Delhi High Court
M/S. Raam Tyres Limited & Anr. vs M/S. Appellate Authority For ... on 20 January, 2010
Author: Sanjay Kishan Kaul
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 20.01.2010
+ WP (C) No.12599 of 2009 & CM No.13170 of 2009
M/S. VIZAG PROFILES LIMITED ...PETITIONER
Through: Ms. Maneesha Dhir,
Ms. Jayshree Shukla &
Ms. Preeti Dalal, Advocates.
Versus
M/S. RAAM TYRES LIMITED & ORS. ...RESPONDENTS
Through: Mr. Vivek Sibal, Ms. Pooja M. Saigal
& Mr. Rahul Sharma, Advocates for
Respondent No.1.
Mr. Sandeep Sethi, Sr. Advocate with
Mr. Arvind Nayar, Mr. Sanjay Abbot
& Mr. Vineet Nayar, Advocates for
Respondent No.2.
AND
+ WP (C) No.12606 of 2009 & CM No.13180 of 2009
M/S. RAAM TYRES LIMITED & ANR. ...PETITIONERS
Through: Mr. Vivek Sibal, Ms. Pooja M. Saigal
& Mr. Rahul Sharma, Advocates.
Versus
M/S. APPELLATE AUTHORITY FOR INDUSTRIAL
& FINANCIAL RECONSTRUCTION & ORS. ...RESPONDENTS
Through: Mr. Sandeep Sethi, Sr. Advocate with
Mr. Arvind Nayar, Mr. Sanjay Abbot
& Mr. Vineet Nayar, Advocates for
Respondent No.7.
Ms. Altaf Fathima, Advocate for
Respondents 9 & 13.
Mr. Atul Nanda & Mr. Gaurav Gupta,
Advocates for Respondent No.16.
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WP (C)No.12599 of 2009 & WP (C) No.12606 of 2009 Page 1 of 9
CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‟BLE MS. JUSTICE VEENA BIRBAL
1. Whether the Reporters of local papers
may be allowed to see the judgment? No
2. To be referred to Reporter or not? No
3. Whether the judgment should be No
reported in the Digest?
SANJAY KISHAN KAUL, J. (Oral)
1. Rule DB.
2. Learned counsels for the respondents accept notice.
3. At request of learned counsels for the parties and keeping in view the
directions passed by the Hon‟ble Supreme Court on 27.11.2009,
these petitions are taken up for final disposal.
4. There are two writ petitions filed aggrieved by the same order of the
AAIFR dated 18.9.2009 and of the BIFR dated 24.10.2008 - one by
the company in respect of which proceedings are pending and the
other petition by a strategic investor in the company.
5. M/s. Raam Tyres Limited (for short „RTL‟), one of the petitioners
has been before the BIFR Board from 1997 onwards. The
endeavours to revive the company were proving to be fruitless and
thus it was agreed to change the Management for which an
advertisement was issued on 2.8.2006. M/s. Pelican Rubber Private
Limited, respondent No.2, the only contesting party in the present
petition, submitted its proposal. There were two separate proposals
submitted by said respondent No.2 - one envisaged a complete
takeover of the Management; the other with the participative
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Management of the existing Management. The first proposal was
withdrawn and it is the second proposal which was acted upon in
pursuance to an MOU dated 5.1.2007 between RTL and respondent
No.2. There were disputes between the existing Management and
respondent No.2 with the result that the funds which were to be
brought in by respondent No.2 were never so fully brought in though
substantive funds were brought in by respondent No.2. There was
some difference of view as to the amount of funds infused by
respondent No.2 whether it was 3.07 crore or 2.97 crore. In the
proceedings of the BIFR held on 26.07.2007, it was specifically
recorded that respondent No.2 would not be entitled to any special
privileges or rights or claims whatsoever in nature on the assets of
RTL or in the management till the sanctioned scheme is brought into
effect. In the subsequent proceedings held on 25.10.2007, IDBI has
confirmed that respondent No.2 had not fulfilled the terms of the bid
on account of their failure to deposit the remaining amount by the
stipulated date of 16.08.2007 and that IDBI had not given any further
extension of time for making balance payment. The BIFR thus
declared that the bid of respondent No2 was invalid and unacceptable
because of non completion of the terms of the bid.
6. Be that as it may, respondent No.2 wanted to put an end to the
arrangement and informed the BIFR that it would like to walk out of
the deal and the funds should be refunded to it. It is not necessary to
go into more details in this aspect but suffice to say that on
24.10.2008 an order came to be passed by the BIFR with a majority
of two Members and one Member dissenting to the effect that the
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amount infused by respondent No.2 should be refunded by 6 per cent
interest. The second part of the direction was that a suitable
advertisement should be issued for change of Management in the
leading newspapers as the earlier bid was to be treated as null and
void. We may notice that the dissent was on this aspect. Respondent
No.2 did not challenge this order.
7. The order came to be only challenged before the AAIFR by RTL. It
was the plea of RTL that the strategic investor was only infusing
funds as per the proposal and there was no transfer of Management.
It was further pleaded that all the existing stakeholders being the
creditors and shareholders and others were acceptable to this change
as the funds were being brought in would liquidate the liabilities of
these shareholders. The proceedings recorded on 24.01.2008 show
that the plea of the existing management of RML was that they
should be given liberty to choose their investor/revival partner and
change of management would not be required in the case. The
operating agency IDBI submitted that RML had settled the dues of
secured creditors as per terms and conditions of OTS Act along with
interest and the entire amount had been paid. The company had also
agreed to refund the amount to respondent No.2, but respondent no.2
was refusing to take the amount. Not only that, representative of SBI
submitted that all dues had been settled and the entire amount paid
and the stands of Karnataka Bank Limited and ISCI were also to the
same effect. The AAIFR, however, by the impugned order dated
18.9.2009 dismissed the appeal. The order of the AAIFR is based on
a premise that the proposal before the BIFR furnished by RTL was
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for introduction of a new promoter involving the change of
Management though this was being disputed by RTL. The AAIFR
found force in the finding of the BIFR that there was lack of clarity in
the proposal as to whether infusion of funds would ultimately result
in conversion into equity and the MD of RTL was called upon to take
a categorical stand in this behalf. The MD of RTL gave an
undertaking that there was no change of Management or conversion
into equity but despite that the BIFR was not convinced of the
undertaking.
8. It is interesting to note that the order of the AAIFR records the
submissions of the opposite side which are really of respondent No.2.
Thus, respondent No.2 pleaded that a strategic investor was not an
entity having experience in the same business while respondent No.2
had vast experience. Transparency required that a fresh
advertisement should be issued so that even respondent No.2 could
participate in that process and once again seek to come into the
Management of RTL. Reliance was placed on the observations of a
Division Bench order of this Court in WP (C) No.8048/2007 titled
Arrow Syntex P. Ltd. & Ors. Vs. AAIFR & Ors. dated 11.3.2008.
9. We have heard learned counsels for the parties at length and perused
the record including the impugned orders.
10. We are of the considered view that the impugned orders are
predicated on a wrong presumption of there being a change of
Management in pursuance to the strategic investor coming into the
picture. A bare reading of the proposal submitted by the strategic
investor would show that the proposal did not envisage a
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participation in the Management of the strategic investor or transfer
of shares. The funds were being infused against security of assets.
The funds were to be utilized to clear all liabilities.
11. The relevant portion of the proposal for revival of the company by
the existing management specified the role of the strategic investor as
under:
"G. PROMOTER MR.S.RAMACHANDRA STRATEGIC PARTNER/CO-
PROMOTERS M/S. VIZAG PROFILES LIMITED:
a) Strategic partner/Co-promotors to this Scheme M/s.Vizag Profiles
Limited to induct and bring in Rs.12.00 Crores (Rupees Twelve
Crores Only) as fresh investment into the company by way of
Secured Loan, secured by first charge on the Fixed Assets of the
Company. The loan will carry this interest until the net worth of the
company become positive.
b) The investment primarily is being made to clear off the entire
Secured Creditors of the company under OTS Scheme, to invest
further monies for major repairs, purchase of the machinery and
renovation of plant to invest into the working capital of the company
for conducting production process.
c) Strategic Promotors/Co-promotors to bring in interest free
unsecured loans to meet the shortfall if any arises between the
estimated requirement of the scheme and actual if any and to
guarantee profitability projections and shortfall in funds flow due to
any reason.
d) Strategic Promotors/Co-promotors to discharge any other liability
whatsoever not foreseen in this scheme.
e) All statutory liabilities are to be met by the promoters/co-
promoters as and when need arises.
f) To raise the necessary term loan for establishing the new product
line to the tune of Rs.8.00 Crores."
12. There is nothing recorded to show any opposition by secured or
unsecured creditors or the operating agency possibly because they
may have been satisfied with the arrangement. In fact, these entities,
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despite being served, have not come before the Court to oppose the
present petitions.
13. It is no doubt true that respondent No.2 came into the picture in
pursuance to an advertisement issued earlier when the existing
Management had agreed for a change of Management. However,
that arrangement did not result in satisfactory result and the
consequence was that respondent No.2 wanted to walk out of the deal
there being trouble between respondent No.2 and the existing
Management. Respondent No.2, in fact, even accepted the order of
24.10.2008 of the BIFR declaring the earlier arrangement as null and
void and directing payment to respondent No.2 of the funds brought
in with interest. This was, in fact, as per the request made by
respondent No.2 earlier and thus interest of respondent No.2 was
fully taken care of.
14. We may notice that the order in Arrow Syntex P. Ltd. & Ors. Vs.
AAIFR & Ors. (supra) is based on its own facts. In the given facts of
the case a change of Management was sought to be brought about
without prior approval of the BIFR and there was even opposition by
some secured creditors. It was in those circumstances that the
direction issued by BIFR for issuance of a fresh advertisement for
change of Management was not interfered with.
15. In the present case the change of Management is not envisaged and
the strategic investor is only infusing funds. What is more important
is that all stakeholders seem to be satisfied with the arrangement.
16. Learned counsel for respondent No.2 strenuously contended that the
issuance of a fresh advertisement was in the larger interest of
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transparency. We are unable to accept the plea for the reason that in
a matter of this nature which is not dealing with the public contract
what is really required to be considered is the interest of the
stakeholders and if all the stakeholders are satisfied with the
arrangement something must weigh very heavily to ignore it.
17. We are of the considered view that the BIFR appears to have
proceeded on an incorrect premise and what was required was that
the proposal of the existing Management for continued Management
with the strategic investor infusing funds should have been explored
on merits taking into consideration the stand of the stakeholders.
This has not been done by the BIFR. We feel such an exercise needs
to be undertaken by the BIFR.
18. We, thus, set aside the impugned order of the BIFR dated 24.10.2008
and of the AAIFR dated 18.9.2009 to the extent they direct an
advertisement to be issued for change of Management with the
direction to the BIFR to examine the proposal of the existing
Management for infusion of funds through a strategic investor taking
into consideration the interest of all the stakeholders and calling upon
the stakeholders to take a stand in this behalf.
19. Needless to say that respondent No.2 is not a stakeholder and is only
entitled to the return of the amount with interest as directed vide
order dated 24.10.2008 of the BIFR.
20. At this stage learned counsel for respondent No.2 states that during
the course of hearing he could not inadvertently point out that before
AAIFR one of the creditors, Karnataka Bank, had taken a stand
against the strategic investor. This position is, however, disputed by
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the two petitioners stating that it is recorded in the order of the BIFR
that under OTS the dues of Karnataka Bank stand settled and paid.
21. The petitions are allowed to the aforesaid extent leaving the parties to
bear their own costs.
22. The next date fixed in WP (C) No.12606/2009 stands cancelled and
the matter need not be listed on the said date.
SANJAY KISHAN KAUL, J.
JANUARY 20, 2010 VEENA BIRBAL, J.
b'nesh
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