Professional Documents
Culture Documents
44 Vikalpa
stipulated that payments were to be made to the
suppliers of machinery after collecting margins from
the borrower. Most of the disbursements of the term
loan were cash payments made to the promoters and
the branch did not get copies of invoices relating to the
machinery purchased by the company. Further, the
bank did not create a charge on the assets of the
company within 30 days of disbursing the loan as was
statutorily required.
Project Implementation
There was considerable delay in implementing the
project as the State Electricity Board did not provide
power connection to the unit. Moreover, the company
did not send periodic progress reports to the bank.
However, bank officials occasionally visited the factory
site to keep themselves abreast of the work in progress.
The Technical Officer from the regional office inspected
the unit during 1982 and reported as follows:
The civil construction of the unit is complete and
the machinery has been erected. The machinery
has been verified as per the quotation of the sup-
pliers and it is found that it has been properly in-
stalled.
The company has applied to the Civil Supplies
Department for supply of sugar and maida. The
Branch Manager has confirmed that the disburse-
ment of loan amounts was made directly to the
suppliers and that the company paid an amount
of Rs 1 lakh to the Civil Supplies Department for
securing stocks of sugar and maida.
The unit is ready to commence production, but the
main hurdle is the power connection which has
not yet been obtained. It is learnt from the ap-
plicants that power supply was delayed because
neither the Rural Electrical Corporation nor the
State Electricity Board could take any decision on
whose jurisdiction this unit falls. After prolonged
persuasion, the State Electricity Board has agreed
to give power connection on 20 August 1982. The
In March 1981, the bank sanctioned a term loan of transformer for power connection has been
Rs. 17.66 lakh, open cash credit limit of Rs. 2.67 lakh,and erected.
key cash credit limit of Rs. 3 lakh with stipulation that
promoters have to initially invest a capital of Rs 6 lakh Order for power connection was issued by the State
before release of any part of term loan. Electricity Board on 3 August 1982 and was received by
The Branch Manager however did not insist on the the company on 30 August 1982. The unit started
stipulation mentioned by the Regional Manager and production on 22 December 1982, well over two years
behind schedule. The financial position of the company
disbursed the amount sanctioned. Further, he made
as on 31 December 1982 is shown in Exhibit 3.
payments directly to the promoters when the 'sanction
46 Vikalpa
In September 1984, RRC approached the bank for
renewing the open cash credit limit of Rs 10 lakh and
sanction Rs 20 lakh against usance bills. Apart from an
assurance to bring additional unsecured loan of Rs 10
lakh, the directors gave the following details to the
bank:
48 Vikalpa
making good use of the lease arrangement with the
BBC. His conclusions were based on the following ob-
servations:
The managing director of the company had shifted
his registered office outside the present location
leaving the affairs of the company to a manager
who did not have any experience in the manage
ment and technical aspects of the unit.
When power cuts were imposed on all industrial
units in the area by the Electricity Board, he did not
present his case before the board for exemption as
a sick unit under revival.
He had allowed the affairs of the company to drift.
He did not accede to the request of BBC for increas
ing the staff in the packing section to match
production rate of the finished products.
Instead of reducing the liability of the bank and
saving the interest burden on overdues, he had al
lowed the outstandings to pile up without making
any arrangements for repaying.
He had defaulted on the instalments to the bank
and had diverted part of the surplus amount to pay
the electricity bills. Though he had shown keen in
terest in obtaining concessions which were avail
able to sick units, he was not really interested in
reviving the unit.
RBC continued to be irregular in paying its month- The biscuit industry was booming since 1986 and
ly instalments to the bank. In June 1988 its financial the company did not take advantage of this fact. The
position worsened. (See Exhibit 5 for details). The Branch Manager was, thus, of the opinion that unless
Branch Manager reviewed the situation and concluded there was a change in management, the unit could not
that the managing director was not showing interest in become viable.