A three-member bench of BIFR heard the IDBI report on the company's financial position on Wednesday. IDBI, which was appointed the operating agency by BIFR, stated in the report that the company had changed its accounting policy to which it did not agree. Institutions which had given huge loans to Parasrampuria are yet to recover the amount.

IDBI argued that the company could not be declared sick under Section 3 (1) (o) of Sick Industries Companies Act (Sica) as the loss it suffered was due to change in the accounting policies. A company is declared sick under Section (3) (1) (o) if its entire networth has been wiped off.

BIFR, after hearing IDBI's arguments, did not accept its plea anddeclared the company sick under Section 17 (3) of Sica.

The company has been given two months to come up with a rehabilitation scheme. PSL owes three financial institutions -- IDBI, ICICI and IFCI -- over Rs 615 crore including Rs 250 crore as interest. It will need a Herculean effort from institutions to recover this amount.

PSL had reported a loss of Rs 110 crore on a turnover of Rs 203 crore during the nine-month period ended December 1998. The company is expected to close the current fiscal with a loss of Rs 150 crore. Turnover is expected to be around Rs 270 crore. PSL suffered a loss of Rs 122 crore on a turnover of Rs 157 crore during the year ended March 1998. PSL has an equity base of Rs 88 crore.

FIs had tried to recall loans from defaulting borrowers in the past. Groups such as the Modis, the Singhanias and the Parasrampurias were targeted. All that happened was that the concerned companies declared themselves sick and ran to the BIFR for cover. Very little can be done about this unless thelaws are amended and the escape routes are taken away from such companies.

After the BIFR order, institutions which have to recover Rs 615 crore from Parasrampuria will be forced to come out with another bailout package for the company. ICICI had even approached the court for recovery of money from the company.

One option before institutions will be to waive interest on the previous loans. FIs will also be forced to reschedule the repayment obligations. However, a section of the industry blames institutions for reckless financing of projects. ``FIs should be blamed for extending loans to such companies. They have failed in properly appraising the project. FIs also failed in monitoring the end-use of funds. The result is that funds were diverted for other purposes,'' said a corporate source.

Several companies had inflated the project cost and siphoned of money. Over invoicing of plant/machinery imports is one favoured way of diverting money from companies. FIs have of late started getting tough.Managements are being asked to pledge their shareholding in return for continued exposure of banks & FIs in project finance. Promoters have been told to bring back assets where fund diversions have been noticed.