CHAPTER 14
MINISTRY OF INFORMATION AND BROADCASTING

National Film Development Corporation Limited

National Film Development Corporation Limited (Company) engaged M/s. Cine Penta (Private) Limited, New Delhi (Agent) to market the free commercial time (FCT) on Doordarshan (DD) slots. The Agent was to arrange advertisements and also to collect payments from the advertisers and pass it on to the Company after deducting their commission. The Company, however, did not enter into any formal written agreement with the Agent, nor did it obtain any security.

The Agent was irregular in remittance of collections from advertisers to the Company from April 1994, but the Company accepted belated part payment without taking any corrective action. The Agent transferred advertisement revenue till March 1995, but defaulted thereafter. As on 31 March 1996 outstanding dues stood at Rs.2.16 crore and further increased to Rs.5.03 crore by 31 March 1997.

The Company stopped accepting booking from the agents with effect from 9 March 1997. Agent furnished (March 1997) undated cheques of Rs.59.72 lakh for clearing the outstanding dues. The cheques bounced for want of funds in June 1997. The Company sent a legal notice on 27 June 1997 regarding the bouncing of cheques and followed it up with a criminal complaint only in August 1998, i.e. after a lapse of more than a year. The decision in July 1999 to file a civil suit for recovery of the amount due from Agent was not implemented so far (March 2001). Meanwhile the Company had written off Rs.3.79 crore as bad debts during the year 2000-01 .

The Absence of any formal agreement enabled the Agent to dispute amount of commission and prevented Company from claiming any interest on delayed payments. The Company did not also consider the alternative of getting payments directly from advertisers, which would have avoided misappropriation on the part of the intermediary (Agent) whose main job was only to procure business.

In response the Management stated (September 2001) that:

1. as a business practice, no company entered into any agreement with agency/clients/advertisers. Booking were taken on the basis of release orders of the Agent and bills were raised within sixty days credit period;
2. due to insurgence of various private channels, business started dwindling and therefore payments of amount due from agency/advertisers had also been delayed frequently;
3. if harsh/legal action was taken, it would not be possible to get any booking from the Agent;
4. total business done by the party with the Company was over Rs. 15 crore and payments were regularly forthcoming; and
5. legal action had since been initiated against the Agent filing a criminal case, managing partner of the firm was arrested and there was a likelihood of recovery.

The contention of the Management is not tenable since:

1. being a Public Sector Company, it should have followed transparent procedures and agreements to protect the financial interest especially so when credit facilities were extended to the Agent who was receiving payments for the advertisements;
2. insurgence of private channels and resultant dwindling of business was not relevant in this case as the amounts due from the Agent was towards advertisements already telecast;
3. booking from the agency had in any case stopped in 1997, after outstanding had piled up;
4. high volume of business with the party provided all the more reason for proper agreement and guarantee; and
5. although a criminal complaint was made, possibility of recovery of the outstanding amount was remote in the absence of collateral security and the Company themselves had provided Rs.3.75 crore out of it as doubtful of recovery in its accounts for 2000-01.

Thus, entering into business with an Agent without any agreement to safeguard its interest, allowing the agents to appropriate the revenue to the Company and ineffective recovery action, resulted in non-recovery of advertising revenue of Rs.5.03 crore for over four years. Loss of interest on this overdue amount, which otherwise the Company would have earned based on average rate of interest @ 12 per cent p.a. for 4 years worked out to Rs. 2.41 crore.

The matter was referred to the Ministry in July 2001; their reply was awaited (October 2001