The apex court has given the Industrial Development Bank of India -- theoperating agency -- a month's time to submit its report on the actualfinancial position of Parasrampuria. The company has also been given time tofile a detailed affidavit before the Supreme Court. A Supreme Court benchcomprising Justice SP Bharucha and BN Khare passed an order saying that theyare convinced of the prima facie nature of the case and stayed furtherproceedings and the reference filed by the company to the BIFR.

Analysts have described the development as "extremely significant". "This isgoing to be a test case. If banks and institutions succeed, promoters willstop the `practice' of sending their companies to BIFR to escape repaymentsof bank loans," a senior industry analyst pointed out.

The total assistance outstanding from financial institutions and banks toParasrampuria stood at Rs 650 crore as on August 15, 1997. The appeal madeby banks and financial institutions in the Mumbai high court againstParasrampuria was earlier dismissed since the company had made a referenceunder the Section 15 of the Sick Industrial Companies (Special Provisions)Act (Sica), 1985, and had been registered by the registry of the BIFR.

Under the Section 22 of SICA, an enquiry would commence only when the BIFRdeclares a company sick and directs an enquiry into rehabilitation.

According to petitioners, the high court merely followed a judgment in anearlier case between Real Value Appliances and Canara Bank, where the courthad held that the mere registration of a reference by the company was enoughto attract the provisions of SICA under which, all proceedings against thecompany would stand stayed.

Banks and financial institutions in their defence had said that if rulingsof this sort were made, consequences would be far-reaching and they would beafraid to fund or outlay finances for projects undertaken by companies.

Companies would be in a position to prevent any attempt by lenders torecover funds extended to them. Banks and institutions have contended thatParasrampuria fraudulently altered its system of accounting, and inviolation of various provisions of the Companies Act and other laws had madea reference during the last financial year to avoid any coercive measurebeing undertaken by its lenders to recover huge sums owed to it.

Parasrampuria Synthetics was incorporated in April, 1982, as a privatelimited company and as converted into a public one in December the sameyear. The company was been promoted by Rathan Lal Parasrampuria and OmPrakash Parasrampuria to manufacture polyester-filament yarn. The companylater got in to the manufacture of polyester chips, cotton yarn, polyesterblended yarn and terry towels. The company's technical collaborators wereZimmer AG and Aquafil Engineering GmbH, both of Germany.