M/S. Paam Pharmaceutical (Delhi) ... vs Union Of India And Others
2000 Latest Caselaw 810 Del

ORDER

Arijit Pasayat, C.J.

1. Petitioner challenges order dated 26th May, 2000 passed by the Appellate Authority for Industrial and Financial Reconstruction, (in short, AAIFR). By said order it was held that petitioner is not a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985 (in short the Act). Factual background in a nutshell is as follows:

2. Reference under Section 15(1) of the Act was filed by the petitioner before the Board for Industrial and Financial Reconstruction (in short, BIFR). Reports had been received from Industrial Development Bank of India, (in short, IDBI), and Punjab National Bank (in short PNB) that the company's operations had been manageable till 1996-97, but it incurred huge loss of Rs. 130.86 crores during the period ending 30.9.1998 mainly on account of very high interest expenses of Rs. 46.82 crores. For previous year the loss was Rs. 13.20 crores for 12 months. Provision for bad debts to the extent of Rs. 43.90 crores (previous year -nil) and loss of Rs. 16.55 crores shown during the period due to expired/soiled goods (previous year nil). From the nature of exceptional loss/provision shown by the company in one accounting period it appeared that an attempt by the company to avoid suits filed/likely to be filed against them would not be fruitful. BIFR noted that IDBI had not given any direct comments whether the company was sick or not. It noted that Drug Controller certified about destruction of stocks lifted from debtors, and Rs.16 crores worth of stocks were destroyed because they were not fit for human consumption and were destroyed in the presence of Drugs Inspector. Interest cost had gone up because the company had to borrow from outside source at a very high rate of interest. It had purchased high value rawmaterial for Bhiwadi Expansion Project, but because of the entry of multinational companies, it had a tough time competing with them. Ultimately, it was concluded that petitioner was a sick company. It was of the opinion that company could not revive on its own and it was necessary in public interest to take measures provided under Section 18 of the Act. Accordingly, it appointed IDBI as the Operating Agency, (OA, for short,) under Section 17(3) to examine the viability of the company and for formulating a rehabilitation scheme for its revival if it was found viable. Said order of the BFIR was challenged in appeal before AAIFR by respondent No. 5. The said respondent is a creditor of petitioner company and is hereinafter referred to as creditor. It gave deposit against personal guarantee of Anil Bhargava, Chairman of the company and Arvind Bhargava, Director besides the security station by way of pledge/transfer of equity shares of petitioner company and Pam Drugs and Pharmaceuticals Ltd (in short PDPL) which were declared to be freely transferable. It was noticed by the creditor that shares of PDPL given as security to it for its inter corporate deposits were duplicates and were under the lockin period, whereas endorsement of lock in period was not made on the share certificates. It was therefore, defrauded by petitioner and its CMD Additionally, it was stated that the company was not a sick one and by manipulating records a show of sickness was being presented. AAIFR found certain factual aspects to be of relevance and ultimately held that petitioner was not a sick company. Several irregularities were highlighted by it by observing that there was manipulation of records and attempt to present a very bleak picture of financial position. It noted that there was a claim of destruction of certain articles on 10.7.1998. These were stated to be expired goods. With respect to claim of expired goods, it was pointed out that such goods can be related only to previous years' production and not from current year's production because normally expiry period of drugs mentioned in the list of drugs alleged to have been destroyed exceeds two years. Again spoiled goods do not form part of the valued inventory and in the account for financial year 1997 there was no mention of expired or spoiled goods being carried over to current year value of inventory i.e. as on 31.3.1997 was Rs. 40.90 crores. (rounded off) which is reduced to 8.35 crores (rounded off) as on 30.9.1998 without corresponding increase in sales. It was observed that petitioner did not comply with the PNB's demand for information about movement of certain stock (ten items). List of goods which petitioner claimed to have destroyed by burning on 10.7.1998 includes those ten items of stocks and exactly the same quantities, apart from about 2 million units of 69 formulations of various medicines. No intimation was given to PNB or any other member of consortium banks about the proposed destruction. PNB had sought details about movement of ten items of raw materials because these were not found in stock at the time of the visit of representatives of the consortium banks and no evidence about their movement was produced. AAIFR found it strange that a prudent person who wants to destroy goods which are hypothecated to banks or against which he has taken finance from banks, would insist on prior consent of such banks to the proposed destruction and would also insist that a representative of the bank would remain present to certify the destruction of goods. This was not done. It was also noticed that though a certificate stated to have been issued by Senior Drugs Inspector was produced, the same did not indicate batch numbers, dates of manufacture and dates of expiry and no affidavit from the Senior Drugs Inspector was produced. Another factor which weighed with AAIFR was that petitioner had made a provision of Rs. 43.90 crores for bad debts in the year ending 31.3.1998. Rs. 8.79 crores was shown to be due for more than six months. Figure increased to Rs. 83.13 crores in the next financial year. This was unusual as the difference was Rs. 74.34 crores when the sales turnover of the year ending 31.3.1998 was Rs. 92.85 crores. Bad debts were claimed with a view to inflate debtors figures and claim bad debt. It was further indicated that there was a claim of destruction of expired date drugs on 15.1.1999. Here again, defects were noticed. Quantities said to have been destroyed works out to 2 billion units of 66 formulations in 35,61,047 packaging. Quantity amounts to more than 100 large size truck load. AAIFR found it mind boggling that on one working day such a huge stock could be destroyed. Another interesting feature which AAIFR noticed was that at the time of hearing before BFIR on 31.3.1999 counsel had stated that they would furnish a personal affidavit from CMD along with amount wise details of the stock destroyed as also a certificate from the Chartered Accountant in this regard within a week. Copies of documents presented by petitioner in its reply indicate the CMD's affidavit is dated 12.4.1999, it is attested by oath commissioner on 15.4.99. Chartered Accountant's certificates are dated 25.6.99 which are based on certification by the management. The dates clearly indicate the unreliability of these documents.

 

3.  AAIFR on analysis of the factual position recorded the following finding    

   (a) Shri Anil Bharvaga's grievance that the appellant has come    in appeal even though most of its dues have been settled and paid    has no force in favour of PPL. The appellant is a creditor of PPL    and is adversely affected by the impugned order and, therefore,    has a statutory right of appeal u/s. 25 of SICA. 
 

   (b) Shri Ail Bhargava's contention regarding red tapism in bank    and their not coming up as appellants does not have any force in    favour of PPL. 
 

   (c) Shri Anil Bhargava's contention that PPL had become sick    much earlier is not borne out by PPL/s accounts which show that    up to financial year 1997 it was a profit making and dividend    paying company. 
 

   (d) Shri Anil Bhargava's contention based on inadequacy of cash    credit facility from banks is also not borne out by PPL's accounts. Shortterms loans as cash credit facility from banks    against hypothecation of raw materials, works in process, finished goods and books debts were, according to the PPL's accounts: Rs. 17.14 cr (FY 96), Rs. 27.42 cr (FY 97) and Rs. 43.50    cr (FY 98). Despite increase in the exposure of banks during FY    98, sales drastically declined. 
 

   (e) Note "4" of Notes on Account for FY 97 indicates, as referred to in paragraph 7(a) above, that the value of realization    of current assets (which inter alia include sundry debtors) in    the ordinary course of business will not be less than the amount    at which they are stated in the balance sheet. If this is correct, the entire provision of Rs. 43.90 crores for bad and doubtful debts relates to the sales during FY 98. Such a huge write off of "receivables" without any effort for recovery is not    accepted. 
 

   (f) The story of destruction of expired date drugs valued at Rs.    33.88 crores (rounded off) on 15.1.99 (PPL claims these to be    part of the provisions for bad and doubtful debts during FY 98    ended on 30.9.98) is not acceptable as discussed below: 
 

   (g) PPL had availed of finance from banks against the stocks    purported to have been destroyed on 15.1.99. Any honest and    prudent person, wanting to destroy goods hypothecated to banks    from whom he has taken finance therefore, would insist on creditor banks to send their representatives to verify physically and    remain present at the time of destruction. PPL did not act in    this manner. In fact, even intimation of the proposed destruction    was not given by PPL to the creditor banks. 
 

   (h) The zerox copy of the certificate purported to have been    given by the Regional Inspector of Drug on 15.1.99 does not    indicate the place and mode of destruction. Again, it does not    indicate the batch number, the date of manufacture and the date    of expiry against any of the items in the list. 
 

   (i) The quantity stated to have been destroyed works out to two    billion (200 crores) units of drugs 66 formulations (tablets,    capsules, syrups, injections) in 35,61,047 packaging; the quantity amounts to more than 100 large size truckloads. The amount of    effort (in terms of manpower, size of incinerators, power or    fuel, if destruction is by burning, etc.) for physical verification and destruction of such a huge quantity in the span of one    working day is mind boggling. PPL claimed in response to a query    from the Bench that no witness was present apart from the Regional Drug Inspector and PPL's representative. 
 

   (j) No affidavit from the Regional Drug Inspector has been    produced and there was no cross examination. The contention of    the learned counsel for PPL based on Section 114 of the Indian    Evidence Act and illustration (e) thereunder is rejected on the    ground of absolute improbability.  
  

4. Learned counsel in support of the writ petition submitted that the conclusions arrived at by AAIFR are contrary to the materials on record. By way of illustrations, it is stated that AAIFR has come to a conclusion that destruction of such a large quantities of drugs was not possible on a single day. It was his case that the destruction took place on two days and he has referred to the certificates annexed as Annexure 2 to the additional affidavit filed on 17-7-2000. They show that destruction of certain drugs was done on two dates, i.e., 16.7.1998 and 15.1.1999. Further, as required under section 25(2) AAFIR should have directed further enquiry, because such action is inherent by use of the expression "as deems fit". It was further submitted that creditor had sought permission for withdrawal of the appeal before AAIFR. Later on, an application was filed withdrawing the same. The matter finally came up before this Court and by an order dated 24th May, 2000 in CW 133/2000 this Court directed the AAIFR to consider the effect of the application for withdrawal and acceptability of the prayer for withdrawal of the application. Reliance is placed on a decision of Allahabad High Court in Raisa Sultana Vs. Abdul Qadir to contend that withdrawal of the application to withdraw a case is not permissible in law. Further, it is submitted that the appeal before the AAIFR was barred by limitation. Learned counsel for the respondent submitted that findings of the AAIFR have been arrived at by analysing factual aspect in detail and scope of interference in this petition is extremely limited. There being no perverse or arbitrary finding, this writ petition is not maintainable.

5. We have considered rival submissions. We find, the conclusions arrived are on the factual aspects. Though it has been urged at the time of hearing that the destruction of drugs took place on two dates, i.e., on 16-7-1998 and 15-1-1999, there is not even a mention of this aspect in the writ petition. Interestingly, before the BIFR and AAIFR, it was stated that the drugs were destroyed on 10.7.1998. Correctness of the date has not been questioned and therefore the two documents filed at the fag end of the hearing are of no consequence more particularly when discrepancy in dates has not been explained. Another relevant factor which the AAIFR has taken note is the nonintimation of alleged destruction to the banks and financial institutions with whom the goods were hypothecated. A faint attempt was made to submit that the banks and financial institutions were aware of the destruction. Here again, there is no pleading in the writ petition so far as the claim of intimation regarding destruction said to have been given in any manner to the banks/financial institutions. The averments made in the additional affidavit cannot take the place of pleadings in the writ petition and therefore it does not in any way assist the petitioner. In other words, there is no challenge to the factual conclusion of the AAIFR. The conclusions of AAIFR about claim of bad debts reveal a sinister design in the background of figures shown for bad debts and sales for the relevant periods. The conclusions of AAIFR quoted above have been arrived at after analyzing factual position in detail. These are conclusions of fact and unless they are perverse or unreasonable, there is no scope for interference under Articles 226 and 227 of the Constitution of India, 1950 (in short Constitution). Jurisdiction under Article 227 must be sparingly exercised and may be exercised to correct errors of jurisdiction and the like but not to upset pure findings of fact, which falls in the domain of the concerned Court, Tribunal or forum only. (See Khimji Vidhu Vs. Premier High School, 2000 AIR SCW 2333). Exercise of power under Article 227 can be done only in cases of:

(i) Erroneous assumption or excess of jurisdiction.

(ii) Refusal to exercise jurisdiction.

   (iii) Error of law apparent on the face of the records as distinguished from a mere mistake of law or error of law relating to    jurisdiction. 
 

   (iv) Violation of the Principles of natural justice. 
 

   (v) Arbitrary or capricious exercise of authority, or discretion. 
 

   (vi) Arriving at a finding which is perverse or based on no    material. 
 

   (vii) A patent or flagrant error of procedure. 
 

   (viii) Order resulting in manifest injuries.    

   The case at hand does not suffer from any of the enumerated deficiencies to warrant interference. 
 

6. Two other aspects remain to be considered. First relates to the question of limitation. It is the stand of the petitioner that the appellant before AAIFR i.e. Goyal MG Gas Ltd., had no right under law to file the appeal against the order dated 31.3.1999 passed by BIFR since it is only unsecured creditor. In any event last date for filing the appeal was 24.6.1999 even if the time requisite for obtaining certified copy is excluded and therefore appeal was filed beyond permissible period of limitation. This plea is clearly untenable. Section 25 of the Act deals with the period of limitation. Same reads as follows:

   Appeal. -(1) Any person aggrieved by an order of the Board made    under this Act may, within forty five days from the date on which    a copy of the order is issued to him, prefer an appeal to the    Appellate Authority: 
 

   Provided that the Appellate Authority may entertain any appeal    after the said period of forty five days but not after sixty days    from the date aforesaid if it is satisfied that the appellant was    prevented by sufficient cause from filing the appeal in time. 
 

   (2) On receipt of an appeal under subsection (1), the Appellate    Authority may, after giving an opportunity to the appellant to be    heard, if he so desires and after making such further inquiry as    it deems fit, confirm, modify or set aside the order appealed    against or remand the matter to the Board for fresh consideration.    

AAIFR, has noted by order dated 30.12.1999 that the period of limitation has to be counted from 10-5-1999, i.e., the day when true copy was supplied by BIFR to Goyal MG Gas Ltd. respondent No.5 Learned counsel for the petitioner stated that the said Goyal MG Gas Ltd appeared in the Court through a counsel and was aware about the order passed by BIFR and had applied for a certified copy on 19.4.1999 and a certified copy was delivered on 10.5.1999 and the appeal was filed on 24.6.1999. Reading of Section 25 shows that appeal has to be filed within 45 days from the date on which a copy of the order is issued to the person aggrieved. A further 15 days time is allowed if the appellate authority is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the prescribed period. Language of Section 25 makes it clear as to from what date period of limitation starts. Appeal can be filed by any person aggrieved by an order of the Board made under the Act. Appellant need not necessarily be a person who was party before the BIFR. The appeal can be filed within fortyf ive days from the date on which a copy of the order is issued to him. On sufficient cause being shown it can be extended upto sixty days, in terms of first proviso to the Section. Obviously the issuance of the order is an act to be done by the Board. It would be also relevant to take note of the provisions contained in Regulation 15 of the Board of Industrial and Financial Reconstruction Regulations 1987 (in short the "Regulation"). The said provisions read as follows:

"Authentication and communication of orders of the Board-

   (1) All orders and decisions of the Board shall be authenticated    by the signature of the Chairman or any other member, or the    Secretary, or any other officer empowered in this behalf by the    Chairman, and bear the official seal of the Board. 
 

   (2) Every order of the Board shall be communicated under the    signature of the Secretary or any other officer of the Board duly    empowered by Secretary, in this behalf.    

The requirements of Regulation 15 are (a) that the order of the BIFR shall be communicated, (b) the Communication has to be under the signature of the Secretary or any other officer of the Board duly empowered by the Secretary in this behalf, Obviously, the order has to be issued by the Board and the manner in which it is to be authenticated is laid down in clause (2) of Regulation 15. Learned counsel for respondent No.3 submitted that word used is "issued" and not "served" and the person who shall issue is not specifically provided and knowledge from any source other than BIFR would suffice. We do not find any substance in the arguments. The scheme of the statute makes it clear that issuance of the order is an act to be undertaken by BIFR. For the purpose of computation of period of limitation, date of service has to be the effective date. Otherwise a person would be rendered remediless if the order is served after forty five days or sixty days as the case may be from the date of issue. "To issue" means to send out, to send out officially, to send forth; to deliver, to put into circu lation; to exit, to go out. The expressions "issued" and "served" are used as interchangeable terms both in dictionaries and various statues. The dictionary meaning of the word "issue" is "the act of sending out, put into circulation, deliver with authority or delivery (see Banarsi Devi Vs. Income tax Officer, ). In Commissioner of Wealth tax Vs. Kundan Lal Behari Lal, , in the context of Section 16(2-A) of Wealth-tax Act, 1957 it was held that: "issued" means "served".

In that view of the matter the appeal filed by Goyal MG Gas Ltd was within time. There is no bar on unsecured creditor preferring an appeal. The expression used is "any person aggrieved". If unsecured creditor is aggrieved by the order impugned certainly it can file an appeal.

7. The residual question is whether the AAIFR was justified in rejecting the application for withdrawal of the application filed to withdraw the appeal. Though it is submitted by the petitioner that the order dated 24.5.2000 of this Court was not kept in view, we find no substance in the plea. The order shows that it was ready on 12.1.2000 for signature, but because of an interim order passed on 12.1.2000, the order was not signed. The appellant before AAIFR had filed an application for withdrawal dated 8- 12-1999 on 10.1.2000 and order thereon was reserved. In para 14 of the order, reasons have been indicated as to why prayer for withdrawal of the appeal were rejected. The reasons are as follows:

"On 10.1.2000, the learned counsel for the appellant presented an application for withdrawal of the appeal. From an analysis of PPL's account for FY 98, we have come to the conclusion that the accounts are falsified and fabricated to claim sickness by surreptitious and fraudulent and absolutely improbable transactions claiming destruction of drugs worth Rs. 50.43 crores. After arguing and exposing the fraud and falsification and fabrication of the accounts of PPL, it is not open to the appellant to come up with a request for withdrawal of appeal. The application for withdrawal of appeal is rejected."

We find no infirmity in the conclusion recorded in the said order. The decision in Raisa Sultana's case (supra) has no application to the facts of the case as it was rendered conceptually in different situation and background. Though several other points have been taken in the writ petition they were not urged at the hearing. Writ petition is without any merit and deserves dismissal, which we direct.