In Re: Bharat Steel Tubes Ltd. vs Unknown
2003 Latest Caselaw 852 Del

JUDGMENT

Mukundakam Sharma, J.

1. The present company petition was registered on the basis of a reference made by the Board for Industrial and Financial Reconstruction (BIFR) upon reaching a conclusion that the promoters of the company were not serious in rehabilitating the company nor were they resourceful enough to mobilize the funds required for this purpose and were only enjoying the protection under the Act unduly. The Board on the facts of the case was of the prima facie confirmed opinion that the respondent company was not likely to make its net worth exceed its accumulative 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. Accordingly, it recommended that it was just, equitable and in public interest that the respondent company should be wound up under Section 20(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The aforesaid opinion of the Board was forwarded to this Court on the basis of which this company petition was registered in this Court.

2. In the aforesaid company petition the applicants, namely, the owners of the property bearing No.16, Friends Colony (West), New Delhi have filed an application registered as CA No.1168/2002 praying for an order directing for handing over vacant, peaceful possession of the ground floor of the aforesaid property to the applicants, which was allegedly let out by them to the respondent company. In support of the aforesaid prayer the applicants have referred to the lease deed dated 11.6.1965 letting out the round floor premises by the mother of the applicants, who was the predecessor-in-interest of the said property to the respondent company. There is also an application being CA No.343/2003 filed by the workmen of the respondent company seeking for an order of this Court directing adjudication of the dues of the workmen and for payment of the same to them in view of the fact that they have not been paid their salary since 11.11.1988. The said applications and the main petition were listed before me for my consideration.

3. The respondent company made a reference to the BIFR under Section 15(1) of the Act. The respondent company has a factory at Ganaur, Sonepat District, Haryana, for manufacturing steel tubes, PVC pipes, etc. The said company also has an engineering project division undertaking contract work in different parts of the country. The factory in Haryana was closed from the end of October 1988 and the engineering division was working on a restricted basis when the aforesaid reference was made to the BIFR. On the basis of the aforesaid reference made by the respondent company, a case was registered by the BIFR and after hearing the parties, the BIFR appointed IFCI as the operating agency in the aforesaid case under Section 17(3) of the Act. The operating agency was directed to examine viability of the company and also to prepare a rehabilitation scheme. However, since there was not much of a progress and no rehabilitation scheme could be submitted regarding viability of the company, the BIFR recorded its opinion on 8.2.1994 that the company should be wound up. The company, however, preferred an appeal to the Appellate Authority, namely, Appellate Authority for Industrial and Financial Reconstruction (AAIFR). By an order dated 28.9.1995, the appellate authority remanded the case back to the BIFR for giving another opportunity to the company to formulate a revival proposal. Thereafter at the hearing held on 22.1.1996, the BIFR re-appointed IFCI as the operating agency. Even after the aforesaid remand by the AAIFR in September 1995, it took more than another two years to finalise the rehabilitation scheme, which was sanctioned on 27.11.1997. Even the aforesaid scheme could not be implemented. It is clear from the order of the BIFR that the company and the promoters did not comply with the monetary and non-monetary conditions contained in the sanctioned scheme. The BIFR has clearly recorded that the sanctioned scheme had not taken off at all and it was not given effect to by the company and no interest was shown by the company and its promoters in implementation of the scheme. It was also found by the BIFR that the company got the scheme sanctioned only to get protection under Section 22(1) for full nine years. In the meantime, the company/promoters also disposed of some of the assets / inventory, the proceeds of which were, however, utilised to pay only to IFCI and ICICI. In paragraph No.12 of the said recommendation the submission of the counsel appearing for the respondent company before the BIFR was recorded thus:-

''Shri Rajiv Tyagi, Advocate, representing BSTML, submitted that for change in the name of the company, a petition had to be filed before the Company Law Board and public notices had to be given. He acknowledged the fact that the Board and the secured creditors should have been informed about the change in the name of the company and regretted for the lapse. He submitted that Shri Raunaq Singh, Chairman of the group company had written to the Board and had requested that time up to 31.7.2000 may be granted to put the rehabilitation process in motion. He submitted that the promoters were not willing to risk their money under the threat of winding up and in the circumstances the Show Cause Notice should be withdrawn. Since winding up would not yield any fruitful results, further time up to 31.7.2000 may be allowed which would be in the interest of the workers and shareholders.''

4. After recording the submissions, the BIFR proceeded to record its findings. Relevant part of the said findings is extracted hereunder:

''para 15. At today's hearing, all the involved agencies and Banks had indicated that they did not have any objection, whatsoever, to the winding up of the company but in fact wanted that a decision be taken expeditiously. The company's representative could not indicate any positive steps that had been taken by the company/promoters after the last hearing and had not even complied with any non-monetary conditions contained in the sanctioned scheme. It was only mentioned that they had approached some foreign Bank for a loan for which some Consultants had been appointed and some preliminary work had been done. The promoters had neither tied up funds required for rehabilitation nor had they been able to restore any confidence in the secured creditors. As a result the situation had not changed to any appreciable extent except that some marginal efforts had been made to start operations.''

5. Being aggrieved by the aforesaid order passed by the BIFR, the respondent company preferred an appeal before the appellate authority. The said appeal was registered as Appeal No.153/2000. The appellate authority considered the plea raised on behalf of the respondent company and its promoters. In paragraph 7 of the order passed by the appellate authority, it was so recorded by the appellate authority in the following manner :

''We asked Shri Anil B. Divan as to how much amount the existing promoters can bring in immediately for payment to PNB and for the rehabilitation of the company. Shri Divan states that if a loan is sanctioned by the foreign financial institution, the company/promoters would be able to pay all the outstanding amount to the creditors but he is not willing to make any commitment on behalf of the existing promoters for induction of funds for the settlement of the dues of PNB. Under the scheme sanctioned by IFR in 1997, the promoters had undertaken an obligation to bring in Rs.53 cr. (Rs.38 cr. immediately i.e. in December 97, Rs.10 cr. within one year Rs.5 cr. within two years). The failure of the promoters to bring in their contribution under that scheme is a clear indication of their dishonest intention. The scheme was sanctioned by BIFR due to the promoters commitment to bring in Rs.53cr as well as additional funds to meet the shortfalls in the projections under the scheme. The scheme became a non-starter immediately after it was sanctioned because the amount of Rs.38 cr which was to be inducted by the promoters immediately after the sanction of the scheme, was not brought in . Consequently the amount of Rs.15 cr, which was required to be paid to PN by 31.1.98, has not been paid till date and the balance OTS amount of Rs.21 cr which was required to be paid in four half yearly Installments with interest at prime lending rate, has also not been paid till date. Moreover, the company has not denied that the securities of PNB have been diluted. In other words, the goods mortgaged to PNB have been sold and the proceeds have been utilised for purposes other than the payment to PNB. The so-called new facts, presented through a written application and also urged orally by Sh. Anil B. Divan, do not give any hope for the payment of the dues of PNB or for the rehabilitation of the company which is heavily indebted. Due to default in payment of OTS amounts to PNB, the original liability of the company to PNB sands restored along with further accrued interest. Even if a loan of Rs.30 cr is sanctioned by the foreign financial institutions, as urged by Sh. Divan, that will be too insufficient to pay the company's debt to PNB. The case has been before the BIFR for 10 years and the company/promoters have enjoyed protection under section 22 of SICA without any positive development during this period for the rehabilitation of the company. We do not see any possibility of rehabilitating the appellant company''.

6. After the aforesaid decision is rendered by the appellate authority dismissing the appeal filed by the respondent company,the respondent company preferred a writ petition challenging the legality of the aforesaid order of the appellate authority. The said writ petition was registered and numbered as CWP No.3499/2001. I called for the records of the said writ petition also. The petition was filed by the respondent company on 20.12.2000 but was returned to the respondent company, who was the petitioner in the said writ petition with office objections. On various dates the same were returned to the respondent with office objections when refiled thereafter. For the first time, the same was placed before the Court on 28.5.2001 when adjournment was sought by the petitioner/ respondent company herein. Even thereafter the company got the matter adjourned on various dates. On 4.2.2002 the said writ petition was withdrawn. Following order was passed by the Court on 4.2.2002:

''Learned counsel for the petitioner wishes to withdraw the writ petition. Accordingly the writ petition is dismissed as withdrawn.''

7. Having filed a writ petition challenging the legality of the said order passed by the appellate authority, the petitioner withdrew the said writ petition unconditionally. While permitting withdrawal of the writ petition no liberty was granted by the Court to the respondent company to re-agitate the aforesaid pleas as raised in the writ petition before any other Court/Forum after withdrawing the same. It is also interesting to note that even before withdrawal of the said petition, an objection was filed in the company petition by the respondent company, which was filed on 28.7.2001. Therefore, it was even more necessary for the respondent to seek liberty from the writ Court to press the pleas that were raised in the writ petition against the legality and validity of the order of the BIFR so as to enable the respondent to raise the said pleas in this Court. No such liberty was prayed for or was granted under Section 25 of the SICA. An appeal against the order of BIFR lies to the AAIFR. Against the order of AAIFR, the High Court exercises the jurisdiction of judicial review under Article 226 and 227 of the Constitution. The respondent company has gone through and availed of all the aforesaid forums. Therefore, the order passed by the BIFR has reached a finality, particularly when the writ petition was withdrawn by the respondent unconditionally.

8. However, since counsel appearing for the parties have also advanced arguments on the merit of the reference made and also on the legality of the orders of the BIFR and AAIFR, I propose to deal with the same as well in the present company petition.

9. It is contended by Mr.Tikku, appearing on behalf of the applicants-landlords that in view of the provisions of sub-Section (2) of Section 20, the High Court necessarily has to pass an order winding up the respondent company on the basis of the opinion of the Board. It was submitted by him that since the Board has opined and sent a recommendation to the High Court recommending winding up of the respondent company, the High Court shall proceed to wind up the respondent company on basis of the said recommendation as the expression used in the said sub-Section is 'shall', which according to him is mandatory. In support of his submission, he relied upon the decision of the Bombay High Court in Modistone Ltd. (ML) v. Ms.Apporva A. Kaiwal reported in (2003) 1 Comp. LJ 78 (Bom). The aforesaid submission of Mr. Tikku was adopted by all the counsel appearing for other creditors. The counsel appearing for the Punjab National Bank in support of his submissions relied upon the Division Bench decision of this Court in Neelgiri Cement Ltd. and another v. AAIFR and others, 76 (1998) Delhi Law Times 882.

10. Counsel appearing for the respondent company, however, submitted that the aforesaid submission is not legally tenable in view of the fact that while the High Court would ordinarily decide the question of winding up of the company by taking into account the opinion of the Board forwarded under sub-Section (1), but at the same time it would not abdicate its own functions of determining the question of winding up. In support of the said contention, the counsel relied upon the decision of the Madras High Court in J.M. Malhotra and another v. Union of India and others reported in (Vol.89) 1997 Company Cases 600, which decision was upheld by the Supreme Court in V.R. Ramaraju v. Union of India and others reported in 1997 (89) Company Cases 609.

11. In order to appreciate the aforesaid contentions, it would be necessary to extract below the relevant provision of Section 20(2) on which both the parties placed its reliance:

''The High Court shall, on the basis of the opinion of the Board, order winding up of the sick industrial company and may proceed and cause to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act, 1956.''

12. In Modistone Ltd. (supra), it was held by the Bombay High Court that cumulative reading of Sections 433, particularly, clause (f) thereof, 439, 441, 443 and 444 of the Companies Act, 1956, with section 22 of of the SICA, would show that when the opinion is forwarded to the High Court under Section 20 of the SICA there is nothing further left to the Company Court to form an opinion. All that happens is that on the order of winding up being passed, Section 437, Companies Act, operates, and then the court would proceed with winding up of the sick company including by exercising powers under Section 448 of the Companies Act, onwards. In paragraphs 4.2, 4.3 and 4.4 of the said judgment it was recorded by the Bombay High Court as under:

''4.2 Under Section 433 of the Companies Act, and more specially, [under clause](f)[thereof], the company may be wound up by the Court if the court is of the opinion that it is a just and equitable that the company should be wound up. Section 439 is the provision as to applications for winding up. Section 441 is for commencement of winding up by the Court. Section 443 is powers of the court hearing petition and section 444 provides the effect of winding up. Cumulative reading of these sections with section 22 would show that when the opinion is forwarded to the Court under section 20, there is nothing further left in the Company Court to form an opinion. All that happens is that on the order of winding up being passed, section 437 operates and then the Court will proceed with winding up of the sick company including by exercising powers under section 448 onwards.

4.3 It is, therefore, clear that once the Board forms an opinion, there is no further direction left in the High Court insofar as winding up of the company on the ground that it is just and equitable [to do so]. Opinion formed will be binding on the Court which has only to formally proceed to pass an order of winding up. To that extent, SIC (SP) Act is a Special Act and Companies Act would be a general Act. Provisions of Section 20(2) will be binding on the Company Court. Once that be the case, all procedural formalities including advertising and hearing are dispensed with and the Company Court is to proceed on the material as already considered by the Board and as reflected in its final decision.

4.4 In my opinion, therefore, once the Board recommends and sends its opinion to the High Court under section 20(1), the High Court, in terms of section 22, is obliged to pass an order of winding up of the company without following the procedure laid down under the Companies Act. The Court, therefore, has to follow procedure under the Companies Act for giving effect to the order of winding up. In the instant case, therefore, company stands wound up based on the report of the Court dated 25.4.2001.''

13. In the case of Ratlam Ispat Ltd. v. Greaves Feseco Ltd. reported in (1991) 2 Comp LJ 323 (Del), the Division Bench of this Court had held that on receipt of opinion, forwarded to it by the Board for Industrial and Financial Reconstruction (BIFR), the High Court was required to proceed with the winding-up in accordance with the provisions contained in sub-section (2) of Section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985. It was further held that the aforesaid sub-Section lays down that the High Court shall order winding-up of the sick industrial company on the basis of the opinion of the Board and further, the High Court is required to proceed with the winding up in accordance with the provisions of the Companies Act, 1956. Reference could also be made to the Division Bench decision of this Court in Neelgiri Cement Ld. and another (supra) wherein it was held that BIFR was justified in imposing condition in its order sought to be impugned by the petitioners and the contention that the BIFR has no such power is to be rejected, as the promoters failed to comply with the conditions. Counsel for the respondents company also relied upon Vasantha Mills Limited v. IRBI, (1995) 83 Company Cases 216. The said decision is distinguishable on facts. In the said decision it was held that where a scheme is framed by the AAIFR, the same cannot be challenged in a collateral proceeding in the Court. It was also held that the said scheme was framed in public interest and the Court would not sit in judgment over it. In the present case the scheme proposed and finalised was allowed to be implemented but the promoters failed to discharge their obligations under the scheme and, therefore, it was the promoters of the respondent company who nullified the scheme. In J.M.Malhotra (supra), the Division Bench of the Madras High Court has held that sub-Sections (1) and (2) dispense with only the requirement of Section 439 and 440, as the case may be, of the Companies Act for the purpose of initiating winding up of the company and also to enquire into the question whether it is just and equitable to order winding up of a company but the winding up shall have to be conducted in accordance with the provisions of the Companies Act. It was also held that sub-Section (2) of Section 20 of the Act is not happily worded and that although it opens with the words that ''the High Court shall, on the basis of the opinion of the Board order winding up of the sick industrial company'' but nevertheless it further says that ''it may proceed and cause to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act, 1956''. In the context of the said expression it was held by the Division Bench that even though the opinion submitted by the BIFR forms the basis for ordering winding up of the sick industrial company by the High Court, it is nevertheless open to the High Court to go into the correctness of the opinion so submitted by the BIFR and decide as to whether it should proceed with the winding up of the sick industrial company, in accordance with the provisions of the Companies Act. It was also held by the Division Bench that normally such opinion being one submitted by the Board consisting of experts acting judicially would have a greater weight in deciding the question as to proceeding with the winding up of the sick industrial company and such opinion of the Board cannot lightly be brushed aside. The aforesaid decision of the Division Bench was upheld by the Supreme Court in V.R. Ramaraju v. Union of India and others reported in 1997 (89) Company Cases 609. The Supreme Court held that the High Court in deciding the question of winding up of the company has to take into account the opinion of the Board forwarded to it under sub-Section (1) and would not abdicate its own function of determining the question of winding up. It is noteworthy to refer to another decision of this Court in Upper India Couper Paper Mills Co. Ltd. v. Appellate Authority for Indl. and Financial Reconstruction and Ors. reported in 1992 (75) Company Cases 653. In the said decision it was held by this Court that the opinion of the BIFR that the company should be wound up can be disputed only by showing that a viable scheme could be formulated for keeping the company alive.

14. SICA was enacted to make, in the public interest, special provisions with a view to securing timely detection of sick and potentially sick companies owning industrial undertakings and also providing the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto. The said Act carries a detailed procedure of fact finding by the BIFR and an appeal against the order of the BIFR.

15. In the light of the aforesaid aims and objects of the Act, both the Delhi High Court and Madras High Courts have upheld the validity of the provisions of Section 20 of SICA. The BIFR makes an extensive effort of fact finding to make the respondent company viable. After making such effort and even after appointing an operating agency to furnish a rehabilitation scheme, if it is found that no such scheme is viable, then only it recommends winding up of the company and that also when the situation is found to be helpless. Such a report as held by the various High Courts including the Madras High Court and the Supreme Court, must be given due weightage. This Court neither has the expertise nor the experience as that of the members of the BIFR who act as a fact finding body to salvage a company and makes all out efforts to rehabilitate the same. In the present case, an extensive effort was made by the BIFR. Although reference was made some time in 1989, the final order came to be passed recommending winding up only in the year 2000. The matter is pending in this Court from the year 2000 till date. Even during this period the respondent company has neither proposed a scheme which could be said to be viable nor could suggest any means which would justify keeping the company alive. The company has not filed any revival proposal while the objections have been pending. The company has also failed to bring in funds and implement the scheme/proposal.

16. The BIFR and AAIFR consisting of experts acting judicially and after giving ample opportunities to company to get the scheme for revival implemented came to conclusion that it is just, equitable and in public interest to wound up the company, since the company had failed to implement the scheme within 10 years. The submission of the counsel for the respondent company that the BIFR delayed its decision giving power in favor of the operating agency, that Section 10 of SICA is ultra vires to the Constitution and that AAIFR was not properly constituted as it did not have any judicial member were all agitated in the writ petition which was withdrawn unconditionally. The Company Court cannot decide the Constitutional validity of Section 10 of SICA nor this Court while exercising jurisdiction of winding up can scrutinise the validity of the constitution of the appellate authority. Even otherwise, I find no force in the aforesaid submissions of the counsel and the same are rejected.

17. It was also submitted that the company is still a going concern as it is still doing some job works and paying salary to the workers. The said submission is found to be not of any credence when the orders of BIFR and AAIFR are minutely and properly read. The said submission is also belied by the fact that the workers have filed application registered as CA No.343/2003 contending that they have not been paid their salary since 11.11.1988 nor they have been given any work. During the course of hearing a prayer was made by one person that he is an employee and that his counsel is not present but he should be heard through counsel. However, the said employee never filed any objection nor appeared in the case at any earlier stage. The object was to seek for an adjournment and thereby delay the proceeding and accordingly, the prayer was rejected for the respondent company was heard at length who also sought to protect interest of that employee.

18. It was also submitted by the counsel appearing for the respondent that both the petitioner and the AAIFR proceeded in haste in recommending the winding up of the respondent company. The reference was made by the respondent company themselves for declaring the company as a sick industry on the basis of which a proceeding was registered under Section 15 of the SICA in 1989. Negligence and laches on the part of the respondent company are writ large on the face of the records. It has not done any act which could be said to be a sincere effort to make the company a viable company. The aforesaid conclusion is apparent when the orders of the BIFR and AAIFR are read. The respondent company has neither submitted any progress report with regard to the scheme propounded nor the balance sheet was prepared and submitted to the BIFR. Although a scheme was sanctioned even a show cause notice was issued to the promoters of the company to show cause why action should not be initiated against them for their failure to implement the scheme. The company as also the promoters failed to comply with the conditions contained in the scheme, which establishes their lack of interest in the rehabilitation of the company. It is also disclosed from the records that by gaining time after the sanction of the scheme the respondent disposed of some of the assets/inventory and if such action is permitted to be continued any further, the creditors would be deprived of getting their dues from the respondent as that would allow the respondent time to fritter away further assets of the company. It is also disclosed that even upon a query made from the counsel of the respondent company who had appeared before the AAIFR to indicate as to how much amount the existing promoters can bring in immediately for payment to PNB and for the rehabilitation of the company, the reply submitted was only evasive. It was stated that when a loan is sanctioned by a foreign financial institution, the company and the promoters would be able to pay all the outstanding amount of the creditors but even then no definite reply was forthcoming nor any commitment was made for induction of funds for settlement of the dues of the Punjab National Bank under the scheme which was sanctioned by the BIFR in 1997. The promoters had undertaken an obligation to bring in Rs.53 cr. (Rs.38 cr. immediately i.e. in December 97, Rs.10 cr. within one year Rs.5 cr. within two years). The promoters have, however, failed to bring in their contribution under the said scheme which clearly establishes that it is not possible to get the company revived. In the context and light of the aforesaid facts and there being a clear opinion of the Board confirmed by the appellate authority that the respondent company was not likely to make its net worth exceed its accumulative losses within a reasonable time while meeting all its financial obligations, in my considered opinion no case is made by the respondent for any interference to the aforesaid orders.

19. A number of decisions were referred to by the parties apart from the decisions to which reference is made. There is no dispute with regard to the conclusions recorded in the said decisions but facts of each case is to be examined on its own merit. The company withdrew the writ petition wherein it challenged the validity and legality of the orders of the BIFR and AAIFR recommending winding up. The said petition was withdrawn as stated herein without reserving any liberty to re-agitate the same in this Court. The BIFR and the appellate authority have made categorical observations with regard to the conduct of the respondent company. No viable scheme is even placed in this Court nor any categorical statement is made by the respondent that they are on a position to bring in the requisite fund. Thus, I find no reason to interfere with the recommendation made by the Board. The recommendation so made is accepted. Consequently, the company stands wound up based on the report of the BIFR. The objection filed by respondent company is found to be without any merit and is dismissed.

20. The Official Liquidator attached to this Court is appointed as the Liquidator in the winding up proceedings. The Liquidator shall take over the assets and records of the company immediately and prepare an inventory of the assets of the company as a first step while sealing the property. The Liquidator shall also consider the contents of both the applications and submit his interim report dealing with the said applications within six weeks. The notice of the winding up order be published in the 'Indian Express' (English), `Dainik Jagran' (Hindi) and `Delhi Gazette' for 21st October, 2003.