PRAKASH INDUSTRIES vs U.P.FINANCIAL CORPORATION

THE complainant has complained that the Opposite Party U.P. Financial Corporation sanctioned a term loan of Rs. 17 lacs on 26th May, 1987 for execution of his project for manufacture of Electrodes with a total project cost of Rs. 25.23 lakhs. For full production level, the complainant''s unit required a working capital of Rs. 11.77 lacs which had to be obtained from the State Bank of India. Against the working capital required, the S.B.I, was to give a loan of Rs. 8.34 lacs. The complainant was to provide margin money of Rs. 3.34 lacs.

ACCORDING to the complainant the plant was set up and was ready for production on 3rd of December, 1988 but it could not be run due to shortage of funds. According to the complainant the term loan was released in instalments: a total amount of Rs. 14.12 lakhs was released from April, 1988 to May, 1988. Further for the purpose of raising working capital loan from the State Bank of India the bank required a second charge on the assets of the complainant as a condition precedent to working capital loan but the State Financial Corporation failed to give necessary permission for the creation of second charge. According to the complainant, there was delay in the disbursement of the sanctioned term loan as well as of the working capital loan in the absence of permission for creating the second charge. Because of the delay in release of the term loan, there was consequential delay in receipt of the Central subsidy of Rs. 4.80 lakhs; this was received only in August, 1989. The delay in receipt of Central subsidy further reduced the funds available. The unit could start commercial production only in August, 1989. Consequently, losses occurred due to under-utilisation of installed capacity (Rs. 12 lacs) and avoidable incidence of interest charges (Rs. 1.59 lacs).

THE complainant has filed along with his complaint petition, a revised project report of his project prepared on or before the 8th December, 1989.

THE revised report brings out that, because of non-availability of working capital, the small scale industry has undergone big losses and became sick (It was formally declared sick on 1.11.1991). The trial production was started in August/September, 1989 by which time a term loan of Rs. 14.12 lacs has been released during April, 1988 to May, 1989. According to the report the original project report provided for interest of Rs. 88,000/-only during construction whereas in the revised project report it comes to Rs. 1.77 lacs. Additional interest liability comes to Rs. 97,000/-only. Consequently, it is not correct for the complainant to complain that he had been burdened with additional interest liability of Rs. 1.59 lacs. More importantly the revised project report points out that at the time the loan was sanctioned the plant was estimated to work at 60% capacity on two shifts basis, each shift being of 8 hours. But according to the revised project report the plant would work at 30% capacity with one shift of 8 hours only. Consequently the unit become uneconomic and was declared sick. We cannot understand how the under-utilisation of capacity and working of only one shift as against two shifs can be ascribed to the delay in releasing the term loan or not releasing it in full and not helping the complainant to obtain the working capital loan from the State Bank of India in time. This could have added to the interest liability but could not have prevented fuller utilisation of capacity. Again it is for the financial institution to consider whether further instalments of the term loan should be released or not depending upon the execution of the project and its continued financial viability.

WE are satisfied that no deficiency of service has been established on the part of the respondent U.P. State Financial Corporation. The complainant is, therefore, dismissed. There is no order as to costs.