Srinagar: Non-exercise of due diligence by J&K Bank at the time of sanctioning and enhancing bill discounting facility in favour of some construction companies has resulted in disbelieving recoveries of over Rs 113 crores, says a report by the Comptroller and Auditor General of India (CAG).
Bill Discounting is a trade-related activity in which unpaid invoices which are due to be paid at a future date are sold to the bank. The bank takes the bill and pays the borrower after deducting some amount as discount. The bank then presents the bill to the borrower’s customer on the due date of the bill and collects the total amount.
The companies where due diligence by J&K Bank has not been applied at the time of sanctioning and enhancing bill discounting facility include M/s Beigh Construction Company Limited with doubtful recovery of ₹ 102.55 crore and M/s Ace Engineering Infratech Private Limited with a doubtful recovery of ₹ 11.98 crore.
The financial soundness of Ms/ ITNL should have been ascertained by the bank before extending/enhancing the bill discounting facility in favour of the borrower company, especially in view of M/s ITNL’s obligation to honour the bills as per the tripartite agreement, the CAG observed.
The top account scrutiny body of the country explained that the National Highways Authority of India (NHAI) in 2015 awarded the work of four-laning of Amravati Chikhli project to M/s Amravati Chikhli Expressway Limited (ACEL) for an amount of ₹ 2,288.18 crore (for Km 166.00 to 360.00).
The AECL, according to the report, was a Special Purpose Vehicle of M/s IL&FS Transportation Network Limited (ITNL).
The work for execution of a portion (Km 220 to Km 260) of four-laning of the project at a cost of ₹ 461.25 crore was awarded by ACEL to M/s Beigh Construction Company Limited (borrower company) in 2017.
Audit scrutiny of the Residency Road branch of the Jammu and Kashmir Bank revealed that a bill discounting facility of ₹ 57.60 crore was sanctioned in favour of the borrower company against the primary security of hypothecation of all types of stock, consumables, spares, etc.
As per an agreement, the ITNL was required to irrevocably and unconditionally honour the bill presented to them by the bank. The bank in 2018 further enhanced the limit of the bill discounting facility to ₹ 86.34 crore against the available primary security.
The CAG says that the bank also sanctioned three term loans aggregating ₹ 8.79 crore between August 2017 and May 2018 in favour of the borrower company for purchase of machinery and other items.
In 2018, the ITNL defaulted in payment of the bill discounted by the bank due to a severe financial crisis in IL&FS and its group companies. The account of the borrower company (M/s Beigh) was classified as non-performing asset (NPA) on 30 September, 2019.
The auditor says the IL&FS was referred to the National Company Law Tribunal (NCLT) for revival and the bank filed its claim with IL&FS. As of December 31, 2021, an amount of ₹ 113.99 crore was outstanding against the borrower company.
For the implementation of four-laning of Amravati-Chikhli National Highway project, ITNL was to achieve financial closure. Thus, M/s ITNL was to enter into agreement with the funding agencies for financing the project. However, it had not achieved financial closure and the bank, while sanctioning/ enhancing bill discounting facility, did not take cognizance of non-achievement of financial closure by ITNL, the CAG points out.
As per the tripartite agreement though the bill discounting facility was extended in favour of the borrower company, ITNL was under obligation to honour the bills presented for payment by the bank. But the bank did not obtain adequate tangible collateral security to safeguard its interests.
Audit noticed that ACEL was among ‘Red entities’ identified as per the orders of National Company Law Tribunal (NCLT). This meant that it would not be in a position to make payment obligations towards the bank, being the unsecured creditor.
“The bank did not serve SARFAESI (Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) notice to the borrower company as a result of which it could not enforce the mortgaged security valuing ₹ 11.44 crore available against the credit facilities extended to the borrower company (December 2021),” says the CAG report.
Thus, due to non-exercising of due diligence at the time of sanctioning/enhancing bill discounting facility in favour of M/s Beigh Construction Company Limited, the recovery of ₹ 102.55 crore {outstanding amount of ₹ 113.99 crore less by ₹ 11.44 crore (value of security available with the bank)} had become doubtful.
The sanction of credit facility in favour of M/s Ace Engineering Infratech Private Limited without obtaining adequate security cover and release of credit facility without complying with the pre-disbursement condition has also resulted in doubtful recovery of ₹ 11.98 crore.
