India - Second Idbi Project : Loan 1260 - Project Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1260 IN PROJECT AGREEMENT (Second IDBI Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and INDUSTRIAL DEVELOPMENT BANK OF INDIA Dated June 10, 1976 PROJECT AGREEMENT AGREEMENT, dated June 10, 1976, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and INDUSTRIAL DEVELOPMENT BANK OF INDIA (hereinafter called IDBI). WHEREAS (A) by the Loan Agreement of even date herewith be- tween India, acting by its President (hereinafter called the Bor- rower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to forty million dollars ($40,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that IDBI agree to under- take such obligations toward the Bank as hereinafter set forth; (B) by a subsidiary loan agreement to be entered into between the Borrower and IDBI, the proceeds of the loan provided for under the Loan Agreement will be made available to IDBI on the terms and conditions therein set forth; and WHEREAS IDBI, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: -2- ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth: -3- ARTICLE II Execution of the Project Section 2.01. (a) IDBI shall carry out the Project described in Section 3.01 of the Loan Agreement with due diligence and efficiency and in conft--mity with appropriate administrative, economic, financial and investment standards and practices, with qualified and experienced managment and personnel, and in accor- dance with the IDBI Act. (b) For the purpose of carrying out the Project, IDBI shall (i) enter into the Subsidiary Loan Agreement referred to in Sec- tion 3.02(a) of the Loan Agreement, (ii) utilize the proceeds of the Loan to refinance sub-loans upon terms and conditions satis- factory to the Bank, including the principal terms set forth in Schedule 1 to this Agreement, subject to any amendments thereof which may be agreed upon from time to time with the Bank and (iii) carry out supervision of, and assist, the SFCs as shall be nec- essary or desirable to ensure compliance with, and fulfillment of the objectives of, the operating guidelines and institutional development programs referred to in Section 2.02 (c) of this Agree- ment. Section 2.02. (a) When presenting a sub-loan (other than a free-limit sub-loan) to the Bank for approval, IDBI shall furnish to the Bank an application, in form satisfactory to the Bank, together with a description of the Investment Enterprise, an appraisal by the SFC proposing to make the sub-loan of the Invest- ment Project (including a description of the expenditures proposed to be financed out of the proceeds of the Loan), the proposed terms and conditions of the sub-loan, a certificate by IDBI that such application is in compliance with the requirements of paragraph (c) of this Section 2.02 and such other information as the Bank shall reasonably request. 'b) Each request by IDBI for authorization to make withdrawals from the Loan Account in respect of a free-limit sub-loan shall contain a description of the Investment Enterprise and the Invest- ment Project (including a description of the expenditures proposed to be financed out of the proceeds of the Loan) and the terms and conditions of such sub-loan, together with a certificate by IDBI that such request is in compliance with the requirements of para- graph (c) of this Section 2.02. The Bank shall be entitled to require IDBI to submit to the Bank for review the appraisal by the SFC proposing to make the free-limit sub-loan of the Investment Project for which authorization to make withdrawals from the Loan Account has been requested. (c) Except as the Bank shall otherwise agree, IDBI shall not reqaest tc make withdrawals from the Loan Account to provide refi- nancing to any SFC which (i) has not adopted the operating guide- lines for SFCs drawn up by IDBI, in consultation with the Bank, and dated November 29, 1972, or having adopted such guidelines shall have failed to implement the same, or (ii) has not agreed with IDBI to carry out the revised institutional development pro- gram for such SFC drawn up by IDBI, in consultation with the Bank, and dated April 19, 1976, including measures to reduce arrears and to strengthen staff, appraisal and follow-up methods, or having so -5- agreed shall have failed, in the judgement of the Bank and IDBI, to implement substantially the same, or (iii) has a ratio of net earnings plus repayments of loan principal by its debtors to debt service requirements on all of its indebtedness then outstanding of less than 1.25 to 1 as of April 1 in any year, calculated on the basis of actual figures for the preceding twelve months. For the purposes hereof: (A) the term "net earnings" means gross income less operating and administrative expenses, including provision for bad and doubtful debts and taxes, if any, but before provision for depreciation and interest and other charges on debt; and (B) the term "debt service requirements" means the ag- gregate amount of amortization, including sinking fund contributions, if any, interest and other charges on debt. If debt is not fully covered by sinking fund provisions then "debt service require- ments" shall be deemed to include provision there- for equivalent to a pro rata amount of the total debt. (d) IDBI shall make all such inspections of the working of the SFCs and of their books and accounts as shall be required to implement the provisions of paragraph (c) of this Section 2.02. -6- (e) Except as the Bank shall otherwise agree, applications and requests made pursuant to paragraphs (a) and (b) of this Sec- tion 2.02 shall be submitted to the Bank on or before December 31, 1978. Section 2.03. IDBI shall furnish to the Bank all such informa- tion as the Bank shall reasonably request concerning the expendi- ture of the proceeds of the Loan, the Project, the Investment Enterprises, the Investment Projects, the sub-loans and the SFCs. Section 2.04. (a) IDBI shall exercise its rights in relation to each Investment Project refinanced out of the proceeds of the Loan in such manner as to protect the interests of the Bank and of IDBI, to comply with its obligations under this Agreement and the Subsidiary Loan Agreement and to achieve the purposes of the Project. (b) Except as the Bank shall otherwise agree, IDBI shall exercise its right to call for prepayment of refinancing as provided under Schedule 1 to this Agreement. (c) Except as the Bank shall otherwise agree, each sub-loan to be refinanced by IDBI out of the proceeds of the Loan shall be made in accordance with the operating guidelines referred to in Section 2.02 (c)(i) of this Agreement and upon terms and conditions satisfactory to IDBI and the Bank, including the principal terms set forth in Schedule 2 to this Agreement, subject to any amendments thereof which may be agreed upon from time to time with the Bank, and the SFC making such sub-loan shall obtain rights adequate to -7- protect the interests of IDBI and of said SFC, including the right of said SFC to: (i) require the Investment Enterprise to carry out and operate the Investment Project with due diligence and effi- ciency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (ii) require that (A) the goods and services to be financed out of the proceeds of the sub-loan shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare parts therefor, and, in the case of services, of their quality and the competence of the parties rendering them and (B) such goods and services shall be used exclu- sively in the carrying out of the Investment Project; (iii) visit the Investment Enterprise, by itself or jointly with representa- tives of IDBI and of the Bank, if the Bank shall so request, and study the operation thereof, the Investment Project, and any relevant records and documents; (iv) require that the Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice and that, without any limitation upon the foregoing, such insurance shall cover marine, transit and other hazards incident to the acquisition, transporta- tion and delivery of goods financed out of the proceeds of the sub-loan to the place of use or installation; (v) obtain all such information as the Bank, IDBI or said SFC shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Investment Enterprise; and (vi) suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the sub-loan upon failure by such Invest- ment Enterprise to perform its obligations under its contract with said SFC. -8- Section 2.05. IDBI shall duly perform all its obligations un- der the Subsidiary Loan Agreement. Except as the Bank shall other- wise agree, IDBI shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.06. IDBI shall cause each of its subsidiaries (if any) to observe and perform the obligations of IDBI under this Agreement to the extent to which the same shall or can be applicable thereto as though such obligations were binding upon each of such subsidiaries. -9- ARTICLE III Financial Covenants Section 3.01. IDBI shall maintain or cause to be maintained records adequate to record the progress of the Project and of each Investment Project (including the cost thereof) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of IDBI. Section 3.02. IDBI shall: (a) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, by independent and qualified auditors, in accordance with sound auditing principles consistently applied; (b) ensure that the accounts and financial statements for each fiscal year of each SFC refinanced out of the proceeds of the Loan be audited, by independent and qualified auditors, in accordance with sound auditing principles consistently applied; (c) furnish to the Bank, as soon as available but in any case not later than five months after the end of each such year, certified copies of IDBI's and said SFCs' audited financial state- ments for such year and an audit report by the said auditors of such scope and in such detail as the Bank shall have reasonably requested; and (d) furnish to the Bank such other information con- cerning the accounts and financial statements of IDBI and said SFCs and the audit thereof as Lhe Bank shall from time to time reasonably request. - 10 - Section 3.03. IDBI shall not make any repayment in advance of maturity in respect of its outstanding debt which, in the judgment of the Bank, would materially affect IDBI's ability to meet its financial obligations. - 11 - ARTICLE IV Consultation, Information and Inspection Section 4.01. (a) The Bank and IDBI shall cooperate fully to ensure that the purposes of the Loan will be accomplished. To that end, the Bank and IDBI shall from time to time, at the request of either party, exchange views through their representatives with regard to the performance of their respective obligations under this Agreement and the Subsidiary Loan Agreement, the administra- tion, operations and financial condition of IDBI, in respect of the Project, and of the SFCs, and other matters relating to the purpose of the Loan. (b) IDBI shall furnish to the Bank all such information as the Bank shall reasonably request concerning the administration, operations and financial condition of IDBI and its subsidiaries, in respect of the Project, and of the SFCs. Section 4.02. The Bank and IDBI shall promptly inform each other of any condition wbich interferes with, or threatens to interfere with, the accomplishment of the purposes of the Loan, the performance by either of them of its obligations under this Agreement or the performance by the Borrower and IDBI of their respective obligations under the Subsidiary Loan Agreement. Section 4.03. IDBI shall inform the Bank, in sufficient time for its comments, of any proposed amendment to the operating - 12 - guidelines referred to in Section 2.02 (c) (i) of this Agreement or to any institutional development program referred to in Section 2.02 (c) (ii) of this Agreement. Section 4.04. IDBI shall inform the Bank of each SFC's debt service coverage ratio, as determined in accordance with the pro- visions of sub-paragraph (iii) of Section 2.02 (c) of this Agree- ment, within forty-five days after each date specified therein. Section 4.05 IDBI shall enable the Bank's representatives to inspect the records referred to in Section 3.01 of this Agreement and any relevant documents. - 13 - ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Bank and of IDBI thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Loan Agreement shall terminate in accordance with its terms; or (ii) a date 18 years after the date of this Agreement. (b) If the Loan Agreement terminates in accordance with its terms before the date specified in paragraph (a)(ii) of this Sec- tion, the Bank shall promptly notify IDBI of this event. Section 5.03. All the provisions of this Agreement shall con- tinue in full force and effect notwithstanding any cancellation or suspension under the Loan Agreement. -14- ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INTBAFRAD Washington, D.C. For IDBI: Industrial Development Bank of India New India Centre 17 Cooperage Bombay 1, India Cable address: INDBANKIND Bombay - 15 - Section 6.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of IDBI may be taken or executed by its Managing Director or such other person or persons as IDBI shall designate in writing. Section 6.03. IDBI shall furnish to the Bank sufficient evi- dence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of IDBI, take any ac- tion or execute any documents required or permitted to be taken or executed by IDBI pursuant to any of the provisions of this Agree- ment. Section 6.04. This Agreement may be executed in several counter- parts, each of which shall be an original, and all collectively but one instrument. -16- IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ E. Stern Regional Vice President South Asia INDUSTRIAL DEVELOPMENT BANK OF INDIA By /s/ T. N. Kaul Authorized Representative - 17 - SCHEDULE 1 Principal Terms of IDBI Refinancing 1. In respect of sub-loans for small-scale Investment Enterprises covered by the Borrower's Credit Guarantee Scheme, sub-loans to technician-entrepeneurs and sub-loans for Investment Projects in backward areas, the SFC concerned shall pay interest at the rate of not less than eight per cent (8%) per annum and eight and three- quarters per cent (8-3/4%) per annum in respect of all other refi- nancing upon the foreign currency component of the principal amount of the refinancing withdrawn and outstanding from time to time. 2. Except as the Bank may otherwise agree, the SFC concerned shall pay a commitment charge at a rate of one per cent (1%) per annum upon the unwithdrawn amount of the refinancing. 3. The principal amount of the refinancing shall be repaid by the SFC concerned in accordance with an amortization schedule to be agreed between IDBI and said SFC, but the period thereof shall not extend beyond fifteen (15) years and provision shall be made for prepayment in the event that a sub-loan or any part thereof shall be repaid by the Investment Enterprise in advance of maturity or if a sub-loan or any part thereof shall be sold, transferred, as- signed or otherwise disposed of for value by the SFC concerned. 4. The SFC concerned shall agree to implement the operating guidelines and the institutional development program referred to - 18 - in Section 2.02 (c) (i) and (ii) of this Agreement, and to meet the debt service coverage ratio specified in Section 2.02 (c) (iii) of this Agreement, and IDBI shall have the right, inter alia, to call for prepayment of the principal amount of the refinancing in the event that the SFC concerned will have ceased to be eligible for refinancing under the provisions of Section 2.02 (c) of this Agreement. - 19 - SCHEDULE 2 Principal Terms of SFC Lending 1. In respect of sub-loans for small-scale Investment Enterprises covered by the Borrower's Credit Guarantee Scheme, sub-loans to technician-entrepeneurs and sub-loans for Investment Projects in backward areas, the Investment Enterprise concerned shall pay inter- est at a rate of not less than eleven and one-half per cent (11-1/2%) per annum and twelve per cent (12%) per annum in respect of all other lending upon the foreign currency component of the principal amount of the sub-loan withdrawn and outstanding from time to time. 2. Except as the Bank and IDBI may otherwise agree, the Invest- ment Enterprise concerned shall pay a commitment charge at a rate of one per cent (1%) per annum upon the unwithdrawn amount of the sub-loan. 3. The principal amount of the sub-loan shall be repaid by the Investment Enterprise concerned in accordance with an amortization schedule to be agreed between the SFC and the Investment Enterprise concerned, but the period thereof (including any period of grace) shall not extend beyond fifteen (15) years.