The Governor

Reserve Bank of India

Mumbai.

Subject:

A) Request to ANNULL the scrutiny note of the inspections conducted at Federal Bank

Ltd, Erode branch on 13th and 14th October 2003 and the Head Office following

complaints from Whitefield Cottons Private Limited, on record at the Reserve Bank

of India, disclosed to us recently as per request made under the Right to Information

Act; to annul any other scrutiny notes not disclosed to us so far;

B) request to RETRACT the unverified, misleading narration and erroneous remarks

placed on record by the scrutiny note(s) , which might also have been communicated

verbatim or rephrased in any communication that the Reserve Bank of India might

have sent to the Ministry of Finance and other higher organs of the Government of

India including the Office of the President of India, as inferred from explicit

references to our communication to the President of India placed both at the

beginning and end of the Scruntiy Note.

C) Request for a FAIR SOLUTION to the problem in the face of persistent attempts by

the bank to aggressively evade and cover up the original issues, encouraged by the

slipshod scrutiny and the absence of timely judicial redress.

References:

a) Our complaint against Federal bank Limited and the various follow up email messages

and letters to various departments of the RBI on various dates - Our complaints to

the RBI on March 1, 2002, our complaint with the Banking Ombudsman filed on

August 28,2002, our email dated August 31, 2003.

b) Letter from the Powerloom Development Export Promotion Council (PDEXCIL)

dated August 16,2004 and other communication from Pdexcil on various dates.

c) Any available record that RBI might have on our meeting with Mrs. Makhija, Chief

General Manager, at her office at Mumbai 29th March 2004.

d) Letter by RBI IECD No 4329 dated 04.02.03 / 2003-2004 dated March 25,2004 which

hastily closed the complaint without a fair scrutiny

e) Our letter dated 27 November 2004 addressed to Smt Usha Thorat, sent by Speed

Post ( No EE 42032410 3IN ) with copies to PDEXCIL on the inaccurate, unverified

comments by RBI vide its letter dated 04.02.03 based on choice papers made

selectively made available by the Bank during an “Inspection”.

f) our application to RBI under the Right to Information Act and the Information

furnished by the RBI vide DAPM CO RIA / 07.05.0-1 / 2006-2007 dated April 10,

2007 under the Right to Information Act

g) The scrutiny report released as part of papers released vide DAPM CO RIA /

07.05.0-1 / 2006-2007 dated April 10, 2007 under the Right to Information Act

Sir,

This is a request to the Governor to examine and annull the erroneous and damagingly

misleading RBI scrutiny note(s) pertaining to our complaint against Federal bank

Limited filed during March 2002, filed with the RBI with a vivid chronology on the major

problems dating back to the year 1996. This complaint on our repeated representation

was examined with a slipshod “scrutiny” which placed on internal record “scrutiny

notes”, hitherto remained classified and undisclosed, doing us plenty of harm. These

are records that are completely misleading to deter the top executives of

RBI and the Ministry of Finance to whom the complaint had been addressed /

copied, from paying due attention to the problem.

The scrutiny note(s) pertain to inspections conducted at Federal Bank Limited on 13 &

14 October, 2003 as directed by the General Manager (Department of Banking

Supervision), but these scrutiny notes were not disclosed to us, nor were their

existence known as the cause for perceived inaction by the higher executives of RBI and

the Ministry of Finance. The existence of the scrutiny note(s) were known to us after

we filed a query under the Rights to Information Act (2005) and one of these classified

scrutiny note(s) was disclosed to us on April 10, 2007.

The background summary of the company and the terminal banking limits :

➔ Company: Whitefield Cottons P Limited, Erode, Tamilnadu, India.

➔ Name of the Bank: Federal Bank Limited, Erode, Tamilnadu Branch

➔ Commencement of Banking Transactions: March 1996

➔ Terminal Credit Limits: Rs 80 lakhs pre-shipment export packing credit (PCL)

and Rs 105 lakhs of post-shipment Bills Purchase (FUBP)

➔ Liabilities claimed outstanding: 80 lakhs (US $ 190,000 approx) of principal,

(unsubstantiated, NO clear, legible accounts from the bank, which has been

dodging for the last 64 months, repeated, written requests for a comprehensive

statement of accounts made at various levels of the Bank Management and

through court) plus exaggerated interest.

➔ Security: Collateral of actual value in excess of Rs 150 lakhs (US $ 375000

approx.) + personal guarantees by the Directors + Guarantee by a a family

member who is harassed by the bank with misinformation, who in turn forces

the Directors to rush for an unfair settlement with the bank.

➔ Performance of the Company: 98% of the company’s revenues in export

earnings; over US $ 1.5 million in production exports in the first 4 years, in the

absence of production infrastructure, an average credit limit of $ 100,000,

procedural hurdles and several other limitations.

Our banking transaction record was clean, the facilies we had were covered by ample and valid

collateral securities and guarantees, 95% of our exports were against irrevocable letters of

credit from a first class international bank, all realized without any problem, all proceeds

routed through the bank direct from the Overseas Customer's bank, The Bank of Montreal.

General Background:

Our company had a very good start during June 1996 with a direct export order from a

midsize Canadian company, against an irrevocable letter of credit from a first class bank.

We went to Federal Bank that gave us 15 lakhs (US $ 35,000 approx) ad hoc against

guarantees and collateral. We made an estimate of our requirements, asked for 75 lakhs

(US $ 175,000 approx.).

Over the next two and a half years, the bank confirmed the ad hoc limit of Rs 15 lakhs

to a permanent limit of 15 lakhs, then 20 lakhs, then 25 lakhs, then 38 lakhs ad hoc, 45

lakhs permanent, 60 lakhs, 75 lakhs and after two and a half years it met our

requirement of two and a half years ago with a final sanction of Rs 80 lakhs. Our export

performance during this period increased from US $ 106,6000 to US $ 473,475, a four

fold increase in 3 years, while our needs multiplied several fold and the funds made

available were too little, timed available too late.

During these three years ( 1998-2001) we were met with several procedural hurdles

and two bad, very bad branch managements that included two officers charge sheeted

or internally investigated, suspended / demoted and reprimanded for blatantly corrupt

practices and for frauds that compromised on the integrity of the customers' accounts.

(We are in business and it is not our business to raise complaints or reform every

organization we ineract with, but this reference to these two officers is inevitable at this

stage, without which a complete picture does not emerge at all. All our communication

to the bank's Chairman and to RBI since 2002 has been gentle on this detail, except

perhaps a hint at “administrative irregularities” and even now it is toned down on

details. )

The banking problems further intensified due to various reasons in general and due to a

vindictiveness to react to communication to higher officials within the bank, RBI and the

ministries in particular, to cause a complete reversal of our progress and collapse our

company from the year 2000-01 onwards.

Our export performance and the overall growth ought to have been far more than

what is shown as achieved above, if the bank had been professional and if the branch

administration was clean in its assessment and service and had resolved problems.

Banking Problems:

✗ The bank refused to consider a promising proposal in 1996 and again two years

later, for a foreign currency term loan for creating manufacturing facilities on the

grounds that its exposure to foreign currency risks were limited.

✗ The bank at the same time, blocked us from utilizing a term loan of Rs.1.5 corers

sanctioned by the State Industries Promotion Corporation of Tamilnadu Limited.

Later we had problems getting IDBI, Coimbatore on a TUF proposal.

✗ The bank took over 180 days to partially concede to our requirement as PCL of

Rs.75 lakhs.

✗ The bank took 700 days to sanction our requirement in full, by which time the

sanction was too little too late.

✗ The bank prevented us from moving to any other bank which could have more

responsive. Our company is based in Erode, a small town, where such restrictive

measures were locally possible. On record it prevented South Indian Bank Erode

from granting us the required facilities and it is informally known to us that State

Bank of India, whose DGM or the highest official at Erode on his own initiative

offered 1.6 crores of PCL but retracted on his offer the very next day and on

insistence during a meeting to ask him why, strongly hinted that the opinion

(with no basis for an adverse opinion on this performing, blemishless account at

that point of time) from Federal bank was prohibitive. We had also approached a

few banks who have have all been restrained by informal adverse opinions from

the bank.

✗ The bank hurt a major export order for US $ 803,750 dated November 5, 1999

placed by our regular overseas customer who had established a buying record of

over $ 1.2 million with us until then, well known to the bank, in spite of our

repeated request for assessment of this highly time sensitive situation. At that

point of time our limits were (Rs 60 lakhs of PCL and about 90 lakhs of FUBP

enhanced after months to) Rs 80 lakhs of Packing Credit and Rs 105 lakhs in

FUBP limits. The Packing Credit was fully utilized while all the bills purchased by

the bank had realized (so FUBP limit was fully available with zero outstanding),

but the bank did not allow us the flexibility as accorded by commercial banks in

general to partly / fully utilize the untilized portion of post shipment (FUBP)

limits usable for pre-shipment (Packing credit) needs. Nor did the bank allow us

even the marginal flexibility of exceeding the sanctioned and kept our account

"frozen" rigidly at Rs 80 lakhs, which by itself included auto interest debits to top

up the “utilized” potion to the limit of 80 lakhs, and did not allow us to exceed

the sanctioned Packing Credit limit even by a fraction. With this impossible

situation the export order of US $ 803, 750 could only be partially executed,

that too with market borrowings forced upon us by the situation, which was also

not sufficient, so the production was delayed, quantities ordered were reduced

and finally the order was largely cancelled. These “interim” solutions of

prohibitively expensive market credits perpetuated because the bank would not

act upon our request for an assessment. Due to all these problems, our

progress began to reverse, and our company's finances were severely damaged.

The bank watched us degenerate and collapse without even acknowledging that

its Erode Branch has hurt a customer so badly.

✗ The bank has done more serious damage by keeping our account frozen at Rs 80

lakhs, due to this refusal our business came to a standstill during the last four

years with prosperous opportunities for growth and profit foregone and the

losses increasing.

✗ The bank blindly refused to evaluate our requirements, problems and prospects

in spite of various repeated requests for a comprehensive understanding of our

problems and prospects.

✗ During the last seven years the bank has been completely silent on its role,

refuses to acknowledge any communication from us to its Chairman or other

officials, sent by email, repeated by registered post, repeated and repeatedly sent

again and again.

✗ The bank has not provided us with a comprehensive statement of our

transactions after repeated requests from us. The need for a comprehensive

statement of accounts is significant in the light of all the branch level

administrative irregularities and fraud that happened at the Branch that

compromised on the integrity of the accounts at the Branch. The bank's

accounting system at the branch was very vague, it accounting format was

confused and the bank is very reluctant to furnish us with a comprehensive

statement of accounts. [ Even at the DRT the bank has been evasive on our

repeated petitions for a statement of account for over 48 months, enabled by

the coincidental absence of a Presiding Officer at the DRT Coimbatore for

nearly or over a year and by another coincidental jurisdictional transfer –

retransfer of a group of accounts away from DRT Coimbatore to Madurai which

took another 9 months]

✗ During the first three years of operation the procedural hurdles and delays at

this bank limited our growth prospects in terms of establishing manufacturing

facilities and accepting larger export orders. During the next three years

whatever little progress that was made during the first three years was reversed,

which caused considerable erosion of our inventories and other resources which

left us crippled.

✗ There were various ways by which we were affected. Our work in process of

that time was rendered unusable midway due to the situation forced upon us by

the bank's total disregard for our needs and the way it kept our account frozen.

There were various other practical business factors that come into play when

flow of resources were blocked. For instance alternative market borrowings that

were forced upon us by the situation was prohibitively expensive. The quality of

materials purchased with contingent market credit could not be assured. Time

delays were expensive with a multiplier effect. One major problem led to a

multiplicity of problems and the losses multiplied, our various resources decayed

during the last seven years and the combined effect is such that it absorbed the

money invested in stocks and work in progress, in eroded value.

In summary, the bank was completely unwilling to allow us to move to any

other bank that had a good understanding of our clean transaction record

and prospects (until there was an interventionist opinion from Federal Bank, known and

unknown, on and off record), nor did the bank allow us to create the

manufacturing facilities required, with Term Loan assistance from

supportive term lending institutions while on its own being irresponsive on

our requirements.

Present Status:

Imposed NPA status: Bank's strategy of offense as the best form of defense.

The company's account remains classified as an NPA for the last 5 years. The company

approached several banks, term lending institutions and venture capitalists for textiles

and for well conceived new enterprises. Invariably, all banks and venture capitalists are

uncomfortable with the NPA status and the history of the company's representations to

various levels of management at the bank as also to the RBI and the Ministries.

A case filed by the bank at the DRT is slipshod in description and unsubstantiated as

it contains no details of how the liability was arrived at. A petition filed at the

DRT for a comprehensive statement of accounts is very very slowly progressing with

the Presiding Officer not posted in DRT Coimbatore during a 2 year period, dismissed

once without our knowledge, dismissed again after a year, taken to DRAT, won the

appeal with a directive to readmit the petition at Coimbatore and when filed again, all

cases at DRT Coimbatore were moved to DRT Madurai. As on April 9, 2007 the

DRAT's some what favorable order has not been taken up by the DRT, because of the

delays in the jurisdictional realignments within DRT.

The petition, after all the delays, came up for hearing for restoration on September 5,

2007 and is being heard. At the DRT the hearing on our petition stands postponed by

the Presiding Officer to Nov. 31, 2007. But as a final attempt to evade this petition for a

comprehensive, complete statement of accounts, the bank has initiated proceedings

under the Securitization and Reconstruction of Financial Assets Act, with an even more

exaggerated claim that has no substance.

The NPA status that was accorded on the company without due scrutiny of the bank's

role in causing it, cripples the company, keeps the company from seeking funds from any

bank, financial institution or private equity firm, which in normal circumstances would

have built up this company into a very valuable, high growth company. The Directors

shaped up new ventures that remained unbankable due to the NPA status of this

company.

In response to our complaints and to cover up its deficiencies the bank is persistently

pointing to the NPA status that it brought about, as its defense and in the process has

already caused our company which had a track record of over $ 1.5 million to collapse.

Instead of responding to the situation caused by these banking problems, or responding

with legible statement of accounts to establish the integrity of its accounts, the bank

chooses to take recourse to the Guarnators to cause us improper pressure.

Inconclusive closure of the complaint to RBI

Updates and follow up on the complaint for action failed to elicit the due and fair

response by RBI, so I met with the Chief General Manager Mrs. Makhija at her office on

29th March 2004 as recalled, by which time our operations were completely crippled.

(The reference to Mrs. Makhija's name in this letter may not please be misconstrued as

a complaint, Mrs. Makhija has been receptive at the meeting which was granted at short

notice during my visit to Mumbai, and she has brought in her team to clarify RBI's

position on the complaint, which is what is disagreed here)

The summary of her response was that, Yes, we acted on your complaint, we did an

inspection on the bank, not once but twice but did not find any records to

support your complaint. What else?

When it was pointed out during the meeting that records available with us were not

called for and that the bank must have made available records selectively, and talked

about the bank's refusal even to furnish a comprehensive statement of accounts, and

about the administrative irregularities that compromised on the integrity of the

accounts, Mrs. Makhija said “Beyond this, RBI is helpless”

The contents of the inspection report, if any was filed at that time by the team that

inspected the bank, was not disclosed to us, but a letter was sent to us AFTER THE

MEETING With Mrs. Makhija with inaccurate observations declaring the file closed.

RBI IECD No 4329 / 04.02.03 / 2003-2004 dated March 25, 2004 declared the file

closed after making inaccurate, unverified comments based on its inspection of whatever

papers that the bank would have made selectively available for RBI inspection. The bank

was conveniently allowed to comfortably defend its case with choice papers from its file,

we were never contacted by RBI, our papers were not called for, there was not even a

phone call from RBI to us to verify the bank's version placed on record by RBI which

culminated in this letter that said the case was closed.

We approached Pdexcil with this problem and Pdexcil followed up on this. We sent a

letter to RBI on this on 27 Nov. 2004 with clear, point by point response to the letter

pointing out that all that the RBI had done so far was to protect the bank. Our

letter was clear in its communication, summarized here as : 1) There was no diversion

of funds 2) Inventory position was as per norms BEFORE the bank froze our account

and inventory position was never an issue 3)The bank is refusing to furnish a

comprehensive statement of accounts in spite of several requests since July 7, 2002 4)

RBI has not made any note of anything about the management scandals at this corrupt

branch and about how it affected our account, nor has the RBI made any observations

about the bank having blocked other banks from taking over our account. 5) The bank's

ad hoc limits were so called ad hoc, but followed rigid documentation procedures and

took months to be sanctioned 6) The inspection done at the branch was one sided.

There was no inspection of our records 7) There are no directives to the bank to give

us a way out of this unfair situation.

It was also stated in the letter that “The bank was comfortably allowed to

misrepresent facts and the bank's erroneous version of what it did to us

some how found its way to RBI's records, enough for RBI to send out a letter

of inaccurate observations.”

We requested thorough scrutiny and a solution. We sought interim solutions to enable

us to avail the Technology Upgradation Fund for modernization and pay attention to

our case in detail and offer us a banking solution to our company.

We also requested RBI to look into unfair provisions such as DRT's counter claim

procedures that overly protect banks and keep affected companies defenseless.

The letter sent to RBI on 27 Nov. 2004 is reproduced as part of the annexures to this

letter. The letter was sent direct and through PDEXCIL, which followed up on this

repeatedly. RBI intransigently refused to take note and maintained that the its

earlier letter closed the file.

The contents of our letter dated 27 Nov 2004 were probably not placed on record but

papers such as the scrutiny notes were placed on record undisclosed until the Right to

Information Act was invoked during April 2007.

The erroneous RBI's Scrutiny Note as recently disclosed to us:

The scrutiny note was disclosed to us by RBI vide its letter DAPM.CO.RIA.6674/

07.05.01 / 2006-07 dated April 10 2007 Ref No RIA 1437/2006-2007.

Please annul this scrutiny report which is highly erroneous and is designed to mislead

and deter the Governor of RBI and the Minister for Finance from paying due attention

to the complaint

The scrutiny report may please be examined for inaccuracies a) as against the facts

pointed out in our letter sent to Smt Usha Thorat and to you as the Governor on 27th

November 2004, which RBI refused to take note and b) as against this communication

to explain the gross bias noticed in the Scrutiny Report made available to us recently.

The inaccuracies of the Inspection Report are as follows:

1. The scrutiny report is a paperwork with misleading bits and pieces of our own

communication to quote out of context in a chronological jugglery to plead

the bank innocent. The major issue dates back at least to our letter to the Senior

Manager dated 26th November 1999 to the Branch Manager to help us handle an

export order dated Nov. 5, 1999 that we had on hand amounting to textiles of value

US $ 803,750 to be shipped by July 15, 2000. It was a time sensitive need, it was so

clearly conveyed to the bank and the bank wilfully watched the time lapse. Even with

prohibitively expensive market credit we were unable to handle the requirement so

this stained our relationship with our overseas customer, whose unhappy

communication from a message sent 18 months later was misleadingly cited by the

scrutiny report “If orders are to be placed with Whitefield, if you give a date of

delivery and accept the dates of deliveries then the agreed dates have to be

respected... “. (How did the bank obtain this email message?) This was from the same

customer who has place over 50 orders with us of value in the realm of US $ 1.5

million, received every shipment ordered and wanted to scale up a few fold with us.

The strain in relationship as conveyed by this exceptional, latter-day communication

was caused by the time delays originating in the banking problem that we have

complained to RBI about.

2. The scrutiny report, by overall design, confuses the cause with the result.

Since 1996 we were facing various procedural hurdles and limitations. Started with a

15 lakh ( US $ 35000) adhoc limit confirmed after months into 15 lakhs reusable

limit, extended after months to 25 lakhs, we have been seeking suitable credit limits,

most notably a PCL requirement request for Rs 75 lakhs submitted on 22/09/1998.

The bank by its sanction dated 30/3/99 sanctioned Rs.60 lakhs, which by itself was not a

clear useable limit. It further took disbursal delays. It was only on 23/08/2000 that the

bank sanctioned limits as requested at Rs.80 lakhs (by which time we had received a

series of time-sensitive orders totaling Rs 3.43 crores, which pushed our requirements

to as much as Rs.160 lakhs of Packing Credit). The bank effectively took approximately

700 days to respond to our requirement by which time we had lost several orders for

want of funds, lost our reputation for timely execution of order accepted, incurred

higher cost of production, incurred overheads non- productively and had our growth

prospects badly hurt. Enough and more damage was done to our finances by all the

time delays. Time delays by the bank in processing our requirements was the primary

reason why our shipments were delayed, and led to a slowdown in performance. Such

banking problems collapsed the time sensitive and valuable export order of US

$823,000 (INR 32.3 million). Requests for an appraisal of credit needs remained

unresolved for over 18 months CAUSING difficulties in fulfilling the commitments

and CAUSING the cancellation of orders. After all the damage done by the wilfully

desructive attitude of the branch and regional office, the issue was escalated to the

Bank's Chairman on December 10, 2001. The letter to the chairman instead sparked

off an almost instant reaction in the form of a recall notice from the bank three days

later. We were locally assured that the recall notice was a routine communication,

we believed it and continued waiting for another 6 months for a response from the

Bank's Chairman to our letter (sent and repeated several times by email and

registered post). After this initial communication and and all further communication

to the Chairman on various dates were wilfully ignored, we preferred a complaint to

the Reserve Bank of India on March 1, 2002 with a copy addressed to the Union

Finance Minister about how Federal Bank Limited was hurting our expert prospects

and reversing our progress. This was followed by a complaint to the Banking

Ombudsman during August 2002 which was followed by several letters to RBI and to

the Finance Ministry. The bank continued to remain silent and started destructively

reacting, secure in its contention that the account is classified NPA. The Inspection

report cites a misleading chronology to present a picture of a complaint in response

to a recall notice whereas in reality the recall notice shot at us 3 days after we sent

the letter to Chairman was in fact the bank's arrogant assertion that a borrower dare

not complain. The report concludes as it began with the intent, “there was no

ground to believe that the bank had retarded the growth prospects of the

borrower”. The bank not only retarded the growth, but also reversed all

progress made during the first four years, brought the operations to a

standstill and caused a complete collapse.

3. The scrutiny report again confuses the chronology and quotes us out of context to

reach an outrageous conclusion that “it may be surmised from the above that the

delay was not on the part of the bank, but on the part of the borrower”. That is a

brilliantly skewed logic totally contrary to truth, but there is plenty of scope for

more easily arguable trivial distortions if an RBI scrutiny wants to make microscopic

discoveries of little management imperfections characteristic of every business, big or

small. What matters is that we achieved $ 1.2 million in export sales during 1997-99

amidst various procedural difficulties and limitations and the same overseas customer

placed an order on Nov. 5, 1999 vide purchase order EA No.5133,5134,5135

confirming terms of payment as L/C 30 days for US $ 803,750 (equal at the day’s

exchange rate of Rs.3.43 crores) to be shipped- out during Jan. – July 2000. Goods

were to the produced afresh, and it required swift action. These records were

immediately presented to the bank and nothing happened for 3 weeks. Vide our

letter to the bank dated 26/11/1999 to the bank it was shown that Rs.2.3 crores out

of Rs.3.4 crores worth of orders were to be shipped within the next 120 days. As

on this date our PCL still remained as Rs.60 lakhs with immense procedural

difficulties plaguing us from availing even the Rs.60 lakhs in full. To executive the

orders on hand of Rs.3.42 crores, out of which 2.4 crores worth of goods were to

be shipped with the next 120 days we requested sufficient limits ( our requirement

was a PCL of at least Rs.160 lakhs) to be made available, and we even proposed that

the limits be sanctioned as temporary limits, in order to make the bank feel

comfortable. The bank was silent. There were at least two other banks willing

to take over the account, but Federal Bank wouldn't allow that. It did not

look at our requirement either and nothing happened until Jan 14, 2000. Alarmed by

the production delays that resulted from the bank’s irresponsiveness we agreed for a

reduction in the volume of goods, as forced by the banking situation. The Revised

schedule was submitted to bank and on 29/02/2000 for response at least at that

stage. We pointed out that the orders on hand for exceeded the available limit of

Rs.60 lakhs. Even at this time we were making requests and special requests to make

the Rs.60 lakhs fully available. The bank watched time elapsed except for an increase

in limits granted on 31.8.2000 – 10 months after the time sensitive, urgent request,

after all the time elapsed to execute the order, after the order collapsed, from Rs 60

lakhs to Rs 80 lakhs, an apparent increase in limits of Rs 20 lakhs out of which it is

recollected that over a half was absorbed in interest debits and about Rs 7 lakhs was

all that was effectively made available, too little too late, after all the damage was

done. Even at this stage, to avoid a complete collapse, we asked for a comprehensive

review of our account, talked to the branch and region and sent a repetitive, vivid

and polite representation to the Chairman and the bank was silent all the time, to

watch the account slip into an NPA and on to total collapse. The scrutiny report

doesn't talk about aspects such as this.

The so called scrutiny has evidently failed to examine relevant records and chose to

make guesses in favor of the bank, to mislead and deter, by paperwork, the

higher officials of the Reserve Bank of India and the Ministry of Finance. The

essence of all the communication with the bank was procedural delays that affected our

progress, which was completely glossed over and carefully overlooked by those who

framed this report. It for instance cites one of our letters out of context, “ We have not

preformed [well] for the last 12 months” “our performance during the last 6 months

have been minimal” which were candid descriptions of the DETAILS of the status of our

operations in our communications which were essentially to implore the bank not to

weaken us but grant us the facilities applied for and pending. The design is to frame the

complainant, so the Scrutiny note goes on make guesses - the borrower said his

performance was minimal, so the DEPB benefits on exports could not be enough to fund the

investments. “The amount of DEPB benefit accrued to the exporter could not be

ascertained” “The contention of the borrower that the infrastructure was built up

exclusively utilizing the entire profit and the DEPB benefits was indeed questionable.“

4. The so called “scrutiny” negates the fact that Drawback / DEPB benefits accrued

were utilized for creation of the required basic infrastructure assets,. The scrutiny

report says that the “borrower indicated that until October 1999 export sales were

minimal .... Hence the contention that they had utilized the profit & DEPB benefits

can not be true as these were assumed minimal till 1998-99”

This is amazing. The method of negation is amazing. The RBI scrutiny wouldn't notice

that our export sales was 39.70 lakhs in 1996-97, Rs 150.49 lakhs in 1997-98, 200.54

lakhs in 1998-99, but would choose to quote an introductory statement from one of

our letters so totally inappropriately out of context to say “export sales were

minimal” . It requires a peculiar expertise in distortion to ignore what is on record

everywhere - the actual figures - to choose to guess in favor of the bank. If the RBI

officer chose to play the bank's advocate, he could have been a little more

imaginative in his attempts than to negate accrual of DEPB and drawback proceeds.

What prevented RBI from asking us to furnish proof of DEPB benefits ? What limited

the scrutiny in the terms of reference, if any, from asking the DGFT or the Customs

House, which are under the same Ministry as RBI is under, for details of our export

performance or DEPB and Drawback benefits as accrued?

The Scrutiny note is of this manipulative logic:

I won't look at the facts, nor would I verify facts because the facts would be established.

↓So I will make a guess, that this company

could not have earned so much in DEPB benefits.

↓By making this guess, I negate the fact that

essential assets were created with DEPB proceeds.

↓That conclusion would lead to the next favorable

guess of diversion of funds.

↓This guess, subtly reported would cause the higher

authorities to make more guesses.

(The first few exports amounting approximately amounting to less than $ 250,000 were

under drawback at rates 7% and most of the later exports at DEPB amounting to 12%

during 1998-99 reduced to 8% during late 2000 )

1996-97 Exports US $ 106,600

1997-98 Exports US $ 410,846

1998-99 Exports US $ 473475

1999-00 Exports US $ 356,588

If the scrutiny did not have time to scrutinize in detail, even a rapid look at these figures

would have given rough estimates of over 50 lakhs of DEPB and drawback benefits on

an average of 10% as benefits.

The DEPB and drawback benefits went into creation of the REQUIRED,

BASIC operational assets, created transparently, with periodic information to

the Branch management, with full knowledge of the branch management, with one or

two in-process-invitations to the branch managements to visit the assets created. For

instance, the stocks were held during the period 1998 – 2001 in a 5000 square feet

warehouse built with the DEPB proceeds which the bank now tries hard to establish as

assets created without its knowledge. The weaving machines, another asset created with

the DEPB proceeds were in a rented building visited by the branch manager several

times to inspect the stocks held at the weaving factory which was one of the inhouse

location of stocks held. The branch manager has visited the office premises of area

2000 square feet several times, another asset created with the DEPB / Drawback

proceeds.

This assets have been listed as created in several of our communications to the branch

management, regional office and the chairman, during 1998 2003 and to RBI and to the

Finance Ministry during 2002 – till date. The Scrutiny report employs the phrase

“diversion of funds” to divert the issue. There was no diversion of funds.

Armed with an extraordinary skill in twisted paperwork, the scrutiny did not have to

look elsewhere. It extracted passages verbatim from our communication to the ministry,

quoted passages out of context, mixed up the chronology to discover (!) or unearth (!)

assets created, make an inappropriate surmise of misappropriation of funds and place

paperwork, classified, internally on record to be cited by the officers of RBI to block

attention by the higher functionaries as the Governor of the Reserve Bank of India or

the Minister of Finance to whom our communication had been addressed. We are

relieved that the Scrutiny did not comment on such luxuries as our telephone

connections obtained or a personal computer bought or an overseas trip taken.

The following are the factual details related to Drawback proceeds / Duty Drawback

which together with the profits generated were used to create the necessary, functional

assets for operations. The details are retrieved from the books and computerized

records by the Director of the company in the absence of accounting or clerical help, so

the following details are not exhaustive. The details retrieved approximately are for

Drawback and DEPB benefits for an FOB value of $ 800,000 - $ 900,000 whereas the

total exports amount to about 1.5 million. We may need to find our erstwhile

accountant to draw up a more complete picture.

Dates Details (NOT EXHAUSTIVE) Amount in Rs06/03/97 Drawback by cheque 37835 A 2834047304/11/97 Drawback by cheque 32115 35277627/1/98 Drawback by cheque 41059 333608

23.10.98 Drawback by cheque 24301231.12.98 Drawback by cheque 105096 Jorunal 303

18/6/99 DEBP 32601069 dt 18/6/99 1135097

Ptemium on the above 36890

22/11/99 DEPB 32601682/C/xx/MC/2000 68440701/12/99 Premium on the above 54752

29/6/2000 DEPB 3210001187 34223913/7/2000 Premium on the above 4215127/9/2000 DEPB 3210002149 34778619/10/2000 Premium on the above 43821

30.10.2000 101986

03/11/00 85745

07/11/00 96705

05/03/01 23682

30/5/2001 DEPB 3210004370 52095521/6/2001 Premium on the above 3246705/03/01 Drawback 1151 / 9/3/2001 0 FOB Value INR 99796921/4/2001 drawback 9281608/02/00 DEPB 3210001186 552915/9/2000 DEPB 11990 Export from Chennai port, 17/7/2001 Premium on the above 87610/08/01 DEPB 3210005166 7983729/8/2001 Premium on the above 8582

4096421

Sbill 3932 / 26.09.97, 1388 / 12/11/97, 3704 dt 24/11/98, 1787/ 10/12/98, 1181 dt 09/01/99 of total FOB Value INR 94,59,145 from TuticorinDCW, 11/8/99 CUB cheque 760980 dt 11/8/99

4069 dt 18/2/99, 4070 dt 18/2/99, 6084 dt 27.8.99 6085 dt 27.3.99, 1682 dt 9.6.99, 6083 dt 30.6.99, 6142, 6143 dt 27.7.99

5742/30/11/99, 3680 24/01/00, 4498 22/02/2000, 4497 22/02/2000 from Tuticorin FOB 2933211

Drawback Autodebitted at Indian Overseas Bank, Tuticorin Branch Drawback Autodebitted at Indian Overseas Bank, Tuticorin Branch Drawback Autodebitted at Indian Overseas Bank, Tuticorin Branch Drawback Autodebitted at Indian Overseas Bank, Tuticorin Branch

1758/10/9/98, 1759/10/9/98, 986 dt 9/12/2000 fob 4580954 tuticorin

Total as extracted from some of the available records, without accounting/clerical help

5. The terms of reference for the inspection is still not known to us, but in scrutinizing

a complaint of this nature, the inspection has ignored the staff history of the

Erode branch. (We are in business and it is not our business to complain and

reform every organization we ineract with, but this reference to these two officers is

inevitable at this stage, without which a complete picture does not emerge at all. All

our communication to the Regional Office since 2000, to the bank's Chairman since

2001 and to RBI so far, has been gentle on this detail, except perhaps a hint at

“administrative irregularities” and even now it is toned down on details. ) An Officer

designated in-charge of Foreign Exchange transactions was under serious

investigation on charges of compromising the integrity of the accounts at the branch.

We have also heard that the bank went to the extent of filing a police complaint and

that an FIR had been registered on charges that he had forged signatures. Our

account was one that was under his supervision for nearly two years. And we were

known to be too gentle and gullible with the bank statements and the absence of

them, except on an incident of alertness on the part of our Chartered Accountants

at Chennai. This happened when we were subjected to informal and friendly pressure

by the Branch management to extend a temporary adjustment loan of INR 2 lakhs to

another accountholder whose irregularities were causing problems for the Branch

Manager. Though we (Directors) refused a written complaint, the Regional Manager

placed his conversation with our Chartered Accountants on record as a memo which

caused an internal investigation to happen. The interval investigation, as indicated by

the Officer-Vigilance of the bank during his visit to our office, proceeded against that

Senior Manager of the bank on various charges including bribery and he was already

suspended and demoted and it is not known what further action was taken against

him. Our account suffered immensely under these two overlapping / subsequent

branch managements. More so due to the perception that the actions on the two

officers were on account of our complaint. (We did not complain, we did not

complain at all, we did not choose to, but for that incident our Chartered

Accountants conversation with the Regional Manager on his own initiative when they

felt that we were being exploited.) Whether the bank chose to report these serious

irregularities (in various forms with various accounts of that period) to RBI is not

known, but what followed the two incidents was a massive “overhaul” of accounts at

the Erode branch. There was a change of branch management with a Mr. Yacov

posted as Branch Manager and the branch which worked its way to hastily close

several accounts that were handled by the two earlier branch managements.

6. The Scrutiny Report is in so much admiration of the bank's accounting system “The

packing credits released were recorded in the ledger and the transactions were

routed through the current account” “ We have also obtained a computer

generated statement of account of the borrower and did not find any ambiguity”

The integrity of accounts were compromised during the period and perhaps to

cover up the lapses that occurred, the bank evasively refuses to furnish a

comprehensive statement of accounts to us. First requested and denied at the branch

level, then sent in writing by email to the Head Office on July 2002, replied for

record by Cletus, AGM, Federal Bank, vide letter GAD/S32/MDS 649 which for the

sake of record “the branch had always provided with the required particulars /

statements” and denies that we ever approached the branch for the particulars. For

which we responded on 19th July 2002 that “We have asked for a consolidated

statement, which has never been part of the bank's accounting system. Our request

by email was essentially addressed to the Senior Manager at Erode with a copy to9t

he Chairman, because the difficulties related to our account has been represented to

the Chairman and awaiting his reply for a very long time now. [ next paragraph ]

What was asked for was a comprehensive statement, and the request was sent in

writing by email, to the branch's email address with a copy to the Chairman's

address.... What is the difficulty in sending us the statement by mail ? If the report is

ready, someone from our company could go there to collect the statement” [ next

paragraph ] Please also understand that the request for a comprehensive statement is

in NO way a complaint about the present branch management, but a request bourne

out of overall difficulties at the Branch level that we suffered from for the past 6

years” This is the sequence that the request for a legible statement of accounts

followed, which has been exasperating:

i) Branch level in person requests denied for months.

ii) E-mail to the Branch with a copy to the Chairman on 07/07/2002 as above

iii) Follow up email on 19th July 2002 as described above

iv) Follow up email on 13th August 2003 with a clear description of why it was

required

v) E-mail to the Chairman on 13th August 2003 with a copy to the Chairman's

Secretariat with a request to place the email for the Chairman's attention

vi) E-mail to the branch and the Chairman and the Regional Office on 31st August

2003 repeating the requests

vii)E-mail to the RBI and the Finance Minister on 31st August on the overall

difficulties which also contained a reference to the pending request for

accounts

viii)Letter to the Minister for Commerce and Industry on September 04, 2003

ix)A petition at the DRT, Coimbatore for a comprehensive statement of

accounts – IA 699 of 2003 in OA 268 of 2003 filed on 4.12.2003

x) Counter filed by the Senior Manager Federal Bank on 17.07.2004 refusing the

statement of accounts on the grounds that “Borrowers have executed balance

confirmation on 29.8.2000 ( as part of the documentation spanning over a

hundred pages requiring over a hundred signatures taken to enhance the

limits )

xi)Various documents filed as annexures to the IA at the DRT, Coimbatore on

3.1.2005 and later at the DRAT to show that the bank's accounting system

was riddled with ambiguities and complexities

xii)On 4.3.2005 the petition was dismissed for default citing the absence of

absence of the petitioners. The order was, during an inspection of records at

the DRT, accidentally noticed handwritten behind the folded affidavit/petition,

not recorded in the court diary, nor communicated to us as petitioners or to

our attorneys.

xiii)As a coincidence there was no Presiding Officer at the DRT Coimbatore for

a long time and hearing on the petition was re-posted over 8 times to

intervals of 90 days each time, causing a time lapse that was favorable to the

bank

xiv)During these delays we reminded the Branch Manager at Erode about our

request for a comprehensive statement of accounts, pending for over 4 years

as of March 7, 2006 when the letter was sent, this time with an initial

payment of Rs 500 towards costs by DD (UTI bank, Erode, DD No 6636

dated 7 March 2006) which was returned by the Manager, Erode branch vide

letter ERO/657/06, undated, with the excuse “since the matter is sub-judice

we are unable to provide any further details on this matter. We have

provided all details to DRT Coimbatore and you can have it from them

through your advocate”

xv)That is not true. The bank has only been resisting the petition for details at

the DRT and has only been dodging the petition at the DRT.

xvi)IA 566 of 2006 in OA 268 was filed praying for production of accounts, even

against costs, at the DRT Coimbatore on 19.7. 2006 after noticing the order

of dismissal of the earlier IA on the same subject dismissed by the Presiding

Officer on 13th November 2006 objecting to a fresh petition instead of a

review of the earlier petition with other remarks (later erased by the DRAT)

xvii)An appeal against the two orders filed at the DRAT, Chennai on 29.11.2006.

DRAT ordered the Presiding Officer's remarks erased and allowed us as

appellants to go back to the earlier IA which was dismissed by default.

xviii)An application was filed before the DRT Coimbatore by February2007 with

a change of Counsel, hearing on the petition delayed for 6 months as DRT

Coimbatore moved some cases to DRT Madurai then back to DRT

Coimbatore. This is another coincidence that delayed hearing on the process

of justice. The petition came up for hearing to restore on 5th September 2007,

again on 14th September 2007 and the bank continues adamantly refuses the

fundamental request for proof of liability, with empty arguments.

7. The scrutiny took notes attempt to deter RBI and the Government by pointing to

the developments that the bank has moved DRT, but makes no remarks about the

glaring superficiality of the bank's attempt to stall scrutiny. The bank moved DRT to

say that it has moved DRT. The Bank had moved DRT with a list of Packing

Credit withdrawals during July 2000 and March 2001, and application of

interest thereafter, with remittances suppressed even for this arbitrary

period. The statement filed in its case before the DRT did not show any particulars

of repayment and presents a picture of a borrower who borrowed Rs 80 lakhs,

never repaid any of the loans and never serviced interest.

The logic of the bank's case at the DRT is as illustrated below

The bank moves court with a claim of 30 and interest thereon. It is case is that

Whitefield Cotton withdrew 15 on Thursday and 15 on Friday. Its statement of

Day of the week

Monday 15 20Tuesday 15 20Wednesday 15 0Thursday 15 40Friday 15 0

Balance outstanding by this illustration +5

Bank goes to court with a claim for Opening Balance 0 0Thursday 15 Deposit not shownFriday 15

Bank's claim of outstandings 30Interest and interest on interest 30

Total claim by the bank 60

Whitefield Cottons' Withdrawals

Whitefield Cottons' Deposits

accounts filed at the court shows two columns and two rows, the second

column unfilled, the first column showing 15 against Thursday and 15 against

Friday, so the total is 30.

The legal frame work is simple: Did you borrow 15 on Thursday? Did you

borrow 15 on Friday? Did you sign? Say yes, and pay up.

The court does not understand how and why it is important to concede a

petition for transaction particulars for Monday, Tuesday and Wednesday; or

why it is important for the company to verify the opening balance on Thursday

that was not zero. The court does not understand that the second column is

important and has to be filled in.

The bank argues that the case pertains to Column 1, so Column 2 is irrelevant.

The DRT does not take note that even during those two days the repayment

amounts to 40. It says the case about Column 1. That the DRT is non-technical

on the basics of banking process is unfortunate:

Do you want me to order details of Column 2 issued to you? Pay up-front half of

what the bank wants, then I will order. No, no, I will not order the bank to

issue all particulars. Maybe items 1 to 6 in the list of accounting particulars that

you have petitioned for, but not Detail No 7, namely direct payment of ECGC

premiums from the bank. No, no, I won't even order particulars 1 to 6 issued, I

am quashing the petition.

This basic petition for details has been successfully evaded by the bank for 5

years now, and DRT, which by title and by defined theme is for “Debt

Recovery”, not “Debts / Claims Reconciliation or Adjudication”

refuses to understand the chooses not to go into the complexities of the case.

The account with the bank was since June 2006, Packing Credit Account was an

ongoing account with total withdrawals in the region of Rs 4-5 crores with

remittances automatically adjusted towards interest and repayment amounting to

US $ 1.5 million equal to an excess of Rs 6 crores. All export proceeds were

routed through the bank without exception, internally adjusted by the bank

towards repayment, payment of an arbitrary ECGC premium for insurance that

the bank did not follow upon, bank charges, Pre and Post shipment interest and

appropriate and inappropriate bank charges The complexities and inadequacies

are more clearly explained as below:

The scrutiny report says “We have also obtained a computer generated

statement of account of the borrower and we find not find any ambiguity” This

ought to be the 'computer generated record' of the CURRENT ACCOUNT

through which Packing Credit Loans were routed. This statement showed PCL

withdrawals and did not show PCL repayments. This statement did not record

internal adjustments or deductions of Interest and Bank Charges at source, i.e.,

on receipt of export proceeds of over US $ 1.5 million routed through the bank

through various sub accounts namely FUBP / FDDP / RABC as the bank chose to

categorize bills purchased at its fancy.

Sequence was ( as shown in the flow chart attached to our letter sent on 27

November 2004 )

a) PCL is requested and transferred to the Current Account and the

“computerised” statement shows the transferred PCL ( say 3 lakhs for the

day ) as available balance. (The bank NEVER issued a PCL Account statement

showing the opening balance of PCL outstanding, a complete list of PCL

transfers, interest applied and the PCL outstanding from time to time. The

PCL register was not computerised and not even a manual statement were

issued. )

b) Available balance in Current Account withdrawn in parts to meet the Pre

Shipment purchase and administrative requirements. Current Account shows

the Current Account balance outstanding, not PCL outstanding.

c) Exports were made under letters of Credit and the Bank PURCHASES bills

under the FUBP/FDDP/RABC sub accounts No statement of accounts was

ever issued by the bank on FUBP/FDDP/RABC accounts. The

FUBP/FDDP/RABC accounts that handled over $ 1.5 million of our export

proceeds were not computerized at that time nor a manual passbook was

issued.

d) On the day of the Bills Purchase, illustratively, a bill of $ 50,000 for Rs 20

lakhs, the bank would internally DEBIT Rs 75000 to PCL interest, Rs 50,000

to FUBP interest, Rs 10,000 towards ECGC premium, Rs 10,000 towards

bank charges, sometimes retain Rs 1 lakh as deposits in the name of the

Directors and retain the Deposit receipt, and debit another 5,000 towards

charges that were illegible, and then transfer the balance, if there was no

other PCL to be repaid, Rs, 2.50 lakhs to the Current Account which is the

only entry shown in the Current Account which would read “By FUBP XX Rs

2.50 lakhs.

e) And on later dates, if there was a short realization ( mostly it was about $ 40

dollars on a typical invoice of $50,000) the bank would debit again by the

same FUBP number an equal sum to the Current Account.

We have no clear statements to understand what was the Principal outstanding,

total PCL withdrawn, total Bills negotiated, total interest on PCL, interest on

FUBP, interest on RABC, interest on FDDP, total bank charges. Besides there

were unexplained entries in the Current Account shown as “By Backdate

Correction”. We still do not have a clear idea of the actual PCL principal

outstanding and what constitutes the principal outstanding.

The bank moved DRT with a list of PCLs transferred to Current Account during

an arbitrary period of 9 months in an account that spanned 6 years preceding

2002, taking the opening balance as Zero and it was never Zero. No repayments

were shown, which were in excess of Rs 6 crores till 2002, not even for the

bank's choice of the arbitrary period.

The choice of the arbitrary period is not explained

The bank's list of PCLs released during July 2000 and March 2001 totalling Rs

79,75,000 and Interest debits at rates it fancied amounting to Rs 44,39, 848 for

the period July 2007 to August 2003 adding up to a total claim of Rs 1,24,14,848.

Even for this period the details of bills purchased, amounting to in excess of INR

6.1 million were not shown. The bank has been consistently dodging all requests

made in court and out of court for the details.

Just as the petition is finally being heard at the DRT, the bank has sent us a

notice under Section 13 (2) of the Securitization and Reconstruction of Financial

Assets Act of 2002, this time treating Rs 124,14,848 as Principal and Rs

90,80,185 as Interest, which by itself proves that the bank has a chaotic system of

accounting and its ethics are to profit by any means.

It has been unfortunate that the higher officers of the RBI has allowed

themselves to be dissuaded from acting upon the complaint by a such a

partisan scrutiny report of gross inadequacies.

8. The Scrutiny Note, on the Bank's unwillingness neither to evaluate a Term Loan

requirement together with its policies and practices not to allow any other lending

institution to lend, concludes that “there was no ground to believe that the bank

prevented him from availing the loan.” The 'scrutiny' officers again quote passages in

selective bits and pieces to arrive at a totally wrong summary of the communication

cited.

The scrutiny report is passionate in its purpose to defend the bank and is at a loss of

words to paint a picture of falsehood on us.

It is as if the tools of scrutiny was a ' cryptographically perforated magic

stencil ' to read one or two lines in a long letter, suitable to be quoted

broken and out of context to arrive at a misleading summary that would

effectively deter the attention of the higher officials including the Governor of the

Reserve Bank of India on this issue to dismiss this entirely as a complaint that “does

not hold water”. It wouldn't examine facts but would fish out something that we

have said in some context, in broken quotes, out of context to arrive at a conclusion

to defend the bank. It rather appears as paperwork drafted by a bank's advocate

whose avowed purpose is aggressive offense as a strategy for defense. We obtained

a Term Loan sanction from Sipcot for Rs 1.5 crores, paid an “up-front fee of Rs 1.5

lakhs, pledged a more valuable collateral, registered the charge with the Registrar of

Companies etc. with the opinion pending from Federal bank that the company

already has working capital facilities. After a change of branch management, the

branch at Erode was seen uncomfortable with the sanction from SIPCOT, we were

repeatedly asked questions about the status of the project, how the margin money

was to brought in (by internal accruals and by sale of a property), what portion of the

term loan was availed (none), until we showed a willingness to have all the facilities

within the bank. This was the best that we could do under the circumstances - the

bank had once refused to pursue the Term Loan Application, and now uncomfortable

with a sanction from elsewhere. We met the AGM, Federal Bank at Chennai on 9th

March along with details of the sanction from SIPCOT, followed by a letter that

outlined the project cost break up and the status of the project with details as to

how the margin money was to be brought in. Then the Regional Office insisted on an

undertaking which was sent by fax on 26/3/1999 as dictated by the Regional Office “

We have not so far availed the above said term loan” “ We herby undertake to

appraise and inform M/s Federal Bank Ltd, as to the developments in the above

project”, etc. which in effect INTERJECTED Federal Bank as a self appointed

authority to sanction the utilization of a term loan sanctioned by another

institution. ( SIPCOT, the State Industries Promotion Corporation of Tamilnadu,

which was then headed by a positive Officer from the Indian Administrative Services

who was swift in leading the team of General Managers to appraise, and equally swift

in taking the proposal to the Board to obtain the sanction, had at lower levels

officers who did everything to assert their powers to make or destroy, by

perpetuating the post sanction process in terms of documentation delays etc. We

bought 1.92 acres of land from Sipcot, again with a cheque for Rs 6 lakhs directly

handed over to the Managing Director during an event at Ooty to promote an

industrial zone, a plot was immediately allotted, but after 6 months we noticed it

encroached. Objections were not heeded and a solution was not offered for about 3

years in spite of repeated communication, the issue remained unresolved till the end

till we agreed to take back the Deposit, about 95% of what was paid, without

interest, from another Managing Director of SIPCOT, who opted to solve the

encroachment issue by closing it with a refund after three years of inaction. The

hurdles faced at SIPCOT makes another episode and we do not have the legal

environment in India for timely adjudication of the overall harm done to us by the

lower levels of officers at SIPCOT). Such hurdles collapsed the Weaving Project even

before it was implemented, post sanction from SIPCOT. The bank's role in this was

its refusal to send a letter to SIPCOT to say that we had an account with Federal

Bank for our Working Capital needs, a letter which was cited as an important

requirement by SIPCOT to begin the disbursement process which never began. Over

and above that the bank seemed keen on preventing us from utilizing the term loan

sanctioned as evident from the undertakings that it took from us, from the clauses

that it imposed on us during enhancement / renewal of limits.

9. The scrutiny has not gone into the sequence of the manner in which the bank dealt

with our term loan requirements, which had a separate history on its own. As a

customer already having a PCL of Rs 15 lakhs and an FUBP facility of Rs 20 lakhs we

approached the Head Office through the branch with an Application for Term Loan,

filled in with all particulars, complete with supporting papers which was submitted

on or about 17th October 1996, further papers and workings submitted on 22nd

December 1996 and 31st December 1996, forwarded by the Manager to the The

chief Manager, Foreign Exchange Department on January 25, 1997. We travelled

along with our Chartered Account Mr. K R Kumar to Alwaye during January 2007

where the proposal was met receptively by a Mr. Vijayakumar ( AGM or DGM ) and

another Senior Manager at Forex. Later the General Advances Department sent us a

letter on 10/2/97 wide GAD / L-72/1430/97 saying the proposal stands declined. It

cited the reason “ our scheme for foreign currency loans envisages only granting of

working capital limits for 180 days and not term loans”. We responded with the

clarification to consider a rupee denominated loan and pointed out that the proposal

for first phase fell within Rs 3 crores and is eligible for Priority Advance in

accordance with the prevailing rules, that the project was export oriented, etc in 3

pages and sent to The Branch Manager, The Regional Manager, Chennai and to the

DGM, Foreign Exchange Department on 18/2/1997. This was followed by some more

communication to the AGM at Regional Office and to the Head Office and the bank

did not entertain the proposal.

10.In the same section the report says “ the borrower had reportedly approached the

South Indian Bank and Federal Bank was called over telephone and the branch had

reportedly informed the outstanding dues of the borrowers ” In continuation it says

that “There was nothing on record to indicate that the branch had prevented other

banks from extending credit facilities to the borrower” . South Indian Bank had

shown interest in extending the required facilities, at least to the tune of 1.6 crores

of Packing credit / PCL together with 1.0 crore of FUBP and the formal application

was submitted on 26.7.2000 after continuous receptive meetings with the branch

manager over the previous few days. Further papers were submitted on 2.9.2000 and

the limits with Federal Bank were disclosed up-front as early as the very first meeting

with the Manager, South Indian Bank, in complete detail. (South Indian Bank was next

door to Federal bank's Erode branch at that time.) South Indian Bank had been

receptive and processed the application swiftly and on the verge of granting facilities

received a letter from Federal Bank which conveyed Federal Bank's unwillingness to

allow the transfer of the account in a very brief message of about three lines. If a

phone conversation as reported in the scrutiny also happened, it is not known to us, it

ought to have been of a far more deterrent and premptive influence on South Indian

Bank. South Indian Bank signed off from processing the application further, on the

verge of granting facilities, because Federal bank did not consider it a permissible

practice. The limits / outstanding at Federal bank at that time need not have been a

concern, neither to South Indian Bank which knew the complete particulars up-front,

nor to Federal bank because South Indian Bank would have taken over the facilities at

one stroke, if the transfer of account was permitted by Federal bank. The bank was a

'dog in the monger' neither allowing facilities on its own, nor allowing any other bank

– South Indian Bank, State Bank of India, Bank of Nova Scotia, IDBI, Sipcot on

various dates.

11.The Scrutiny note negates the facts pertaining to inordinate delays simply by

assuming its own norms as to what constitutes an effective date of submission of an

application for facilities. The report cites dates seen on documents such as

“Application of Limits” which are customarily issued to be filled in at the sanctioning

stage of the process. The practices were ( or continue to be, we don't know) such

that the “Application of Limits” was a document almost issued post-sanction, which

was a stage that took months to reach. If the dates on the application of limits (the

entire application forms were sometimes filled in by the Branch Manager himself) are

to be taken as evidence, the picture that would emerge is one of that of an

application, sanction, documentation and disbursement, all of which almost on the

same day, instantaneous, while in reality it did took 180 days for the bank to partially

consider our request and 720 days to fully grant our needs which as stated earlier as

during the time lapsed the needs multiplied and the sanction as sought 720 days

earlier became “was too little, too late” With a definite intent, the Report negates

the fact that there were inordinate delays by its own erroneous norms of what

constitutes an effective date of a loan application It says “ the loan applications

... were merely letters ... not submitted with the requisite documents ... “ The report

is based on documents selectively made available with hundreds of pages of letters

and correspondence and financial workings wrapped up or destroyed by the bank, all

of which could have easily come to light had the inspection sought to examine the

papers that we have on our files It did not intend to. The intention was to make a

passionate plea and extol that the bank was wonderfully right. The chronology that

we have furnished is vivid as shown in the Annexures to this letter.

12.The report cites an earlier report which is NOT released to us as part of the

documents released on April 10, 2007 by RBI that the delay in disbursal of limits

were due to delay in execution of documentation, delay in receipt of LC and

discrepancies in LCs. Almost for the entire length of our transactions during 1996

-2001, especially during the first four years, the Bank of Montreal had trouble

telexing the Letters of Credit direct to the Bank, the Letters of Credit were telexed /

sent by SWIFT to various banks ranging from Canara Bank, State Bank of India, Bank

of Nova Scotia, with a faxed copy of the L/C sent to us through our overseas

customer simultaneously. The bank wouldn't accept a faxed copy of the telexed

message, but would insist on the original L/C often sent to us by the branches

located in Calcutta or Bangalore or Coimbatore by post which took time. On one or

two occasions when the L/C was sent direct to Federal bank, the branch would say

the L/C was not received, which made us make repeated phone calls / send fax

messages to our overseas client who would unnecessary have to ask the Bank of

Montreal for particulars and once I recollect the overseas client telling me by phone

“ I have asked the Bank of Montreal, I have asked them again, IT IS THERE, THE L/C

IS THERE” I would then have to go back to the Branch and insist on internal follow

up to retrieve the telexed document. These were the so called delays in receipt of

LCs that the scrutiny report talks about. The delays were due to the inadequacies of

the bank's comminution mechanism or due to its inadequate status with first class

banks. The discrepancies talked about are trivial discrepancies, Port of Destination

shown in the Bill of Lading as Halifax which was the destination port while the Port

of Destination specified in the L/C was the overseas customer's location in Montreal.

The Destination Delivery was always ordered as part of the shipping instructions to

our Shipping Service, this was a recurrent “discrepancy”. The inspection report fails

to observe that NONE OF THE OVER 50 LETTERS OF CREDIT WERE UNPAID.

ALL LETTERS OF CREDIT FROM THIS OVERSEAS CUSTOMER WERE PAID IN

FULL, IN TIME, HONORED WITHOUT FAIL.

13.The “scrutiny” assumes the delays in execution of documents as the fault of the

borrower rather than examine them as one of the procedural hurdles that we

originally complained about. The bank has taken over a thousand signatures each

from each of the Directors and Guarantors and there were over a thousand pages of

documents signed by the Directors and Guarantor as per the bank's format. All this

has been done across the table as instantly as the bank placed them on the table. If

there was delay in execution of documents, we could cite one instance where in an

ancestral property of area 1000 square feet was pledged as collateral, which was free

of encumbrances and clear in title, yards away from the location of the bank at that

point of time, and the bank kept raising trivial objections repeatedly on a portion of

159 square feet of the pledged property that the boundaries were not clearly

specified. We obtained legal opinion, explained very clearly that the boundaries were

clear, and in the face of persistent objections REPLACED the property with another

property, more valuable, of an area of 6000 square feet. This was valued at Rs 59

lakhs against a prevailing limit of Rs 15 lakhs at that time. But in subsequent

documentations the bank chose to create records as if the security pledged was both

the properties, which became a surprise to the Guarantor. The procedural delays

were of the nature of pushing us to a corner until we turned around and said

“What do you require?”. This has always happened and we lived with this

“procedural” hurdles for over 4 years.

14.The overall tone of the inspection report was one-sided. It quotes convenient

passages from a convenient choice from among our several communication to the

bank, selectively and misleadingly, out of context, with the essence of all the

communication totally suppressed or glossed over. The most important of our

letters to the bank were not taken note of and the overall essence of all our

communication is wilfully missed and kept completely suppressed out of view in the

scrutiny report.

The scrutiny report cites from convenient records made selectively available by the

bank, quotes out of context to make a passionate plea in favor of the bank which in

reality had a chaotic climate of banking which reversed and crippled all the progress

this company made during 1996 – 2000 even amidst the restrictive banking climate.

The scrutiny Report does not make any mention of over four hundred letters / fax

messages / email messages sent to the bank pointing out how our prospects and

performance was affected by the delays caused by the bank in appraising our credit

needs.

15. The scrutiny smoothly skips the crucial letter addressed to the Chairman of the

Bank which was repeatedly sent by registered post and by email as also copied to the

branch and the region. Care was taken even to address a separate communication to

the Chairman's Secretariat to bring the communication to the Chairman's attention.

Copies were marked to the Branch Manager on some occasions and to the Regional

Manager. What was sent by email was followed by by a printed letter sent by

Registered Post / Speed Post and occasionally by courier. Short of personally

dropping the letters on the Chairman's workbench, everything else was done to

make sure that the communication reached him. The scrutiny report skips the

“letter” (not one letter, several letters and email messages) totally, simply by saying

“there was no record held in the branch and hence, the disposal of these complaints

could not be ascertained” The Scrutiny Officer's choice of passages to quote, from

among the hundreds of letters that we have sent to the bank, make us wonder if RBI

team has been engaged by the Bank as its Defense team. With a magic eye to find

fault and an extraordinary skill in paperwork the scrutiny concocts the bank's choice

of passages from our own communication, skipped the essential content that were

the facts, and omitted communication unfavorable to the bank.

16.An institution such as the Reserve Bank of India ought to have been careful in

allowing loose, unqualified and defamatory remarks on us as complainants

such as “ the charges of the borrower against the bank were borne out of

frustration”, “the borrower was over ambitious”, “the borrower overstretched”,

“diverted funds”, “the borrower's complaint does not hold water” These are

damaging remarks totally unqualified. We are irritated.

This was a company which progressed from an export performance of 40 lakhs to

150 lakhs to 200 lakhs in 3 years – when the rest of the textile industry was almost

universally and in particular in India, suffering, and had an order on hand for 3.23

crores to execute which the office scrutinizing the complaint found “overambitious”

Is RBI recommending a 2-5% annualized increase in performance for the Indian

manufacturing sector as the maximum practical or achievable growth ?

17.The report alleges a “sudden change in attitude” and spices it up further by mixing up

the chronology of events to suit the bank's convenience and had attempted to paint

the picture of reaction on the part of the borrower after the legal notice to recall the

advances, whereas the truth is exactly the opposite of what the Report claims. Our

initial correspondence to the bank were polite, and never hesitated to express the

help that the company has received in the form of financial assistance. Little did we

realize that we were profusely thanking the bank for getting us halfway across the

river to be abandoned to be drowned. Even in those communications which were

about time delays and about short appraised sanctions, the polite references to the

financial assistance received and an expression of gratitude were persistent.

Procedural problems were prevalent even from Day 1, but we were polite and

thankful for whatever was made available and were not assertive enough in the face

of limitations and hurdles that we experienced, till a point of time when it began to

reverse our progress and hurt our prospects that were so obvious with an order on

hand for US $ 823,000 that the bank's administrative system caused to collapse and

watched it collapse, incept of repeated, well defined communications at various

levels of the bank. It takes a certain strange bent of mind to cite from the earlier

letters to allege a “sudden change in attitude” to effectively plant a suggestion that it

followed the recall notice. The recall notice is what FOLLOWED our

complaints, not vice versa.

18.All our complaints were precise and well defined and accurately factual. The Scrutiny

note engages a typical ploy to dismiss the complaints with the sweeping remark

“none of the complaints ... were specific with supportive facts” What is seen here

is a total refusal to look at the facts and a definite report-design to deter

higher executives of the Reserve Bank of India and the Ministry of Finance from

examining the complaint with closer attention and to cover up the facts behind the

issue. The scrutiny report covers the bank.

19.The report lovingly disapproves the bank for “releasing PCs indiscriminately while

earlier PCs were overdue” , “non-verification of stocks in time” and stops short of

promulgating rules that would take banking to the dark ages of lending by pawn

brokerage and key loans.

20.Does it make any practical sense and is it ever truly adhered anywhere – the system

of a 25 or 33% margin on “working capital requirement” ( this was an export pre-

shipment advance ) and ensure in effect a 150% value of the loan for operations, all in

stock of goods? The bank wanted the papers for record, as it dictated and often such

paperwork was impractical and meaningless. [ This passage is written and retained in

this communication with the belief that yet another RBI officer compiling another

report wouldn't expand a summary of this vivid document entirely around the above

four lines of text in out of context quotes in italics ] The impracticality of the clause

related to stock statements, especially of the textile sector, is rather understood, by

the banking industry. A good, honest officer at the bank while asking us to indicate a

convenient time to visit us during the day for a stock inspection, would amuse me

with a playful question “ how much time do you need to “arrange” the stocks for

inspection ? “ Stock of goods held were never a basis for the grant of facilities, it was

at best an indication that the funds were employed for operations. In our case, we

have made it repeatedly clear that the various processes of production namely yarn

sizing, weaving, bleaching, tailoring and even packing until a certain point of time

were contracted out to several vendors at several locations as most textile

exporters with the exception of integrated textile manufacturing units operate. Our

stock statements always listed stocks in various locations, location by location, and

we have obtained permissions from the vendors when the need arose, and have

always enable inspections by the bank even at the vendors' premises. The report

cites one instance date not shown, “ the Senior Manager had visited the unit and

conducted stock audit .. stocks available both in the godown and factory would be to

the tune of Rs 40.00 lakhs... Though the Director of the company informed that they

held stock in process with various vendors/ processing units ... he was unable to

furnish the full details / delivery chalans etc . “ The senior manager wanted the list of

stock in process with various vendors and it was furnished to him. It was timed after

our letter to the Chairman of the bank, perhaps the beginning of the design by the

bank to destroy us by invoking clauses hitherto totally unimportant. It was part of the

bank's perparation to declare/justify an NPA status. We sent a clarification on stock

postion by our email dated 19th February 2002 to the Manager Federal Bank which

the Scrutiny Report fails to take note. Later in our letter to the Chairman on 17th

July 2003 which was included as part of the communication sent to Smt Usha Thorat

on August 31, 2003, we have repeated what we have been communicating to the

bank for almost three years “ During the last three years ... There were various ways

by which we were affected Our work in process of that time was rendered unusable

midway due to the situation forced upon us by the bank's total disregard for our

needs and the way it kept our account frozen...”; “ There were various other

practical business factors that come into play when the flow of resources were

blocked. For instance alternative market borrowings that were forced upon us by the

situation was prohibitively expensive The quality of materials purchased with

contingent market credit could not be assured. Time delays were expensive with a

multiplier effect One problem leads to a multiplicity of problems and the losses

multiplied, our various resources decayed during the last three years and the

combined effect is such that it absorbed the money invested in stocks and work in

progress...” In the same letter we listed the losses which causes the bank to defend

itself by causing our company collapse totally even without leaving the bare minimal

resources to seek any form of remedy. There was a particular reference to stocks in

various stages of processing with various vendors at risk which the bank conveniently

allowed to happen. Stock postion remained unaltered with a total unwillingness on

our part to place them on the local market or to deem them as “seconds” We held

on to stocks waiting for attention from the bank for a very long time. In the process,

a portion of the stocks midway in production with various vendors were

unretrievable, what was retrieved as in-process inventory was partially damaged and

continued to deteriorate unattended. In the end what little was saleable was sold at

disproportionately low prices during 2004 – 2006 to be absorbed by legal expenses

and for basic existence.

21.In business, a strange arithmetic operates in times of trouble. If the opening balance

of losses is 20 and the expenses during the year was 10 with zero revenues the net

result is never 20 + 10 = 30, which is an arithmetic that works in good times, but in

bad times it is always 20 + 10 + unknown + unexplainable = 60 or 70. The bank has

kept us in this situation for over 7 years now. The complex problems have

consumed two family properties in the process, sold to steer clear of problems. On

deeper examination the phenomenon of unexplainable arithmetic can be somewhat

understood. One aspect that can be examined is how the inventory value suffers.

Inventory value is one that plummets in inactivity. Raw Material bought for 100

rupees is easily saleable at the same price or a better price in times of flourishing

activity, saleable at a discounted 70 or 80 Rs in bad times, at half price at very bad

times, work in process ( INR 100 or RM + INR 50 value addition ), even in good

times is saleable at below raw material cost, say INR 70 or 80. In a situation of

inactivity this would drop down further due to perception of distress or unusability,

to INR 50 or 60. So already it is a third of what it cost to produce, not including the

interest and overheads mounting over and above the initial value of INR 100 + 50. If

such work in process is left unrecovered with the vendors or in a warehouse for

years, the damage caused is immense, sometimes, in cases where there is formation

of fungus etc, the value is negative. There have been instances where half or less

than half value was realized for any part of inventory retrieved from vendors and

there have also been instances where we have incurred a cost for removal of fungus

infested / damaged inventory.

22.While it was silent on the damage that it has caused us, and vocal in its defenses at

RBI with its own typical justifications, the bank has been unable to prove the integrity

of its accounting process with a resistance to allow us a statement of accounts, a

comprehensive one, with a list of repayments, interest debits and bank charge debits.

The bank moved DRT with a claim, we asked how much and how. This is such a

basic question. A comprehensive statement of accounts must be printable at the

touch of a button, if there is a good accounting system at the bank and if the bank

does not have any reasons to hide its books from us.

In its evasiveness on establishing the liability the bank's tactics have been circuitously

psychological by forcing us into a settlement without persisting on our original

complaint. While the case was pending at the DRT officers from the bank would

repeatedly visit the Guarantor's residence. The bank wouldn't answer us or face us,

but would go to the susceptible guarantor with slipshod details about the threat to

the property and would cause problems within the family and would cause the family

to force us to drop charges on the bank and seek a “settlement” which amounts to

paying what the bank claims is due with total retraction from the complaint. Such

tactics intensified problems within the family so much so that I had to send a

communication on record, by telegram on 21 Feb 2006 thorough a post office a mile

away to the bank's offices next door, to warn the manager of the bank to refrain

from such attempts. The Branch Manager came to my office to explain with his

version that the guarantors are interested in settling so the bank approached them.

The manager was pointedly told that the bank could negotiate with the guarantor to

surrender the property, but not negotiate with to settle the company's dues / claims,

which is our liability, if the net result is. The machiavellian harassments by the bank

through its circuitous route stopped for a while but attempt to pressurize us through

the guarantor continued which caused total disharmony between the guarantor and

his sister who is a Director of the company and culminated in a situation where we

had to prefer a complaint to the Deputy Inspector General of Police seeking

protection from one of the Guarantor's family members who, inflamed by the

repeated pressures from the bank to settle exhibited her anxieties on us by forcing

us to rush to a settlement. The family is broken up in the process.

23.Against this background which the bank has suppressed with its own ways and

methods, without still responding to how it arrived at its claim of 80 lakhs as

principal as filed at the DRT, the bank continues in its persistently arrogant belief that

a small company would not sustain the collective hardship imposed by the overall

banking system and practices. With this peristence, the bank has unfairly invoked

Section 13 (2) of the Securitization Act, and brushed aside our valid objections: This

is invoked for causing even greater stress on us through the Guarantor's family which

has now reasons to pressurize us into a settlement, because of the adverse publicity

that might result if the property is attached. The Act provides a relief in the form of a

provision for legal challenge, but AFTER all the harm is done.

This bank's inappropriate business methods has resulted in such dimensions of harm.

The works its way around the inadequacies of the regulatory mechanism characterised

by the Government's inability to be assertive with the banking system under

compulsions of, paradoxically, maintaining an investor friendly climate in the country.

All our communication were sent to the immense faith in our Government in general

and with high regards for the topmost reformist and spirited Politicians and

Administrators of swift executive skills. We believe that the Government will not

disregard the harm done and being done and the anguish caused to a small company and

the defenseless individuals, by a bank part of a cohesive banking system, that ought to be

a part of a vital component of India's growth needs, but is not.

In the Indian business context it is not unusual, nor considered a major offense to

circumnavigate an adverse legal status by renaming the company or by suppressing

adverse records by any other means. The Directors of Whitefield Cottons P Limited

have chosen not to acknowledge such methods as proper. We have waited for a

straight and fair solution which has so far proved very very expensive in terms of

opportunities foregone and the time lapsed, not to mention the disintegrative effect on

the family.

We believe that the Reserve Bank of India would take note of the inadequacies of its

own scrutiny of the complaint filed five years ago and still pending for a conclusive

solution.

We would request the Governor to annul the scrutiny report on file, retract any

reports sent to the Ministry of Finance (This is a complaint from a small company way

below the $100 million mark worthy of attention, but we nevertheless believe that the

Hon' Minister for Finance would have paid attention had the facts been laid on his table

in perspective) and other organs of the Government of India and reverse all the adverse

effects that such reports have caused and continue to cause us with credit rating

agencies such as Dun & Bradstreet, Coface, CIBIL, SMERA and other credit rating

organizations.

We would also request the Governor to look into the unfair circumstances of the

bank's attempts to cause further aggression in an attempt to reverse the focus from our

original complaint by its move to proceed further on its notice dated 10th November

2007 under the Securitization Act by causing pressure on the company through the

Guarantor to settle. This if allowed to proceed would be most unfair and would

represent a tacit approval to the bank to cause us further damage which would be

irreparable if not stopped in time.

An Executive response, overdue, is requested to the situation. We believe that the

Governor would be fair and request timely attention.

Thank you

For Whitefield Cottons P Limited

Sivasubramanian Muthusamy

Managing Director

(A signed copy of this electronic PDF document is separately mailed)

Erode

November 27, 2007.

Annexures follow, some of which pasted as files from electronic storage , rather than

embedded as scanned documents, to enable highlighting .

Whitefield Cottons P Limited

1029 E V N RoadErode 638009

TN IndiaTel (91) 424 262285 / 269115 / 269853 / 4 / 5

Fax (91) 424 264604E-mail: cotton@vsnl.com

The ManagerFederal Bank LimitedErode

Sir,

We are sending a shipment of 1 x 40 container load of cotton terry towels (barmops) to Canada vide L/C NO IMDC/TOR/317070. A faxed copy of the tested message along with the instruction for amendment is enclosed.

The orders on hand amount to US $ 803,750 amounting to Rs. 3.45 crores, of which as per schedule we are to complete shipements over US $ 534578 amounting to Rs. 2.3 crores is to be shipped so as to ARRIVE IN MONTREAL by May 15. So all these shipments amounting to Rs 2.3 crores have to LEAVE by March 30.

With the 60 Lakhs of PCL available to us it is difficult to meet the peak period requirement for yarn purchases and weaving and processing wages during the next 120 days ( until March 30 ). We require a temporary enhancement for this period.

1. In the meantime, we request the Manager to allow us to repay the PCL with the export proceeds of the shipment leaving today and draw fresh PCL without any difficulty. At present we utilize our entire limit of Rs 60 lakhs against order (L/Cs are received at the time of shipment). We request the Manager to continue the status quo and allow us to utilize the entire PCL against order (eventually the shipment is made against L/Cs only. But there is a stipulation that Rs 50 lakhs may be availed against order and the remaining Rs 10 laksh against production of the L/C document. L/C is released by our Buyer at the time of shipment and even this takes a long time to reach the Bank as explained to the Bank several times before. Even the present L/C NO IMDC /TOR/317070 has not been received even though the telex was sent to SBI Bombay on 18 11 99. Considering these difficulties we request the Branch to modify the condition and in the meantime maintain the status quo and allow us to utilize the PCL in full.

2. Also, please clarify if we can repay PCL out of the proceeds of a sale of a DEPB certificate that we are to receive as Export benefit for the exports done already.

Thank you.

Sincerely,

For Whitefield Cottons P LimitedM.Sivasubramanian

ErodeFriday, November 26, 1999Nov 26, 1999

Send by Registered post

This reply has already been send by Email from cotton(cotton @ vsnl.com)To:federd@md4.vsnl.net.inCc:mds@federalbank.co.inSent : Monday,November 05 2001 11.25 AMSubject : Your letter dated 23.10.2001 to Whitefield Cottons (P) Limited and its Directors

REGISTERED POST WITH ACKNOWLEDGEMENT DUE

To

The Senior Manager,Federal Bank Limited,Erode – 638 001.

Sir,

Sub : Your letter dated 23.10.2001 to Whitefield Cottons (P) Limited and its Directors.

This is in response to your letter dated 23/10/2001 by Registered Post addressed to the company and the directors separately received here on 29/10/2001.

Due to the economic slowdown following the September 11 incident and the war, the export orders expected did not materialise. As our limit remains frozen at Rs.80 lakhs for the past one year, we are unable to make commitments for new products which require funds to manufacture. We request the bank to take up our request to review our requirements pending with the bank for a long time. As the focus of the bank is on the 8.30 lakhs arrears, we have been trying to mobilise external funds to service this arrears, but we were met with difficulty in this regard as well . So on the one hand our operations are limited by want of funds and on the other hand we have been having difficulty raising funds from external sources. We have marked a property for sale, which will raise the required funds to clear the arrears and we request the bank to allow us a time frame of 6 weeks to clear the arrears, while we again request the bank to review how non- availability of funds restrict our progess.

We request the bank to help us get established despite the temporary set backs that we are facing and enable us to make further progress for which, the company has all non-financial resources required.

Thank you

M.SivasubramanianUma Maheswari SivasubramanianWhitefield Cottons (P) LimitedNo.389/2, Perundurai Road,Erode – 638 0011Tel ++ 91 424 269853/54/262285Email cotton@ vsnl.comCotton@whitefield cotton.net

December 10, 2001

Mr. K P Padmakumar

Chairman

Federal Bank Limited

Head Office

Aluva 683 101

Dear Sir,

Sub: Our Packing Credit Limit with your Erode Branch brought to the Chairman's attention for various reasons.

This note is addressed to the Chairman of the Bank on spefic banking problems that require the Chairman's direct attention with a request for interventional directives from the Chair.

Whitefield Cottons is a private limited company established in the year 1995, originally with the object of setting up an export oriented shuttleless weaving unit. The company is a closely held private limited company with two Directors, one of whom (Sivasubramanian Muthusamy) is a Business Management Graduate (MBA) and another (Dr Umamaheswari Sivasubramanian) is a practicing Family Medical Physician. Even before the weaving project is given shape, the company began exporting cotton terry towels and made ups, well ahead of its manufacturing project which is still not commissioned as envisaged for various reasons.

This is a company with very promising and certain growth prospects limited only by want of fair credit facilities from Federal Bank where the company has been banking since 1995 with a Packing Credit Limit at Erode that remains frozen at Rs 80 lakhs since year 2000.

It is important for us to introduce our company and its prospects in its right perspective so as to enable the Chairman to gain a complete perspective of the company's certain prospects that are being limited. As an introduction we request the chairman to view our website at http://www.whitefieldcotton.net, effectively set up, and professionally indexed by the major search engines. The website is hosted by one of world's top most ecom business web services based in the United States. The company is now e-commerce capable and is standing by for the required facilities from the bank to become one of the first Indian textile companies to sell direct world wide its products with its own brand name.

The product line began as a mass produced industrial towel and expanded into terry utility towels to include luxury bath towels, bath robes and high end fabrics and made ups at present.

Apart from its impressive electronic commerce prospects, the volume of direct business that the company could generate would sound too ambitious to state in this communication, but at least it can be said that the company can generate more than enough export orders from the right buyers. The Director of the company's business travels during the last five years included destinations in USA, Canada, South America, almost all of Europe and some African countries. The Director travelled either as a member of an official Trade Delegation from the Export Promotion Council (once to Africa and once to South America) or as independant business visits to meet with Buyers in USA, Canada or Europe. As a result the company regularly receives enquiries from companies as varied as US textile giants with business volumes of over a billion dollars to smaller importers in USA and elsewhere whose imports are under a million dollars.

It is rare for a company to have strengths both on the marketing and on the technical front. The company is technically gifted, in the sense that the Director has systematically learned the technical aspects of its products as also the technical aspects of plant design and the manufacturing processes complete with a vivid evaluator's understanding of the required machines, the machinery capabilities, the machinery functions and their individual investment effectiveness- not only in Weaving but also in Yarn Spinning, Fabric processing and Finished Product manufacturing.

The company has a Packing Credit Limit of Rs 80 Lakhs, well short of its requirement, secured by collaterals actually valuable well in excess of the limits sanctioned, personal guarantees by the Directors and an additional guarantee by one of the family members, whose property is pledged as collaterals. The company has had an impeccable performance and operational record at the Branch, except for a problem at present which requires the Chairman's attention.

We had no infrasturcture at all till early 1999, and we had the products woven, whitened, stitched and baled by subcontractors in various locations. In this style of operation, there were problems related to quality, delivery time, cost over-run, logistics and administrative control, which included the issue of pilferage. More importantly, our buyer started insisting on inhouse manufacturing facilities as most experienced buyers do prefer. So in 1999, as first phase, we invested all our DEPB and Drawback gains in land and buildings and plant and machinery, which has now given us a PART of the infrastructure required, to be improved upon:

·Land 1.64 acres of prime, developed industrial land in a prominent location: We bought 1.64 acres of land in Sipcot Industrial Area, which comprises 2000 acres of modern and complete industrial infrastructure particularly suitable for Textiles, located 25 kilometers from Erode city center on a major national highway. Rs 8 lakhs paid up and approximately

Rs 2 lakhs remains to be paid.·Used Japanese Terry Weaving Machines: We bought 28 imported second hand Japanese terry weaving machines. All these machines are in good working condition and comissioned 22 machines immediately in rented premises. The rest 6 machines are kept as reserve to meet additional capacity requirements. The value of investment is Rs 15 lakhs approximately.·Supporting Machinery: We also bought a secondhand baling machine, a 40 KVA geneator and weft yarn twisting machines required for the weaving unit. These equipments cost us Rs 4 lakhs.·Tailoring Machinery: We acquired 6 powered straight line sewing machines and 18 powered overlock machines. The investment is about Rs 1.5 lakhs.·Factory Building: A factory building admeasuring 5000 sq.ft. was constructed in a land situated in a prominent place, leased from the Director's family. The cost of the building is about Rs 22 lakhs.·Office Building: Office infrastructure was greatly improved with a newly constructed building of land area 1264 square feet situated in a prime area in central erode. The cost of the building is about Rs 12 lakhs.

All these infrastructure facilities of value about Rs 62.5 lakhs were built up with out availing any term loan as during the period from 1996-97 to 2001 we received DPEB benefits to the tune of Rs.45.44 lakhs and by utilising a portion of the profits generated.

At this point of time we had a sanctioned term loan limit from Sipcot for Rs 1.5 crores for which the upfront fee of Rs 1.5 lakhs was paid, collaterals pledged, charges created and registered with the Registrar of Companies but the loan was not disbursed, one of the major reasons being the absence of a positve reference from Federal Bank which would neither approve of the term loan from another instituion nor would offer the required facilities itself. However the infrastructure created was in line with our original objective of creating a manufacturing facility and it also qualified as margin money brought in from our end towards the project cost, making us even more eligible to avail the term loan.

From Sipcot we could not avail the sanctioned term loan till it transferred all its project finance to its sister instituion TIIC. Eventually we had approcached IDBI, and later the TIIC, and by now our production requirement as also our increased expertise included textile processing in addition to weaving. We were encouraged by Government's Technology Upgradation Scheme (TUF) for which we were qualified in all respects for a Term Loan of Rs 5 crores at about 10% per annum with a re-payment period of 7 - 10 years and though there was overwhelming initial response at the instituion's highest levels at project presentation both the institutions eventually slowed down due to unknown reasons.

The export credit facilities with Federal Bank, Erode branch was a PCL of Rs 15 lakhs and an FUBP limit of Rs 20 lakhs in 1996 which now remains as a PCL of Rs 80 lakhs (fully utilised) and an FUBP limit of Rs 105 lakhs (all negotiated bills are collected and there are no FUBP outstandings).

With virtually no production infrastructure due to delay in availing term loan facilities, exports progressed and we performed very well during the first 5 years.The figures are as below:

(Rs. In Lakhs)Year Export Sales Profit1996-97 37.38 2.551997-98 150.42 9.751998-99 200.27 19.031999-00 141.14 26.412000-01 113.50 3.12

The business came down since year 2000 due to the following reasons:

We have been shipping our products since 1996 to one company, Fonora Textiles inc., Montreal. We considered it important not to take up excessive commitments before we establish full-fledged, integrated manufacturing facilities. Fonora Textiles has been buying our products in suitably large volumes, and most of our transactions valued at over Rs.1.5 million during the last 4 years were from this company.

The company has been a comfortable buyer to work with and it has been very safe to transact business with this company, but the ordering pattern right from the biginning was prone to seasonalities - about 6 months of voluminous offtake and 6 months of comparatively inactivity.

The ordering pattern was taken up during a visit by the director of Fonora to visit our company in India in October1999, as a result the ordering pattern was streamlined and made more voluminous and well scheduled.

Fonora Textiles placed a bulk order amounting to Rs. 3.43 crores in November 1999, all to be Letters of Credit transactions. The schedule of shipments was to start in December 1999 to complete the about 65% of the total volume by February 2000. The export credit enjoyed by us at that time from the bank was PCL Rs.60 lakhs and FUBP Rs. 90 lakhs. These limits were quite insufficient to execute this order, of which exports of about 2.4 crores were to be effected with in the next 90 days as peak requirements. Therefore, we approached the bank with a proposal enhancement of PCL limit to Rs. 1.20 crores. However, the bank did not consider the term loan proposal and sanctioned only enhancement of PCL limit to Rs.80 lakhs.

In the absence of timely response from the Erode Branch, we still took efforts to meet our export

commitments by availing market credit for raw material purchases and services, which turned out to be disproportionately expensive and at the same time constrained the quality. Market Credit instead of fair Bank facilites was at an unfair price, at an unfair interst for an unfair quality on unfair terms. Worse, the measures at such a high expense were not enough to fulfil all our export commitments on time.

Though we could not keep up the schedule initailly given, the buyer was so kind and considerate that he rescheduled the shipments by extending the delivery period. However, we could not meet this even this revised and lightened schedule, as our limits remained emphatically fixed at Rs 80 lakhs without even a marginal flexiblity. Whatever funds we were having had been invested in the fixed assets and we could not raise any finance from own sources.

We had submitted the proposal for enhancement in November 1999, but the bank sanctioned the enhancement only in August 2000. By the time the entire order became stale and we could not ship any consignment and the order was cancelled, since the importing company had to buy from other suppliers to meet their requirement.

Cancellation of orders had its own multiplier effect. The damage to the company did not stop with reduction in its turn-over and anticipated export profits. The various sub contract units entrusted with weaving, processing and tailoring job works started the work but we could not effect the payment towards their labour charges, again for want of adequate funds. When the PCL of 80 lakhs was sanctioned and disbursed, it was so late and so insufficient that it was just sufficient to meet our commitments to the yarn suppliers and we could not take back the stock lying with the processing units due to paucity of funds. ( In business, in practice, quite contrary to what the theory says, in a situation where the requirement of funds amounts to, say, a hundred thousand - required TODAY- and against this requirement if fifty thousand is made available a month too late, the problem does not get halved, the problem remains as it was, perhaps more intensified because what is made available too late disappears due to problems accumulated for want of timely response.) Therefore, we incurred heavy loss by way of stocks lying with the processing units which has now become unusable. Whatever stock could be saved, we recovered and are goods are under process.

Faced with the problems concerning non-availablility of a sanctioned term loan, severely restricted export credit facilities which remain frozen at Rs 80 lakhs and a total absence of condusiveness to avail alternate / additional credit facilites, we were unable to perform. There were specific opportunties to have our Export Credit Limits more than doubled by other banks which back-tracked due to resistence from Federal Bank.

The end result is our inablity to take up any of the several valuable propositions to import from our company. We require to be in a position to fund the required production before we commit to export. What we have taken up at the moment are local merchant export commitments totalling Rs 7 lakhs for high value terry towels, while we are unable to commit for voluminous and valuable

exports.

The bank had considerable role in building up the situation to the present level. There was no timely advice from the part of the bank at any moment of time. There was no effort to understand our financial position and estimate our financial requirements in a realistic manner inspite of our repeated plea for 'a comprehensive reivew of our requirements'. The bank reacts to our recent non-performance entirely by its excessive focus on its own security of the funds advanced. The advances are more than well secured: the credit limits sanctioned to us are well secured with adequate collaterals; besides, the bank also holds the guarantees from both the directors and one of the family member of the directors. Therefore, there is no need for any alarm by the bank at this stage. The bank's concerns are restricted to its narrow perspective of our short term difficulties with total silence on its own role in crippling our ability to perform. This is not fair.

Earlier we had a practice of approaching the Regional Office or Head Office direct to represent our problems which was stopped as we had to heed the sentiments of the previous branch management. Even as our company was performing excellently during the first few years we had had our share of problems at the Branch and we did understand that there was a review by the Head Office and changes were effective at the Branch level. The present branch management has been considerably more businesslike, but paradoxically, these branch level changes have created excessive caution as far as this Branch was concerned and even the fact that our account happens to be at the Erode branch might have affected our banking opportunities.

Even now, the bank is not considering certain ways of reviving the unit making it a viable, profitable high performance in the pattern of its earlier growth trend until the unit faced its export credit problem.

We have now sought the assistance of a financial consultant and he is working on a comprehensive plan.

We are faced with two distinct problems: one is export performance for which we have substantial potential and avenues unexploited for want of funds. We can immediately start export of cotton yarn, which is less profitable but can boost our performance immediately. We had asked for a supportive commitment from the Branch to enable immediate yarn exports and the Branch has so far not committed on this. If the bank had enabled yarn exports we would have considrably brought down the over due PCLs to recently drawn PCLs. We require support facilities from the bank to enable us to take up yarn exports which can be an effective solution to the problem of overdue PCLs. If the bank could make a more comprehensive assessment of our Export Credit Needs with particular attention to the hardships we endured in the absence of timely assessment, we can commit to ship Terry Towels and other woven and made up products in large volumes as also begin selling direct to consumers on the internet by activating the built in e-commerce features at our website with one of the world's top ecom business web serices, already on the internet

( http://www.whitefieldcotton.net ). We once again request the Chairman to see this website.

The other problem is that interest on PCL is overdue in our account for the first time in 6 years, to the tune of Rs 8.10 lakhs. As advised by our Financial Consultant, we are now focussed on the task of clearing the whole accumulated interest. While it is difficult to fund for even a very minimal level of activity and all other overheads, we are faced with this interest overdue. The the Branch is categorical in its ruling that the interest has to be serviced before we can discuss any of our problems, which we agreed to abide by. We offered to sell one of our family properties to meet with this commitment and the bank urges us to do this. We have made arrangements to sell a property now set aside for the purpose one of family property to bring in additional funds and we are making progress on this front. However this process will take at least one more month as there is a delay in reaching an agreement on the price for the land to be sold. We assure you that we would be clearing all the arrears in interest within one month, once the sale proceeds of our property is received.

The Branch now threatens to issue us a recall notice. If the bank proceeds with the recall course it will only help to kill a promising industrial unit which has been contributing to the nation's export pursuits. We submit that it is unfair to throttle life out of our promising industrial enterprise which can produce certain and significant results.

We are now looking forward to the Chairman's attention, assistance, guidance and support to make this unit realize its promising potential. The recent export policy of the government of India has identified textile export as one of the potential area for development and has announced various concessions and benefits to improve the export performance in the textile sector. The recent report reveals that the textile export is on a growth path and there is wide scope for further enhancement of this trend.

We therefore, request you to consider the following facilities to us:

·We expect the sale of our property to take one month. Please allow us one month’s time to clear the interest arrears.

·We wish to take up yarn exports which would boost our export performance. Please sanction us a back to back inland LC facility to procure yarn and export.

·We wish to be in a position to commit to produce and export terry towels, fabrics and other made ups. If are to make export commitments, we should be in a position to avail additional Packing Credits from the bank. Please examine our requirements in this regard.

·We are now even more determined to proceed with our manufacturing project. Even before we approached SIPCOT we did try to obtain the term loan facilities from Federal

Bank in 1997. We had asked for a Term Loan denominated in Foreign Currency and the Head Office turned down with the observation that the Bank's exposure to foreign currency is limited to a maximum period of 3 years. The Head Office did not offer us alternatives such as a Rupee Term Loan. At present, in order to carry on the production, we needed some balancing equipments. We now request the bank to extend term loan assistance to build up inhouse processing facilities. If this is not possible we request the Bank to grant us minimal term loan facilites that we require immediately to balance our present manufacturing facilites. We are ready to offer additonal collateral securities to cover this limit.

·Eventually we are to go ahead with our plans for a shuttleless weaving and soft flow processing unit. If the bank would prefer not to fund this expansion, we emphatically submit to the Bank to at least allow us to avail the required project finance from any term lending institution like SIDBI or IDBI. The bank has so far been unfavourable to this proposal and we were unable to make progress with our applications to the institutions due to this reason.

The success of any industrial unit depends upon the financial partnership also. If the banks do not understand the industrial enterprise's financial needs and extend timely help, even the most promising industrial units can not survive. We therefore, humbly request you to look into our request favourably and extend your support and guidance to turn this unit into one of the best textile manufacturing unit in South India. Should we get an opportunity, we are ready to make personal presentation about our comprehensive plan personally to you.

We look forward to a broader assessment and a positive response from you. Despite all the problems as pointed out above, the fact remains that it is Federal Bank that sanctioned limits to us to begin our existence as an export company. We are grateful to you for this original assistance and we still believe that a clear understanding of our requirements by the Chairman would enable us to emerge as one of the best performing textile companies.

With warm regards,

Yours truly,

M Sivasubramnaian.DirectorWhitefield Cotton (P) Limited

To: padmakumar@federalbank.co.in From: cotton <cotton@whitefieldcotton.net> Subject: reminder to our request for Chairman's Intervention29 Dec 2001 1.20 am

Erode,December 26, 2001

Mr K. P. Padmakumar,ChairmanFederal BankHead OfficeAluva.

Dear Sir,

This is in reference to our request to the Chairman to review our continuing banking problems with the Erode Branch of the Bank, sent by letter during the second week of December. While we have not received a response from the Chairman, the Branch had subsequently sent a Recall notice allowing us a month to repay the PCL loan, which essentially requires a review for fair enhancement.

Copy of the request to the Chairman has not been marked to the Branch Manager, but it was a coincidence that the Branch sent us a letter after we made our request to the Chairman. However we understand that this letter from the Branch was sent to us in the absence of the Senior Manager who upon return assured us that this was a 'routine' communication. Based on this development, we have refrained from responding to the letter from the Branch in legal parlance.

We are hopeful that the Chairman is considering our request for a comprehensive review of the inadequacy of the facilities extended to us with special attention to how the absence of timely response from the bank has upset our progress and delays our recovery.

We repeat our request for an appointment to meet the Chairman to represent our difficulties in person.

In the meantime we would like to assure the Chairman that we are making all efforts to sell a family property to bring in additional capital to regularize the overdue interest of Rs 8.10 lakhs. On the performance front, we have begun producing a higher range of printed luxury beach towels, which are to be exported through a Merchant Exporter and the orders to be executed by January are of value Rs 8 lakhs. Repeat orders in larger volumes, part of which would be in the form of

direct export orders are expected on completion of this trial order.

We have also been invited to have an international marketing partnership with an American firm with its own production base and several years of marketing experience. Our web site at Microsoft Bcentral is also being continuously improved with better search engine listings and clarity of presentation, and we are beginning to receive active positive enquiries through Internet from major importers.

With our account at the Branch still frozen, we are servicing the orders on hand for new products with difficulty and we request the Chairman to attend to our request to enable us to be responsive to our opportunities as also to ensure that our progress is no longer delayed.

Thank you.

Sincerely,Shiva MuthusamyDirector.

Whitefield Cottons P Limited 389/2 Perundurai Road Erode 638011 India Tel: ++91 424 269853 / 54 / 262285

REGISTERED POST WITH ACKNOWLEDGEMENT DUE

January 23, 2002

To

The Chairman,The Federal Bank Limited,Head Office,Alwva.

Dear Sir,

Sub : Our request for a comprehensive review of our account with your Erode branch, submitted during the second week of December still awaiting your response.

Ref : Our letter to the chairman dated 10/12/2001 sent on 10/12/2001 through DHL Courier

A copy of the communication sent to the senior manager of Erode branch is forwarded herewith to update you with the present status of our constraints.

Thankyou,Yours Sincerely,for Whitefield Cottons P Limited,

Director.

REGISTERED POST WITH ACKNOWLEDGEMENT DUE

January 23, 2002

To

The Senior Manager,The Federal Bank Limited,Nethaji Road,Erode – 638 001.

Dear Sir,

Sub: Whitefield cottons P Limited export performance amidst present financial constraints.

As shown in our email FEDERD@ MD4.VSNL.NET.IN, we are making an export of cotton terry wash cloth a new product, in a trial order quantity of 500 kilo grams to Sri Lanka through our agent at coimbatore, following which confirmation for larger orders are to be received. Also work is in progress for an order for yarn dyed terry beach towels of order value Rs.3.20 lakhs, which would be a deemed export transaction. The production is to be completed in 4-5 weeks. Fonora Textiles, Canada our buyer has sent us his present requirements with some changes in product quality etc.. A part from this we are waiting for bank’s response to review our account for our actual credit needs before we can respond positively to several advanced enquires for export of our products to north America, Eruope and other countries. We urge the bank to COMPREHENSIVELY review our account in the light of the orders and enquires that are unable to entertain as also in the light of the progress that we have made in terms of effective, professional web presence vide www.whitefieldcotton.net .

The trial shipment of 500 kilograms has been despatched to our shipping agency M/S.St.Johns freight systems, Tuticorin and after the documentation formalities at Tuticorin, we expect to receive the documents by this weekend. We will present he documents for negotiation and the proceeds may please be adjusted against the oldest PCL and the same day we will draw a fresh PCL and

issue a cheque for the entire amount eligible towards part-payment of outstanding interest.

We continue to make efforts to sell either one of our Director’s/ Guarantor’s properties at Erode / Theni but there are still delays in reaching an acceptable and reasonable agreement on price. We hope to resolve this task very soon and pay the remaining portion of the outstanding interest, which now remain as the bank’s only focus.

In the meantime we once again submit that our progress is financially crippled because our limits remain frozen at Rs.80 lakhs.

Thank you,

Yours Sincerely,for Whitefield Cottons P Limited,

Director.

Encl : copy of invoices for the trial shippment to M/s.Tharanga Textiles Limited, SriLanka.

March 11, 2002.

To

The General Manager, Reserve Bank of India, Industrial and Export Credit Department, Chennai

Sir,

Sub: Our Export Credit Limit with the Erode Branch of Federal Bank Limited.

Whitefield Cottons is a private limited company established in the year 1995, originally with the object of setting up an export oriented shuttleless weaving unit. The company is a closely held private limited company with two Directors, one of whom (Sivasubramanian Muthusamy) is a Business Management Graduate (MBA) and another (Dr Umamaheswari Sivasubramanian) is a practicing Family Medical Physician. Even before the weaving project is given shape, the company began exporting cotton terry towels and made ups, well ahead of its manufacturing project which is still not commissioned as envisaged for various reasons.

This is a company with very promising and certain growth prospects limited only by want of fair credit facilities from Federal Bank where the company has been banking since 1995 with a Packing Credit Limit at Erode that remains frozen at Rs 80 lakhs since year 2000.

Detailed Executive Summary:

It is important for us to introduce our company and its prospects in its right perspective so as to present a complete perspective of the company's certain prospects that are being limited. A fair introduction would be to request to view our website at http://www.whitefieldcotton.net, effectively set up, and professionally indexed by the major search engines. The website is hosted by one of world's top most e-commerce business web services based in the United States. The company is now e-commerce capable and is standing by for the required facilities from the bank to become one of the

first Indian textile companies to sell direct world wide its products with its own brand name.

The product line began as a mass-produced industrial towel and expanded into terry utility towels to include luxury bath towels, bathrobes and high end fabrics and made ups at present.

Apart from its impressive electronic commerce prospects, the volume of direct business that the company could generate would sound too ambitious to state in this communication, but at least it can be said that the company can generate more than enough export orders from the right buyers. The Director of the company's business travels during the last five years included destinations in USA, Canada, South America, almost all of Europe and some African countries. The Director traveled either as a member of an official Trade Delegation from the Export Promotion Council (once to Africa and once to South America) or on independent business visits to meet with Buyers in USA, Canada or Europe. As a result the company regularly receives enquiries from companies as varied as US textile giants with business volumes of over a billion dollars to smaller importers in USA and elsewhere whose imports are under a million dollars.

It is rare for a company to have strengths both on the marketing and on the technical front. The company is technically gifted, in the sense that the Director has systematically learned the technical aspects of its products as also the technical aspects of plant design and the manufacturing processes complete with a vivid evaluator's understanding of the required machines, the machinery capabilities, the machinery functions and their individual investment effectiveness- not only in Weaving but also in Yarn Spinning, Fabric processing and Finished Product manufacturing.

The company has a Packing Credit Limit of Rs 80 Lakhs, well short of its requirement, secured by collaterals actually valuable well in excess of the limits sanctioned, personal guarantees by the Directors and an additional guarantee by one of the family members, whose property is pledged as collaterals. The company has had an impeccable performance and operational record at the Branch, except for a problem at present, which requires attention by the top management of the bank.

We had no infrastructure at all till early 1999, and we had the products woven, whitened, stitched and baled by subcontractors in various locations. In this style of operation, there were problems related to quality, delivery time, cost over-run, logistics and administrative

control, which included the issue of pilferage. More importantly, our buyer started insisting on in-house manufacturing facilities, as most experienced buyers do prefer.

So in 1999, as first phase, we invested all our DEPB and Drawback gains in land and buildings and plant and machinery, which has now given us a PART of the infrastructure required, to be improved upon:

Land 1.64 acres of prime, developed industrial land in a prominent location: We bought 1.64 acres of land in Sipcot Industrial Area, which comprises 2000 acres of modern and complete industrial infrastructure particularly suitable for Textiles, located 25 kilometers from Erode city center on a major national highway. Rs 8 lakhs paid up and approximately Rs 2 lakhs remains to be paid.

Used Japanese Terry Weaving Machines: We bought 28 imported second hand Japanese terry-weaving machines. All these machines are in good working condition and commissioned 22 machines immediately in rented premises. The rest 6 machines are kept as reserve to meet additional capacity requirements. The value of investment is Rs 15 lakhs approximately.

Supporting Machinery: We also bought a secondhand baling machine, a 40 KVA generator and weft yarn twisting machines required for the weaving unit. These equipments cost us Rs 4 lakhs.

Tailoring Machinery: We acquired 6 powered straight-line sewing machines and 18 powered over-lock machines. The investment is about Rs 1.5 lakhs.

Factory Building: A factory building admeasuring 5000 sq.feet was constructed in a land situated in a prominent place, leased from the Director's family. The cost of the building is about Rs 22 lakhs.

Office Building: Office infrastructure was greatly improved with a newly constructed building of land area 1264 square feet situated in a prime area in central erode. The cost of the building is about Rs 12 lakhs.

All these infrastructure facilities of value about Rs 62.5 lakhs were built up with out availing any term loan as during the period from 1996-97 to 2001 we received DEPB benefits to the tune of Rs.45.44 lakhs and by utilizing a portion of the profits generated.

At this point of time we had a sanctioned term loan limit from Sipcot for Rs 1.5 crores for which the upfront fee of Rs 1.5 lakhs was paid, collaterals pledged, charges created and registered with the Registrar of Companies but the loan was not disbursed, one of the major reasons being the absence of a positive reference from Federal Bank which would neither approve of the term loan from another institution nor would offer the required facilities itself. However the infrastructure created was in line with our original objective of creating a manufacturing facility and it also qualified as margin money brought in from our end towards the project cost, making us even more eligible to avail the term loan.

From Sipcot we could not avail the sanctioned term loan till it transferred all its project finance to its sister institution TIIC. Eventually we had approached IDBI, and later the TIIC, and by now our production requirement as also our increased expertise included textile processing in addition to weaving. We were encouraged by Government's Technology Up gradation Scheme (TUF) for which we were qualified in all respects for a Term Loan of Rs 5 crores at about 10% per annum with a re-payment period of 7 - 10 years and though there was overwhelming initial response at the institution's highest levels at project presentation both the institutions eventually slowed down due to unknown reasons.

The export credit facilities with Federal Bank, Erode branch was a PCL of Rs 15 lakhs and an FUBP limit of Rs 20 lakhs in 1996 that now remains as a PCL of Rs 80 lakhs (frozen) and an FUBP limit of Rs 105 lakhs (all negotiated bills are collected and there are no FUBP outstanding).

With virtually no production infrastructure due to delay in availing term loan facilities, exports progressed and we performed very well during the first 5 years. The figures are as below:

Year Export Sales Profit1996-97 37.38 2.551997-98 150.42 9.751998-99 200.27 19.031999-00 141.14 26.412000-01 113.50 3.12

The business came down since year 2000 due to the following reasons:(Rs. In Lakhs)

We have been shipping our products since 1996 to one company, Fonora Textiles inc., Montreal. We considered it important not to take up excessive commitments before we establish full-fledged, integrated manufacturing facilities. Fonora Textiles has been buying our products in suitably large volumes, and most of our transactions valued at over Rs.1.5 million during the last 4 years were from this company.

The company has been a comfortable buyer to work with and it has been very safe to transact business with this company, but the ordering pattern right from the beginning was prone to seasonality - about 6 months of voluminous off take and 6 months of comparatively inactivity.

The ordering pattern was taken up during a visit by the director of Fonora to visit our company in India in October1999; as a result the ordering pattern was streamlined and made more voluminous and well scheduled.

Fonora Textiles placed a bulk order amounting to Rs. 3.43 crores in November 1999, all to be Letters of Credit transactions. The schedule of shipments was to start in December 1999 with about 65% of the total volume to be completed by February 2000. The export credit enjoyed by us at that time from the bank was PCL Rs.60 lakhs and FUBP Rs. 90 lakhs. These limits were quite insufficient to execute this order out of which exports of about 2.4 crores were to be effected with in the next 90 days as peak requirements (the abs ence of t imely response from the Bank ha s been a chronic prob lem as chronological ly out l ined in th e fol lowing sect ion) . Therefore, we approached the bank with a proposal enhancement of PCL limit to Rs. 1.20 crores. However, the bank did not consider the term loan proposal and sanctioned only enhancement of PCL limit to Rs.80 lakhs.

In the absence of timely response from the Erode Branch, we still took efforts to meet our export commitments by availing market credit for raw material purchases and services, which turned out to be disproportionately expensive and at the same time constrained the quality. Market Credit instead of fair Bank facilities was at an unfair price, at an unfair interest for an unfair quality on unfair terms. Worse, the measures at such a high expense were not enough to fulfill all our export commitments on time.

Though we could not keep up the schedule initially given, the buyer was so kind and considerate that he rescheduled the shipments by extending the delivery period. However, we could not meet even this revised and lightened schedule, as our limits remained emphatically fixed at Rs 80 lakhs without even a marginal flexibility. Whatever funds we were having had been invested in the fixed assets and we could not raise any finance from own sources.

We had submitted the proposal for enhancement in November 1999, but the bank sanctioned the enhancement only in August 2000. By that time the entire order became stale and we could not ship any consignment and the order was cancelled, since the importing company had to buy from other suppliers to meet their requirement.

Cancellation of orders had its own multiplier effect. The damage to the company did not stop with reduction in its turnover and anticipated export profits. The various sub contract units entrusted with weaving, processing and tailoring job works started the work but we could not effect the payment towards their labor charges, again for want of adequate funds. When the PCL of 80 lakhs was sanctioned and disbursed, it was so late and so insufficient that it was just sufficient to meet our commitments to the yarn suppliers and we could not take back the stock lying with the processing units due to paucity of funds. ( In busin ess , in pra ct ice, qui te contra ry to what the theory says , in a s it uati on where the requir ement of funds amounts to, sa y, a hundred thousand - re quir ed TODA Y- and aga ins t thi s requi rement i f fi f ty thousand is made avai la ble a month too la te , the problem does not get hal ved, the pr oblem remai ns as it was, perha ps more in tensif ied because what i s made av ail abl e too lat e dis appears due to problems accumula ted for want of t imel y re sponse. )

In the time that the Bank took to respond to and finally deny our requirements, we incurred heavy loss by way of stocks lying with the processing units, which has now become unusable. Whatever stock could be saved, we recovered and are goods being processed.

Faced with the problems concerning non-availability of a sanctioned term loan, severely restricted export credit facilities which remain frozen at Rs 80 lakhs and a total absence of conduciveness to avail alternate / additional credit facilities, we were unable to perform. There were specific opportunities to have our Export Credit Limits more than doubled by other banks which back-tracked due to resistance from Federal Bank.

The end result is our inability to take up any of the several valuable propositions from companies around the world to import from our company. We require being in a position to fund the required production before we commit to export. What we have taken up at the moment are local merchant export commitments, while we are unable to commit for voluminous and valuable exports.

The bank had considerable role in building up the situation to the present level. There was no timely advice from the part of the bank at any moment of time. There was no effort to understand our financial position and estimate our financial requirements in a realistic manner inspite of our repeated plea for 'a comprehensive review of our requirements'. The bank reacts to our recent non-performance entirely by its excessive focus on its own security of the funds advanced. The advances are more than well secured: the credit limits sanctioned to us are well secured with adequate collaterals; besides, the bank also holds the guarantees from both the directors and one of the family member of the directors. Therefore, there is no need for any alarm by the bank at this stage. The bank's concerns are restricted to its narrow perspective of our short-term difficulties with total silence on its own role in crippling our ability to perform. This is not fair.

Earlier we had a practice of approaching the Regional Office or Head Office direct to represent our problems, which was stopped, as we had to heed the sentiments of the previous branch management. Even as our company was performing excellently during the first few years we had had our share of problems at the Branch and we did understand that there was a review by the Head Office and changes were effected at the Branch level. The present branch management has been considerably more businesslike, but paradoxically, these branch level changes have created excessive caution as far as this Branch was concerned and even the fact that our account happens to be at the problem – prone Erode branch might have affected our banking opportunities.

Even now, the bank is not considering certain ways of reviving the unit making it a viable, profitable high performing unit in the pattern of its earlier growth trend until the unit faced its export credit problem.

We have now sought the assistance of a financial consultant and he is working on a comprehensive plan.

We are faced with two distinct problems: one is export performance for which we have substantial potential and avenues unexploited for want of funds. If the bank could make a more comprehensive assessment of our Export Credit Needs with particular attention to the hardships we endured in the absence of timely assessment, we can commit to ship Terry Towels and other woven and made up products in large volumes as also begin selling direct to consumers on the internet by activating the built in e-commerce features at our website with one of the world's top e-com business web services, already online (http://www.whitefieldcotton.net). Also,we can immediately start export of cotton yarn, which is less profitable but can boost our performance immediately. We had asked for a supportive commitment from the Branch to enable immediate yarn exports and the Branch has so far not committed on this. If the bank had enabled yarn exports we would have considerably brought down the over due PCLs to recently drawn PCLs. We require support facilities from the bank to enable us to take up yarn exports, which can be an effective solution to the problem of overdue PCLs.

The other problem is that interest on PCL is overdue in our account for the first time in 6 years, to the tune of Rs 8.10 lakhs. As advised by our Financial Consultant, we are now focused on the task of clearing the whole accumulated interest. While it is difficult to fund for even a very minimal level of activity and all other overheads, we are faced with this interest overdue demand. The Branch is categorical in its ruling that the interest has to be serviced before we can discuss any of our problems, which we agreed to abide by. We offered to sell one of our family properties to meet with this commitment and the bank unhesitantly urges us to do this. We have made arrangements to sell a property now set aside for the purpose to bring in additional funds and we are making progress on this front. However this process has taken longer than anticipated, as there is a delay in reaching an agreement on the price for the land to be sold.

The details related to our requirement of funds and the bank's response or the absence of it, in chronological order: We incorporated this company in June 1995 with the object of establishing an export-oriented, modern shuttleless weaving unit, to expand into an integrated textile-manufacturing unit. While the manufacturing project was in the process of being planned, an earlier preliminary business travel resulted in an export order from Fonora Textiles, Canada through a contact based in London.

The letter of credit was from the Bank of Montreal for US $ 57,400 for a shipment to be sent within the next 6 weeks and with this document on hand to begin our exports, we approached Federal Bank Limited on 08/03/1996. The Bank was responsive and by 15/03/1996 vide sanction order no.30374 a temporary, one time Packing credit Limit of Rs.15 Lakhs as PCL (and Rs.20 Lakhs as FDBP) were sanctioned. We have remained repeatedly expressive and thankful to the bank since then with the understanding that it was possible to jump-start as an export business partly because of the bank's responsiveness to the first opportunity that we had to export. To secure this temporary Packing Credit Limit of Rs 15 lakhs, we had lodged a collateral security of a building of area 1020 square feet in the central commercial area of Erode and completed all documentation formalities. The formalities of confirming the temporary limit as permanent extended till mid-may 1996 due to an error in interpretation of the description and area of the collateral offered. The actual area of the property was 1020 square feet, but was recorded by the Branch Manager in his report sent as part of the application to the Regional office as 1000 square feet. This was objectionable and in addition, the legal department at regional office found reason to consider 159 square feet out of 1020 square feet to have an insufficient property description. We presented a clarification relating to the description of our property vide our letter to branch dt.15/05/1996, as also another legal opinion related to this specific point. It was also represented in the same letter that the property offered was several times as valuable as the value taken by the branch manager and it was requested that a grade IV officer may be deputed to inspect and value the property. By this time orders on hand and orders under negotiation increased, so the company requested by its letter dated 15/5/96 enhancement of PCL to Rs.45 lakhs along with proposals for an ad hoc, interim term loan of 6.89 lakhs for a tailoring unit which was not entertained. With this request pending we had to offer an additional property of 6000 square feet, which was conservatively valued by branch as a property of value Rs.59 Lakhs.

The branch had taken the property as additional collateral security instead of as a substitute for very valuable and legitimate property of 1020 square feet. Which was already lodged with the bank. We asked the first property of 1020 square feet to be returned but the bank refused to do so. There was a verbal assurance given by the branch

that a comfortable value of collateral would enable the bank to sanction enhancements required and other future requirements quickly. After 9 weeks, the regional office made the temporary limit permanent, without considering our request for enhancement, by its sanction order no.30398 SL.No.MDSR/PF 1149/gad/287/96 dated 22.5.96 as a non-priority advance. Eventually during November 1996 we submitted a proposal for installation of 12 Shuttleless weaving machines from Switzerland made by Sulzer Ruti AG in two phases (6 machines in phase 1 and another 6 machines in phase II). In phase I we requested a term loan of 216.68 lakhs, out which 107.46 lakhs was requested as a US Dollar denominated term loan. The branch manager sent us a query during Dec’96 seeking clarification relating to the net worth of the company, net worth of the promoters etc.. All the particulars called for by the branch were elaborately presented vide our note to the branch manager dated 22/12/1996.

Eventually the director of the company paid a visit to the Head Office at Aluva, Kerala to meet with officers in foreign exchange department and further elaborated on the project proposal. Subsequently on 31/12/1996 detailed financial workings were submitted explaining debt service coverage ratio etc., but the bank eventually turned down the proposal with simple observation that “ The banks exposure to foreign currency risks is limited to 3 years”. This was the reason cited and the message was clear that the Bank was not inclined to take up the proposal.

The PCL sanctioned remained at the same level until the middle of 1997 but the branch imposed procedural restrictions even about availing the Rs.15 lakhs sanctioned to us. On 27/04/1997 we had shown our workings to the bank that our PCL requirement was, based on simple calculations, Rs.52.78 lakhs. Again on 20/06/1997 we submitted our proposals for enhancement with detailed financial projections and workings to request for PCL to be enhanced to Rs.45 lakhs (and FUBP limit to Rs.60 lakhs seeking a total of Rs.110 lakhs). The Assistant General Manager of the foreign exchange department of the Head Office vide sanction order S.No.10616 (FEX 18-8/ PF 7087 dt.22/10/1997) sanctioned PCL as Rs.25 lakhs including a sub-limit of PCL against orders not back by LC of Rs.15 lakhs (and an FUBP Rs.45 lakhs giving us a total of Rs.70 lakhs as a overall limit).

It was pointed out by our letter-dated 05.11.1997 that the limit sanctioned was insufficient. The orders to be executed with in the next 3 weeks amounted to Rs.40 lakhs and apart from this the additional tentative shipping schedule for the next 7 weeks

amounted to Rs.37 lakhs. By the same letter we requested the bank to consider our representation for enhancement to the level as requested to a PCL of Rs.45 lakhs (and FUBP limit of Rs.60 lakhs). The branch also conveyed to the Regional Office that the borrowers were not satisfied to the new limits sanctioned to them.

After 7 months the Regional Officer partially considered to our request vide sanction letter MDSR/MLS/-/98/dated 15.06.1998 by temporary enhancing PCL to Rs.38 lakhs for a period of 2 months and (FUBP/FDBP limit to Rs.60 lakhs for a period of 3 months). We explained the nature of our requirements once again drawing attention to the fact that our original requirements to enhance the PCL to Rs.75 lakhs (and FUBP proportionately).

After repeated representation the Regional Office on 10/11/1998revalidated the temporary limit again as a temporary limit without further enhancement and revalidation was to be valid up to 31/01/1999. In the mean time the conditions stated in sanction orders were to be complied with.

By our letter dated 03/11/1998 we submitted that we had achieved 2 times (200%) of the turnover projected after obtaining the temporary limits. It was shown that orders on hand for the next 6 weeks amounted to US $ 150,000 and order of approximate value US $ 500,000 were expected to the confirmed for the next 6 months. Stating that our requirement for funds were on the order of Rs.75 lakhs as PCL we requested the Regional Manager to at least revalidate the temporary PCL and FUBP sanction immediately.

It was very clearly stated that the current level of Rs.38 lakhs of the PCL was too insufficient to process even half the orders on hand. It was emphatically stated as follows:

“ Unless the desired levels of credit limits are [not] sanctioned immediately, it may not be possible to implement the orders on hand and maintain the reputation so for created by us with our Buyers. This note may please be treated as extremely urgent.”

Until Dec 1998, our performance, with all these banking constraints was as follows: 1996-97 US$ 106,600

1997-98 US$ 361,8521998 (Apr-Dec) US$ 395,850 (for 1998-99 the total was US$ 473,476) Achie va ble Export Sal es for the foll owi ng 12 months was esti mated with a basi s as US $ 900,000, but the ba nk did not make the funds ava il ab le on t ime.

We pressed for a limit of Rs 75 lakhs as originally requested, and the Bank sanctioned Rs 45 lakhs during December 1998, which we refused to accept. Orders on hand for the next 6 months amounted to US $ 340,525/= .The Buyer during a visit by the Director to Canada had indicated an off-take of as much US $ 700000. This together with definite prospects of exports to Argentina, Brazil and USA were discussions were held with important Buyers during the Buyer-Seller meets led by the Additional Textile Commissioner who was also the Executive Director of the Export Promotion Council.

All this was stated in our communication dated February 3 1999 and it was emphasized that "in terms of direct face to face contacts the company had as many as 200 [ short-listed ] Buyers to work with" which was enough of a base to build up an “Export House”

The cycle time and profitability issues were presented and elaborate workings were shown to press for a PC limit of Rs.75 lakhs (and an FUBP limit of Rs.110 lakhs).

Attention was drawn to the procedural problems experienced at the branch and the bank was requested to minimize procedural difficulties and make the PCL and FUBP limits flexible. Required papers and working were submitted along with.

[By this time, in the absence of term loan support, the company had built up an in house tailoring unit, an electric baling machine, office assets as also built up a prime office building, a factory building and had also acquired 28 shuttle weaving machines to weave terry fabric].

The director met with the Assistant General Manager at Chennai on 9th March 1999, and on the following day a letter was sent on 10th March 1999. One of the Bank’s concerns at this point of time was that the company had obtained a sanction from SIPCOT for a Term

Loan of Rs.150 lakhs. The details of the sanction were presented in the letter dated 10th March 1999.

It was clarified that the collateral security lodged with SIPCOT was different from the security offered to Federal Bank. It was also explained that the term loan was not availed. Attention was also drawn to the fact that the term loan sanction from SIPCOT was for the very project proposal that Federal Bank did not entertain. Following this meeting the bank insisted on an assurance that we will not avail the sanctioned term loan from SIPCOT without the approval of Federal Bank. So on 26/03/1999 an undertaking of seven points as suggested by the bank including "We hereby undertake to “inform” M/S. Federal Bank Limited before availing the above said term loan by M/S. SIPCOT limited, Chennai."

The undertaking was enforced on us even after it was clearly shown that we had already qualified for the term loan and that the source of additional promoter’s contribution was external to the current sources and that the collateral security offered was a different property as distinct from the collateral security offered to Federal Bank, for the existing Rs.38 lakhs limit. After all these assurances that the bank was awaiting for, Rs.60 lakhs as PCL was sanctioned (and a FDBP / FUBP limit - the bank never allowed us to do business on non L/C terms- of Rs.75 lakhs), vide sanction order no.00097 /MDSR /PF/1353/FEX/69/99 dated 30/03/1999.

Out of the Rs.60 lakhs the bank required the actual L/C document on hand to avail Rs.10 lakhs out of Rs.60 lakhs, which rendered the sanction effectively as a sanction of Rs.50 lakhs with procedural strings attached to the remaining Rs.10 lakhs. In reality, all orders that we accepted at that point of time were on L/C terms, but by practice L/C document was never received before the actual time of shipment. (FDBP was to be granted, as per the terms of the sanction against L/C / Orders and FUBP was to be granted against L/C Only. FDBP / FUBP together amounted to Rs.75 lakhs but in practice the company was never allowed to avail the FUBP sanction because the bank refused documents even when there was proof that the L/C was in transit.)

Procedural formalities as usual delayed the usability of the sanction and even as on 5th April we were submitting requirements for special permission to avail loans of amounts as low as Rs.2 lakhs when the sanction was for Rs.60 lakhs, within the limit sanctioned.

With regard to the FDDP sanction the bank not only refused to encourage exports on non L/C terms, but even with our existing buyer, even with an L/C on hand, the bank resorted to treating the bills as eligible merely for the RABC facility.

RABC was a so-called facility by which the bank sent the bills for collection, without treating the bills as purchased. RABC reduced the drawing power not only from the FDDP/ FUBP limits, but also affected the drawing power of the PC Limits, to the extent of the value of the bills treated under RABC.

A shipment of Rs.832, 986 was treated as RABC on march 3, 1999 and the branch chose to “hold” the amount even as on May 5,1999 when we wrote to the AGM, also informing him that the company had received confirmation that the Buyer cleared that goods and accepted the documents as per terms of the L/C. It was pointed out that we also had an ECGC limit of Rs.15 lakhs for our Buyer to meet contingencies like this transaction (ECGC cover was insisted upon by the Bank - one cover for Export transaction risk with a 0.19% premium paid directly by us even for secure L/c based transactions and another cover to secure the Bank's PCL risks for which the Bank charged premium to our account as remitted.) The Rs.8.32 lakhs transaction It was actually an L/C transaction treated as a non L/C transaction by the bank. Documents were mailed to the Bank of Montreal invoking the terms of the Letter of Credit, but treated as RABC locally. After several meetings and written communication we were allowed to avail the Rs.8.32 lakhs during the third week of May 1999.

This sanction came not before we troubled our buyer to ask the Bank of Montreal to send a telex message to Federal Bank stating that the payment was due on may 21, explicitly stating “you may release reserve, if any”. (It has always been our responsibility to verify the status of payments by the Bank of Montreal through our Buyer. The Bank seldom followed up on the Bills negotiated.)

While our progress improved from US $ 106,600 in 1996-97 to US $ 473,476 in 1998-99 a four-fold growth of performance in 3 years (in spite of all the banking problems) the bank had:

· Refused to consider a promising proposal for creating manufacturing facilities

· Blocked us from utilizing a term loan of Rs.1.5 crores sanctioned by SIPCOT

· Took our 180 days to partially concede to our requirement as PCL of Rs.75 lakhs

· Took 700 days to fully sanction our requirement in full, by white time the sanction was too little.

· Prevented us from moving to any other bank, which could have more responsive. (On record the Bank blocked South Indian Bank from granting us a Packing Credit and Cash Credit facility totaling Rs 160 lakhs during August 2000. Earlier State Bank of India offered Rs 120 lakhs prima facie, but the following day there was a complete overturn, and when pressed for a reason there was an inquisitive discussion on our relationship with Federal Bank with a particular reference to the Branch Manager who had been transferred.)

· IDBI, Coimbatore returned our detailed project proposals prepared in the required format with elaborate workings seeking a Term Loan of Rs 5 crores verbally assigning the reason that IDBI's experience with Terry Projects have been unpleasant, all the Terry Projects taken up by IDBI, not only from Coimbatore, but from around the country invariably failed. It is not known if Federal Bank had offered a opinion to IDBI, Coimbatore.

The PCL request for our financially determined requirement of Rs 75 lakhs was originally submitted on 22/09/1998. The bank by its sanction dated 30/3/99 sanctioned Rs.60 lakhs, which by itself was not a clear useable limit. It further took disbursal delays. It was only on 23/08/2000 that the bank sanctioned limits as requested at Rs.80 lakhs (by which time we had received a series of time-sensitive orders totaling Rs 3.43 crores, which pushed our requirements to as much as Rs.160 lakhs of Packing Credit). The bank effectively took approximately 700 days to respond to our requirement by which time we had lost several orders for want of funds, lost our reputation for timely execution of order accepted, incurred higher cost of production, incurred overheads non- productively and had our growth prospects badly hurt. Enough and more damage was done to our finances by all the time delays. Time delays by the bank in processing our requirements was the primary reason why our shipments were delayed, and led to a slowdown in performance. The bank did not acknowledge its own role in our reduced performance when it sent an advance letter on 04/11/1999 that one of the packing credit loan amounting to Rs.3.75 lakhs drawn on may, 18,1999 would fall “Overdue” as it would reach 180 days two weeks hence, on 18/11/1999. (This was eventually closed on 3/12/99)

By October 1999:

· we had commissioned 22 out of 28 terry weaving machines and the machines were operational.

· Our factory building for the tailoring unit of 5000 square feet was built up with 24 sewing machines and an electronic baling machine operational.

· Our buyer from Canada visited us at Erode and we discussed various aspects for a week.

Our performance was ALL SET to leap up with orders placed on Nov 5, 1999 by our Buyer alone amounting to US $ 803,750 (equal at the day's exchange rate to Rs 3.43 crores) to be shipped out during January - October 2000 vide purchase order EA No.5133, 5134 and EA 5135 confirming terms of payment as L/C 30 days. The orders were for 10 x 40' container volumes of shop towels (3000 bales), 30240 units of 3 ply Diapers and 1,36,260 dozens of Terry Towels.

All of the orders placed were of revised specification, so goods were to the produced afresh, and it required swift action. These records were immediately presented to the bank and nothing happened for 3 weeks.

By our letter to the bank dated 26/11/1999 it was shown that Rs.2.3 crores out of Rs.3.4 crores worth of orders were to be shipped within the next 120 days.

As on this date our PCL still remained as Rs.60 lakhs with immense procedural difficulties preventing us from availing even the Rs.60 lakhs sanctioned in full. To execute the orders on hand of Rs.3.42 crores -out of which 2.4 crores worth of goods were to be shipped with the next 120 days- we required sufficient limits ( our requirement was verbally explained as a PCL of at least Rs.160 lakhs) to be made available, and we even proposed that the limits be sanctioned as temporary limits, in order to make the bank feel comfortable.

The bank was silent. Nothing happened until Jan 14, 2000 and the Buyer was alarmed by the production delays (that resulted from the bank’s irresponsiveness). Eventually we agreed for a reduction in the volume of goods ordered as follows:

Reduction in Quantities:Terry Towels agreed as 93150 doz in place of 136,620 doz.Shop towels agreed as 2040 bales in place of 3000 bales

Delivery Schedule :Terry Towels: extended by 30 days.Shop Towels: extended by 5 week

The Revised schedule was submitted to bank and on 29/02/2000 we pointed out that the orders on hand far-exceeded the available limit of Rs.60 lakhs. Even at this time we were making requests and special requests to make the Rs.60 lakhs fully available.

[While we were servicing our production requirements part by utilizing facilities in-house and part by sub-contracting our production process, our infrastructure needs were increasingly felt time and again it was pointed out to the bank that quality and cost factors make it imperative that we build up in house facilities.

With the term loan from SIPCOT still unutilized, the company wished to make use of a unique opportunity made possible by a special fund for Textile Industry Modernization called TUF scheme announced by the government of India. By this scheme Rs.25, 000 crores were made available for funding textile modernization. Longer repayment periods at 5 % lower rate of interest and a highly encouraging funding environment together constituted an opportunity for us to seek funding under TUF .Our technical expertise and understanding of manufacturing technology and processes now covered spinning, yarn dyeing, Fabric weaving, Terry Weaving, Fabric processing, tailoring / garment making. By this time direct contacts were established due to participation in two separate trade delegations - one to African countries and another to Latin American countries. The Director of the company had also traveled to the United States, Canada and several European countries three times and in all these destinations, businessmen in the same line of business were met with, samples presented, requirements examined, discussions were held on pricing and supply position. During these several visits it emerged that it was essential and attractive to have full fledged manufacturing facilities in order to be attractive as also be competitive and profitable. With a vendor-reliant operation, it was proving extremely difficult for us to control quality parameters and delivery commitments and more than a due share of profits were parted with. It became evident that our own

integrated manufacturing facilities would enable us to comfortably commit for higher volumes of orders, for high value products and retain larger profits due to in-house value addition for which we were technically knowledgeable and competent. We also had a need for infrastructure in order to optimally produce for existing buyer's requirement. With exhaustive first hand knowledge about plant and machinery required for weaving and processing (The Director has had a practical orientation to manufacturing technology and has visited a technical exposition with operational machines in Italy for 11 days; several plant visits in India and abroad followed. It is necessary to state here that the Director of the Company has acquired enough knowledge to design a factory and determine the machine layout for a manufacturing plant; he could evaluate and choose an optimal line of modern machinery as good as an experienced Technical Consultant; has been extensively negotiating with machinery suppliers from the world over as also kept in constant contact with several renowned dealers of pre-owned machinery from around the world.) We proposed an integrated, modern, export-oriented shuttleless terry weaving and processing plant of project cost Rs 558.25 lakhs, to be implemented in two phases so as to make the bank feel comfortable about the risk perceived. A fairly accurate project cost summary and preliminary papers were submitted on 18th April 2000]. The same day we presented detailed workings outlining the orders on hand from our Buyer also indicating anticipated orders from a larger United States company. Our conservative estimate of achievable turnover was Rs 4.5 crores for the following 12 months. We sought Rs 120 lakhs as a Packing Credit Limit and Rs 120 lakhs as FUBP limit. We requested the bank to appraise with "a total and complete understanding of our needs" The proposal for funding under TUF (which fully qualified fro IDBI refinance) was not taken up by the bank. Nor did the bank act upon our packing credit requirements. Limits sanctioned remained unaltered and remained firmly inflexible. Even on June 4, 2000, we were making special requests to the bank to allow us to overdraw by Rs 50,000 over and above our sanctioned limits of Rs 60 lakhs. Such contingencies are considered part of business and it is a practice of good banks to trust the branch management with discretionary ad hoc sanction powers of up to 25% of the sanctioned limits over and above the limits sanctioned by the sanctioning authority. Whether or not this Branch had such powers is unknown, but it was always maintained that the Branch Manager couldn’t alter the limits

sanctioned by a higher authority than the Branch Manager, even marginally. This has been the position of various Branch Managements, which made the limits inflexible. Again during April 2000 the bank was concerned about our Term Loan sanction from Sipcot, so we assured the bank we have not availed the term loan, that it was under reappraisal and that we wished to have all our financial needs met by the Bank. We further requested the bank to appraise our proposal for term loan. As on 3rd July we were still in a situation wherein we had to submit a special request even to overdraw by Rs 1 lakh. On July 11, 2000 we clarified the bank's queries with emphasis on the production cycle time. [The concept of Production cycle and working capital requirement in Textile Industry, which is one of our nation's backbone industries, is expected to be understood by the lending institutions, as there have been several studies on the subject by the Reserve Bank of India and other Government bodies. For instance the Tandon Committee Norms on working capital finance clearly spell out probable requirement in terms of number of days of inventory holding for inventory in various stages of processing. Various lending institutions have accepted this as a guideline. The bank raised queries after queries about our production cycle time, seemed not to unders tand the concept of production cycle t ime and we over and over again prepared papers after papers to show and illustrate the number of days / weeks of inventory required in the form of Raw Material, Work in Process in Warping, Work in Process in Weaving, Work in Process in Processing, Work in Process in Tailoring and in the form of Finished Goods. The bank chose not to take note of the actual requirements.] Again in the same letter dated July 11, the bank's concerns about our Term Loan from SIPCOT were answered. Orders on hand and prospects were shown again and our request to enhance the limits to Rs 120 lakhs of PCL and Rs 120 lakhs of FUBP was repeated. By the time the sanction was issued by the Foreign Exchange Department of the Head Office vide sanction order number 0136 dated 23/08/00/ERD/MDS sanctioned a PCL of Rs 80 lakhs and FDDP/FUBP limit of Rs 95 lakhs. On 30/8/2000 the bank completed documentation formalities (every time there was any change in the limit, be it temporary or permanent, fresh agreements were elaborately signed and fresh documents executed)

What was our requirement 2 years ago was sanctioned and by the time it was too little, too late. Our shipment schedules were badly hurt, our Buyer's prospects were damaged, our reputation as a dependable supplier was damaged and it was well past time to retain the orders of Rs 3.4 crores paced in November 1999, which required as much as Rs 160 lakhs of PCL alone. 80 lakhs was granted after all the time elapsed for the time-sensitive valuable orders that could have elevated us into much higher position considering the fact that our growth had been four fold in the first three years. The sanction did not come in Nov when we had 3.4 crores of orders, it did not come when our buyer revised the quantity downwards with an extended schedule on January 14, 2000. Even by the revised schedule the whole series of shipments were to have been largely completed by July 30, 2000 (latest possible date of shipment as agreed in order to "arrive in Montreal on15th September". What remained when the sanction was issues was one container of shop towels of value Rs 19 lakhs. It was as if the bank was waiting for the orders to elapse before a semblance of facilities was granted. The damage was done. The delay in sanction and the insufficiency of it hurt our prospects and the damage spilled over to affect our Buyer's prospects. Even then on February 7, 2001 a fax message was received that the Buyer could take three more containers of terry towels and one container of shop towels of approximate value Rs 50 lakhs. There was a sharp note that "it was important for us to know if the above schedule can be respected". The schedule given allowed no room for confirmation. The first two containers of terry towels required allowed virtually no time for production, but the remaining one shop towel shipment and one terry towel shipment were completed as under: February 7, 2001 - shop towels shipped for US $ 43,680March 8, 2001 - terry towels shipped for US $ 23,595.

I t re quir ed sever al vi si ts to the bra nch, a few visi ts to the Regi onal offi ce and Head off ice, over 400 ela borate, t im e consuming letter s , sever al fa x and emai l messages to obtain , ava il and operate the li mit ed l im it s , which

were al ways too li ttl e , too lat e , with total di sregar d to our capa bil it ies , performance, growth record an d prospects . The ba nk was cr ip pl in gly conserva t iv e and far too secur it y or iented.

What ought to have been less than a clerical work, required the Company Director’s direct involvement, taking his time away from valuable and important matters to unnecessarily imposed compelling banking formalities, which not only wasted valuable time and diverted focus, but kept the financial position uncertain – ALL THE TIME. Procedural difficulties were such that for the first 18 months of operation the company had a practice of transferring packing credit loan in lump sums of Rs.10 or 15 lakhs when the actual requirement for the dayWas Rs.1 or Rs.2 lakhs so to say.

To av oid uncerta inti es , we trans ferred lar ger amounts at one st roke to our curr ent account at the sa me branch, which did not pay interest for the interest-charged PCL transfer. This was to avoid uncertainties and unwanted unforeseen objections by the branch citing trivial imaginary procedural problems. The bank did make administrative changes at the Branch level, by way of transferring one officer and one Manager, but after three years of procedural hardship and arbitrary demands, the new Branch Manager was posted perhaps to restore the Branch Administration and in complying with this requirement for this Branch which required a lot of administrative attention, the new Branch Manager was perceivably far too cautious and conservative. The excessiveness in caution reflected badly on our account which had suffered from the absence of such discipline at the Branch level for 3 years. Our prospects were hurt in the absence of order as also because of excessive order at the Branch level. The limits granted by the Head Office at Rs 80 lakhs was kept frozen by the Branch Management when we had a dire need for a certain flexibility in operation. Every time limit was temporarily sanctioned and every time the temporarily sanctioned limit was made permanent and every time there was an enhancement some kind, elaborate legal/documentation formalities were carried out which by itself was time consuming and time delaying process. All along our communication with the Bank has been vivid, expressive and exhaustive, be it in personal meetings at the Branch or Higher Offices, or in the form of written communication by letter, fax or email, or in the form of a proposal with detailed

workings. Th e bank was completely awar e of our requir ements of the lev el of funds tha t we re quir ed to servi ce the or ders on ha nd ; the bank was aware tha t our pr oducti on was incr easi ngly del ayed for want of funds; the bank knew that we were trying to compensate for the absence of bank's support by resorting to the relatively expensive market credit; that our choice of suppliers were limited when we required supplies on credit; that it was expensive for us to maintain even a part of our delivery commitments, expensive for us to maintain quality on credit terms - The ba nk knew al l thi s an d more . The bank chose to disr egard our requir ements an d the busin ess on ha nd an d the prospects were hur t and damaged. For the past 18 months we have been requesting the bank to assess our requirements comprehensively and the Bank does not pay attention. A letter was addressed to the Chairman on 10th December 2001 direct by email to the Chairman's email address and a copy of it sent by courier, and reminders were sent to follow up and there is no response from the Chairman of the Bank.

The Branch now threatens to issue us a recall notice. If the bank proceeds with the recall course it will only help to kill a promising industrial unit, which has been contributing to, the nation's export pursuits. We submit that it is unfair to throttle life out of our promising industrial enterprise, which can produce certain, and significant results.

We are now looking forward to attention by the top management of the bank, assistance, guidance and support to make this unit realize its promising potential. The export policy of the government of India has identified textile export as one of the potential area for development and has announced various concessions and benefits to improve the export performance in the textile sector. Various studies reveal that there is wide scope for further enhancement of textile exports. On the overall export front, the current economic survey points out the dismal performance of the export sector in our country. The export growth is only 0.3 per cent. We need to export more but if the banking system does not support the exporters with a positive approach, our exports can not increase. Instead of providing an impetus, the approach of banks like the Federal Bank thwart the existing potential for exports.

We emphasize that:

· The company has put forth substantial efforts to expand its market. Its website www.whitefieldcotton.net is being increasingly noticed by many prospective textile buyers from around the world. Through the Internet the company is receiving valuable enquiries every day.

· We have built up some infrastructure facilities. But because of the unhelpful attitude of the bank we are unable to do optimally utilize the infrastructure built up. Besides the bank does not allow us to make the facilities more integrated and modern, despite the Government's thrust in the form of schemes such as the Technology Up gradation Fund. On the other hand, the bank is throttling us by keeping our limits frozen. This amounts to extinguishing our business, though it is neither in our company's interest nor in the bank's interest.

· We are now even more determined to proceed with our manufacturing project. Even before we approached SIPCOT we did try to obtain the term loan facilities from Federal Bank in 1997. We had asked for a Term Loan denominated in Foreign Currency and the Head Office turned down with the observation that the Bank's exposure to foreign currency is limited to a maximum period of 3 years. The Head Office did not offer us alternatives such as a Rupee Term Loan. At present, in order to carry on the production, we needed some balancing equipments. We now request the bank to extend term loan assistance to build up inhouse processing facilities. If this is not possible we request the Bank to grant us minimal term loan facilities that we require immediately to balance our present manufacturing facilities. We are ready to offer additional collateral securities to cover this limit.

· Eventually we are to go ahead with our plans for a shuttleless weaving and soft-flow processing unit. If the bank would prefer not to fund this expansion, we emphatically submit to the Bank to at least allow us to avail the required project finance from any term lending institution like SIDBI or IDBI. The bank has so far been unfavorable to this proposal and we were unable to make progress with our applications to the institutions due to this reason.

· Our liabilities have become overdue. We are making arrangements to clear all the interest liabilities. The proposed sale of the family owned property is taking time to materialize. The company requires time to pay up the interest, especially because it is now family owned/generated funds that meet the present overheads

and maintain minimal operations in the absence of our inability to accept valuable orders.

· We proposed to take up yarn exports, which would boost our export performance. When facilities were sought giving various options for the bank to consider, the bank chose not to take notice and let the opportunity slip by. We would like the bank to give us a commitment that it would facilitate yarn export transactions.

· We wish to be in a position to commit to produce and export terry towels, fabrics and other made ups. If are to make export commitments, we should be in a position to avail additional Packing Credits from the bank.

· What is required is a comprehensive assessment from the Bank of our capital and credit needs. We have been making this request for over a year now. At the moment any fresh order accepted requires fresh production and additional funds. The absence of support, even at this delayed stage, would degenerate a prosperous establishment with a promising growth potential. A comprehensive solution to the present cash flow difficulties and the infrastructure needs is sought from the bank.

· We have appointed an experienced financial consultant to prepare a comprehensive revival plan, which is already prepared as a draft. We are in the process of finalizing the plan. We require the Bank's support to present and implement the plan.

The success of any industrial unit depends upon the financial partnership also. If the banks do not understand the industrial enterprise's financial needs and extend timely help, even the most promising industrial units cannot survive. The bank's support and guidance is required to turn this unit into one of the best textile-manufacturing unit in South India.

We look forward to a broader assessment and a positive response from the bank. Despite all the problems as pointed out above, the fact remains that it is Federal Bank that sanctioned limits to us to begin our existence as an export company. We are grateful to the bank for this original assistance and we still believe that a clear understanding of our requirements by the top management would enable us to emerge as one of the best performing textile establishments in India.

We had presented the case in detail to the Chairman of the bank through our letter dated December 10, 2001. But we have not received a reply, not even an acknowledgement from the Chairman, despite reminders. The bank is now hostile and refuses to extend support. The bank is not assuming the advisory role expected of it.

We are very eager to perform, expand and clear the bank’s liabilities and contribute to the country’s export growth. We are therefore, approaching your office to interfere and advise the bank to be reasonable, consider our financial requirements, associate with us in preparing a revival plan and encourage us and enable us to become a significant contributor to our nation's economy.

We request a positive and timely response.

Yours faithfully, For Whitefield Cotton Private limited

M SivasubramanianDirector Cc to:

1. The Hon’ Minister of Commerce, Government of India, New Delhi ( with a request to intervene)

2. The Hon’ Minister of Finance, Government of India, New Delhi 3. The Hon’ Minister for Textiles, Government of India, New Delhi4. The Textile Commissioner, Mumbai (with a request for his immediate intervention

to solve the problem) 5. The Governor, Reserve Bank of India, Mumbai 6. Shri K P Padmakumar, Chairman, Federal Bank Limited, P B No. 103, Head Office,

Aluva 683 101

Email 31 Aug 2003 1 52 pm

To padmakumar@federalbank.co.incc chsec@federalbank.co.in, mdsr@federalbank.co.in, rswamynathan@hotmail.com

Sir,

Please pay attention and make the required amends.

Thank you.

For Whitefield Cottons P LimitedShiva MuthusamyDirector.

Date: Wed, 13 Aug 2003 14:37:29 +0530To: padmakumar@federalbank.co.inFrom: cotton <cotton@whitefieldcotton.net>Subject: Reminder 1: our account with your Erode Branch.Cc: chsec@federalbank.co.in

with a copy to the Chairman's Secretariat at the Bank with a request to remind the Chairman that this matter is pending his attention.

Shri PadmakumarChairmanFederal bank LimitedAluva.

Sir,

The following letter, sent both by email and by Registered Post is pending your acknowledgement and response since July 17, 2003. This is concerning a matter taken up with you as Chairman as the Head of the Bank which is pending your attention and acknowledgement since 10th December 2001.

Delays and omissions by the Bank has caused us considerable hardship and because the bank is still delaying appropriate corrective remedies for its omissions, our losses are further increasing and our troubles are intensifying.

We hope that the bank is forthcoming at least after all these delays.

Thank you.For Whitefield Cottons P LimitedShiva MuthusamyDirector.

Date: Thu, 17 Jul 2003 22:04:47 +0530To: padmakumar@federalbank.co.inFrom: cotton <cotton@whitefieldcotton.net>Subject: our account with your Erode Branch.

Shri K P PadmakumarChairmanFederal Bank LimitedAluva.

Dear Sir,

Our company has been banking with your bank since its commencement of business in 1996 and had made steady and consistent progress till year 2000 availing packing credit limits from your Erode branch well secured with collaterals and guarantees. From time to time we were facing various problems with regard to the assessment and review of our credit needs as also due to various procedural hurdles and administrative irregularities at the branch level with three consecutive branch managements.

In particular the bank restrained us from executing a bulk order for Rs. 3.43 crores in November 1999, by delaying assessment of our request for the required limits while simultaneously preventing us from moving to any other bank. At about the same time due to this uncertain attitude of the bank we could not take up another major order from an American Company which was even more valuable.

The bank had frozen our limits and this completely reversed all the progress that we had made during 1996-2000 and incapacitated our business causing loss of revenue and profits apart from completely hurting our prospects.

The various details have been summarized in our request for a comprehensive review of our accounts by a detailed and elaborate letter addressed to the Chairman on 10th December 2001, which was a step taken to bring the chairman's attention to how the bank's practices and the branch level hurdles were hurting our business prospects.

We waited for your response which was not forthcoming despite repeated reminders so a year later the matter had to be taken up with Reserve Bank of India. Later the Writ Petition (No 41167 of 2002)_ has also been filed in the High Court of Madras, which also did not prompt the bank to make suitable amends.

Due to various irregularities that existed at the branch administration during 1996 - 2001 and due to the bank's refusal to pay attention to our credit needs while preventing us from moving to a different bank, our company's prospects were severely hurt. The bank had unfairly frozen our account three years ago and this had completely hurt our business and it is estimated that our losses of profit due to loss of business alone amount to a value of Rs 2.4 crores, apart from the

value of further progress on various business fronts, the value of the damage to our business reputation and personal anguish caused by the situation.

For the first four years of operation the procedural hurdles and delays at your bank limited our growth prospects in terms of establishing manufacturing facilities and accepting larger export orders. During the last three years whatever little progress that was made during the first four years was reversed, which caused considerable erosion of our inventories and other resources which left us crippled. There were various ways by which we were affected. Our work in process of that time was rendered unusable midway due to the situation forced upon us by the bank's total disregard for our needs and the way it kept our account frozen. There were various other practical business factors that come into play when flow of resources were blocked. For instance alternative market borrowings that were forced upon us by the situation was prohibitively expensive. The quality of materials purchased with contingent market credit could not be assured. Time delays were expensive with a multiplier effect. One major problem lead to a multiplicity of problems and the losses multiplied, our various resources decayed during the last three years and the combined effect is such that it absorbed the money invested in stocks and work in progress. The bank was completely unwilling to allow us to move to any other bank that had a good understanding of our clean transaction record and prospects, nor did the bank allow us to create the manufacturing facilities required with Term Loan assistance from supportive term lending institutions.

Our business is completely incapacitated since the last three years. Our losses as on this date, 17th July, 2003 are estimated as under:

* The profits lost in the unserviceable portion of the export order of Rs 3.43 crores alone was estimated to be Rs 60 lakhs including the drawback/DEPB benefits that would have accrued to us.

* The loss of export orders from our regular buyer, Fonora Textiles, Canada, whose orders were at a level of about Rs 4 crores per year, (without considering the annual increase in volume which was sometimes as high as 50%) was Rs 8 crores during the last 2 years which caused us a loss of profit and export benefits of Rs 1.4 crores.

* The loss of profits on account of a FRACTION of the various local transactions that we had to refuse would be another Rs 40 lakhs.

This estimate excludes the loss of business with an American Company whose transactions were to be larger and far more valuable which could not be taken up due to our situation at the bank. This estimate does not taken into account the numerous other positive enquiries from several overseas companies that could not be entertained despite all the positive interest shown by the companies by email correspondence and personal visits. Besides this estimate excludes our losses due to the various procedural hurdles and limitations caused by your branch during the first four years - between 1996 and 2000.This estimate does not truly reflect the extent of our prospects hurt by the restraint placed on us on the opportunities that we had to set up suitable manufacturing facilities. Beyond all this is the loss of reputation to the company and the directors and loss of the Directors' time and all the anguish caused, for which we still have not assigned a

value.

The bank still fails to respond to the situation even after all these delays and losses. Under the circumstances it is appropriate that we make a claim for the Rs 2.4 crores estimated lost and in addition a suitable compensation for the damages to our company's reputation and the personal and family level anguish caused.

Thank you.

For Whitefield Cottons P LimitedM.Sivasubramanian.Director.

_____________________________________________________________________________________________________________Whitefield Cottons P Limited 389/2 Perundurai Road Erode 638011 India Tel: ++91 424 2269853 / 54 / 2262285 http://www.whitefieldcotton.net

_____________________________________________________________________________________________________________Whitefield Cottons P Limited 389/2 Perundurai Road Erode 638011 India Tel: ++91 424 2269853 / 54 / 2262285 http://www.whitefieldcotton.net_____________________________________________________________________________________________________________Whitefield Cottons P Limited 389/2 Perundurai Road Erode 638011 India Tel: ++91 424 2269853 / 54 / 2262285 http://www.whitefieldcotton.net

Attn: Shri B P Sudhakar, Consultant.

Wednesday, April 07, 2004

Dear Sir,

We have received a letter from RBI (enclosed) which has declared the file closed after making some observations based on its inspection of whatever papers that the bank would have made selectively available for RBI inspection.

After explaining the limits in the scope of RBI's authority, the letter goes on to record that it has examined my "allegations" in detail and that the bank "had extended ad hoc limits to us...", there was "possible diversion of funds" on our part, that the examination "did not reveal any apparent contravention or violation on the part of the bank" and that "the allegations about delay and inadequacy in the limits sanctioned by the bank were not supported as per records [ that the bank would have made selectively available ] of the bank.

There was no stock inspection done, and there was no diversion of funds. I had pointed out to the bank time and again that stocks with various vendors in half-finished condition remained unrecovered. What little was recovered were unusable and any little proceeds by necessitated sale of any portion of the wasted stocks were consumed by the company, for the company's needs, in the cash-crunch situation that resulted due to the bank's hostile attitude that froze facilities.

There was no inspection of our records - the application copies, correspondence, our repeated pleas to the bank on various dates and no mention of why the bank is taking over two years to issue a legible, comprehensive statement of accounts.

There is no mention of anything about the management scandals at the branc nor ,about the bank having blocked other banks from taking over our account. There are no directives to the bank to give us a way out of this unfair situation. The letter concludes by saying that it is not within the ambit and scope of the authority of the RBI to consider our counter claim etc. The RBI regrets its inability to intervene in the matter of our grievance against Federal Bank.

Sincerely,

Tuesday, November 16, 2004 ( sent by speed post )

Smt Usha ThoratExecutive DirectorDepartment of Banking Operations and Development / Banking SupervisionReserve Bank of IndiaCentral Office BuildingMumbai 400 001

Dear Madam,

Sub: Our Unresolved complaint against Federal Bank Limited from Whitefield Cottons P Limited.

Ref: Our complaints to the RBI on March 1, 2002, our complaint with Banking Ombudsman filed on August 28,2002, our email dated August 31, 2003, letter from Powerloom Development and Export Promotion Council (PDEXCIL) dated August 16, 2004 and Your letter RBI IECD No 4329 / 04.02.03 / 2003-2004 dated March 25, 2004 sent to PDEXCIL in response to their letter dated August 16 2004.

To follow up on our representations to the Reserve Bank of India on our various problems with Federal Bank, which caused a complete reversal of our export business prospects and halted our operations, I met Mrs Makhija, Chief General Manager at her office at Mumbai on 29th March this year.

On this occasion the various DETAILS including the Administrative Staffing history of the bank's Erode branch were narrated to you in detail. After nearly about an hour of patient listening, your position was that two inspections were done on the branch, which was extraordinary action on the part of RBI, so RBI had acted on the complaint, and beyond this "RBI is helpless".

This was the third instance of discouragement by the Reserve Bank of India on our plea for a solution to our problem with Federal Bank.

First we brought this problem to Reserve Bank of India on March 1, 2002 with a copy addressed to the Union Finance Minister. Reserve Bank wrote to us "we are not in a position to intervene as the matter pertains to credit dispensation" also observing that

the account had already slipped into NPA category. Our complaint was not a simple one to be so dismissed. It was just that the bank had squeezed us into this NPA status.

Subsequently we complained to the Banking Ombudsman, Chennai on August 28, 2002. Our complaint was that Federal Bank had wronged us, blocked and reversed our company's progress and kept us in a state of total helplessness. Banking Ombudsman did not take up the complaint with the explanation that "loan transactions are commercial judgment and at the discretion of the sanctioning bank and hence do not come under our purview in terms of the Banking Ombudsman Scheme" vide its letter BO(CHN)/2580/PR 051/2002-2003 dated 9th September. We promptly pointed it out that the complaint was not about the commercial judgment of the bank.

On these two occasions there was complete refusal on the part of Reserve Bank of India even to read the complaint in full, and the case was dismissed on assumptions that the case concerned the bank's commercial judgment.

It was elaborately pointed out to the Reserve Bank that the case was not such a simple one. And after several requests including our detailed communication addressed to the Executive Director and other officers including Mrs Makhija on August 31, 2003, Reserve Bank of India looked into the complaint and inspected the branch.

We do not understand the following:

• When a complaint of this nature was investigated why were we not asked to explain our case, to counter the bank's defensive attempts to suppress documents, facts and misrepresent the situation?

• An inspection of the branch would have happened but what possible records would the bank have made available to the RBI inspectors?

• Why were we not asked to submit copies of our records of dates of applications, letters written to the bank and other relevant documents?

The bank must have selectively furnished some papers to show that everything was in order. The bank was comfortably allowed to misrepresent facts and the bank's erroneous

version of what it did to us some how found its way to RBI's records, enough for RBI to send out a letter of inaccurate observations.

The letter RBI IECD No 4329 / 04.02.03 / 2003-2004 dated March 25, 2004 declared the file closed after making inaccurate, unverified comments based on its inspection of whatever papers that the bank would have made selectively available for RBI inspection. The bank was conveniently allowed to comfortably defend its case with choice papers from its file, we were never contacted by RBI, our papers were not called for, there was not even a phone call from RBI to us to verify the bank's version and whatever misrepresentations made by the bank were placed on record by RBI which culminated in a letter that said the case closed.

After explaining the limits in the scope of RBI's authority, the letter goes on to record that it has examined my "allegations" in detail and that the bank "had extended ad hoc limits to us...", there was "possible diversion of funds", that the examination "did not reveal any apparent contravention or violation on the part of the bank" and that "the allegations about delay and inadequacy in the limits sanctioned by the bank were not supported as per records [ that the bank would have made selectively available ] of the bank.

1) There was no diversion of funds: We have invested our DEPB and Drawback proceeds of approximately Rs 40 lakhs over 3 years to construct a factory building, buy industrial land, machinery. This has been well within the knowledge of the branch and the bank and has been mentioned by us in our communication to RBI on March 11, 2002 for which a copy was eventually sent to the bank’s chairman. This has been stated again and again as part of the case history forming part of our complaint and this has been completely left unread and the Reserve Bank of India made an observation that there was "possible diversion of funds". Is this the bank's only defense to avoid or block scrutiny by RBI ?

2) Inventory position was as per norms before the bank froze our account, inventory position was never an issue. If there was any inventory loss, it happened long AFTER our account was frozen and not before, so this was not a cause, but rather an effect. When the account was frozen it was pointed out to the bank time and again that stocks with various vendors in half-finished condition remained unrecovered. What little was recovered were unusable and any little proceeds by necessitated sale of any portion of the wasted stocks were consumed for the company's needs, in the cash-crunch situation that resulted due to the bank's hostile attitude that froze facilities. This happened long AFTER our account was frozen and not before, so this was not a cause, but rather an effect. The bank is confusing the sequence of events here.

3) The bank is refusing to furnish a comprehensive statement of accounts in spite of

several requests since July 7, 2002. The bank's accounting procedure was not in order, there is no statement of credit entries and interest debits and the bank is dodging this request for over 2 years now. NO PCL, FUBP STATEMENTS HAVE BEEN ISSUED SO FAR, NOT IS CLEAR HOW THE BANK ARRIVED AT OUTSTANDINGS. This has been mentioned in our letter to RBI, and no directive has been issued to the bank. RBI hasn't verified why the bank is taking over two years to issue a legible, comprehensive statement of accounts. It is important for us to know this especially in the light of the branch’s administrative history.

4) RBI has not made any note of anything about the management scandals at this corrupt branch and about how it affected our account, nor has the RBI made any observations about the bank having blocked other banks from taking over our account. The branch has had a corrupt administrative history of two successive branch managements legally or internally punished which by itself is an indication of various branch level hurdles the company faced which led to all the hardships. Reserve Bank dismisses this as an internal matter.

5) The bank's ad hoc limits were so called ad hoc, but followed rigid documentation procedures and took months to be sanctioned in most instances, often termed ad hoc as an act of convenient paperwork, that kept it both non-committal and pending. Enhancement procedure for our export account took 6 months for partial sanction and as much as 700 days for sanction as requested, by which time the limit sanctioned had become too little, too late...

6) The inspection done at the branch was one sided. There was no inspection of our records - the application copies, correspondence, our repeated pleas to the bank on various dates were not examined. The bank suppresses a lot of records and selectively presents papers to justify its position.

7) There are no directives to the bank to give us a way out of this unfair situation. The letter concludes by saying that it is not within the ambit and scope of the authority of the RBI to consider our counter claim etc. The RBI regrets its inability to intervene in the matter of our grievance against Federal Bank.

All that Reserve Bank of India has done so far on this case is to protect the bank. So we had sought the help of Powerloom Development Export Promotion Council of which we are a member, and PDEXCIL felt it appropriate to write to the Reserve Bank of India again. After a time gap Reserve Bank of India repeated the reply that the case is closed.

Reserve Bank has closed the complaint without offering any solution to us in the face of an unfair situation wherein a bank caused a company's stagnation, covered its faults by reporting the account as NPA, which keeps the company in a state of ineligibility for

necessary funding and in a situation of complete helplessness.

But the summary of RBI's position is that RBI is helpless.

We are surprised that whatever authority it has is directed against business companies and in favor of the bank. RBI's rules give an upper hand to the bank in this situation. For instance our account is classified as NPA irrespective of the fact that it is the bank that caused it. By using this provision to brand our account as NPA the bank keeps us in a state of no options. Even the legal framework is conceptually biased in this matter. The Debt Recovery Tribunal which has been established, as the name implies, has the object of recovering debts and with this purpose, the faults of the banks are not looked into in detail. Counter claim procedures are such that it is prohibitively difficult for any company from making a fair and just counter claim.

Under the circumstances our request to RBI in this situation is as follows:

1. We request thorough scrutiny and a solution. PDEXCIL has requested action against the bank under provisions of Para 1.3.3 of your circular No BOD.IECS.NO24/04.02.02/2004- 2005. Timely extension of credit facilities to Exporters has NEVER happened at Federal Bank in our account. The bank's procedures were cumbersome, its policies and practices were restrictive, the bank took months to partially meet our requirements and took as much as 700 days to grant us an enhancement of 75 lakhs, by which time the sanction was too little too late as also locally prevented at least two other banks from extending us the required facilities, when our account was attractive for the other banks. The provisions of Para 1.3.2 of your circular are equally applicable in our case as the bank did not extend us the term loan requested and when we obtained a sanction from from SIPCOT for Rs 1.5 crores, the bank became very uncooperative, which was one of the prime reasons why the term loan was surrendered unutilized after documentation and payment of upfront fees which amounted to completion of all formalities.

2. As an interim solution pending outcome of a thorough and complete investigation into our case. RBI may please remove our company name from the list of NPAs because it is the bank which caused this situation. Because of this unfair status, our company is unable to approach any other bank for our export credit needs and hence unable to accept export orders for the past 3 years.

3. Please enable us to make use of the Technology Upgradation Fund for modernization, which again is blocked because of the fact that our account continues to be classified as

an NPA, due to the fact that our account is trapped with Federal Bank as inoperable.

4. Please pay attention to our case in detail and offer us a banking solution to our company, which continues to receive an influx of export orders that can not be accepted for want of funds. We require export credit from any other bank, which is fair and square.

5. Please look into unfair provisions such as DRT's counter claim procedures that overly protect banks and keep affected companies crippled. We request RBI to recommend to the DRT for a waiver of any fee payable and make it possible for us to press our counter claim as sent to the Bank's Chairman vide our letter dated July 17, 2003 to be revised to include continuing damages.

Thank you.For Whitefield Cottons P Limited

M. SivasubramanianDirector.

Tuesday, November 16, 2004 ( date seen on the letter sent, but the speed post reciept on our file copy indicates that the letter was mailed on 27th November and received at RBI on 29th Novermber)

[ sent with a one page Executive Summary and annexure flowcharting the complexity of the bank's accounting process ]

Cc to

The Governor, Reserve Bank of India.

Shri B P Sudhakar, Powerloom Development and Export Promotion Council

A printed copy of the email sent to Smt Shyamala Gopinath, Deputy Governor, Reserve

Bank of India on January 17, 2005 which includes a copy of a letter sent to Smt Usha

Thorat, Executive Director, Department of Banking Operation, RBI on November 16,

2004

From: Whitefield Cotton <whitefieldcotton@gmail.com>

Reply-To: Whitefield Cotton <whitefieldcotton@gmail.com>To: sgopinath@rbi.org.inCc: pdepc@gems.vsnl.net.in, shiva@india.nameDate: Mon, 17 Jan 2005 00:09:14 +0530Subject: our company's problem with Federal Bank as briefly outlined to you at the Pravasi Bharathi Divas meeting.

Dear Madam,

I met you after the session on Finance during the Pravasi Bharathiya Divas last Sunday. Thank you very much for receptively listining to my brief narration of our problem with Federal Bank which has been represented to RBI at various levels repeatedly. For unknown reasons the Reserve Bank of India has not taken note of the harm done by Federal bank to our company nor has RBI offered any solution to the problem.

This is a brief summary of our repeated compaint to RBI pending for nearly three years. This summary is followed by a letter recently addressed to Smt Usha Thorat that directly addresses the issue of inadequate response from RBI. To our surprise RBI has again responded with a one line letter that refuses to take note of our grievances but insensitively reiterates the complaint closed.

Our company, Whitefield Cottons P Limited(http://www.whitefieldcotton.net is in the business of exportingcotton terry towels and our export record since we began operations in 1996 was consistent and rapidly progressing. We were exporting direct, mostly to Canada, all with Letters of Credit, with a blemishless transaction record.

In summary our complaint was about the following

· With all the procedural problems and delays we were performing very well as an exporter and our performance improved from US $

106,600 in 1996-97 to US $ 473,476 in 1998-99 a four-fold growth of performance in 3 years. This could have been far more if the bank had been professional and if the branch administration was clean in its assessment and service.

· The bank Refused to consider a promising proposal for creating manufacturing facilities

· The bank blocked us from utilizing a term loan of Rs.1.5 crores sanctioned by SIPCOT, (sanctioned, mortgage created, charge registered, upfront fee paid and withdrawn three years later unutilized)

· The bank took our 180 days to partially concede to our requirement of a Packing Credit Loan facility of Rs.75 lakhs (taking collaterals of actual value in excess of Rs 1 crore further strengthened by personal gurantees of directors and others)

· The bank took 700 days to fully sanction our requirement in full, by white time the sanction was too little for our requirements that had grown several fold.

· The bank prevented us from moving to any other bank which could have more responsive. There were at least three such instances known.

· The bank hurt a major export order for US $ 803,750 placed by our regular buyer who had established a buying record well known to the bank, in spite of our repeated request for assessment of this highly time sensitive situation. At that point of time our limits were Rs 80 lakhs of Packing Credit and Rs 105 lakhs. The Packing Credit was fully utilized while all the bills purchased by the bank had realized, but the bank did not offer us the flexibility of allowing the unitized portion of the post shipment limits usable for pre-shipment needs. Nor did the bank allow us even the marginal flexibility of exceeding the sanctioned Packing Credit limit even by a fraction. With this impossible situation the export order of US $ 803, 750 could only be partially executed, that too with market borrowings forced upon us by the situation, which was prohibitively expensive and insufficient, so the production was delayed, quantities ordered were reduced and finally the order was largely cancelled. With this event, our progress began to reverse, and our company's finances were severely damaged.

The bank watched us degenerate and collapse without even acknowledging that its Erode Branch has hurt a customer so badly.

· The bank has done more serious damage by abruptly freezing

our account due to which our business came to a standstill during the last four years with prosperous opportunities for growth and profit foregone and the losses are increasing.

· The bank blindly refuses to evaluate our requirements, problems and prospects in spite of various repeated requests for a comprehensive understanding of our problems and prospects.

· During the last four years the bank has been completely silent on its role, refuses to acknowledge any communication from us to its Chairman or other officials.

. The branch had three consecutive branch managements that were corrupt, came under investigation for charges as commonplace as corruption and as appalling as forgery, and against this background our account suffered and our progress reversed.

. Rather than respond by examining the branch management's and its own role in reversing our progress and offer a solution, the bank has brought us into a situation of our account being classified as an NPA which is a status that RESULTED out of the banking problem, but this NPA status is cited by the bank as its entire defense for it stand of destructive inaction.

. The bank has misrepresented its case with RBI as also with DRT where its has filed documents that mislead the DRT into believing that we have not made any remittance of any of the packing credit / FUBP withdrawals, whereas in reality our repayments have been prompt and were to the tune of US $ 1.5 million. The bank claims an outstanding of Rs 80 lakhs plus interest which is its sole focus, but this too is unsupported by proper statement of accounts. Our request for a comprehensive statement of accounts is pending with the bank since July 7, 2002 made directly through the bank and repeated by three of our petitions at the DRT.

. We have made a claim for damages from the bank but the bank has not responded so far.

The following is the most recent communication sent to the Reserve Bank of India which MORE CLEARLY EXPLAINS THE STATUS OF OUR COMPALINT WITH THE RESERVE BANK OF INDIA. A copy of the letter has also been addressed to the Governor, Reserve Bank of India. The matter is now placed before you for your attention. Please offer us a solution out of this problem.

Thank you.

Sincerely,M. SivasubramanianDirectorWhtiefield Cottons P Limited389/1 Perundurai RoadErode 638 011Tamilnadu, IndiaTel ++91 424 5501174++91 93641 00639http://www.whitefieldcotton.net

__________________________________________________

Tuesday, November 16, 2004

Smt Usha ThoratExecutive DirectorDepartment of Banking Operations and Development / Banking SupervisionReserve Bank of IndiaCentral Office BuildingMumbai 400 001

Dear Madam,

Sub: Our Unresolved complaint against Federal Bank Limited from Whitefield Cottons P Limited.

Ref: Our complaints to the RBI on March 1, 2002, our complaint with Banking Ombudsman filed on August 28,2002, our email dated August 31, 2003, letter from Powerloom Development and Export Promotion Council (PDEXCIL) dated August 16, 2004 and Your letter RBI IECD No 4329 / 04.02.03 / 2003-2004 dated March 25, 2004 sent to PDEXCIL in response to their letter dated August 16 2004.

To follow up on our representations to the Reserve Bank

of India on our various problems with Federal Bank, which caused a complete reversal of our export business prospects and halted our operations, I met Mrs Makhija, Chief General Manager at her office at Mumbai on 29th

March this year.

On this occasion the various DETAILS including the Administrative Staffing history of the bank's Erode branch were narrated to you in detail. After nearly about an hour of patient listening, your position was that two inspections were done on the branch, which was extraordinary action on the part of RBI, so RBI had acted on the complaint, and beyond this "RBI is helpless".

This was the third instance of discouragement by the Reserve Bank of India on our plea for a solution to our problem with Federal Bank.

First we brought this problem to Reserve Bank of India on March 1, 2002 with a copy addressed to the Union Finance Minister. Reserve Bank wrote to us "we are not in a position to intervene as the matter pertains to credit dispensation" also observing that the account had already slipped into NPA category. Our complaint was not a simple one to be so dismissed. It was just that the bank had squeezed us into this NPA status.

Subsequently we complained to the Banking Ombudsman, Chennai on August 28, 2002. Our complaint was that Federal Bank had wronged us, blocked and reversed our company's progress and kept us in a state of total helplessness. Banking Ombudsman did not take up the complaint with the explanation that "loan transactions are commercial judgment and at the discretion of the

sanctioning bank and hence do not come under our purview in terms of the Banking Ombudsman Scheme" vide its letter BO(CHN)/2580/PR 051/2002-2003 dated 9th September. We promptly pointed it out that the complaint was not about the commercial judgment of the bank.

On these two occasions there was complete refusal on the part of Reserve Bank of India even to read the complaint in full, and the case was dismissed on assumptions that the case concerned the bank's commercial judgment.

It was elaborately pointed out to the Reserve Bank that the case was not such a simple one. And after several requests including our detailed communication addressed to the Executive Director and other officers including Mrs Makhija on August 31, 2003, Reserve Bank of India looked into the complaint and inspected the branch.

We do not understand the following:

· When a complaint of this nature was investigated why were we not asked to explain our case, to counter the bank's defensive attempts to suppress documents, facts and misrepresent the situation?

· An inspection of the branch would have happened but what possible records would the bank have made available to the RBI inspectors?

· Why were we not asked to submit copies of our records of dates of applications, letters written to the bank and other relevant documents?

The bank must have selectively furnished some papers to show that everything was in order. The bank was comfortably allowed to misrepresent facts and the bank's erroneous version of what it did to us some how found its way to RBI's records, enough for RBI to send out a letter of inaccurate observations.

The letter RBI IECD No 4329 / 04.02.03 / 2003-2004 dated March 25, 2004 declared the file closed after making inaccurate, unverified comments based on its inspection of whatever papers that the bank would have made selectively available for RBI inspection. The bank was conveniently allowed to comfortably defend its case with choice papers from its file, we were never contacted by RBI, our papers were not called for, there was not even a phone call from RBI to us to verify the bank's version and whatever misrepresentations made by the bank were placed on record by RBI which culminated in a letter that said the case closed.

After explaining the limits in the scope of RBI's authority, the letter goes on to record that it has examined my "allegations" in detail and that the bank "had extended ad hoc limits to us...", there was "possible diversion of funds", that the examination "did not reveal any apparent contravention or violation on the part of the bank" and that "the allegations about delay and inadequacy in the limits sanctioned by the bank were not supported as per records [ that the bank would have made selectively available ] of the bank.

1) There was no diversion of funds: We have invested our DEPB and Drawback proceeds of approximately Rs 40 lakhs over 3 years to construct a factory building, buy

industrial land, machinery. This has been well within the knowledge of the branch and the bank and has been mentioned by us in our communication to RBI on March 11, 2002 for which a copy was eventually sent to the bank's chairman. This has been stated again and again as part of the case history forming part of our complaint and this has been completely left unread and the Reserve Bank of India made an observation that there was "possible diversion of funds". Is this the bank's only defense to avoid or block scrutiny by RBI ?

2) Inventory position was as per norms before the bank froze our account, inventory position was never an issue. If there was any inventory loss, it happened long AFTER our account was frozen and not before, so this was not a cause, but rather an effect. When the account was frozen it was pointed out to the bank time and again that stocks with various vendors in half-finished condition remained unrecovered. What little was recovered were unusable and any little proceeds by necessitated sale of any portion of the wasted stocks were consumed for the company's needs, in the cash-crunch situation that resulted due to the bank's hostile attitude that froze facilities. This happened long AFTER our account was frozen and not before, so this was not a cause, but rather an effect. The bank is confusing the sequence of events here.

3) The bank is refusing to furnish a comprehensive statement of accounts in spite of several requests since July 7, 2002. The bank's accounting procedure was not in order, there is no statement of credit entries and interest debits and the bank is dodging this request for over 2 years now. NO PCL, FUBP STATEMENTS HAVE BEEN ISSUED SO FAR, NOT IS CLEAR HOW THE BANK

ARRIVED AT OUTSTANDINGS. This has been mentioned in our letter to RBI, and no directive has been issued to the bank. RBI hasn't verified why the bank is taking over two years to issue a legible, comprehensive statement of accounts. It is important for us to know this especially in the light of the branch's administrative history.

4) RBI has not made any note of anything about the management scandals at this corrupt branch and about how it affected our account, nor has the RBI made any observations about the bank having blocked other banks from taking over our account. The branch has had a corrupt administrative history of two successive branch managements legally or internally punished which by itself is an indication of various branch level hurdles the company faced which led to all the hardships. Reserve Bank dismisses this as an internal matter.

5) The bank's ad hoc limits were so called ad hoc, but followed rigid documentation procedures and took months to be sanctioned in most instances, often termed ad hoc as an act of convenient paperwork, that kept it both non-committal and pending. Enhancement procedure for our export account took 6 months for partial sanction and as much as 700 days for sanction as requested, by which time the limit sanctioned had become too little, too late...

6) The inspection done at the branch was one sided. There was no inspection of our records - the application copies, correspondence, our repeated pleas to the bank on various dates were not examined. The bank suppresses a lot of records and selectively presents papers to justify its position.

7) There are no directives to the bank to give us a way out of this unfair situation. The letter concludes by saying that it is not within the ambit and scope of the authority of the RBI to consider our counter claim etc. The RBI regrets its inability to intervene in the matter of our grievance against Federal Bank.

All that Reserve Bank of India has done so far on this case is to protect the bank. So we had sought the help of Powerloom Development Export Promotion Council of which we are a member, and PDEXCIL felt it appropriate to write to the Reserve Bank of India again. After a time gap Reserve Bank of India repeated the reply that the case is closed.

Reserve Bank has closed the complaint without offering any solution to us in the face of an unfair situation wherein a bank caused a company's stagnation, covered its faults by reporting the account as NPA, which keeps the company in a state of ineligibility for necessary funding and in a situation of complete helplessness.

But the summary of RBI's position is that RBI is helpless.

We are surprised that whatever authority it has is directed against business companies and in favor of the bank. RBI's rules give an upper hand to the bank in this situation. For instance our account is classified as NPA irrespective of the fact that it is the bank that caused it. By using this provision to brand our account as NPA the bank keeps us in a state of no options. Even the legal framework is conceptually biased in this matter. The Debt Recovery Tribunal which has been established, as the name implies,

has the object of recovering debts and with this purpose, the faults of the banks are not looked into in detail. Counter claim procedures are such that it is prohibitively difficult for any company from making a fair and just counter claim.

Under the circumstances our request to RBI in this situation is as follows:

1. We request thorough scrutiny and a solution. PDEXCIL has requested action against the bank under provisions of Para 1.3.3 of your circular No BOD.IECS.NO24/04.02.02/2004- 2005. Timely extension of credit facilities to Exporters has NEVER happened at Federal Bank in our account. The bank's procedures were cumbersome, its policies and practices were restrictive, the bank took months to partially meet our requirements and took as much as 700 days to grant us an enhancement of 75 lakhs, by which time the sanction was too little too late as also locally prevented at least two other banks from extending us the required facilities, when our account was attractive for the other banks. The provisions of Para 1.3.2 of your circular are equally applicable in our case as the bank did not extend us the term loan requested and when we obtained a sanction from from SIPCOT for Rs 1.5 crores, the bank became very uncooperative, which was one of the prime reasons why the term loan was surrendered unutilized after documentation and payment of upfront fees which amounted to completion of all formalities.

2. As an interim solution pending outcome of a thorough and complete investigation into our case. RBI may please remove our company name from the list of NPAs because

it is the bank which caused this situation. Because of this unfair status, our company is unable to approach any other bank for our export credit needs and hence unable to accept export orders for the past 3 years.

3. Please enable us to make use of the Technology Upgradation Fund for modernization, which again is blocked because of the fact that our account continues to be classified as an NPA, due to the fact that our account is trapped with Federal Bank as inoperable.

4. Please pay attention to our case in detail and offer us a banking solution to our company, which continues to receive an influx of export orders that can not be accepted for want of funds. We require export credit from any other bank, which is fair and square.

5. Please look into unfair provisions such as DRT's counter claim procedures that overly protect banks and keep affected companies crippled. We request RBI to recommend to the DRT for a waiver of any fee payable and make it possible for us to press our counter claim as sent to the Bank's Chairman vide our letter dated July 17, 2003 to be revised to include continuing damages.

Thank you.

For Whitefield Cottons P Limited

M. SivasubramanianDirector.

Tuesday, November 16, 2004

Cc [ of this letter dated November 16, 2004 ] to

The Governor, Reserve Bank of India.Shri B P Sudhakar, Powerloom Development and Export Promotion Council

-- M SivaubramanianDirectorWhitefield Cottons P Limited389/1 Perundurai RoadErode 638011TN India++91 424 5501174++91 93641 00639http://www.whitefieldcotton.net

Hon’ Shri P ChidambaramMinister for FinanceGovernment of India

Monday, January 31, 2005Hon’ Minister,

This follows a request to you in person at the Pravasi Bharathiya Divas when I presented my Business Card to request if I may write to you about a banking problem. This problem has now reached a point of necessity for the Finance Minister’s attention.

Our company, Whitefield Cottons P Limited is in the business of exporting cotton terry towels and our export record since we began operations in 1996 was consistent and rapidly progressing until year 2000 with total export turnover of about $ 1.5 million. We were exporting direct, mostly to Canada, all with Letters of Credit, with a blemishless transaction record.

We have a banking problem with Federal Bank Limited, which damagingly refused to understand and respond to our banking needs to sustain our demonstratedly multiplying export performance, while at the same time blocking our clean, bankable, secure account from being moved to any other bank in this small town. This hurt our prospects and reversed our progress and continues to keep us financially incapacitated during the last four years.

Efforts at Branch level went unheeded (the branch had its own internal administrative history of successive corrupt administrations taken to task). Repeated factual and polite representations to the Chairman were ignored. An eventual application to the Banking Ombudsman was not taken up on the ground that the complaint pertained to “a case of commercial judgment” which it was not. Subsequent representations to the Reserve Bank of India were not studied in detail for sometime, repeated representations to RBI prompted RBI to do an inspection of the Branch in response which did not result in any solution to the problem presented.

I learnt about the inspection done at the branch during a meeting at RBI with the Chief General Manager (and her team) at her office at Mumbai on 29th March 2004. The meeting was apparently receptive and attentive. It was understood that RBI did single out this complaint for as much action as an inspection of the bank, but that RBI did not find any documentary evidence to indicate anything wrong. It was pointed out to RBI during the meeting that this action was insufficient as RBI looked for documentary evidence at the bank without notifying us or calling for our papers or talking to us. This allowed an opportunity for the bank to present a conveniently distorted picture possibly by presenting selective documents and choice papers (for instance, a half sanction

would be given on a certain day and part of the procedure for acceptance is an application form in the prescribed format, filled up for the sanctioned amount, signed on the day of the sanction or on the previous day. Such a record presents an illusion of ‘then and there action’ on customer’s needs while in reality it took several months of inordinate delay before our request reached the stage of even a partial sanction. Records of irregularity pertaining to the branch’s history in general and of irregularity pertaining to this account in particular must have been conveniently suppressed by the bank.

The position taken was that “RBI is helpless”. RBI deems that the inspection done sufficient as a response, enough to send us a letter that on record shows action on the complaint, enough to declare the file closed without offering any solution of any kind. The bank had given its version in an attempt to justify the bank’s actions on paper. RBI listed the bank’s version in its letter to us. We first took up this issue with the Powerloom Export Promotion Council and later wrote to RBI to examine our earlier communication to RBI which had already disproved the bank’s version, repeated our request for a solution but an official of the RBI sent us a letter enclosing a copy of the earlier letter saying RBI “has to nothing to add [to the earlier letter] on this matter”.

The earliest communication to the Finance Ministry on this issue was a copy of the complaint addressed to the RBI on March 11, 2002. A direct letter was later addressed to the former Minister for Finance on September 4, 2003. With this background this problem is now represented to the Finance Minister with the following submissions:

1. This is a company with very promising prospects that could emerge as a business of significant size, with definite plans to scale up to a size of an international label, trapped in an unfair banking situation.

2. There is an unfair categorization of our account as an NPA, a status that RESULTED out of the banking problem. This inevitable status makes our company prima facie stigmatized for a solution of any kind from any other bank

3. Regulatory authorities are perhaps hesitant to isolate this company’s problem from that of the general problem of NPAs affecting the banking sector at large, which is understandably a problem of macro economic implications, but we are trapped in this macro economic situation unfairly.

4. Legal framework on this area is [1] inadequate (the nuances are not understood in depth) [2] biased (for instance DRT is by definition a Debt Recovery Tribunal, by title, in concept and formation a little bit pro-bank, not a balanced arbitration council or a full judicial court), [3] limited (the absence of the lender’s liability concept etc.), [4] prohibitive (the procedures laid down for pressing a counter

claim are such that it requires a comfortable degree of affluence to begin and go through the process) and [5] inordinately slow.

5. A particular submission is that this company has been continuously in a position to receive larger export orders that could not be accepted due to the absence of an alternate banking arrangement. Also, the company had to drop its plans to establish a modern textile plant under the TUF scheme. At present there is an opportunity for private equity / scale up funding but the unfair stigma is a deterrent that we are struggling to get past.

We request the Finance Minister to enhance our faith in our Government by primarily accepting this complaint for thorough scrutiny of the banking history with specific attention to the administrative history of the Erode branch of Federal Bank that has blocked and crippled our company’s progress and the complete history of the bank’s evaluation process of our account.

Our business has to become functional to reemerge out of this NPA status (resulted out of the banking situation). This requires that this status be set aside to enable us to bank with another bank, infuse funds for a scale up, which are measures needed this company grow. There is a bankable business plan bottled up since 1999.

This company is penalized perhaps because of the overall pressure on the Regulatory authority to be tough on NPAs in general. The request here is that the Reserve Bank of India pays attention to the specific situation that led us to this status rather than apply all generalized guidelines essentially evolved to address the problem of NPAs in the broad context.

As it would be improper for us to request the Ministry to assess our damages, we will wait with patience in a climate of judicial reforms underway for a judicial ruling on our claim for damages from the bank. The concept of lender’s liability is at its nascent stage in India, the legal framework is evolving, but we have faith in the legal system and wish to legally argue our case thoroughly in a court of law.

But the process being an inordinately slow process, but our government could be swift, so interim solutions are requested as follows:

a) We request the Hon’ Minister to review our NPA status. We appeal to have this status set aside or offer us any other solution by which our company will not be subjected to a prima-facie refusal by other banks / financial institutions / private investors.

b) We request proactive intervention by the Finance Ministry to get us past our present banking hurdles. In particular, we require a few banks to be receptive to us and take a deep look beyond our apparent problem, give us a fair hearing and thorough evaluation and offer us a Private Equity / Venture Capital / conventional banking solution on progressive banking norms.

c) We request the Ministry to examine the infeasible procedures for filing a counter claim for damages arising out of failure of lender’s liability. We require a waiver for court fees / partial deposit of the lender’s claim and file a counter claim against the bank in a court of law.

d) We request continued receptiveness by government till this problem is resolved

e) In summary we request swift and proactive evaluation and directives on all of the above.

The spirit of this communication arises out of immense faith in our Government.

Thank you. Hon’ Minister.

For Whitefield Cottons Private LimitedSivasubramanian Muthusamy (Shiva)

Erode, Monday, January 31, 2005

Hon’ Shri P ChidambaramMinister for FinanceGovernment of India

Hon’ Minister,

Ref Our letter to the Finance Minister dated January 31, 2005 ( copy enclosed )

Our company, Whitefield Cottons P Limited has a banking problem with Federal Bank Limited, which damagingly reversed our Export Progress and has kept our company blocked from banking with any other bank for our banking needs for the past 5 years which has been even more damaging.

The problems stay unresolved at various levels of Government and was brought to the Finance Minister’s attention vide our letter dated January 31, 2005. The papers are resubmitted in person to request the Minister’s attention.

a) We request the Hon’ Minister to review our NPA status. We appeal to have this status set aside or offer us any other solution by which our company will not be subjected to a prima-facie refusal by other banks / financial institutions / private investors.

b) We request proactive intervention by the Finance Ministry to get us past our present banking hurdles. In particular, we require a few banks to be receptive to us and take a deep look beyond our apparent problem, give us a fair hearing and thorough evaluation and offer us a Private Equity / Venture Capital / conventional banking solution on progressive banking norms.

c) We request the Ministry to examine the infeasible procedures for filing a counter claim for damages arising out of failure of lender’s liability. We require a waiver for court fees / partial deposit of the lender’s claim and file a counter claim against the bank in a court of law.

d) We request continued receptiveness by government till this problem is resolved

e) In summary we request swift and proactive evaluation and directives on all of the above.

Thank you. Hon’ Minister.For Whitefield Cottons Private Limited

Sivasubramanian Muthusamy (Shiva)New Delhi, Wednesday, May 24, 2006

Updated address for communication:

Whitefield Cottons P Limited389/1 & 2 Perundurai Road

Erode 638 011Tamilnadu India.+91 424 4030334+91 99524 03099

Email addresses: whitefieldcotton@gmail.com

india9952403099@gmail.com (dominant and preferred)