CHAPTER 19
MINISTRY OF SMALL SCALE INDUSTRIES AND
AGRO AND RURAL INDUSTRIES

National Small Industries Corporation Limited

M/s. Sleek Components and Forms (P) Limited, Lucknow (SCF), a new small scale industrial unit, applied on 9 August 1995 for financial assistance of Rs.74.98 lakh towards procurement of machines on lease under the ‘Equipment Leasing Scheme’ (scheme) of National Small Industries Corporation Limited (Company). In its application before the Company SCF claimed that it was an export-oriented unit having export orders in hand. The Company sanctioned financial assistance on 29 August 1995 in the absence of any export order in hand, which was the eligibility criterion for financial assistance under the scheme subject to verification of:

1. proof of export and capital contribution by the unit’s promoters; and
2. the means of the Directors of the unit.

M/s. ABCOM Engineers, Thane (supplier) proposed by SCF for procurement of machines was also not registered and approved by the Company. SCF also informed the Company that they would take delivery of machinery worth Rs.48 lakh only in the first instance. Without verifying the credentials of the supplier and the conditions as mentioned above, the Company placed an order for supply of machinery on 15 September 1995 for Rs.49.92 lakh with the supplier and released 90 per cent (Rs.44.92 lakh) payment to the supplier on 19 and 22 September 1995.

On 29 November 1995, SCF furnished to the Company two cheques for Rs.8.47 lakh drawn on a bank at Lucknow towards advance rentals and other charges. This was followed by a fax message on 11 December 1995 purported to have been issued by the bank, which certified the clearance of the cheques. The cheques when presented were dishonoured and the Lucknow based bank had denied on 6 January 1996 having sent any fax message certifying the clearance of cheques. The Company seized the machinery on 9 January 1996. Despite this, the Company released on 30 January 1996 the balance 10 per cent payment of Rs.4.99 lakh to the supplier.

Examination of the machines by the Company revealed that these were old and overhauled ones and did not conform to the specifications. The cost of new machines of similar specifications was found to be Rs.22 lakh only and the machines, for which the Company had paid Rs.49.92 lakh, was expected to fetch only Rs.0.50 lakh to Rs.0.60 lakh on resale.

The Company could not make any recovery from SCF as its whereabouts were not known. It was only after issue (August 1996) of an Audit observation that the Company filed an FIR on 11 March 1997 with the police and a court case on 24 April 1998 for recovery of its dues. No progress had been reported in the matter and the entire dues of Rs.56.44 lakh (As on 31/3/2000) on account of cost of the machines (Rs.33.92 lakh (Payment made by the company: Rs.49.92 lakh minus collateral security of Rs.16 lakh deposited by SCF)) and lease rentals, bank charges and miscellaneous expenses (Rs.13.32 lakh) remained unrecovered.

The Company also failed to take timely action against the officials responsible for the irregular sanction and release of payment to the supplier. One of the officials who was on re-employment after retirement was allowed to complete his term without any penalty. Another regular employee against whom disciplinary proceedings were initiated was allowed to superannuate with all retirement benefits.

The Management stated (August 2000) that the firm was eligible for assistance under the export oriented category and proof of export was obtained. While accepting that the supplier was not registered with them, the Management further stated that their Regional Manager had reported that the supplier was ‘reported to be a reputed one’. The Ministry endorsed (September 2000) the reply of the Management.

The reply is not tenable as the Management relied on export capability as submitted by SCF only and the fact remained that the SCF did not have any export orders in hand, which was a pre-requisite for financial assistance. As regards the credentials of the supplier, the Management did not follow its own prescribed procedure for registration of the supplier.

Thus, the sanction of financial assistance by the Company to an ineligible party and release of funds to the supplier in an irregular manner without proper verification resulted in loss of Rs.56.44 lakh.