Delhi High Court
Juhi Investment Pvt Ltd vs Official Liquidator & Ors on 3 September, 2012
Author: Sanjiv Khanna
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 3rd September, 2012
+ CO.APP. 74/2012
JUHI INVESTMENT PVT LTD ..... Appellant
Through Mr. Arun Kathpalia, Adv.
versus
OFFICIAL LIQUIDATOR & ORS ..... Respondent
Through Mr. Rajiv Bahl, Adv. for OL.
Mr. Ashwani Matta, Sr. Adv. with
Mr. Dinakar Singh and Mr. Suresh
Dobhal, Advs. For IFCI Ltd.
+ CO.APP. 75/2012
BHARAT STEEL TUBES LTD & ANR ..... Appellants
Through Mr. Sandeep Sethi, Sr. Adv. with
Mr. M. Dutta, Adv.
versus
OFFICIAL LIQUIDATOR & ORS ..... Respondents
Through Mr. Rajiv Bahl, Adv. for OL.
Mr. Ashwani Matta, Sr. Adv. with
Mr. Dinakar Singh and Mr. Suresh
Dobhal, Advs. For IFCI Ltd.
Mr. Arun Kathpalia, Adv. for R-3.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE S.P.GARG
SANJIV KHANNA, J. (ORAL)
1. Bharat Steel Tubes Ltd., (hereinafter referred to as the company)
Satinder Pal Singh and Juhi Investment Pvt.Ltd. have filed the present
appeals impugning the order dated 8th August, 2012 passed by the learned
Single Judge disposing of CA Nos.1159/2009 and 2470/2010 in company
Petition No.55/2000 and, inter alia, holding that the Scheme proposed in
2005 was no longer viable and relevant and the order staying the winding up
proceedings should be recalled. Citations have been directed to be published
in the newspapers and the Official Liquidator was directed should take over
the assets.
2. The company was incorporated in the year 1967. It became a sick
industrial company on 2nd September, 1990 in terms of Section 3(i)(o) of the
Sick Industrial Companies (Special Provisions) Act, 1985. Matter was
referred to Board for Industrial and Financial Reconstruction (BIFR).
Industrial Finance Corporation of India (IFCI) was appointed as the
operating agency.
3. A rehabilitation scheme was proposed before the BIFR in 1996. As
per the scheme, the total costs involved was Rs.78.44 crores, which required
the promoters bringing in fresh funds to the tune of Rs.26 crores.
Thereafter, several proposals were examined and after consideration, the
consortium required the promoters to bring in funds to the extent of Rs.53
crores. At the time of approval, BIFR felt that the scheme could be fruitfully
implemented in case the promoters increased their contribution to Rs.73.47
crores.
4. BIFR finally vide order dated 23rd February, 2000 recommended
winding up of the company. Appeal filed against the said order was
dismissed by the AAIFR vide order dated 21st June, 2000. A writ petition
was preferred by the company against the order passed by the AAIFR but
was subsequently withdrawn. The order passed by the BIFR attained
finality.
5. Company Petition No.55/2000 was registered on the basis of the
recommendation for winding up. By order dated 14th August, 2003, the
company was directed to be wound up and the Official Liquidator was
directed to take over assets of the company. An appeal was preferred
against this order of the learned Single Judge. During the pendency of the
appeal before the Division Bench, the ex-directors of the company filed an
application stating that they have taken steps to settle the matter with the
creditors and workers.
6. On the basis of the settlement, on 9th February, 2005 the following
order was passed by the company Judge:-
"....In view of the aforesaid steps taken by the ex-Management
whereby most of the claims are settled, it would be fair to give one
chance to the applicants to revive the company and this would be
possible only if the production in the factory unit is allowed to
resume. At the same time while giving the opportunity, to the ex-
Management, conditions can be imposed to ensure that the unit
functions properly and the assets of the company are duly protected.
With this objective in mind, following directions are given:
A. Winding up proceedings are hereby stayed. However, the Official
Liquidator shall continue to be the liquidator and shall oversee the
functioning of the unit.
B. The official liquidator shall de-seal the factory premises and give
possession thereof to the applicants within two weeks. The
applicants shall file the returns of production, sales receipts and
expenditure etc. every two months.
C. Before giving possession, inventory of all the assets including plant
and machinery etc. shall be made by the Official Liquidatory.
D. Mr. Sumant Batra, Advocate is appointed as the
Administrator. He shall be paid a sum of `25,000/- per month
as fee. He shall be invited in all the meetings of the Board
of Directors. He shall also be consulted whenever important
policy decision is to be taken. The Administrator shall submit
monthly reports about the functioning of the company.
E. The expenditure incurred by the Official Liquidator upto now
towards security and other administrative expenses etc. shall
be informed to the applicants within two weeks and these
expenses shall be reimbursed by the applicants to the Official
Liquidator within two weeks thereafter.
The detailed scheme of Revival under Section 391 shall be
filed, as stated by learned counsel for the applicants, within
two months from the date of possession of the unit is given to
them.
These applications are accordingly disposed of in the
aforesaid terms...".
(emphasis supplied)
7. A Scheme was propounded by Mr. Satinder Pal Singh as a
contributory and application CA No.757/2005 was filed under Sections 391
to 394 of the Companies Act, 1956 (for short „the Act‟) for consideration of
the scheme and approval by the creditors and the workers. The Chairmen
appointed for the meetings of the creditors and shareholders had submitted
their reports to the court. In the meanwhile, some of the workers filed CA
No.117/2004 before the company court stating that a sum of Rs.5.45 crores
was due and payable to 181 workers and they were also entitled to certain
other benefits. The settlement was not acceptable to them.
8. The company filed second motion u/s 391-394 of the Act in form of
CA No. 1118/2005 which vide order dated 17th August, 2005 was converted
and treated as a Company Petition No. 268/2005.
9. The said petition remained pending before the Company Judge till the
impugned order dated 8th August, 2012 was passed. In the impugned order,
the learned Company Judge has recorded that the management had not made
any payment to the workers after the order dated 9th February, 2005. It is
also stated by the learned Company Judge that the company had entered into
one time settlement or Memorandum of Understanding with Punjab National
Bank (PNB) for payment of their dues of Rs.26.16 crores out of which
Rs.13.80 crores was paid and the balance amount was not paid. In the
meanwhile, PNB vide Deed of Assignment dated 15th July, 2008 assigned
their debt in favour of Assets Care Enterprises Ltd. (ACE Ltd.). Thereafter,
the ACE Ltd. vide Assignment Deed dated 17th April, 2009 assigned their
debts to IFCI Ltd. IFCI Ltd. have raised their claim against the appellant
company.
10. Learned counsel for the appellant has submitted that they are and were
always ready and willing to abide by the commitments and make payment in
terms of Memorandum of Understanding (MOU) dated 5th March, 2008 with
the ACE Ltd. He further states that they had also complied with the OTS as
contained in the letter dated 28th March, 2008 issued by the PNB and the
dues of PNB stand settled. He states that they were 710 workers in all. Over
500 workmen have already settled their claims and have been paid their
dues. About 200 workmen have resiled from the settlement and have been
pursuing their claim before the Labour Court. In fact, they are not ready and
willing to vacate the accommodation provided to them, which has resulted
in the dispute with the workmen. He states that the appellant company has
always been ready and willing to pay the dues of the workmen and the
creditors.
11. We have considered the contentions but do not find any merit in the
said contentions.
12. The scheme propounded had postulated and stated that the company
had entered into one time settlement for payment of dues with PNB on the
following terms:-
"b. PNB: In terms of the OTS proposal sanctioned
by PNB vide their letter dated 02.09.04 the entire dues
were settled for an amount of Rs.2616.33 Lacs as full
and final payments with payment of Rs.875.00 Lacs
paid before December 2004 and Rs.500.00 lacs each
on or before 31st Dec. 2005 and Dec 2006 and balance
amount to be paid by 31st December 2007. Simple
interest is to be charged @ of 6% on reducing balance
from 31st March 2005 and is payable in 2007. The
promoters / Ex-directors have already paid Rs.875.00
lacs as per the terms of the compromised settlement
with PNB."
13. Thus as per the scheme Rs.26.16 crores had to be paid to Punjab
National Bank in installments and last installment was to be paid on or before
31st December, 2007. The company was also to pay interest @ 6% p.a. on
reducing balance. At this stage we note that total dues of PNB as claimed
by them in the original application filed before the Debt Recovery Tribunal
(DRT, for short) on 21st February, 2003 was Rs.326 crores. The company
got substantial reduction of the dues in terms of the OTS.
14. The company paid a sum of Rs.13.80 crore only and the balance
amount, including interest, was not paid. PNB revoked the OTS by letter
dated 14th June, 2007.
15. Subsequently in terms of the MOU dated 5th March, 2008, ACE Ltd.
agreed and paid PNB Rs.15.01 crores. PNB in turn executed a deed of
assignment dated 15th July, 2008, in favour of ACE Ltd.
16. The details of debt assigned to ACE Ltd. as stated in Schedule I of the
MOU dated 5th March, 2008 is as under:-
"Schedule 1 - Application of ACE loans for the debt assigned to ACE/repayments to
unsecured creditors
Particulars Total Paid Balance
Rs/Lacs. Rs/Lacs. Rs/Lacs.
A) SECURED LIABILITIES
Punjab National Bank 2616.33 1375.00 1241.33
14% Debentures 120.00 12.94 107.06
13.5%
Debentures 296.39 5.40 290.99
Interest Punjab National Bank236.03 0.00 236.03
Upto 31.12.2007
Estimated Interest till 31.03.08 130.00
Exim Bank Loan (originally
Unsecured and assigned to ACE
Through Juhi Investments) 130.00
TOTAL (A) 3458.70 1579.25 2135.41
B) UNSECURED LIABILITIES
Preference
Shares 65.00 0.00 65.00
General Insurance Corporation35.00 35.00
Balance Worker dues (estimated) 171.10 110.00
Punjab Govt Pref Shares 23.98 23.98
Haryana State Electricity
Board 22.79 22.79
Municipal Committee
Ganaur 6.32 6.32
Sales
Tax 4.67 4.67
Transporters 7.18 7.18
Security Deposits 6.00 6.00
TOTAL (B) 105.94 301.10 280.94
Total Financing (A) 2140.00"
17. It is admitted position that ACE Ltd. paid Rs.15.01 crores to PNB,
Rs.1.30 crores to Juhi Investment Ltd. and Rs.30 lacs to debenture holders.
Thus Rs.16.61 crores was paid by ACE Ltd. in respect of debt mentioned in
Schedule I.
18. The company was to repay the amount paid by ACE Ltd. in terms of
clause 9 of the MOU, which reads:-
"9. BST agrees to commit to repay to ACE, the
Debt within a maximum period of twelve (12)
months from the date of execution of this MoU and
pay interest of 24% p.a. with quarterly rests.
Upon a written request of BST the period of
repayment may be extended by ACE at its sole
discretion upto six (6) months for which the rate of
interest would be of 2% per month."
19. It is clear from clause 9 above that the company was to pay the entire
debt amount within 12 months from the date of execution of MOU with 24%
interest with quarterly rests. Upon a written request of the company, the
period of repayment could be extended by ACE Ltd., at its sole discretion
upto 6 months for which the interest rate would be 2% per month.
20. Thus the company got a life line for the third time. The first one was
before the BIFR; the second one was when they entered one time settlement
with the PNB and the third when they entered into agreement with ACE Ltd.
The company again defaulted. It is an accepted position that the company
made payment of Rs. 2.09 crores only within a period of 12 months. They
sought extension of time for payment of the principal amount and interest.
No letter or communication was written by ACE Ltd. granting extension or
agreeing to extension. ACE Ltd revoked the MOU in view of the non-
payment vide letters dated 27th March, 2009 and 2nd April, 2009.
Subsequently they entered into deed of assignment dated 17th April, 2009
with IFCI and received an amount of Rs.18.63 crores.
21. It is too late in the day now for the company or the propounders to say
that they are ready and willing or were ready and willing to make payment
in 2009 to ACE Ltd. These are empty promises or statements as no amount
whatsoever has been paid since 2005 to any of the creditors and only Rs.2.09
crores paid to ACE Ltd. in 2008. Nothing prevented the company from
making the payment or depositing the same with the Court to show their
bonafide and desire. BIFR had recommended winding up in the year 2000.
Winding up order was passed in 2003 and then kept in abeyance. It is time
that the winding up proceeding proceed and are not stalled.
22. After assignment of debts to IFCI, they initiated proceedings under
Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (SARFAESI Act, for short). The company
initially filed a civil suit but the plaint was returned. Thereafter the company
filed proceedings under Section 17 which are stated to be still pending
before the Debt Recovery Tribunal (DRT). Pursuant to certain interim
orders and orders in a writ petition, SLP(C) No.29421/2010 was filed before
the Supreme Court. By judgment dated 30th November, 2010, the following
operative directions were issued:-
"30. We, therefore, dispose of the Special Leave
Petition with a direction upon the Debts Recovery
Appellate Tribunal to dispose of the pending
appeal as early as possible since it would not be
proper on our part to express any definite view
with regard to the pending proceedings before the
said Tribunal. Till a decision is arrived at by the
Debts Recovery Appellate Tribunal in the matter,
the auction proceedings being conducted under the
SARFAESI Act shall remain stayed."
23. We are informed that another order has been passed by the Supreme
Court, pursuant to which the proceedings before the DRT have been stayed.
24. We may now notice the other concessions or reliefs which were
prayed for in CP No. 268/2005:-
(i) Government of Haryana shall waive electricity dues for seven
years.
(ii) There shall be exemption of purchase tax/Value Added Tax for
seven years.
(iii) There shall be exemption for local development tax for seven
years.
(iv) There will be un-interrupted power supply during seven years.
(v) Preferential shareholders shall agree to waive all arrears of
dividend and accept the principal as the redemption amount, free
from dividend, repayable over a period of 2 years from the cut off
date in two yearly installments.
(vi) The debenture holders shall waive all arrears of interest and accept
principal amount free from interest, to be repaid over a period of 4
years from the cut off date in 4 yearly installments.
(vii) Promoters shall arrange Rs.12 crores in the form of equity,
unsecured loan and/or mobilization advances to partly meet the
cost of scheme.
25. As noticed above, the scheme was propounded way back in 2005.
The scheme original propounded was based on OTS payment for PNB. The
said OTS payments were not made. Payments were ultimately made to PNB
by ACE Ltd. in terms of the deed of assignment.
26. As per MOU dated 5th March, 2008, the company had to make
payment of Rs.16.61 crores with interest @ 24% with quarterly rests, within
12 months. Payment of Rs.2.09 crores was made within the said period and
no further payment was made. It is obvious that the company had agreed to
payment of interest @ 24% as they were not able to secure credit from any
other third sources and wanted payment to be made to PNB who were ready
to write off debt of Rs.326 crores as claimed in the original application
before DRT for merely Rs.26 crores. The company and the propounders
have been delaying, pushing and postponing payment to the creditors. The
wait cannot be endless. The interest of creditors is paramount and has to be
protected. The debenture holders and preferential shareholders have not
been paid. The period of four years and two years for payment to debenture
holders and preferential shareholders in 2012 cannot be accepted. Rs.12
crores in form of equity, unsecured loans etc. have not been brought in the
books and paid or arranged by the propounders. The scheme which was
propounded and made subject matter of CP 268/2005, was with regard to the
then prevailing factual matrix. It appears that Directors of the company are
in occupation of the residential accommodation belonging to the company in
Delhi measuring 3000 square yards. They are using and residing in the said
residential property without making any payment. The workers in their
application CA 117/2004 had made a claim of more than R.5.45 crores along
with details. We do not think the scheme as propounded can be
implemented and enforced today.
27. In view of the aforesaid factual position, we do not see any reason to
interfere in the impugned order and the appeal is dismissed. No costs.
28. During the course of hearing, certain issues regarding interpretation of
MOU dated 5th March, 2008, on the amount payable on default were raised.
We clarify that we have not expressed any opinion in this regard. Learned
counsel for the appellants submits that ex-management wants to contest the
proceedings before the DRT. We express no opinion in this regard and it is
open to parties to approach the Company Judge.
SANJIV KHANNA, J.
S.P. GARG, J.
SEPTEMBER 03, 2012
dk/kkb/VKR
