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Sanjay Jog
Mumbai, Apr 24: The Comptroller & Auditor General of India (CAG) has rapped the Maharashtra State Financial Corporation (MSEC), a government undertaking, for the violation of State Financial Corporations Act during the implementation of the bill discounting scheme for non-capital goods. Out of 27 companies to whom the facility was extended, 18 companies have defaulted the repayment to the extent of Rs 88.16 crore.
In its report for the year ended March 31, 1998, the CAG said the losses under the scheme reflected badly on the performance of the MSFC, which was earning profit till 1995-96 and then, in the subsequent year went into the red.
According to the CAG report, the scheme was operated for 14 months from March 1995 to April 1996 and MSFC disbursed Rs 118.48 crore to 27 companies. Under the scheme, fresh disbursements were discontinued after April 1996 in view of the high incidence of default cases. However, rollover of earlier bills was carried out in 1996-97 and 1997-98. As on March 31, 1998, Rs59.32 crore (principal) and Rs 28.84 crore (interest) were overdue from 18 parties."The whole scheme was executed in a haphazard manner during the tenure of managing director RM Prem Kumar and needs to be thoroughly investigated, the CAG said.The CAG has castigated the MSFC for continuing the implementation of bill discounting scheme without adhering to the laid down forms. MSFC discounted bills for Rs 25.52 crore even after Industrial Development Bank of India (IDBI)'s clarifications on this issue.Section 25 (1) (ge) of the SFCs Act empowers IDBI to authorise diversification of business of SFCs and accordingly, it had included Merchant Banking Services as a business activity of SFCs through a circular dated October 20, 1994. However, MSFC in its own way misinterpreted the IDBI circular that SFCs were premitted to discount bills in respect of other than capaital goods.IDBI had said that discounting of bills covering purchase of raw material/inventory constitutes financing working capital requirement which isthe role of banks. Banks are in far better position to implement this activity as they maintain the accounts of the drawee company and are inter alia secured by all receipts of the company which are credited to the bank account, IDBI added.
MSFC sanctioned bill finance without adhering to the guidelines framed by the board of directors. The overdues from four companies whose registered offices are outside the territorial jurisdiction of MSFC was Rs 11.59 crore.MSFC continued discounting bills of Orkay Industries Ltd without regard to recoveries. Consequently, Rs 19.70 crore (principal) and penal discount of Rs 10.98 crore was overdue against Rs 32.20 crore disbursed.MSFC discounted bills of Lok Housing and Constructions Ltd for Rs 3.04 crore which was engaged in housing activities and was therefore, not eligible for any form of finance from MSFC. the total dues from it was Rs 3.72 crore as of March 1998.MSFC discounted two bills of Supplementary Foods (India) Ltd aggregating Rs 0.50 crore despite knowledgeof default by the company in repayment of loans taken from State Industrial and Investment Corporation of Maharashtra.
Moreover, MSFC discounted two bills of Mumbai-based Premier Leather Works aggregating Rs 0.62 crore without verifying the genuineness of the bills and co-acceptance by the bank which were subsequently found to be fradulent.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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