Biogenics India Ltd. vs B.I.F.R. And Ors.
2003 Latest Caselaw 1133 Del

JUDGMENT

D.K. Jain, J.

1. Challenge in this writ petition is to the propriety and legality of the two orders, dated 14 May 2003 and 21 August 2003, passed by the Board for Industrial & Financial Reconstruction (for short 'the BIFR'). By the latter order, while observing that despite a lapse of more than 10 years the petitioner company/promoters had not come forward with any other proposal, with fully tied-up means of finance, for their consideration for revival of the petitioner-company, the BIFR has confirmed its earlier prima facie opinion, recorded in its order dated 14 May 2003. By the said order, the BIFR has opined that the petitioner sick company is not likely to make its net-worth exceed the accumulated losses within a reasonable period of time and, therefore, it would be just, equitable and in public interest to wind up the company.

2. Briefly stated, the material facts on the basis whereof the afore-noted opinion has been formed by the BIFR are as follows:

The petitioner-company is a manufacturer of blood products. By virtue of some orders passed by the Drug Controller, petitioner's blood products were withdrawn from the market for destruction. As a consequence whereof, the petitioner claims to have suffered heavy losses. On 25 July 1993, the petitioner-company made a reference to the BIFR under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short 'the Act'). The BIFR declared the company to be sick industrial company under Section 3(1)(o) of the Act and appointed Industrial Finance Corporation of India (for short 'the IFCI') as the operating agency under Section 17(3) of the Act. A scheme for rehabilitation of the company formulated by the operating agency was sanctioned by the BIFR on 23 March 2001. The scheme, inter alia, envisaged induction of one Sh.Roberto Suarez of Spain as a co-promoter; settlement of dues of IFCI/Banks on one time settlement basis; deposit of a sum of Rs.372.25 lacs by the said co-promoter in an interest bearing 'ESCROW account' within 15 days of the receipt of the authenticated copy of the scheme, etc. Thereafter certain proceedings took place before the Appellate Authority for Industrial & Financial Reconstruction (hereinafter referred to as 'AAIFR') and the Mumbai High Court but the same are not very relevant for the purpose of dealing with this writ petition. Ultimately in the hearing held on 14 May 2003, to review the progress of implementation of the sanctioned scheme, the BIFR, inter alia, observed that in spite of lapse of more than two years the overseas co-promoter had failed to bring in his contribution of Rs.372.25 lacs; the company/existing promoters did not take any action to enter into a legally binding agreement with the new/incoming promoter, stipulating a firm commitment of the latter to ensure timely induction of his contribution in terms of the sanctioned scheme; the company, instead of asking extension of time from the BIFR at that stage to mobilise the funds to the tune of Rs.145 lacs from alternate sources to pay the financial institutions as one time settlement, should have mobilised adequate funds from available alternate sources and cleared the dues of the financial institutions/banks; there was no other revival proposal with fully tied-up means of finance for consideration of the BIFR and the company/existing promoters were not resourceful/capable for mobilising the funds for rehabilitation of the company. Thus, observing that the company was not likely to make its net-worth exceed the accumulated losses within a reasonable time, the BIFR rejected the request of the company for grant of further extension of time for settlement of the outstanding dues of the financial institutions/banks. It was held that the scheme sanctioned on 23 March 2001 had failed to rehabilitate the company. Thus, forming a prima facie opinion that it would be just, equitable and in public interest to wind up the company, the BIFR directed issue of show cause notice under Section 20(1) of the Act, inviting objections/suggestions from all concerned. Notwithstanding the said direction, the BIFR also ordered that in case the company/existing promoters were interested in submitting any offer against the said show cause notice, prior to the submission of their revival proposal, they would also deposit a sum of Rs.145 lacs in an interest bearing 'no lien account' with the IFCI. The objections etc. were to be taken up for consideration on 21 August 2003.

When the matter came up before the BIFR on 21 August 2003, they were informed that the IFCI had not received any revival scheme either from the company or existing promoters or even from any other outside parties and further except for Saraswat Co-operative Bank Ltd., who had received 50% of the mutually agreed amount of the outstanding dues, no other financial institution had received any amount in terms of the package approved by the BIFR. During the course of hearing before the BIFR it was submitted by counsel for the company that the company was willing to deposit Rs.145 lacs in an interest bearing 'no lien account' with IFCI within 15 days from that date but subject to confirmation by the BIFR that the scheme sanctioned by it on 22 March 2001 for rehabilitation of the company would be restored. Clarifying that the scheme sanctioned by them had already been declared as "failed", primarily because of the failure of said overseas co-promoter and even the existing promoters to infuse the envisaged amount of promoters contribution of Rs.372.25 lacs and consequent non-implementation of the various provisions of the sanctioned scheme, the question of restoration of the scheme did not arise, the BIFR finally concluded that the company/promoters were neither resourceful nor serious enough to revive the company in a time bound manner and thus, passed the impugned order. Hence the present writ petition.

3. We have heard Dr.Abhishek Manu Singhvi, learned senior counsel for the petitioner and Mr.Sumant Batra and Ms.Tamali Wad, learned counsel for respondents No.1 and 3 respectively.

4. The main thrust of the submissions of learned counsel for the petitioner is that by declining to grant extension of 15 days for settlement of dues of the secured creditors and in proceeding to confirm the winding up order, the BIFR has abdicated its mandatory function to rehabilitate a sick industrial company, particularly when substantial payments had not been made to the banks under the sanctioned scheme. It was asserted that out of the total one-time settlement dues of Rs.210 lacs, substantial amount had been paid and only a balance amount of Rs.145 lacs remained to be paid, for which extension had been sought. It was also urged that the BIFR should have at least deferred the implementation of the final order till AAIFR was constituted and the failure to do so, amounts to denial to the petitioner of their valuable statutory right of appeal against the order of the BIFR.

5. We do not find substance in any of the contentions urged on behalf of the petitioner. With a view to test the seriousness and resourcefulness of the petitioner-company, during the course of hearing, we had asked learned counsel for the company, if they were still prepared to deposit the afore-noted amount of Rs.145 lacs in a 'no lien account'. Learned counsel, on instructions, stated that the company could deposit the said amount provided it is clarified that the amount so deposited shall be appropriated only against the one time settlement arrived at with the financial institutions in terms of the sanctioned scheme. This proposition was vehemently opposed by learned counsel for the respondents on the ground that the financial institutions had agreed for one time settlement and had made substantial sacrifices more than two years back under the fond hope that the existing promoters and the new promoter will also pump in the committed funds in terms of the sanctioned scheme in order to rehabilitate but this was not to be. Now when there is no likelihood of the new promoter or the existing promoters inducting any funds, the scheme cannot be implemented and, therefore, the one time settlement arrived at with the financial institutions is not binding on any one of them.

6. In the light of the afore-noted facts, we are of the view that the BIFR was justified in coming to the conclusion that the company/existing promoters have neither the resources nor the will to revive the petitioner-company. In this regard, it is also pertinent to note that vide order dated 14 May 2003, the BIFR had allowed the petitioner-company to deposit a sum of Rs.145 lacs in an interest bearing 'no lien account', in case they were to submit their proposal for revival of the company but till 21 August 2003, when the next review hearing was fixed, neither any proposal for revival was submitted nor any amount was deposited in the said account. Instead, a further 15 days time was sought to deposit the said amount but again with a rider that the scheme sanctioned on 22 March 2001 be revived. Having regard to the conduct of the company/promoters in not depositing any amount in three months' time, the BIFR rightly felt that grant of further 15 days time for same purpose would not serve any purpose.

7. In view of the afore-noted background facts, we are of the view that the BIFR was fully justified in declining to grant further time to the petitioner-company to deposit Rs.145 lacs. A rehabilitation scheme sanctioned under the Act binds the industrial company; the promoters and the creditors and is in the nature of a contract. If one of the participants in the scheme fails to discharge his obligation, the entire scheme falls apart. True that under Section 18(3)(b) of the Act power inheres in the BIFR to modify the scheme and grant extension of time to the parties concerned to accomplish their obligations in the process of rehabilitation but in the instant case the BIFR has found that not only the new foreign promoter had failed to bring in any money in terms of the scheme, even the existing promoters had failed to show their seriousness to settle the dues of the financial institutions. We are satisfied that when for over three months the existing promoters did not deposit even a single penny against the stipulated amount of Rs.145 lacs, no conceivable results could be expected by grant of 15 days more time. In the light of these findings, which are essentially findings of fact, we are unable to read any illegality or irregularity in the order of the BIFR. We have no hesitation in holding that the impugned order does not suffer from any vice of arbitrariness, as alleged, or that it is manifestly unreasonable warranting our interference. We are convinced that the sole purpose of the petitioner-company/existing promoters is to gain as much time as is possible to remain under the protective umbrella of the Act. Obviously, this is not the object of the Act. Since the petitioner has availed of an extra-ordinary remedy by filing the present petition, which we have entertained, we do not find any merit in their plea that the BIFR should have withheld their opinion, recommending winding up of the company, till the AAIFR had become functional.

8. For the foregoing reasons, we do not find any ground to interfere with the impugned order. Consequently, the writ petition fails and is accordingly dismissed.