The imported machinery was lying in the factory premises under the control of custom authorities since the duty was not paid. The customs authorities ordered auction of the machinery . Irregularity occurred in the account due to non-servicing of interest from December 1997 onwards. However, the company serviced December 1997 quarterly interest in June 1998. In the meantime, a proposal received from the borrower for funding of interest from April 1, 1998 to March 31, 2000 (Total amount Rs 1.50 crore) was submitted by the branch to HO in December 1999. The MTL was re-scheduled on March 6, 1998 for repayment from April 2000 (instead of April 1997) and also the repayment schedule of loan from 28 quarters to 37 quarters. However, neither the instalments nor the interest had been paid/serviced by the company. The project was yet to be completed and commercial production was yet to be started. In the meantime, D (consortium leader) had received a proposal for taking over assets of the company by (JVSL) in January 2001. The proposal was discussed in the meeting of FIs and banks on February 2001 and it was decided to conduct a viability study. It was also observed in the meeting that if the proposal was not found acceptable, it would not be possible to implement the project by the existing promoter.
(iii) Comments on recovery Efforts
The bank was dependant on consortium leader (D ) for regularization of the account. The limit was partially released without fully tying up with other bank. The unit visit made by the branch on March 2, 2001 had observed that the construction of the
factory building was complete to the extent of 65% only. There was no further improvement in this regard even on the reference date of the present inspection. The promoters could not bring in the additional funds to meet the escalation in cost of the project. A MOU was signed between SVIL and JVSL and a meeting of representatives of the FIs, banks was conducted on June 7, 2002 to discuss about the referred MOU. The bank clarified at the meeting that it was not agreeable for further exposure/disbursement. A recall proposal was submitted by the branch to Head Office on April 24, 2002.
(iv) Position of Court suits/D / B proceedings
The branch had sent a recall proposal to its Head Office on April 24, 2002 and developments in this regard are awaited.
(v) Comments on Staff Accountability
There was no record of any staff accountability study having taken place in respect of the account.
(vi) Comments on any other matters :
Though the matter of taking over of the unit by JVSL was considered for a long time, it was reported that JVSL itself is in financial problem and the promoters association with the unit was gradually coming down. No possible revival of the unit was in sight in the near future
Sri S Cylinders
) Introduction
The company engaged in manufacturing if domestic LPG cylinders was established on March 3, 1983 and was enjoying facilities from the bank from October 1993. The company was promoted by D. Appa Rao, the chairman of the group who served in Public Health Department, Govt of A.P. for over 35 years. The company had employed qualified and experienced personnel to look after the day-to-day running of the company. It has two group concerns viz : Sri S Resorts and Sri S Schools Pvt Ltd. Sri S Resorts was also enjoying facilities from the bank. The CC facility was last sanctioned to the company on March 23, 2000 and continuation was obtained upto June 30, 2001.
b) Circumstances under which the account became NPA
Initially the company did well in business. Oil companies placed orders on the LPG cylinder manufacturers, on vendor rating basis. There were assured orders for the company since it was having good manufacturing facilities and good vendor rating. The oil companies changed the procurement policy and consequently the company ran into problems as there were no firm orders from the oil companies. As against a net profit of Rs 1.03 crore during 1999-2000, the company could achieve only Rs 0.67 crore during 2000-01. The performance of the company was not good during second half of 2001-02 and there were many adverse features. There were no operations in the account from August 2001.The company was classified as NPA as on March 31, 2002. The manufacturing activity is suspended at present.
c) Comments on recovery efforts
The company had earlier approached Citi Bank with a request to take over the limits from the bank and requested the bank to issue a NOC. The bank had issued “ No objection certificate “ stating that M/S S LPG Ltd, another group company was NPA with the bank. The Citibank did not release any limit to the borrower. In view of non-operations in the account, the bank is contemplating to recall the advance and a decision in this regard is yet to be taken.
d) Position of Court Cases/D / B proceedings :
The bank was yet to proceed legally against the company.
e) Comments on Staff Accountability
There was no record of staff accountability study having taken place in respect of the above account
f) Comments on any other matter
The bank had made a short provisioning of Rs 0.06 crore in the account and hence an additional provision of Rs 0.06 crore is recommended.
A Spinners
Introduction
A Spinners Ltd (ASL) was promoted in 1961 by R. S K & his associates for manufacture of cotton and PV yarn with an installed capacity of 24,960 spindles at Pe Village, . The project, originally estimated to cost Rs 34.20 crore was to be completed by October 1993. It suffered both time and cost overrun on account of various factors like delay in raising public issue, additional requirement of machinery in pre/post spinning departments mainly due to product mix, increase in cost levels etc., and the project cost stood at Rs 40.84 crore. The fund based limits i.e. Term Loan and CC facilities of Rs 0.85 crore and Rs 2.00 crore were sanctioned to the company by the bank (Lead bank) in November 1992 and they were last sanctioned on September 26, 2000. The last review of the account was undertaken on September 18, 2001.
Circumstances under which the account became NPA
The company’s operations had been unsatisfactory since inception and it had been incurring losses continuously. The increase in input costs like power, raw material etc have affected profitability of the company. Due to continuous recession in the textile market arising out of steep increase in prices of raw materials and other inputs coupled with unremunerative sales realization, the company could not sustain the competition in the international market. Though the promoters infused funds to a tune of Rs 1.03 crore in March 2001, yet the company’s accounts remained highly irregular due to devolvement of LCs to a tune of Rs 2.77 crore upto September 2001. The company could not regularize the account and it was finally identified as NPA as on September 30, 2001.
Comments on recovery efforts
No recovery was made by the bank during the period under review.
Position of court suits/D s/ B proceedings
Based on the balance sheet of the company dated March 31, 2001, the company approached B on June 28, 2001. B advised the bank to furnish written submissions by August 1, 2001. The bank had informed B that it will not consider any further exposure to the company.
Comments on staff accountability
Staff accountability aspects were not looked into.
Comments on any other matter
Nil
G Steels
Introduction :
The account was commented upon in the inspection report. The borrower, incorporated as a private limited company was engaged in the manufacture of gold plated watches, straps, imitation jewellery etc. including integrated bracelets. The company sold the watch straps under the brand name “Bentex’ under a royalty arrangement with M/s Collins & Co., the owners of the trade mark. The company, dealing with the bank since 1992, was granted various credit facilities under sole banking arrangement. The registered office was at Mumbai with two units at D and Si The last review of the account was conducted on February 16, 2002.
Circumstances under which the account became NPA
The product was an item for which there was stiff competition from unorganized sector. The account was irregular from April 2000 on account of devolvements of LCs. However, the interest was serviced upto September 2000 and December 2000 was partly serviced. The company’s stocks and book debts went up substantially during the previous 2 years implying non rotation of stocks and slow realisation of book debts. There was diversion of funds for long term uses and for repayment of dues of sister concern. LCs aggregating to Rs.1.40 crore devolved on the bank from April 7, 2000 thus rendering the CC account irregular. During the year fixed assets increased by Rs. 0.25 crore while increase of non-current assets (deposits with government, book debts outstanding for more than 6 months) was to the tune of Rs.0.94 crore. The limits were restructured in February 2001 and released pending completion of documentation formalities. The new limits converted the irregularity of Rs.0.75 crore into WCTL and enhanced the CC limit by Rs. 0.70 crore despite weak financial parameters eg. low current ratio, erosion in net worth, adverse stock audit observations, decline in sales and profits etc. The irregularity however continued despite the restructuring on account of devolvement of export bills amounting to Rs. 0.70 crore and lack of sufficient drawing power. The account was classified as NPA by inspection on March 31, 2001.
Comments on recovery efforts
An adhoc EPC of Rs.1.00 crore, sanctioned in February 2000 was released without fulfilling terms of sanction which included regularization of loan account of Emson Jewellery and extension of security to cover additional limits. The account was renewed with enhancement in February 2001 although the level of sundry debtors was high and stocks were very high. The borrower was not observing any financial discipline. On February 11, 2002, the MD of the company called on the bank for discussions and explained the present level of operations and profitability of the company. However, the bank felt that the company had reached “point of no return” and observed that chances of servicing the interest and keeping the accounts regular appear remote even after restructuring, as requested by the company. The bank held discussions with the promoters of the company on February 21, 2002 regarding a possible restructuring exercise but nothing fruitful emerged from the meeting. When the promoters were contacted, there was no positive response from them. The bank is contemplating to recall the advance and file a suit against the company.
Position of court suits/D s/ B proceedings etc.
Bank had not filed any suit for recovery of the amount.
Comments on staff accountability
The staff accountability aspects were not examined by the bank.
Comments on any other matter
Nil.
Si Agro Ltd.
Introduction :
Si Agro Ltd., incorporated in 1978 as a public limited company engaged in the manufacture of edible oil from rice bran, castor oil etc. was sanctioned working capital limits in a consortium arrangement comprising of S and the bank in the ratio of 76:24 respectively. The limits, originally sanctioned in 1991, were last revised on February 9, 1998 with Rs.4.52 crore towards fund based limits and Rs.0.42 crore in non-fund based limits. The limits were last renewed in December 2001 at the existing levels although the performance of the company was not on the expected level in the preceeding two years.
Circumstances under which the account became NPA :
The depression in the selling prices of edible oils consequent upon the import of palmolein at concessional duty put the company’s profitability under strain. There was also diversion of funds to its sister concern Si Soft. The account of the company was irregular after June 2000. The company had not submitted stock statements after May 31, 2000 and thereafter the company had stopped operations and the bank was not able to ascertain the realizable value of stocks and receivables. No transactions were routed through the account and interest for the quarter ended September 2000 onwards was not serviced. There was no co-operation from the promoters for regularization of the account. Further, the company had disposed off one of the units in May 2000 although the fixed and current assets of the unit and the land and building was charged in favour of the consortium. The account was classified as NPA in May 2000.
Comments on recovery efforts :
Since the consortium leader had decided to recall the advance of Si Ltd, the flagship company of the group, it had decided to recall the advance of Si Agro also. The bank had filed a joint suit with S on February 1, 2001 in D , H for recovery of dues.
Position of court suits/D s/ B proceedings :
The company referred its case to B due to erosion of its entire net worth based on balance sheet as on March 31, 2001. The case was registered with B on June 9, 2001. B vide their letter dated January 30, 2002
directed the FIs/Banks to file their written statements on the reference made by the company latest by February 18, 2002 under copy to the company to enable them to file their replies by February 28, 2002 to B . The bank noticed certain inconsistencies in the financial data submitted by the company and it was duly appraised to B by the bank on March 26, 2002. The bank requested B not to declare the company as sick till the observations/findings are examined through a special investigative audit of the accounts of the company and to permit the bank to pursue the legal proceedings already initiated with D for recovery of its dues. B is yet to fix the date of first hearing in the matter.
Comments on staff accountability aspects :
Staff accountability aspect had been examined and no staff lapses were observed.
Comments on any other matter :
In the prospectus pertaining to the public offer of the associate concern, Siris Software, which went public in September 2000, material information relating to loans availed by the company from S were misrepresented /suppressed. The bank had brought these to the notice of SEBI and the President of H Stock Exchange. No further development was reported in the matter.
The bank was required to make a provision of Rs 1.06 crore based on the information on securities supplied to them by S on April 15, 1998. The bank accepted the same value as on March 31, 2002 as well. However, the bank held a provision of Rs 2.33 crore as on March 31, 2002 against the requirement of Rs 1.06 crore which would offset the depreciation on fixed assets for the period from April 1998 to April 2002.
I Petrochemicals
Introduction :
M/s I Petrochemicals . was sanctioned a term loan of USD 25 million by B (Brussels) and B (Hongkong) for setting up 100% EOU Phthalic Anhydride plant in collaboration with LURGI GMBH of West Germany. The loan was guaranteed by 6 Indian banks including S by issuing Risk Participation Guarantee. The share of the bank was 8% (i.e. USD 2 million), the exposure covering principal/instalment/interest/costs/expenses/overdue payments etc. The company paid the first 7 half yearly instalments from Dec 5, 1994 to Dec 5, 1997 but failed to meet the subsequent instalments (the final one being on June 30, 2000).
Circumstances under which the account became NPA
The company’s accounts were irregular right from 1998 with all the consortium members. The company’s products were exported mainly to Indonesia which was affected by severe financial crisis and the overall slump in petrochemical industry and crash in PAN prices affected its cash flow. The company could not pay the half yearly instalments during 1998 and finally turned into NPA as on March 31, 1999.
Comments on the recovery efforts
The company’s failure to pay the instalments on time resulted on the liability devolving on the bank and the amount with interest thereon was paid by the bank by debit to the overdraft account. The company expressed its inability to even pay interest on the overdraft outstanding and approached I , the leader of the consortium for restructuring the existing debts. I had approved and circulated the restructuring proposal among banks and FIs for their approvals. The EC of the bank in its meeting held on December 21, 2001 approved restructuring of its dues.
In the meantime, the company approached B based on the balance sheet as on September 30, 2001 and got itself registered. In the consortium meeting held on December 19, 2001, the company did not disclose the fact that they got themselves registered with B but instead misrepresented the fact stating that they were yet to finalise the audit of their accounts for the year ended September 30, 2001. Due to falsification of the information given to banks, the member banks in the consortium meeting dated December 19, 2001 decided not to take up
additional exposure to the company. The banks are contemplating to initiate recovery action in consultation with B .
Position of court suits/D s/ B proceedings etc.
As the company got itself registered with B based on the balance sheet as on September 30, 2001, the bank had not filed any suit for recovery of dues.
Comments on staff accountability
Staff accountability aspect was not examined by the bank.
Comments on any other matter
- Nil -
S Power Switch Gear
Introduction :
The account was commented upon in the last inspection report.
SPS, belonging to J Group, was incorporated on 1.9.1975 for manufacture of electrical equipments viz. High tension products including switchgears, isolators, etc. The Company was sanctioned fund based limits of Rs.3.88 crore and non fund based limits of Rs.5.25 crore on 28.4.1993 towards its share of 10% under a consortium arrangement with Indian Bank in the lead. Subsequently, the limits were renewed on 24.1.98 with enhancement with increase in fund based limits to the extent of Rs.8.06 crore and non fund based limit of Rs.5.50 crore.
Circumstances under which the account became NPA
The performance of the Company which was satisfactory up to 1996-97 was affected due to general recession, South East Asian economic crisis, and diversion of funds to its sister concern. The company incurred huge loss of Rs.44.49 crore in 1998-99 and reported to B as a potential sick company. The account was rendered irregular since Dec. 1998 due to overdues in PC limits and non payment of interest on CC limits and became NPA as on 30.9.1999.
Comments on recovery efforts
The bank submitted its claim in respect of overdue PC to ECGC under WTPCG on 20.10.2000 for an amount of Rs.1.50 crore . The branch had received an amount of Rs 1.36 crore during October 2001 from ECGC which was yet to be adjusted in the account. The amount was parked in Current Account (ECGC Claims Settled Account).
Position of court suits/D s/ B proceedings
The bank had obtained approval from EC on 8.8.2000 for recall of the advance, however, the initiation of legal proceedings was delayed since the company’s request for declaration as a sick company was pending with B . The bank served a legal notice on the company on September 5, 2000 and sought permission from B vide their letter dated October 27, 2000 for filing a suit. At the first B hearing on November 25, 2000 the bank submitted its objections to the company being declared sick on the grounds that the sickness was brought about diversion of funds by investments in subsidiaries and the huge amount locked up in overdues from SEBs. In the mean time, the leader of the consortium
(Indian Bank) vide their letter dated June 9, 2001 unilaterally decided to support the revival of the company and extend certain NFB limits in contravention of the decision of the consortium at the meeting held on January 25, 2001 wherein the consortium banks expressed the view that as the promoters were not sincere in reviving the loan documents, personal guarantees and execU on of AODs with individual banks, the company should bring back atleast 50% of the ICDs as promised at the time of hiving off of L.T. Division before the banks consider any request of the company for FB/NFB facilities. The bank conveyed its objections to the lead bank. The company later expressed their willingness to offer collateral security worth Rs 2.00 crore including the cash margins for NFB limits of Rs 6.00 crore through FDR and urban property at Mumbai and H . But the limits could not be released in view of the objections from other members of the consortium. Another meeting of the consortium was held on March 6, 2002 in which no unified decision could be taken on whether the company should be treated as a sick company or not. At the B meeting held on March 18, 2002, a few members of the consortium (BOB, Indian Bank, I ) did not contest the sickness of the company while other members opposed the sickness of the company and requested the Bench to order for a Special Investigative Audit of the company’s accounts before taking a decision. The Bench later directed the company to submit some more information with regard to investment in ICDs to all the members of the consortium.
Comments on staff accountability
The bank stated that there were no lapses on the part of the operating staff.
Comments on any other matter
The validity of documents for the purpose of security was required to be examined since the period of limitation was available upto 3.3.2001. Insurance policies were also not in force . No records were available with the bank to ascertain that the documents were revived and insurance policies renewed.
T Electric
Introduction :
The T Electric was incorporated as a public limited company in 1961 and was engaged in the manufacture of electric transformers etc. Of the two divisions, Contract division and Transformer Division, the Transformer Division has 2 factories at H and Si respectively and it has been availing working capital finance from the bank under sole banking arrangement since 1963. The unit was engaged in the manufacture and sale of electric transformers and accessories ranging from 100 KVA to 31500 KVA ratings and its main customers were State Electricity Boards, Railways and other public sector undertakings. TE has a subsidiary company M/s So Switchgear Ltd., located at C i which was engaged in the manufacture of high and low tension switchgear, circuit breaker etc. The captioned company was reported to be under lockout.
Circumstances under which the account became NPA
The company faced liquidity crunch as its payments were locked up with various customers such as Gujarat Electricity Board, MSEB and direct supplies to APTRANSCO etc. The company did not import raw materials and therefore could not encash benefits of duty free import to the extent of Rs.1.30 crore on account of deemed export to APTRANSCO World Bank project, which however had been factored into the competitive rates while making sales. The liquidity crunch led to irregularities in the account and affected the procurement of raw materials. Consequently the company could not execute orders in time although it had orders worth Rs.9.66 crore on hand. The CC account became irregular due to devolvement of LCs and quarterly interest applications. As a result the company was not permitted to open LCs which in turn affected its ability to import raw materials. The company could not face the competition in the market which led to steep fall in sales.
The CC account of the company was irregular since June 30, 2000 and was incurring losses since 1996-97 which eroded the networth considerably from Rs. 7.98 crore as on March 31, 1999 to Rs 0.54 crore as on March 31, 2001. The account was classified as NPA on March 31, 2001.
Comments on the recovery efforts
The bank followed up with company for regularization of the accounts. No recoveries were made during the period under review.
Position of court suits/D s/ B proceedings etc.
The bank is contemplating to recall the advance since chances of revival of the unit appeared very bleak.
Comments on staff accountability
Staff accountability aspects had not been examined by the bank.
Comments on any other matter
Nil
Na Project Co Co
Introduction
The company (NPCCL), a Government Enterprise, was incorporated in 1957 for infrastructure development in water and power sectors. The company was sanctioned CC (H) limit of Rs 3.62 crore and BG limit of Rs 7.46 crore on September 5, 1999 by the bank towards its share of 17% under consortium finance with P (S of P ) in the lead. The credit limits, as mentioned above, were last renewed on September 5, 1999 and the last review of the account was undertaken on December 31, 2001.
Circumstances under which the account became NPA
Since early nineties, the operations of NPCCL were adversely affected mainly due to procurement of orders with low margin of profits, competition from contractors from the private sector, huge funancial burden and disproportionate financial charges, lack of control in the areas of finance, administration, manpower, etc,. The company suffered heavy losses during past several years and it was classified as NPA as on March 31, 1997 by the statutory auditors.
(iii) Comments on recovery Efforts
No recoveries were made in the account during the period under review.
(iv) Position of Court Suits/D s/ B proceedings
The company could not make a reference to B as its activity was not an industrial activity. The company appointed D as consultants to suggest measures for its revival. The draft plan submitted by D envisaged infusion of additional funds to a tune of Rs 210.00 crore by GOI, concessions from banks and additional exposure from banks to the extent of Rs 165.00 crore. The bank gave its approval to the plan subject to the condition that GOI should support the revival plan. It is reported that the guarantee had not yet been renewed by GOI. The revival of the company is entirely dependant on substantial support from GOI.
Comments on Staff Accountability
Staff accountability aspect had been examined by the bank and no staff lapses were observed.
Comments on any other matter _
The outstanding balance in the account stood at Rs 3.57 crore as on March 31, 2002. The extent of guaranteed amount by GOI i.e. Rs 1.11 crore had been deleted from the total outstandings and a provision of Rs 1.23 crore was provided in the account.
V Shrimp Farms
Introduction
The company dealing in aqua culture and allied activities was enjoying facilities (Term Loan) from the bank (leader) from July 3, 1993 led by another member of consortium , S I i Bank. The limits were last reviewed on December 31, 2000.
Circumstances under which the account became NPA
The company’s performance and working results were not satisfactory mainly on account of successive crops losses due to virus attacks. The persistent irregularity in the account was attributed to external factors like floods, virus attack etc,. which were beyond the control of the company. Efforts of the bank to revive the unit by extending certain reliefs and additional credit facilities did not improve the position. Finally, the account slipped into NPA as on September 30, 1998.
Comments on recovery efforts :
The unit was not functioning and hence no recoveries were made by the company during the period under review. In view of adverse features in the account, a decision was taken by the bank on August 10, 2000 to recall the advance.
Position of court suits/D s/ B proceedings :
A joint suit was filed with D , H on May 24, 2001 and the case is at the summons stage.
Comments on staff accountability aspects :
No lapses were found on the part of the operating staff in conduct of the account.
Comments on any other matter
The account was NPA from September 30, 1998 and as per IRAC norms it should be classified as D2. The bank had erroneously classified the account as D1 instead of D2 and hence there was a short fall in provision of Rs 0.31 crore.
G Carpets
Introduction
The company engaged in manufacture of carpets was dealing with the bank since 1997. The unit was registered as EOU. Its EOU status precludes it from selling more than 50% of its export sales in the domestic market. The company was originally sanctioned a term loan and WCDL in November 1997 and November 1998 respectively. The limits were last renewed on March 29, 2001 and continuation was obtained upto September 30, 2002.
Circumstances under which the account became NPA
As the sales in the domestic market is linked to export sales, the company’s sales in the domestic market was adversely affected due to negligible margins on exports to overseas buyers. The account was irregular for more than 180 days as on March 31, 2002 due to non payment of interest debited to the account and devolvement of LCs. The account was, therefore, classified as sub-standard asset as on March 31, 2002.
Comments on recovery efforts :
No recoveries were made in the account during the period under review.
Position of court suits/D s/ B proceedings :
No legal action was taken by the bank against the Company.
Comments on staff accountability aspects :
Staff accountability aspect was not examined by the bank.
Comments on any other matter
Considering the good response for the company’s products in the domestic market and also good margins, the company insisted the process of debonding, so that it would be free to sell its entire production in the domestic market and improve its performance and financial position. Company was required to pay an amount of Rs 0.45 crore to Customs & Excise authorities towards debonding. Against which, the company paid an amount of Rs 0.24 crore upto March 31, 2002 and the balance amount was paid on April 29, 2002. The process of de-bonding is expected to be completed shortly.
Pe Solec Ltd.WRITTEN OFF
Introduction :
The account was commented upon in the last inspection report .
PSTL, belonging to Pentafour group was incorporated on May 3, 1993 for setting up a plant at Podur Post for manufacture of Photo voltaic cells in collaboration with Solec Intl. Inc., USA. The project appraised by I was estimated at Rs.12.52 crore. While the term loan requirement (Rs.5.00 crore) of the Company was met by I , its working capital requirement was met by the bank (S ). The Company was sanctioned fund based limits of Rs.4.60 crore (CC-Rs.2.40 crore, FBP/FUBD-Rs.2.20 crore) and non fund based limit of Rs.5.02 crore on Sept 13, 1994.
Circumstances under which the account became NPA :
While sanctioning the credit limits to the Company, the bank did not critically assess the risks associated with the Company’s sole dependence on a single buyer (Solec International) for supply of raw material (Solar Cells) and for sale orders under buy back arrangements. Further, the loan was sanctioned on the basis of first charge on stocks and book debts of the Company and second charge on their fixed assets only without obtaining any other collateral security to secure the advance fully. The credit facilities were allowed to continue till May 2000 by the bank without any renewal on the ground that there was delay in finalisation of Company’s accounts/submission of requisite data/information by the Company, irregularity in the account, etc. The loan was also released without creating second charge on the Company, (which was created subsequently without the consent of I ). The Company went for project expansion i.e backward integration in 1995. Its performance which was satisfactory upto 1996-97 deteriorated afterwards due to lack of orders, diversion of funds from short term to long term use (to the extent of Rs.10.99 crore in 1997-98), etc. The stock audit report dated July 17, 1999 by Y. Gopal and Associates, Chartered Accountants, pointed out serious discrepancies in compilation/valuation of stocks, roU ng of sale proceeds, etc. The stock audit valued the stocks at Rs.0.95 crore due to their old age/over age/ obsolence, etc as against Rs. 3.18 crore taken by the Company.
Comments on recovery efforts :
The bank did not initiate any serious steps towards recovery in the account although a sum of Rs 0.14 crore had been recovered during the period under review. Neither any visit was undertaken by the branch after 1999 nor the borrower submitted any stock statement after June 1999.
Position of court suits/D / B proceedings :
The ExecU ve Committee in its meeting held on April 19, 2000 approved the proposal for recalling the advance and filing the suit. Suit was filed on Feb 14, 2001 with D Chennai and the suit was posted for July 5, 2002 for filing proof of affidavit..
Comments on staff accountability :
Staff accountability aspects were examined and no lapses found on the part of operating staff.
Comments on any other matter :
As per the stock statement dated June 30, 1999, the stocks of solar cells, aluminium angles etc were valued at Rs 3.18 crore. The stock audit report valued the same at Rs. 0.95 crore taking into consideration age material for the purpose of calculation of DP and accordingly the DP was reduced to Rs. 0.71 crore. The stocks are movables and planting material in nature and hence it cannot be treated as a tangible security. Moreover, no stock statement was received by the branch after June 1999 till June 2002. Account was also not renewed after its original sanction i.e. September 13, 1994. The account is therefore classified as a loss asset by the inspection and an additional provision of Rs 0.67 crore is recommended.
O Se
Introduction :
The company dealing in manufacturing of TVs, electronic tuners, washing machines etc,. was enjoying facilities from the branch from April 1991. The last sanctioned was approved on December 13, 1995 and the last review of the account was conducted on December 31, 2001. The CTV unit was given on lease to Mo Electronics Ltd as part of the reorganization plan of Onida Group of companies. There was a fire accident in washing machine unit of the company in April 1998 and it was severely damaged.
Circumstances under which the account became NPA
The company started incurring losses due to major demand slump in television industry and tough competition faced from leading manufacturers of television and washing machines. The losses continued since 1987 and as on March 31, 1999, the entire worth of the company at Rs 33.12 crore got eroded and slipped into NPA as on September 30, 1999.
Comments on the recovery efforts
No recoveries were made by the company during the period under review. The MD of the company approached the bank on March 26, 2002 with a proposal for an OTS amount of Rs 1.00 crore against an outstanding of Rs 3.86 crore (excluding interest w.e.f. April 1, 2000). The bank stated that the offer was very low since the entire dues to the bank as on March 31, 2002 aggregated Rs 4.80 crore. The company was advised to increase the offer considerably. The company revised its offer to Rs 1.30 crore which was declined by the bank on the ground that there was a huge difference between the actual dues to the bank and the OTS offer. No positive response was received from the company thereafter. The company came up with another request to open a :no-lien” current account for the purpose of roU ng their transactions. The bank acceded to the request of the company with the view that they can convince the company to agree for a certain percentage of cut back towards adjustment of irregularity of the bank’s dues.
Position of court suits/D s/ B proceedings etc.
The company referred its case to B on July 5, 1999. B appointed D as OA and directed it to scrU nize the company’s balance sheet as on March 31, 1999. OA appointed M/S Goel & Associates to conduct SIA. The SIA reported the company’s net worth negative at Rs 3.61 crore as on March 31, 1999. OA accepted the report and submitted it to B in the meeting held on September 6, 2000 and expressed the view that the company may be declared as sick. However, S and other members of the consortium objected to the company being declared as sick on the ground that its net worth was not eroded. B directed the company to furnish clarifications regarding the objections raised by the members of the consortium. The company submitted its clarifications based on which the B declared the company as sick on March 15, 2001 and directed OA to issue advertisements for change of management and submit to B based on the responses received. No further developments were reported thereafter.
Comments on staff accountability
Staff accountability had not been examined
Comments on any other matter
Nil.
Vi Steels WRITTEN OFF
) Introduction
The company was promoted by Sri Pu t Ch and He Cha . It has two plants one at Tarapur and the other at Goa and is engaged in manufacture of mild steel billets and rolled products. The company was incorporated on April 6, 1990 and was enjoying facilities from the bank from November 1998. Originally, D Bank, as the lead bank, apprised the limits in which the bank’s share was Rs 3.00 crore in FB and Rs 2.00 crore in NFB limits. However, the bank released only Rs 1.80 crore in fund based and Rs 1.70 crore in non-fund based limits since there was a delay in commissioning the Automatic Hot Rolling Mill (Goa Unit). The company was operating its accounts regularly with all the banks.
b) Circumstances under which the account became NPA
Subsequently, S took over as lead bank and apprised the limits at Rs 78.00 crore. As the accounts of the company became irregular with most of the banks and the periodical statements were not being submitted by the company since March 2000, member banks were not inclined to increase their exposure. Recession in steel industry, heavy cost and time overrun, technical problems, lack of adequate infrastructure, managerial, financial and marketing problems affected the profitability of the company and consequently both the plants of the company were permanently closed. It was reported that the Director of the company left for Behrain. The account was classified as NPA as on September 30, 2000.
c) Comments on recovery efforts
No recoveries were made in the account during the period under review.
d) Developments in B /D /Court cases
The company referred its case to B in November 2000. B appointed I as the OA to forward a report to B either on its own or through a Chartered Accountant (SIA). The SIA brought out several irregularities in the balance sheet submitted by the company and submitted the report. B directed the company to submit explanation. The explanation submitted by the company was not satisfactory. B permitted all the secured creditors to pursue/file suits for recovery of dues upto pre-decree state, and in absence of joint documentation, the consortium banks independently filed suits against the company. When the case came up for hearing on January 15, 2002, the presiding officer, D , Mumbai granted injunction in respect of hypothecated and
mortgaged property and the injunction would run from the date of inventory. The bank served a notice on the company for taking over inventory but there was no response from the company.
e) Staff Accountability
There was no record of staff accountability study having taken place in respect of the above account
f) Comments on any other matter
Due to absence of Director and senior functionaries of the company at the meetings held by the consortium, nothing concrete emerged in the case. OA and consortium banks requested B to take a serious view of the situation. There was no security available in the account. Two units of the company were already closed in September/October 2000. The statutory auditors did not make any adverse comments about the stock. Hence the stock of Rs 0.74 crore was accepted though it was derived as per the stock statement dated
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Ja Aqualines . WRITTEN OF
Introduction :
. The borrower was sanctioned term loan of Rs.279.85 lakh in December 1993 (repayable in equal half yearly installments with initial moratorium period of one year) by the bank as its share of 60% under its leadership in a consortium arrangements with A.P.C.O.B for the aqua culture project. The Company envisaged setting up of an integrated aquaculture project at Chennayapalem, Nellore as 100% EOU. The term loan was released in 1994 and the commercial production started in September 1996.
Circumstances under which the account became NPA
The performance of the Company got affected due to spread of white spot diseases leading to crop failure, un-favorable market conditions, labour unrest, ban on aqua activities in the wake of Supreme Court judgement, unfavorable market conditions etc. The unit incurred losses and had become defunct. The difficulties in monitoring the account from a long distance was not critically assessed at the time of sanction. The account which was rendered irregular on account of non servicing of installments / interest slipped into NPA category as on March 31, 1997.
Comments on recovery efforts
A suit was filed for recovery in August 1999. The bank’s ExecU ve Committee had approved a compromise proposal in February 2001 envisaging a payment of Rs 200.00 lakh (its share out of RS 300.00 lakh). APCOB the other financing institU on had expressed its disagreement with the amount of sacrifice proposed and the matter was yet to be resolved.
Position of court suits/D s/ B proceedings
A suit filed with D in August 1999 for recovery was pending. No further progress was reported by the bank in the suit during the period under review.
Comments on staff accountability
No staff lapses were observed by the bank in this regard.
Comments on any other matter
An inspection of the unit was carried out by the officials of the bank on Feb 4, 2001 to ascertain the value of the security available in connection with the OTS proposal submitted by the borrower. The value of land (128.34 acres) and a building and plant & machinery was assessed at Rs.3.81 crore in March 1999. The machinery was found to be in a rusted condition and was likely to lose its value by the time the case filed in D is settled. It also could not be ascertained whether the land which was used for aqua culture could be fit enough to carry out normal agricultural activities, and the value of security was reassessed as Rs 2.06 crore by the bank. Besides this, the asset slipped into D3 category according the age of NPA but the bank had classified it as D2 as on March 31, 2002 and hence an additional provision of Rs 0.41 lakh is recommended.
A Pharma
Introduction
The company was engaged in manufacture of sterile dry powder type injections and pharm formulations. It was financed by a consortium under the leadership of Canara Bank. The company, established in March 1986, was enjoying facilities from the bank since October 1996. The company had gone for a major expansion of its manufacturing facilities in 1996 with the term assistance of D and equity participation of Bank, Merchant Banking Division (
Circumstances under which the account became NPA
Due to delay in completion of project, cost and time over-run and delayed realization of receivables, the company’s working capital cycle got affected. It was observed that the company was mainly doing only job works and was not working to its full capacity. The cash credit account of the company was continuously irregular from July 1998 due to devolvement of LCs, non-payment of quarterly interest from September 1998 onwards and return of discounted bills. The account was classified by the bank as NPA on March 31, 1999 and categorized as D 2 as on 30.09.2001 but was upgraded to Standard as on March 31, 2002 based on a circular issued on ‘annual closing of accounts- instructions on prudential norms on income recognition, asset classification and provisioning for advances’ by the H.O (viz. Cir.ADV/ 2001-02/ 70 dated March 2, 2002). As per the circular, recovery of interest / installment and / or regularisation upto September 30, 2001 would facilitate upgradation of an NPA other than loss assets into standard category. However, the account was made standard by permitting 100% inter-changeability from FUBD/FUBP account to CC (PC) account and reducing the cash margin on LCs from the existing 25% to 5%. The company was not maintaining adequate DP; which was negligible (around Rs.18.00 to Rs.20.00 lakh) as against the outstandings in the CC account (around Rs.70.00 lakh to Rs.130.00 lakh) during 2001-02. Permitting upgradation of NPA account on recovery of interest alone while the account was still continuously out of order is not correct. Hence, the inspection classified the account as D2 as on March 31, 2002 as per the ageing of asset based on the initial date of classification of NPA i.e. March 31, 1999.
ii) Comments on recovery efforts:
There were regular operations in the account during the financial year ended March 31, 2002.
iii) Position of Court suits / D / B cases
The branch was yet to proceed legally against the borrower.
iv) Staff Accountability.
Staff accountability aspect was not examined in respect of the account.
v) Other matters.
Since the account is classified as D2 as on March 31, 2002 as against classification of the account as “standard” by the bank, provision of Rs 1.03 crore is recommended.
Cr Agritech . WRITTEN OFF
Cr l Agritech
. The company was incorporated on March 13, 1995 to set up a floriculture project near B for cultivation and growth of cut flowers (roses). The bank appraised the cost of the project at Rs.9.97 crore. The company was sanctioned ATL of Rs.3.35 crore in June 1995(repayable in 20 quarterly instalments with effect from July 1996) and one time FLC of Rs.4.90 crore for import of machinery. Further, the ExecU ve Committee sanctioned an additional FLC limit of Rs.0.70 crore in November 1995 for import of refrigeration system and farm equipment. The project which was originally scheduled to be completed in Nov/Dec. 1995 was delayed by an year due to delay in import of capital goods, commissioning of refrigeration system, public issue etc. resulting in cost escalation to the extent of Rs.1.58 crore. The account was re-scheduled on 9.2.98 by funding interest and repayment was to commence from September 1998. The company availed of soft loan of Rs. 1 crore from National Horticulture Board to meet additional cost of the project and commenced commercial production from January 1996.
Circumstances under which the account became NPA
The account became NPA as on 31.3.1998. The company was unable to achieve its projected production/sales/profit levels. The account became irregular due to non servicing of quarterly interest. Due to devolvement of LCs, the current account became irregular and the same was adjusted with the loan received from NHB. The loan was rephased by the bank since the company faced serious liquidity crunch. The borrower was not able to service instalments and interest even after rephasement and also defaulted in dues to NHB. As per guidelines on viability of floriculture units, the unit was not considered viable. In the absence of any concrete plan of plan by the company, its chances of revival were considered to be remote.
Comments on recovery efforts
No recoveries were made in the account during the period under review excepting that an amount of Rs. 4.41 crore lying in Interest Suspense account was adjusted in the loan account . The Agricultural and Processed Food Products Export Development Authority had taken an initiative to
revive floriculture units on the verge of closure and the matter was under the consideration of the Committee of Secretaries and the Banking Division of Dept of Economic Affairs, Ministry of Finance and D for considering the reliefs which could be extended to the floriculture units. The bank, in reponse to APEDA’s request to defer legal action stated that it would initiate necessary steps for getting the appropriate order from D as and when the rehabilitation package is worked out to the satisfaction to all parties concerned. After examining the account, the bank had written a letter on April 24, 2002 to APEDA that they were not in favour of considering rehabilitation of the unit. However, the bank clarified that in case the company comes forward with a concrete proposal with realistic projections and sufficient long term funds in the form of promoters’ equity and unsecured loans, the bank will consider conducting a viability study for rehabilitation of the unit. Reply from APEDA is awaited.
.Comments on legal recovery proceedings
The bank had filed a suit with D on October 18, 2000 for recovery of dues and it is still at reply stage.
Comments on Staff Accountability
The staff accountability aspect was examined and no staff lapses found.
Comments on any other matters
Nil
A Finance Ltd
Introduction :
The account had been commented in the previous inspection report. A Finance Ltd., an NBFC, is engaged in leasing and hire purchase activity, secondary market operations, and bill discounting. It was sanctioned working capital limits by a consortium of banks led by Canara Bank, the share of S being 2.50 %. The company was enjoying credit facilities from the bank since November 1994 and credit limits were last renewed in November 1998. The company belongs to ‘A ’ group of companies promoted by Atul K.Nishar and his family. It was initially incorporated on 19.10.85 as a public limited company under the name of M/s A Leasing . Subsequently, on 1.9.86 the name was changed to Apple Leasing & Industries Ltd., and on 13.8.89 it was changed to A Industries Ltd. and finally to Ap Finance Ltd on 26.11.96.
Circumstances under which the account became NPA
The company’s performance was far from satisfactory since the last 3-4 years and its NPAs were on the increase. The general recession in the economy and huge investment of funds in a building in Bandra Kurla Complex, contributed to its poor performance. It did not observe any financial discipline and there was no transparency in its dealings with the consortium banks. The company did not submit any stock statement from February 2000 onwards, which resulted in depletion of drawing power, and did not co-operate with stock auditors appointed by the consortium leader. The company did not service interest for the quarters from June 2000 onwards, which resulted in depletion of drawing power and also did not co-operate with stock auditors appointed by the consortium leader. The company did not service interest for the quarters from June 2000 onwards and was classified as NPA as on March 31, 2001. Tfhe bank had classified it as a doubtful (D1) asset as on September 30, 2001 and D 2 as on 31.03.2002 due to lower security cover.
Comments on the recovery efforts
There had been a recovery of Rs 0.34 crore being the amount distributed from the collection account maintained with S , Chennai as per the D order. An amount of Rs 0.07 crore being the balance in the current account and Rs. 0.28 crore lying in Interest Suspense account was credited to the Protested Bills account. The company submitted its terms of settlement offer to the bank on March 14, 2002. The branch is in the process of submitting a detailed compromise proposal . The company had not specified the schedule of settlement of dues under compromise in their offer letter, stating that they were agreeable to pay an amount of Rs 1.35 crore within 10 days of passing of necessary orders by D permitting payment of the amount from the no-lien account maintained with the leader of consortium (S ). The matter is being pursued by the bank.
Position of court suits/D s/ B proceedings etc.
The bank had filed a suit in D on December 7, 2001 for recovery of its dues.
Comments on staff accountability
Staff accountability had not been examined
Comments on any other matter
Nil.
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Hi Agrigenetics
Introduction :
The company, an agro-based industry dealing in seed production, development of tissue culture and floriculture activities was banking with the branch since January 15, 1991 and was enjoying CC and TL facilities from the bank. The last renewal of the account was carried out on October 25, 1997 and the last review of the account was carried out on February 22, 2001.
Circumstances under which the account became NPA
Due to failure of tissue culture and floriculture activity, the company had been incurring losses since 1995-96. MTL account was irregular from January 1998 due to non-payment of interest and instalments and the account had been classified as NPA as on March 31, 1999.
Comments on the recovery efforts
No recoveries were made in the account during the period under review. The company was unable to revive its business, either by tying-up additional fund requirements with another bank or by infusing additional fund requirements with another bank or by infusion of additional capital as the company was not in a position to offer any additional collaterals for the proposed additional finance. In view of existence of several risk factors, the bank took a decision not to provide any additional finance to the company and advised it to submit an acceptable OTS proposal. As the company failed to submit the OTS proposal, the bank had recalled the advance on November 22, 2000.
Position of court suits/D s/ B proceedings etc.
A suit was filed against the company on February 20, 2001 before D , H . The D , H approved Advocate Commissioner for seizure, sale of hypothecated items as per inventory. The case was posted for May 9, 2002 for report. The bank is making efforts to fix a date for seizure of assets in consultation with the Advocate Commissioner through their advocate.
Comments on staff accountability
Staff accountability was examined on April 16, 2001 and no staff lapses were observed.
Comments on any other matter
The bank had made provision in the account based on D1 category. According to the age of NPA, the account should have been classified as D2 instead of D1. Hence an additional provision of Rs 0.55 crore is recommended.
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