Hindustan Transmission Products ... vs Appelate Authority For ...
2001 Latest Caselaw 321 Del

ORDER

Arijit Pasayat, C.J.

1. Challenge in this writ petition is to the orders dated 14th March 2000, 21st May, 1998 and 5th August 1999, passed by Appellate Authority for Industrial and Financial Reconstruction (in short "AAIFR") and the Board for Industrial and Financial Reconstructions (in short "BIFR") respectively in proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 (in short "Act").

2. In a nutshell the background facts are as follows:-

Petitioner set up a unit for manufacturing Super Enamelled Copper wires at Chandivali, Mumbai in 1958. Subsequently it set up another unit at Waluj, Aurangabad for manufacturing Copper wires. Commercial production commenced in the second unit in September 1992. A lock-out was declared at the 1st unit in January 1993. Subsequently, in September 1995 lock-out was declared at the second unit. Lock-out declared at the second unit was lifted in April 1996. On 15th January 1996 petitioner made a reference to the BIFR under Section 15(1) of the Act. On 18th March 1996 BIFR declared the petitioner a sick company within the meaning of the Act and appointed Industrial Development Bank of India (in short "IDBI") as the Operating Agency (in short "O.A.) to formulate a rehabilitation scheme. In the order, it was mentioned that, it would not be practical for the company on its own to make its net worth exceed its accumulated losses within a reasonable time. In view thereof, it was felt necessary in public interest to adopt the measures specified in Sections 18 & 19 of the Act. As indicated above, IDBI was appointed as the O.A. under Section 17(3) of the Act to prepare a rehabilitation report, keeping in view the guide-lines indicated. By order dated 21st May 1998, BIFR observed that the company was no longer viable ad was not likely to make its net worth exceed its accumulated losses within a reasonable time while meeting all its obligations. In that background, it was considered just and equitable and in the larger pubic interest to wind up the company. On 30th June 1998, petitioner filed an appeal before the AAIFR, which was numbered as Appeal No. 79/98. By order dated 29th January 1999, AAIFR dismissed the appeal. On 5th August 1999 BIFR, in the proceedings held to hear objections/suggestions to the show cause notice for winding up, confirmed its prima-facie opinion that petitioner was not likely to make its net worth exceed its accumulated losses within a reasonable time, while meeting all its financial obligations, and as a result thereof was not likely to become viable in future. In essence, it was held that, it was just and equitable and in public interest that the company should be wound up under 20(1) of the Act. Petitioner preferred an appeal, which was numbered as Appeal No. 4/2000 against BIFR's order dated 5th August 1999. By the impugned order dated 14th March 2000 the appeal was dismissed.

3. In support of the writ petition, it was strenuously urged that after having taken resort to 17(3) of the Act, it was not open either to BIFR or AAIFR to conclude that, there was no scope for any viability. Winding up of a sick company brings in a civil death and should be the last resort. Looking at the object for which the Act was enacted, the course adopted by the BIFR and AAIFR is not legal and proper. Effort should have been made to see that the extreme step of winding up is not resorted to. There was no scheme submitted by O.A. inspite of specific directions by the BIFR. After having applied its judicial mind and taken a decision that provisions of 17 are to be applied, it was not open to the BIFR to recommend winding up. By such a recommendation purpose of enactment of the Statute, has been frustrated. With reference to a Division Bench decision of this Court in Upper India Couper Paper Mills Company Ltd. vs. Appellate Authority for Industrial & Financial Reconstruction & Others 1994(4) (DB) Delhi Lawyer 209, it is submitted that there was no application for review made by O.A. in case it was of the view that formulation of a scheme was not practicable or possible. That course having not been adopted, the orders passed by the BIFR and AAIFR are indefensible.

4. In order to appreciate the petitioner's stand, certain provisions, which throw light on the issues involved, need to be set out. They are Sections 15, 16, 17 and 18 and read as follows:

"Sec. 15 Reference to Board -

(1) When an industrial company has become a sick industrial company, the Board of Directors of the company, shall, within sixty days from the date of finalisation of the duty audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the Board for determination of the measures which shall be adopted with respect to the company:

Provided that if the Board of Directors had sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the Board of Directors shall, within sixty days after it has formed such opinion, make a reference to the Board for the determination of the measures which shall be adopted with respect to the company. XXX XXX XXX XXX XXX

Sec. 16 Inquiry into working of sick industrial companies -

(1) The Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company-

(a) upon receipt of a reference with respect to such company under section 15; or

(b) upon information received with respect to such company or upon its own knowledge as to the financial condition of the company.

(2) The Board may, if it deems necessary on expedient so to do for the expeditious disposal of an inquiry under sub-section (1), require by order any operating agency to enquire into and make a report with respect to such matters as may be specified in the order.

(3) The Board or, as the case may be, the operating agency shall complete its inquiry as expeditiously as possible and endeavor shall be made to complete the inquiry within sixty days from the commencement of the inquiry. XXX XXX XXX XXX XXX

Sec. 17 Powers of Board to make suitable order on the completion of inquiry-

(1) If after making an inquiry under section 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be by order in writing, whether it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time.

(2) If the Board decides under sub-section (1) that it is practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, the Board, shall, by order in writing and subject to such restriction or conditions as may be specified in the order, give such company as it may deem fit to make its net worth exceed the accumulated losses.

(3) If the Board decides under sub-section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 18 in relation to the said company it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guide-lines as may be specified in the order, a scheme providing for such measures in relation to such company. XXX XXX XXX XXX XXX

Sec. 18 Preparation and sanction of Schemes-

(1) Where an order is made under sub-section (3) of Section 17 in relation to any sick industrial company, the operating agency specified in the order shall prepare, as expeditiously as possible and ordinarily within a period of ninety days from the date of such order, scheme with respect to such company providing for any one or more of the following measures, namely:-

(a) the financial reconstruction of the sick industrial company;

(b) the proper management of the sick industrial company by change in, or take over of, management of the sick industrial company;

(c) the amalgamation of-

(i) the sick industrial company with any other company; or

(ii) any other company with the sick industrial company;

(hereinafter in this section, in the case of sub-clause (i), the other company, and in the case of sub-clause (ii), the sick industrial company, referred to as "transferee company");

(d) the sale or lease of a part or whole of any industrial undertaking of the sick industrial company;

(da) the rationalisation of managerial personnel, supervisory staff and workmen in accordance with law;

(e) such other preventive, ameliorative and remedial measures as may be appropriate;

(f) such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified in clauses (a) to (e)

(3)(a) The Scheme prepared by the operating agency shall be examined by the Board and a copy of the scheme with modification, if any, made by the Board shall be sent, in draft, to the sick industrial company and the operating agency and in the case of amalgamation, also to any other company concerned, and the Board shall publish or cause to be published the draft scheme in brief in such daily newspapers as the Board may consider necessary for suggestions and objections, if any, within such period as the Board may specify.

(b) The Board may make such modifications, if any, in the draft scheme as it may consider necessary in the light of the suggestions and objections received from the sick industrial company and the operating agency and also from the transferee industrial company and any other company concerned in the amalgamation and from any shareholder or any creditors or employees of such companies:

Provided that where the scheme relates to amalgamation the said scheme shall be laid before the company other than the sick industrial company in the general meeting for the approval of the scheme by it shareholders and no such scheme shall be proceeded with unless it has been approved, with or without modification, by a special resolution passed by the shareholders of the company other than the sick industrial company.

(4) The scheme shall thereafter be sanctioned, as soon as may be, by the Board (hereinafter referred to as the 'sanctioned scheme') and shall come into force on such date as the Board may specify in this behalf:

Provided that different dates may be specified for different provisions of the scheme. XXX XXX XXX XXX XXX

5. Great emphasis has been laid on sub-section 3 of Section 17 of the Act and certain observations made by this Court in Upper India Couper Paper Mills Company Ltd. (Supra), more particularly, paragraph (25) thereof.

6. Before we deal with the applicability of the observations made by the Division Bench of this Court in the aforesaid case, a few relevant facts need to be noted. From various documents annexed to the writ petition, it appears that IDBI held a series of meetings. Petitioner has submitted several proposals, which were resoled from by the petitioner itself. Certain findings recorded by the BIFR and the AAIFR are of considerable importance. BIFR in its order dated 21st May 1998 had inter alia observed as follows:

"IDBI (OA) forwarded the Minutes of the Joint Meeting vide their communication dated 20.01.1998 to the Bench. All the participants in the Joint Meeting held on 7.1.1998 unanimously concluded that no workable and acceptable scheme could be framed based on the proposal submitted by the Company. The participants also took strong objection to the absence of the Company/promoters at the meeting, despite advance notice being sent by the O.A. Even on an earlier occasion neither the promoter nor any of the Directors has participated in the Joint Meeting convened by the OA and the Bench had, therefore taken strong exception to such conduct of the promoter in the hearing held on 15.10.1997. The Bench had specifically directed that in the next joint meeting/hearing of the Bench, the promoter(s) or atleast a Director of the Company must attend the proposed meeting.

The lead Bank viz. PNB vide its communication dated 4.3.98 informed the Bench that its dues are mounting and the bank has already indicated no confidence in the present Management of the Company. The Bank also informed that lack of seriousness on the part of the proposed co-promoters is evident from their conduct. The OA has already explored the possibilities of change of Management. However, no revival proposal was received by the OA.

This bench observes that no revival proposal is available with the Operating Agency. In view of the facts and circumstances explained above, it is clear that it will not be possible to take any further measures for the revival of the company/primarily due to the following reasons:

(a) the existing promoters are not in a position to submit any rehabilitation proposal.

(b) the OA did not receive any credible revival proposal in response to the action initiated by them for change in Management of the Company.

(c) It was not possible to form a Workers' Co-operative for revival of the Company."

7. From the quoted portion, it is clear that there was lack of seriousness on the part of proposed co-promoters and even there was absence of the petitioner company/its promoters at the meetings held. Lead bank i.e. Punjab National Bank (in short "PNB") has informed BIFR that its dues were mounting and it has no confidence in the present management. Lack of seriousness on the part of the proposed co-promoters was also stated to be evident. As would be apparent from paragraph 4(b) of the quoted portion, O.A. did not receive any credible proposal in response to the action initiated by them for change of management of the company. BIFR also noted that no revival proposal was available with the O.A. BIFR in its order dated 5th August 1999 also took note of its earlier order under Section 17(3) of the Act and the subsequent actions. It was noted inter alia as follows:

"Shri V.D. Shinde, DGM, IDBI (OA) submitted that as per the directions given by the Bench in July 1999, they convened a Joint Meeting on 3.8.1999 to consider the Company's proposal submitted in September, 1998. The Company's proposal envisaged leasing the Waluj Plant to an outside party and to restart the Mumbai Unit. He submitted that just before the Joint Meeting, the Company submitted a letter stating that it was not interested in running the Mumbai Unit and would offer VRS to the entire work force. The Company had also received a few offers from investors outside India for purchase of Waluj Plant and would need atleast 3 to 4 months to finalise the proposal. The consensus at the Joint Meeting was that adequate opportunities had already been afforded to the Company/promoters, there had been no response to the advertisements for change in Management, the Company was seeking further time and there was no rehabilitation proposal for consideration. The conclusion was that no workable scheme could be framed at present."

8. BIFR also noted that there was a challenge to its order dated 21st May 1998 before the AAIFR but it was dismissed by order dated 27th January 1999 (in appeal No.1 78/98). AAIFR in fact observed that, it was clear from the proceedings before BIFR that the company had been in that habit of putting up proposals and then raising questions about their own proposals, suggesting the need for further revision in their proposals. Nevertheless AAIFR had observed that, if a workable proposal acceptable to secured creditors was brought before BIFR by anyone in response to the show cause for winding up, it could still be considered by BIFR on merits. Though more than six months had elapsed since the order of the AAIFR, no comprehensive rehabilitation proposal with means of finance fully tied up was available for consideration. BIFR accordingly came to the conclusion that, the promoters were neither serious in rehabilitating the company nor were they resourceful enough to mobilise the funds required for rehabilitation of the company. Accordingly, forwarding of the opinion to the concerned High Court was directed. In the appeal before the AAIFR, order dated 21st May 1998 was challenged, as noted above in Appeal No. 4 of 2000. In the appeal, AAIFR noted that after passing of the order under Section 17(3) of the Act, petitioner proposed a scheme in its letter dated 30th April 1996 to the O.A., which examined the same and submitted report to BIFR. O.A.'s report was considered by BIFR on 23rd August 1996. As no workable rehabilitation scheme could be prepared on the basis of the petitioner's proposal, which had several gaps, petitioner was asked to give a revised proposal and O.A. was directed by BIFR to finalise its rehabilitation report after evaluation of the proposal. Petitioner submitted revised proposal on 21st August 1996 to O.A. but advised it on 17th September 1996 and 26th September 1996 to await the study report of Bombay Productivity Council. O.A. informed petitioner that its proposal was not acceptable because it sought reliefs and concessions beyond Reserve Bank of India's guide-lines. On 20th November 1996, BIFR directed petitioner to sort out the pending issues and submit a viable/credible rehabilitation proposal to O.A. within ten weeks. Again a revised proposal was submitted by the petitioner, which was examined by O.A., and thereafter considered by BIFR on 27th March 1997. Due to several shortcomings in the proposal, no workable rehabilitation scheme could be evolved and the financial institutions expressed a preference for one time settlement (OTS) of their dues. BIFR granted six weeks time to the promoters to submit their fresh proposal and directed O.A.. that if the promoters failed to submit a broadly acceptable proposal it should submit a status report to BIFR and issue advertisement inviting proposals for the rehabilitation of the petitioner by change in management. On 6th May 1997, promoters and the petitioner wrote to O.A. suggesting the main terms and conditions of the OTS proposal and by a subsequent letter dated 9th May 1997 sent the financial statements incorporating their OTS proposal. O.A. examined the rehabilitation proposal based on OTS of institutional dues, prepared a detailed background note and circulated it to all the parties with a letter dated 2nd June, 1997 for a joint meeting to be held on 10th June 1997. The proposal envisaged waiver of penal and compound interest and 90% of simple interest and payment of principal dues plus 10% of simple interest, payable with a condition of 25% down payment and balance in eight quarterly Installments commencing after six months from the date of down payment which was to be made within three months from the sanction of the scheme. It also envisaged permission from the State Government of Maharashtra, Bombay Municipal Corporation for sale of surplus land of the Bombay unit as well as closure of this unit and retrenchment of the entire workforce of Bombay Unit apart from certain other reliefs and concessions in respect of sales tax, power supply etc. The proposal envisaged a sacrifice of nearly Rs.14.87 crores from the financial institutions and PNB. There was no positive response to the advertisement inviting proposals for rehabilitation by change of management. Joint meeting convened by the O.A. was not attended by promoters. OTS proposal of the petitioner and/or the promoters was not acceptable to financial institutions and PNB. It was noticed that the petitioner had sold hypothecated goods and instead of crediting the sale proceeds with the PNB kept those in some other accounts with non-creditors banks and utilised them, thereby diluting PNB security. On 15th October 1997 BIFR gave further opportunity to the petitioner and the promoters to submit a viable acceptable proposal by 31st October 1997. A proposal was submitted to the O.A. on 27th October 1997. On 10th November 1997 BIFR directed petitioner to send a copy of the proposal to financial institutions/bank, secured creditors and also hold discussions with them and also directed O.A. to send its final report. The last proposal submitted was examined by the O.A. and by a letter dated 18th December 1997, it circulated a detailed note for a joint meeting to be held on 7th January 1998. Petitioner sent a letter requesting for adjournment of the joint meeting. Though O.A. informed them on telephone that the request was received at belated stage and meeting could not be postponed at this stage, nobody appeared on behalf of the petitioner and/or promoters on 7th January 1998. In its letter dated 5th January 1998 petitioner raised several issues and pointed out that the real estate value had declined and the realisable value was about Rs.19 crores as against the earlier estimate of Rs.30 crores and further stated that unless a reasonable and realistic estimate is confirmed it would be difficult to give any concrete and specific revision in its proposals. In the meeting held on 7th January 1998, it was pointed out on behalf of the O.A. that the expected realisation was about Rs.19 crores as against earlier estimates of Rs.30 crores, which would further affect viability of the petitioner and OTS of dues would be preferred alternative. Secured creditors wanted an OTS proposal envisaging payment of 100% principal and 100% simple interest due. PNB was not agreeable to increase its exposure by providing fresh need based working capital facilities as envisaged in the petitioner's proposal. PNB further wanted the sale proceeds from lend to be first utilised for payment of their dues as it was exclusively charged to them. It was specifically pointed out that the petitioner had depleted the current assets and did not deposit sale proceeds as indicated above and therefore the proposal was not workable. Representative of workers' union showed willingness to accept VRS for the entire workforce of Bombay unit only if compensation on the basis of 120 days of wages for every year of service rendered was made upfront whereas petitioner's proposal envisaged payment of compensation over a period of three years. In the joint meeting it was concluded that no workable and acceptable rehabilitation scheme could be framed on the basis of proposal submitted by the petitioner. O.A. submitted minutes of the joint meeting to the BIFR by a letter dated 20th January 1998. BIFR on consideration of the materials came to hold that it will not be possible to take any further measure for the revival of the petitioner because the existing promoters were not in a position to submit any rehabilitation proposal and the O.A. did not receive any credible revival proposal in response to the advertisement and it was not possible to form workers cooperative for revival of the petitioner. Accordingly, BIFR formed the prima facie opinion that petitioner was no longer viable and was not likely to make its net worth exceed its accumulated losses within a reasonable time while meeting all its financial obligations and that it is just and equitable and also in larger public interest to wind it up. Thereafter notice regarding winding up was issued. The same was assailed as aforestated before the AAIFR., Considering the background highlighted above, AAIFR rejected the appeal.

9. In the appeal before the AAIFR against order of BIFR dated 5th August 1999 AAIFR noted the earlier history of the case as was dealt with by it in detail in Appeal No. 79/98. After considering various stands, the AAIFR inter alia came to the following conclusions:

"HTPL is too heavily indebted. It is seen from the background note prepared by the IDBI (OA) for the Joint Meeting on 3/8/1999 that the principal dues of FIs (IDBI and IFCI) and PNB are Rs.14.10 crores, simple interest up to 30/09/97 amounted to Rs.6.35 crores, there were other secured loans under DPG and Higher Purchase (Rs.59 lacs). Unsecured loans (Rs.4.40 crores excluding interest) and current liabilities (Rs.17.67 crores though the dues of MMTC amounting to Rs.15.62 crores were disputed). IDBI (OA) had clearly stated that the dues were under-estimated. If compound and penal interest is taken into account and interest calculated till date, the dues of creditors would amount to about Rs.100 crores. There is no possibility of rehabilitating the HTPL (underlined for emphasis).

10. It is to be noted that the workers union was also heard and it was observed that order passed by the BIFR did not suffer from any infirmity, in view of the conclusions quoted above. So far as the workers are concerned, AAIFR noted that to safeguard their interest suggestion was made to the Hon'ble High Court that in case the opinion for winding up of the petitioner-company is accepted and the official liquidator is appointed an effort is to be made for the sale of Waluj unit as a going concern.

11. As indicated above, learned counsel for the petitioner has contended, with reference to the observations of this Court in Upper India Couper Paper Mills Company Ltd. (Supra) that once an order under Section 17(3) of the Act was passed, the O.A. had no option but to frame a scheme. In case it was not possible to frame a scheme the O.A. could have filed an application for review of the order passed by BIFR. At this juncture it would be appropriate to quote paragraph (25) of the judgment. Same reads as follows:-

"While passing an order under Section 17(3) of the SICA, the BIFR takes a conscious decision with regard to the question of expediency and public interest for preparation of a scheme by the operating agency. The fact that the BIFR did not direct winding up of the petitioner company immediately after making an enquiry under Section 16 shows that there was a reasonable ground for the BIFR to proceed under Section 17 instead of outright winding up of the company under Section 20. Once an order under Section 17(3) was passed by the BIFR it was incumbent upon the operating agency to prepare a scheme with respect to the petitioner company in the light of Section 18 of the Act. It is not disputed that the operating Agency did not prepare the scheme. It also seems that it did not seriously consider the Techno Economic Feasibility Project Report submitted by the petitioner. The operating Agency also failed to carry out the order of the Appellate Authority dated September 21, 1992 and as a consequence did not give its report as envisaged by the said order. Once an order under Section 17(3) of the Act was passed the operating agency had no option but to frame a scheme. In case it was not feasible to frame a scheme the operating agency could have filed an application for review of the order passed by the BIFR under Section 17(3) of the Act."

12. From the aforesaid conclusions of this Court, it cannot be inferred that in all cases an application for review has to be filed and without an application the BIFR cannot pass an order as regards the viability of a scheme or otherwise. In a given case the O.A. may come to a conclusion that it was not possible to formulate a scheme. It is certainly open to the O.A. to bring to the notice of the BIFR that it is not possible to frame a scheme. In that event, BIFR has undoubtedly jurisdiction to consider the matter and pass necessary orders. It would be an impossible requirement to ask OA to frame a scheme, whether viable or feasible or not. That certainly is not the requirement of law or import of the judgment. To hold otherwise would lead to an impractical situation, which is not in line with the legislative intent. Framing of a scheme inherently involves workability and feasibility, and is not intended to be an empty formality. Merely because a formal application for review has not been filed, it cannot be said that BIFR is precluded from Passing any order on the overall financial condition of the applicant company. In fact BIFR, as its orders, go to show, considered the non-feasibility of formulating a scheme. It also took note of its earlier order under Section 17 of the Act. Therefore, absence of a formal application for review by OA does not make a difference, when it has undisputedly placed all relevant materials for consideration of BIFR, and BIFR after considering them has passed the impugned orders. As the factual scenario described above would go to show the Authorities have dealt with the matter in great detail and analysed the background materials on record. It cannot be said that the conclusions suffer from any infirmity. 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 the "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 v. 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. Writ petition is without merit and is dismissed.