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TMI Blog2003 (2) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under the State Financial Corporations Act, 1951 (for short, the Act ). KSFC receives offers from the State Government and also borrows money from several Financial Institutions like Industrial Development Bank of India (IDBI), Small Industries Development Bank of India (SIDBI), fifth respondent herein and other Commercial Banks. In regard to certain loans sanctioned and disbursed by it, KSFC obtains refinance from IDBI or SIDBI. The interest rates stipulated by KSFC to its borrowers is subject to the guidelines of IDBI and SIDBI in cases where there is refinance by IDBI and/or SIDBI. Many loans advanced by KSFC are not refinanced by IDBI or SIDBI. The loan documents executed by the borrowers in favour of KSFC specify the rates of interest and also provide for revision of interest in certain circumstances. 3. The SIDBI issued a circular dated 9-10-1991 revising the interest rate on term loans to Small-Scale Units and under their refinance scheme in consonance with the revision of the interest rates announced by the Reserve Bank of India on 8-10-1991. The above circular provides that the revised rate of interest would apply to all cases of refinance sanctioned on or after 9- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not granting the benefits is not justified. Even though the implication may be around Rs. 5 to 6 crores, the interest of SSI units have to be protected. He also suggested that the reimbursement of interest may be done in a phased manner. Finally, it was decided that the decision in the matter shall be taken in the Board of Directors meeting of KSFC and to refer the whole issue to SIDBI to reopen the issue and see that the benefit is passed on the SSI units at the earliest." 6. The Government of Karnataka sent a follow up letter dated 22-7-1997 produced as Annexure-G requesting the Managing Director of KSFC to bring the matter before Board of KSFC for a decision. The Board of Directors of KSFC considered the matter at its meeting held on 1-2-1997. Having taken note of the fact that the financial implications of KSFC if the benefit had to be granted to the borrowers from 9-10-1991 would be about Rs. 18 to 20 crores over and above the amount that could be claimed from SIDBI, as SIDBI can pass on the benefit only on the refinanced amount (which was only a small portion of the total amounts financed and disbursed by KSFC) and as the burden of passing on the benefit in regard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the increased rate of interest; ( iv )that the appellants 3 (Hoysala Tool Room Private Limited), 4 (Vrushobha Engineers) and 9 [Eastern Press Bangalore (Private) Limited] have availed loan aggregating to Rs. 44,93,689, Rs. 10,42,296 and Rs. 11,00,000 respectively and excepting the ninth appellant none of the other appellants have ever chosen to challenge the action of the KSFC and therefore at this distance of time they cannot seek the relief which they have not sought earlier and therefore the writ petition is liable to be dismissed on the ground of delay and laches alone; ( v )that since the dispute raised by the appellants relates to interest the remedy of the appellants is to approach the Civil Courts and not to invoke the extraordinary jurisdiction of this court under Article 226 of the Constitution; ( vi )that the scheme of the appellants is based on a total misconception that the KSFC had availed of a SIDBI s offer. In fact the KSFC did not avail of the SIDBI s offer and therefore, the very basis of the writ petition is non-existent; ( vii )that since SIDBI s offer covers only 60 per cent of the loan advanced by the KSFC and the offer itself came after a lapse of fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State Government in consultation with, and after obtaining the advice of the Development Bank. Sub-section (3) of section 39 of the Act provides that if the Board fails to carry out the instructions on the question of policy laid down by the State Government, the State Government shall have the power to supersede the Board and appoint a new Board in its place to function until a properly constituted Board is set up, and the decision of the State Government as to the grounds for superseding the Board shall not be questioned in any Court. 11. The basic question, therefore, is whether the State Government has issued any direction to KSFC as claimed by the appellants. Annexure-F (the proceedings of the meeting recorded revision of interest rates held on 8-1-1997 in the Chambers of Principal Secretary, Commerce and Industries Department) reads: " Members Present: 1.Sri N. Vishwanathan, IAS, Principal Secretary, Commerce and Industries, Bangalore; 2.Sri. C.N. Seetharam, IAS, Additional Director (SSI), Industries and Commerce, Bangalore; 3.Smt. Jaya Murthy, Assistant General Manager, Reserve Bank of India, Bangalore; 4.Sri A.S. Kini, General Manager, Small Industries Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial institution to work out the excess amount of interest if any recovered on refinance and adjust the same in their interest demand for the half year ending November 30th, 1995. The representative of KASSIA, Sri K.N. Nagaraj, explained the committee that the stand taken by KSFC is no correct and the SSI units are suffering from abrupt increase in rate of interest, thus effecting the cash flow and economic viability. He also informed the committee that section 21 of the Banking Regulation Act will not apply to SIDBI and State Financial Corporation, which was later on confirmed by the representative of Reserve Bank of India. After hearing all the explanations, Principal Secretary, Commerce and Industries felt that the KSFC s view in not granting the benefits is not justified. Even though the implication may be around Rs. 5.00 to 6.00 crores, the interest of SSI units have to be protected. He also suggested that the reimbursement of interest may be done in a phased manner. Finally, it was decided that the decision in the matter shall be taken in the Board of Directors meeting of KSFC and to refer the whole issue to SIDBI to reopen the issue and see that the benefit is pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half-year ending November 30th, 1995. Though the meeting had taken place and certain decisions arrived at, the SSI units are still nowhere near obtaining any benefits on account of original interest rates restored by SIDBI. The subjects, which need to be taken up, would be 1.Passing on the benefit of original interest rates from 9-10-1991 till June 1994 to the SSI units; 2.This benefit is by way of revision of excess interest collected by KSFC out of SIDBI rate; 3.KSFC Board to take up this issue once again and agree to pass on the benefit from 9-10-1991; 4.Copy of the KSFC Board Resolution to be sent to the local office of SIDBI, Bangalore. SIDBI, Bangalore would take up the matter with SIDBI Headquarters for consideration the implications of KSFC having agreed to refund of excess interest from 9-10-1991 onwards; 5.SIDBI taking up the matter in its Board to confirm directions issued by SIDBI with regard to restoration of original interest rates and refund thereof, of excess interest collected; 6.The confirmation by the Board of SIDBI would be required to set right the accounts between KSFC and SIDBI. May I request you to kindly get this issue examined and bring i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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