Rajesh P. Ghatalia vs Appellate Authority For Indus And ...
1995 Latest Caselaw 426 Del

JUDGMENT

D.P. Wadhwa, J.

(1) In this petition under Article 226 of the Constitution of India the petitioners seek a writ of certiorari or any other writ, order of direction requiring the first respondent to consider the proposal of the petitioner along with that of third respondent for rehabilitation of the second respondent, a sick industrial company, and then to accept the same, if found to be viable.

(2) The second respondent was declared a sick company within the meaning of clause (o) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985, (for short 'the Act'). This was by an order of the Board for Industrial and Financial Reconstruction (for short 'the BIFR') established under the Act. Since the Bifr was of the opinion that that the second respondent was not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof was not likely to become viable in future and that it was just and equitable that the company should be wound up, it directed that the second respondent be wound up. This was by order dated 20 October 1993. The second respondent filed an appeal against this order before the Appellate Authority, also constituted under the Act. From the order of the Bifr it would appear that a great deal of efforts were made to see if the second respondent Would be revived and/or rehabilitated. The Bifr also examined the report of the Operating Agency, respondent No.4. It also noticed that the banks and the financial institutions had no objection to the proposed winding up of the second respondent. Yet thr Bifr examined another proposal of the second respondent for taking over its assets by M/s. Pluto Chemicals Ltd. for a certain amount payable over the time frame of three years. The Bifr found prima facie that the proposal for acquisition of assets without liabilities might not be acceptable to financial institutions/banks. Since the operating agency had already concluded that the second respondent would become commercially non-viable on its present operations and could not be revived unless resourceful entrepreneur joined the promoters to put up facilities for forward integration at substantial cost, and that there being no acceptable proposal for rehabilitation of the second respondent, it, therefore, concluded that the second respondent be wound up. In its order dated 20 October 1993 the Bifr laid certain guidelines and terms and conditions for sale of assets of the second respondent.

(3) The second respondent filed an appeal against this order before the Appellate Authority, also constituted under the Act. Before the Appellate Authority it was emphasised that proposal of Pluto Chemicals Ltd. had not been given due consideration and that there was possibility of revival of the sick industrial company. The Appellate Authority found that the Bifr had given adequate opportunity to the sick industrial company, the second respondent, to rehabilitate itself or to bring some new entrepreneur to be a co promoter or to take over the company. The Appellate Authority found substance in the conclusion arrived at by the Bifr that proposal of Pluto Chemicals Ltd. to acquire the assets of the second respondent for Rs. 170 lakhs was incomplete as it did not indicate the revival of the sick industrial company. The Appellate Authority also noticed that the banks and financial institutions were also correct in hot objecting to the winding up of the company in that situation. However, on the request of the appellant, the second respondent, and there being no objection from the financial institutions and the banks, the matter was adjourned by the Appellate Authority for some discussion regarding revival of the company. Since it was submitted by the sick industrial company, the appellant, that Pluto Chemicals Limited was still interested and was prepared to improve upon the position, as was stated before the Bifr and that was supported by the banks and the financial institutions, the Appellate Authority gave more lime to the sick industrial company to have its efforts with Pluto Chemicals Limited in case that company was prepared to improve upon its previous proposal so as to make it possible for the sick industrial company to revive. For this purpose the case was adjourned by order dated 29 July 1994. When it was stated before the Appellate Authority that apart from Pluto Chemicals Limited there were other parties also interested in the revival of the company, the Appellate Authority declined that request and said that it would not enter into the field of permitting new parties coming and exploring the possibility of the revival of the company. Aggrieved by this observation, the petitioner, who claims to be interested in the revival of the second respondent, has filed this petition. It is prayed that the Appellate Authority be directed to consider its proposal for rehabilitation of the second respondent, the sick industrial company.

(4) On filing of this petition, we issued notice to show cause as to why rule nisi be not .issued and in answer thereto respondents 5, 6 and 7 do not object to the prayer being allowed. There is no response from respondent No.4, the Operating Agency, and from that it would appear that it also has no objection to this petition being allowed. Situation now before us is that the banks and financial institutions support the petition, of course it has also the support of the second respondent, the sick industrial company. The Appellate Authority had noticed that the matter had been pending for number of years and no solution could be found in spite of the efforts of the Bifr who had no alternative but to recommend the winding up of the company. In any case, this order of the Bifr has been suspended for a short time till the fresh proposal of Pluto Chemicals Limited is examined. Considering the object of the Act and the decisions of the Supreme Court in (1) Navnit R. Kamani v. R.R. Kamani Maharashtra Tubes Ltd. v. Stale Industrial & Investment Corporation of Maharashtra Ltd. and another and also taking into account the support from the banks and the. financial institution, we arc of the view that it is in the interest of the sick industrial company that the proposal of the petitioner is also examined by the Operating Agency. Petitioner has stated before us that to show its bonafide it is willing to deposit Rs. 7,50,000.00 in no lien account with the bank or the financial institution to be adjusted against its contribution towards rehabilitation of the sick industrial company if its proposal was found favorable. We will not go into the question of the deposit of this amount and it will be left to the Appellate Authority to fix the amount to be deposited in a no lien account and then to get the proposal of the petitioner examined by the Operating Agency. To that extent, we will modify the order dated 29 July 1994 of the Appellate Authority. Let the parties appear before the Appellate Authority on 5 June 1995 or on any other date as may be fixed by the Appellate Authority. With these observations, this petition stands disposed of.