Delhi High Court
R.R. Kabel Limited vs M/S. Incab Industries Ltd. And ... on 6 January, 2016
* IN THE HIGH COURT OF DELHI AT NEW DELHI
RESERVED ON: 30.11.2015
% PRONOUNCED ON: 06.01.2016
+ W.P.(C) 5010/2011, C.M. NO.8680/2015
R.R. KABEL LIMITED ....Petitioner
Versus
M/S. INCAB INDUSTRIES LTD. AND ORS. ...Respondents
W.P.(C) 5954/2011
INCAB SRAMIK SANGH AND ORS. ....Petitioners
Versus
APPELLATE AUTHORITY FOR INDUSTRIAL AND
FINANCIAL RECONSTRUCTIONS AND ORS.
...Respondents
W.P.(C) 5197/2011, C.M. NOS.219/2012 & 3077/2012
ALL INDIA INCAB INDUSTRIES EMPLOYEES
FEDERATION AND ORS. ....Petitioners
Versus
AAIFR AND ORS. ...Respondents
Through: Sh. Ankur. S. Kulkarni and Sh. Anand
Srivastava, Advocates, for Incab Industries Ltd, in
all matters.
Sh. Pratik Jalan, Sh. D.P. Mohanty, Sh. Ritesh
Isaac and Sh. Anurag Tripathi, Advocates, in all
matters.
Sh. Darpan Wadhwa, Sh. Saurabh Seth, Ms. Sonia
Dube and Sh. S. Chakraborty, Advocates, in all
matters.
W.P.(C)5010, 5954 & 5197/2011 Page 1
Sh. Vikas Singh, Sr. Advocate, Sh. Sanjiv Sen, Sr.
Advocate, Sh. Sameer Dewan and Sh. Gaurav
Malik, Advocates, for Respondent Nos. 14, 20, 21,
27, 36, 53 and 58 in W.P.(C)5010/2011 and for
Respondent Nos. 15, 22, 23, 29 and 46 in W.P.(C)
5954 & 5197/2011.
Sh. Tarun. K. Banga, for Tata Steel Ltd.
Sh. Himanshu Bagdwal, Advocate, for Incab
Industries Ltd. in all matters.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K. GAUBA
S.RAVINDRA BHAT, J.
1. These three writ petitions share common questions of fact and
law in respect of the order of the Appellate Authority for Finance and
Reconstruction ("AAIFR" in short) dated 30.06.2011 (hereafter "the
impugned order").
2. M/s Incab Industries Ltd (hereafter "Incab") was a sick
industrial company. It preferred a reference to the Board for Industrial
and Financial Reconstruction (hereafter "BIFR") in October 1999.
BIFR declared it a sick industrial company on 04.04.2000. The State
Bank of India ("SBI") was appointed as the Operating Agency ("OA")
under Section 17 (3) of the Sick Industrial Companies (Special
Provisions) Act, 1985 ("SICA") to examine feasibility of its revival
and to that end, submit a rehabilitation scheme. This task encountered
several impediments. As there was no viable rehabilitation scheme in
sight, BIFR had directed the OA to issue an advertisement for change
of management. Discussions to revive the scheme continued;
W.P.(C)5010, 5954 & 5197/2011 Page 2
eventually Incab's original promoter, on 11.12.2002, offered during
the hearing before BIFR, to transfer their shares, free of cost, to a new
promoter selected in that regard by the OA and approved by BIFR.
The BIFR, on 19.03.2004 expressed its prima facie opinion that Incab
should be wound up under Section 20 (1) of SICA. Later, on
24.09.2004, it directed publication of advertisements vis-à-vis change
of management of the company (Incab).
3. Four proposals were submitted by the following companies for
rehabilitation of Incab: Silver Jubilee Infrastructure Ltd. (SJIL), R.R.
Kabel (RRK) Land Lease Co. Ltd. (LLC) and Pegasus Asset
Reconstruction (P) Ltd (PARL). Except RRK, i.e., the petitioner,
which indicated a cut-off date of 31.03.2005, all other proposals
envisioned different cut-off dates (COD). Those proposals were
assessed by the OA, which conferred with the promoters. There were
BIFR hearings as well, where it was directed that there should be
negotiations with the workers' unions and secured creditors. The
petitioner, RRK, had, in the meanwhile, deposited different amounts
aggregating to `25 crores on various dates (21.03.2006, 21.04.2006,
and 09.05.2006) in a No lien account under directions of the BIFR.
RRK preferred an appeal against the order of 12.04.2006 by BIFR
(directing re-negotiation of the dues of workers and secured creditors)
before AAIFR (Appeal No.110/2006). AAIFR directed maintenance
of status quo to restrain secured creditors from creating third party
rights. In this background, third party entities i.e. Kamala Mills Ltd,
Fasqua Investment (Pvt) Ltd, (who according to some of the
W.P.(C)5010, 5954 & 5197/2011 Page 3
contesting respondents, i.e. Tata Steel Ltd, are sister concerns of RRK)
acquired the debts of various secured creditors as assignees.
4. PARL (the Respondent No. 34 herein), filed Application No.
220/2006 impugning the assignment of debt by the creditors of Incab
in favour of the third parties. The AAIFR disposed of the appeals
pending before it, on 22.09.2006, directing BIFR to consider revised
proposals of the four parties, which had submitted DRS. This order
was impugned in three writ petitions, (W.P.(C) 942/2007 by RRK;
W.P. (C) 2865/2007 by PARL and a workers' union) before this court.
This Court, in its order dated 23.04.2007, permitted Tata Steel Ltd
(TSL) to furnish the draft rehabilitation scheme (DRS). On
09.04.2009, this Court disposed of the petitions pending before it,
holding that BIFR had to consider the proposals of RRK and TSL. The
Court had observed, inter alia, that:
"15. All the three proposals which are purported to have
been submitted by the three parties essentially raise the
question as to which scheme is the best and for the larger
benefit of the workers of the company which has been
lying closed since 1995 and has now got embroiled into
litigation..............."
XXXX XXXX XXXX
38. The BIFR would take into account while evaluating
the schemes inter alia :-
".......................................
(b)Which of the two schemes protects the interests of the
workmen better by taking into account
(i) The payment of arrears of wages.
W.P.(C)5010, 5954 & 5197/2011 Page 4
(ii) The wage packet and security of service.
(iii)Whether retrenchment is contemplated and if so of
how many?
(c) Even if the petitioner R.R. Kabel's proposal is not
found acceptable, then the amount invested by them not
only in purchasing 85% if the secured debts but also the
amount invested by them in the sick company has to be
returned to the petitioner at the option of the petitioner
with reasonable interest by the party chosen by the BIFR
for reviving the company."
5. RRK filed its scheme- a third one, on 23.04.2009 pursuant to
the directions of this Court. TSL and PARL felt aggrieved by the order
of this Court (dated 09.04.2009) and filed SLP Nos. 12104-06/2009
and 11598 and 11600/2009 before the Supreme Court. The Supreme
Court, issued directions by order dated 14.05.2009 to the BIFR to
consider all three proposals (i.e. RRK, TSL and PARL). The Supreme
Court also kept open the issue of validity/legality of the assignment of
debt. The said special leave petitions are pending. The Supreme Court
indicated that an important component of BIFR's consideration would
be the interests of workers who were to be heard.
6. After the orders of the Supreme Court, hearings took place
before the BIFR on 02.07.2009, 19.08.2009 and 22.09.2009. In these
proceedings the BIFR allowed several workers' associations to join the
proceedings if they so desired subject to furnishing of proof that they
were recognized unions of the sick company. On 01.09.2009, the OA
furnished its report (hereafter "the first report"). In its opinion, the
scheme of TSL was the best and the interests of the workers would be
well protected under that scheme. In the hearing which took place on
W.P.(C)5010, 5954 & 5197/2011 Page 5
22.09.2009 before the BIFR the coram was represented by Mr. K.
Cherian Verghese, Chairman, Mr Pawan Raina, Member and Mr.
Nirmal Singh, Member. On that date, the BIFR considered the report
of the OA dated 01.09.2009 and directed the OA - (a) to give a further
report in a tabular form setting out the parameters, (b) to hold a joint
meeting with all the concerned parties and (c) submit a further report
containing the valuation of the three proposals from RRK, TSL and
PARL in terms the parameters indicated by the Supreme Court.
7. The OA conducted a joint meeting on 20.10.2009 and through
its report dated 26.10.2009 gave its comprehensive and comparative
analysis of all the three schemes. It re-iterated its earlier view that the
TSL's scheme was best suited and the future of the workers of the sick
company would be secure with TSL whose proposal was the best so
far as their interest and their job security was concerned. The OA
noted that the schemes propounded by RRK and PARL were not
worthy of consideration; RRK's scheme was such that the net worth of
the sick company could not become positive and PARL had no
experience in running a manufacturing unit as it was only an asset
reconstruction company. The OA also noted that the motive of RRK
and PARL appeared to be to grab valuable real estate of the sick
company as was evident from their proposal to sell the immoveable
assets of the sick company to finance their schemes, which invited
strong objections from the workers. Compared to this, TSL did not
propose to sell any of the immoveable assets to finance their
rehabilitation scheme. Such was the gist of the report, dated
26.10.2009.
W.P.(C)5010, 5954 & 5197/2011 Page 6
8. The report was submitted to the BIFR which held a hearing on
12.11.2009. On this date, the parties opposing TSL's scheme objected
to the OA's report upon which the BIFR directed them to file written
objections. The OA as well as the sick company were directed to give
their comments on the objections received. Mr. K. Cherian Verghese,
Chairman, Mr. Pawan Raina, Member and Smt. Saroj Bala, Member
represented the coram of the BIFR. The parties submitted their
respective written objections to the report of the OA. On 20.11.2009
the OA submitted its comments to the objections raised by RRK and
PARL to the BIFR in compliance with the BIFR's order dated
12.11.2009. On 24.11.2009 the BIFR held a hearing in which the
coram was of Mr. K. Cherian Verghese, Chairman and Mr. V. K.
Malhotra, Member. It considered the report dated 26.10.2009 of the
OA, the objections of the parties to the same and sought further
clarifications from the parties. The OA was directed to reconcile the
figures mentioned in the report and to recast the report and submit a
supplementary report. Accordingly, the matter was adjourned to
30.11.2009.
9. On 27.11.2009, the OA furnished its supplementary report of
the same date in which also it made clear that the scheme presented by
TSL was the best on all the parameters, including the protection of the
interest of the workers. The BIFR sought written submissions to the
report of the OA dated 27.11.2009 and also sought clarifications from
the three propounders as well as from the OA. All were directed to
give their objections/clarifications by 02.12.2009. The OA was
required to give its views on the clarifications given by the
W.P.(C)5010, 5954 & 5197/2011 Page 7
propounders. It was declared by the BIFR on that date that its decision
would be announced on 09.12.2009. On 02.12.2009 RRK, PARL and
others opposing the scheme of TSL submitted their respective
exhaustive written submissions to the BIFR. On 07.12.2009, the OA
by its letter of the same date, gave its comments to the written
submissions of the parties opposing the scheme of TSL.
10. On 09.12.2009, the BIFR considered the three revival
proposals, heard the worker's unions and took into consideration all
the reports of the OA and passed a comprehensive final order, holding
that the scheme submitted by TSL was the best amongst the three
bidders and satisfied all the parameters set by the Delhi High Court
and the Supreme Court. Accordingly it directed TSL to submit its
Draft Rehabilitation Scheme in terms of Section 18 of the SICA
within a prescribed period. The BIFR directed that:
"3.6.1.....The Board permits Tata Steel Ltd u/s 18 of
SICA to submit a fully tied up draft rehabilitation scheme
(DRS) to SBI (OA) within a period of 10 weeks as per
enclosed guidelines and checklist. The cut-off date is to
be taken as 31-03-2005 as ordered by the Board in the
hearing held on 24-09-2004. The COD is not changed in
view of the implications it may have on the obligations to
be met by the company and the pending litigation. The
creditors of the company are directed to maintain status
quo and not to assign their dues of identified
creditors..."
11. Appeals were preferred to the AAIFR by RRK and two of its
workers' unions supporting it against the order passed by the BIFR on
09.12.2009; RRK's appeal was Appeal No. 16/2010. An appeal was
W.P.(C)5010, 5954 & 5197/2011 Page 8
also filed by PARL on 27.07.2010. The Supreme Court directed BIFR
to hear all the six appeals on day-to-day basis from 01.09.2010.
Hearings were concluded by the AAIFR on 09.05.2011 and judgment
was reserved. Before the AAIFR the appellants, with regard to the
merits of the rival schemes took several pleas. One of the contentions
urged before the AAIFR by the appellant was that the Bench of the
BIFR which passed the final order on 09.12.2009 (impugned in appeal
before the AAIFR) was not the Bench, which heard the entire
proceedings and therefore could not have passed the final order. TSL
resisted the contention by submitting that it is not possible for the
same members to hear the proceedings before BIFR since the
proceedings go on for several years during which members of the
BIFR regularly change on account of retirement etc. By a majority
order, the AAIFR rejected the said contention of the appellant. As far
as the merits of the rival schemes are concerned, the Chairman of the
AAIFR took the view that the OA did not act as an independent
agency in considering the three schemes and did not record its
findings properly on proper evaluation of the schemes; accordingly he
remitted the matter to the BIFR with the direction that it should
consider the three schemes afresh objectively. The two members (the
majority view) were of the opinion that the appeals lacked merit. As a
result of the majority opinion, the appeals were dismissed.
12. RRK has preferred a writ petition (W.P.(C) 5010/2011)
aggrieved by the order of AAIFR; the All India Incab Industries
Employees Federation has preferred W.P.(C) 5197/2011 and the Incab
Shramik Sangh - another workers' union has preferred
W.P.(C)5010, 5954 & 5197/2011 Page 9
W.P.(C)5954/2011. PARL had preferred its writ petition, i.e. W.P.(C)
5971/2011. This writ petition was allowed to be withdrawn, by order
dated 08.07.2014 and PARL was permitted to withdraw the `25 crores
deposited pursuant to its bid/proposals. The writ petitioners urged a
preliminary submission earlier, in the course of the proceedings, i.e.
that the BIFR's order had to be set aside because it was decided by a
coram (or bench) which had not heard the matters. These preliminary
objections were heard and rejected by a judgment, delivered on
24.04.2014. A review petition was preferred against that order; the
review petition was rejected on 16.04.2015. In the meanwhile, the
Supreme Court had required that the present petitions be heard and
disposed of within three months of commencement of hearing. RRK
has apparently approached the Supreme Court, aggrieved by the order
and the review order, rejecting its contention as to the preliminary
submission with respect to coram.
RRK's contentions
13. RRK urges- both in its pleadings, and the submissions made on
its behalf by Mr. Rajiv Nayyar, learned Senior Advocate, that the
procedure adopted by BIFR is illegal because there was no common
cut-off date on the basis of which a fair comparison of the rival DRS
could be carried out. Such a cut-off date (COD) in every rehabilitation
scheme is essential for reckoning the assets and liabilities of a sick
company for the purpose of its rehabilitation proposals and assessing
the worth of competing schemes. The lack of a common cut-off date,
it is submitted, means that the rival schemes are not assessed on one
set of criteria, but varying assumptions rendering the procedure unfair,
W.P.(C)5010, 5954 & 5197/2011 Page 10
and the results, inchoate. Besides, it can tend to be inherently unfair:
in this case, more so, because TSL was permitted to bid much after the
initial bidders had furnished their proposals; its COD is 31.03.2008 as
opposed to an earlier COD by RRK (31.08.2005). Counsel refers to
and relies on the joint meeting of the OA dated 25.08.2009 which
noted the wide differences between the parties as to the cut-off date
and that BIFR should fix one common COD. The subsequent meeting
with the OA on 24.11.2009 indicated that the previous joint meeting
noted the need to disclose figures of dues of creditors as on
31.03.2005 and the contemporaneous dues. It is urged, in this context,
that RRK had moved an application (MA 150/2009) for fixing a
common COD; BIFR in its order of 12.10.2009, it is submitted, stated
that this aspect would be decided in the final hearing. However,
BIFR's final order (dated 09.12.2009) did not advert to the matter at
all. At the same time, it accepted TSL's DRS, based on a different
COD (31.03.2008), even while giving it time to submit a fully tied up
scheme with COD at 31.03.2005.
14. Mr. Nayyar argues that RRK had urged this ground (of different
cut-offs) before AAIFR and also made submissions on this aspect.
However AAIFR erroneously concluded that different CODs would
not lead to any prejudice and that it was a "condonable technical
flaw". The view of the Chairman (i.e. the minority opinion), he urged,
correctly concluded that differential CODs was unfair and the BIFR's
order had to be set aside.
15. It is next argued by RRK that TSL relied on an "Equalization"
chart to overcome the inherent disparity of different CODs. This
W.P.(C)5010, 5954 & 5197/2011 Page 11
document (equalization chart) never saw the light of the day during
BIFR proceedings and was submitted to the AAIFR during the
hearings, for the first time in November 2010. As it was not part of
the pleadings, the AAIFR should not have taken cognizance of it,
leave alone have relied on it, for its findings and conclusions. Learned
counsel also emphasized that there was no occasion for the OA to
analyze the said equalization chart; no findings were recorded as to the
facts mentioned therein. RRK also contests the methodology relied on
for preparing the equalization chart.
16. It is next submitted that the views of secured creditors have not
been taken into account. In this regard it is submitted that RRK has a
support of 85.25 of the secured creditors of Incab. Here it is stressed
that M/s Kamla Mills, i.e., respondent no.55 is secured creditor to the
extent of 62.12% of the principal amount and 48% of the interest
amount due; likewise Fasqua Investment Ltd. (respondent no.39) is
secured creditor to the extent of 6.71% of the principal amount due
and 12% of the interest amount due. RRK itself is secured creditor to
the extent of 16.42% of the principal and 25% of the interest. Thus,
the overwhelming amounts are due to RRK and its associate concerns,
whose views were not taken into consideration. This was essential
given the fact that the assignment of debts of Incab by the secured
creditors was in fact upheld in the judgment of this Court of
09.04.2009 in W.P.(C) 942/2007. The appeal arising out of the SLP
no doubt is pending before the Supreme Court. However, the
assignment of such debts has not been disturbed which means that the
secured creditor's views were to be considered. Such views were also
W.P.(C)5010, 5954 & 5197/2011 Page 12
to be taken note of by the OA and AAIFR in the impugned judgment.
On the merits of this submission it is urged that the TSL's scheme
contemplates a write off or discount off of 50% of the principal dues
of the secured creditors. It is argued that for any scheme to be validly
sanctioned by the BIFR, consent of all secured creditors is essential
and no fully tied up scheme can be submitted by the TSL without the
consent of all secured creditors. This question was specifically
averred but not considered either by the BIFR or the AAIFR.
17. Learned counsel for the RRK argues that the BIFR did not
objectively consider the relevant factors while assessing the merits of
the rival schemes. Apart from the COD, there were glaring
contradictions in the TSL's scheme. The BIFR's order dated
09.12.2009 reflected the TSL's internal approval at `1168 lacs. This
was contrary to TSL's scheme wherein the cash flow statement was
shown at `477 lacs. Clearly, there was a shortfall of `691 lacs.
Secondly, urges the counsel, the OA had similarly in its report of
24.10.2009 recorded that the cost of the TSL's scheme did not tally
with the means of finances but at the same time stated that `1168 lacs
would be met by TSL out of his internal approvals. The figures,
however, did not tally as there was a shortfall of `691 lacs. It was
next argued in this context that the TSL's scheme was completely a
self serving one and prejudicial to the interest of the workers,
shareholders and creditors. As against the write off/discount of 50% of
secured creditors' dues, TSL proposed to appropriate and pay itself
100% of its principal dues as unsecured creditor. As far as other
unsecured creditors were concerned, TSL's scheme proposed a pay to
W.P.(C)5010, 5954 & 5197/2011 Page 13
the extent of 25% only of such dues. Even the 100% payment was
sought to be made by conversion of 50% of the principal dues payable
by the Incab into 11% cumulative preferential shares and converting
50% of the principal dues into interest bearing loans repayable from
3rd year from the date of sanctioning of the scheme, i.e., before the net
worth turned positive. All these established beyond any doubt that
TSL meant to help itself as an unsecured creditor and consequently its
scheme was self serving one.
18. Mr. Nayar submits that against this the RRK's scheme was
better suited to sub-serve the interest of the stake holders such as
workers, unsecured creditors and shareholders. RRK has signed a
Memorandum of Understanding ("MOU") with Labour Unions in
Jamshedpur and Kolkata, both registered and recognized Unions, and
also expressly committed that there would be no retrenchment of
workers. In contrast, TSL stated that employees' separation scheme
would be offered to workers of Jamshedpur, Kolkata and Pune to
optimize the work force to the right size. Furthermore, RRK had
committed in its MOU that none of the Incab's assets would be sold
unless workers' payments and dues and of secured creditors were
settled. In contrast, again TSL's proposal contained a condition that
employees shall not deter the new Management from disposing off the
unproductive assets and leasing out of his premises. It is lastly argued
that the RRK's scheme contemplates compensation for closure period
to workers at `20,000/- per year and payment of 100% last drawn
wage in terms of settlement dated 28.10.1998 and promises a fresh
settlement within 3 - 6 months. It also holds out a promise of payment
W.P.(C)5010, 5954 & 5197/2011 Page 14
of gratuity, provident fund and other dues. None of these vital aspects
were considered by the AAIFR. It is urged that consequently the
impugned order has to be set aside.
Contentions of TSL
19. TSL argues that as of March 2006 there were four schemes; by
RRK (with COD 31.08.2005); PARL (COD- 31.03.2006); LLL (COD
31.3.2006) and SJIL (COD 31.3.2006). SJIL, LLL and PARL later
withdrew. Counsel argues that RRK was well aware that the other
rival proposals had different CODs but insisted that its scheme was the
best, and that others' proposals should be rejected; it litigated on this
ground alone before the BIFR, AAIFR and before this Court in
W.P.(C) 942/2007 from 2006 to 2009. TSL points out that in the
course of these proceeding, RRK never complained once that the
differential COD could prejudice its scheme on merits. That apart
RRK revised/improve its scheme but persisted with COD as
31.08.2005. TSL relies on a chart to demonstrate this aspect, which is
reproduced below:
Sl. Date of Scheme/Revised Details of the
No. Scheme/Opportunity given to revision/Cost of the
RRK. Scheme
1. 13.3.2006 filed scheme The Secured Creditors
proposed to be paid 38%
of principal
outstanding/cost of
scheme: Rs.6908.11
Lacs.
W.P.(C)5010, 5954 & 5197/2011 Page 15
2 BIFR on 12.4.2006 directed Cost of scheme Increased
proposers to file fully tied up to Rs.7154.32L (See
scheme. RRK filed revised pages pg 2824 to 2826 -
Scheme on 10.5.2006 with COD Vol-10 of paper book)
31.08.2005.
Availed 1st Opportunity.
3 RRL after filing of revised RRK did not file revised
scheme, filed an appeal before scheme.
AAIFR challenging the order
dated 12.04.2006 on the ground
that its proposal was the best
and BIFR erred in directing
parties to file revised scheme.
AAIFR, by its order dated
22.9.2006 upheld the order
dated 12.4.06 of BIFR and
directed proponents to file
revised scheme before the BIFR
within two weeks from
nd
22.9.2006 (2 Opportunity).
4. Against the said order dated Cost of the scheme
22.9.06 of AAIFR, RRK filed increased to Rs.8708.04
W.P.No.942/2007 before the Lacs.
High Court. In the said WP,
with the permission of the High Page 291 Vol-2
Court, TSL filed its scheme on
23.05.2007 with COD
31.08.2008. RRK throughout
maintained its stand that its
scheme was the best. The said
writ petition was finally
disposed off by Delhi High
Court, vide, order dated
9.4.2009 by directing parties file
schemes before the BIFR. Delhi
High Court gave another
opportunity i.e. 3rd opportunity
to RRK to file fresh proposal.
W.P.(C)5010, 5954 & 5197/2011 Page 16
The third revised proposal was
filed by RRK on 22.4.2009 and
continued COD of 31.08.2005.
20. It is stressed that RRK had opportunities to revise its scheme in
3-1/2 years but persisted with the same COD (31.08.2005). On
12.10.2009. RRK filed an application was filed before BIFR because
PARL had filed a revised scheme, and that it be allowed to file a
revised scheme. Also RRK additionally asked BIFR to fix uniform
COD. After 12.10.2009, three hearings took place before BIFR on (i)
12.11.2009, (ii) 24.11.2009, (iii) 30.11.2009 and judgment was
pronounced on 9.12.2009. It is submitted that in none of those three
hearings did RRK agitate the issue of a uniform COD. In the two
hearings (ii) 24.11.2009, (iii) 30.11.2009 BIFR directed the proposers
to file written submissions and RRK filed substantive and detailed
written submissions before BIFR on (i) 16.11.2009 and (ii)
02.12.2009. In these two written submissions it did not urge the issue
of a uniform COD. It is pointed out that after 12.10.2009, RRK only
once took the plea regarding COD in a letter addressed to OA dated
27.10.2009. In the said written submissions (dated 27.10.2009) RRK
did not demonstrate how its scheme was prejudiced because of
differential COD given by the parties.
21. TSL argues that the BIFR in the hearing dated 24.11.2009 on its
own raised the issue of differential COD of the parties but RRK did
not pursue it and was in fact unable to answer BIFR's queries. The
BIFR's order dated 24.11.2009 directed the sick company to provide
to the OA and it (BIFR) details of the principal amount due to the
W.P.(C)5010, 5954 & 5197/2011 Page 17
creditors as on 31.03.2005 as COD fixed. RRK objected during the
hearing nor thereafter filed any submissions on the issue.
Subsequently BIFR in its order dated 30.11.2009 granted a final
opportunity to all the three proposers and the sick company to file
written submissions. RRK filed such submissions on 02.12.2009 but
did not raise the issue of uniform COD. Thereafter, BIFR pronounced
the final order dated 09.12.2009 confirming the opinion of OA and
rejecting RRK's scheme. TSL submits that these facts show that that
RRK itself gave up the issue of COD after taking at the belated stage,
therefore, this issue of COD at the appellate stage is not maintainable.
22. It is argued further that the question of COD has no relevance as
held by the AAIFR in paras 44 (ii) because firstly Incab has been lying
closed for several years since 2000. Despite directions by the BIFR
and OA from time to time to the sick company to prepare ABSs since
year 2000 till date the accounts have not been prepared and audited. In
the absence of audited accounts the actual debts of secured creditors as
confirmed by the secured creditors were adopted by OA,
Consequently, the COD becomes irrelevant because parties do not
have any audited figures to rely upon. Both TSL and RRK have
provided for 100% waiver of interest. Therefore, the variation in the
COD did not have any impact on the secured creditors. Secondly in so
far as the assessment of workers' arrear of wages are concerned, no
imbalance is created by differential COD as RRK has not proposed
any amount payable towards arrears of wages whereas TSL has
proposed to pay lump sum wages for the closure period. A similar
offer has been made for all other components of workers' dues,
W.P.(C)5010, 5954 & 5197/2011 Page 18
provident fund, employees' cooperative society, gratuity etc. as parties
have adopted to pay amount on lump sum basis. Thirdly, the bulk of
the dues of the secured creditors have been assigned to Kamala Mills
(KML), Fasqua, RRK and PARL (around 85%) in spite of status quo
of the AAIFR. TSL states that the Supreme Court, by order dated
14.05.2009, directed OA/BIFR to evaluate the three rival schemes
keeping aside the issue of assignment of secured debt. The Supreme
Court, inter alia, directed: -
(i) Interest of the sick company and workers are of paramount
importance.
(ii) OA/BIFR to evaluate the three rival schemes uninfluenced by
the observations of the High Court.
(iii) The issue of validity of the assignment shall be decided by
Supreme Court if need arises.
In view of the order dated 14.05.2009 alone the issue of support of
85% of the creditors is irrelevant.
23. TSL relies on this Court's order of 09.04.2009 which held that
in case RRK's scheme is not accepted then the party selected by the
BIFR would refund the cost of 85% assigned secured debts. RRK and
other assignees have not appealed against the said order. Therefore
this part of the order has attained finality. This Court observed as
follows:
"38. The BIFR would take into account while evaluating
the schemes inter alia :-
".......................................
W.P.(C)5010, 5954 & 5197/2011 Page 19
(b)Which of the two schemes protects the interests of the
workmen better by taking into account
(i) The payment of arrears of wages.
(ii) The wage packet and security of service.
(iii)Whether retrenchment is contemplated and if so of
how many?
(c) Even if the petitioner R.R. Kabel‟s proposal is not
found acceptable, then the amount invested by them not
only in purchasing 85% if the secured debts but also the
amount invested by them in the sick company has to be
returned to the petitioner at the option of the petitioner
with reasonable interest by the party chosen by the BIFR
for reviving the company."
24. It is submitted that RRK has been unable to show any prejudice
caused due to differential COD. RRK had at least four opportunities
to revise its scheme and last revised scheme was filed in April 2009
i.e. after the order of the Supreme Court entitled it to adopt a later
COD like in the case of PARL. It is argued that RRK's scheme
showed that Incab's net worth was not becoming positive. Its scheme
in any case was doomed to failure.
25. TSL urges that RRK's contention that the equalization chart was
a new document introduced before the AAIFR for the first time is
misleading. TSL prepared the chart to make good its argument that a
different COD did not caused any prejudice to RRK. The figures
mentioned in the equalization chart were derived from the schemes of
RRK, TSL and PARL. TSL explained that the different CODs adopted
by the three proposers would not make any difference to the
evaluation of the scheme for the purpose of selection of the best
W.P.(C)5010, 5954 & 5197/2011 Page 20
proposer for the revival of Incab. The principles adopted in preparing
the equalization chart took into account the figures as appearing in the
scheme of RRK filed with the OA on 23.04.2009 with cut-off date
being 31.08.2005. The same figures were assumed to be proposed by
both TSL and PARL and payment as proposed by TSL and PARL in
their respective schemes were adopted. This showed that TSL's
proposal, even on the basis of RRK's assumptions of 31.08.2005 as
COD, is higher.
26. Regarding the contention of RRK that it has the support of 85%
of the secured creditors, it is stated that Supreme Court directed the
BIFR in its order dated 14.05.2009 to evaluate the three rival schemes
keeping aside the issue of validity of assignments and uninfluenced by
the observations of this Court. The assignment issue is to be decided
by the Supreme Court if the need arises. Therefore, the order of this
Court upholding the validity of impugned assignments of debts with
regard to the evaluation of the schemes got eclipsed and the OA, BIFR
and AAIFR did not avert to this issue. RRK or any party for that
matter did not approach the Supreme Court for vacation or
modification of order dated 14.05.2009. Therefore, the contention of
RRK of having support of 85% of the secured creditors is irrelevant in
the given facts.
27. Mr. Arvind Nigam, learned senior counsel argues that in any
case RRK, Kamala Mills and Fasqua do not fall within the definition
of "secured creditors" in Section 19 (1) of SICA. Therefore, their
consent is inessential, prior to sanctioning of the Scheme under
Section 18 of SICA. TSL argues further that RRK has till date not
W.P.(C)5010, 5954 & 5197/2011 Page 21
produced any document (s) relating to assignment of debts and have
not given the exact amount of debts assigned. This fact can be
ascertained from para 2.4 (i), and para 2.14 (iv) of order dated
24.11.2009 wherein BIFR sought clarification from RRK to clarify the
exact amount of debts assigned to it and its associates. The BIFR
further stated that mentioning of mere percentage will not be
meaningful; the cost and means of the scheme cannot be arrived at.
Thereafter BIFR directed RRK to clarify the position. RRK's figure
that it became the assignee to the tune of 85% of the secured debts is
doubtful in terms of BIFR's observations. In any case this matter is
pending before the Supreme Court, therefore, BIFR and AAIFR were
correct in ignoring the issue.
28. It was argued by Mr. Arvind Nigam, learned senior counsel that
TSL was owed the sum of `2371.97 crores and that other unsecured
(sundry creditors) were owed `40 crores. The manner of repayments
is an aspect which was left best to the judgment of the expert which
are the OA and BIFR. Learned counsel stressed that according to the
OA, in its submissions of 26.10.2009, RRK's net worth could not
become positive during the period of rehabilitation. BIFR accepted
this position. In fact OA reiterated this issue before the BIFR. The
object of the process - of handing over management to a willing
purchaser with the ability to infuse managerial input and finance, is to
achieve eventual net worth as defined by Section 3 (g) (a) of the
SICA. Learned counsel highlighted that the RRK's scheme entails
right back or reserve which in no way enables its net worth but
depletes the existing resources. The motive of RRK clearly was to
W.P.(C)5010, 5954 & 5197/2011 Page 22
strip Incab of its resources and dispose of valuable assets. It is argued
that, on the other hand, TSL's proposals do not entail any selling of
assets.
29. Mr. Vikas Singh, learned senior counsel appearing for one of
the Unions supporting the TSL scheme, urged that RRK was flawed,
to start with. He urges that the OA, BIFR and AAIFR all held that
RRK's scheme disclosed that Incab's net worth would not turn
positive. Regarding RRK's contention that if ` 20 Crores out of the `
25 crores promoters' contribution is taken as equity in the net worth
calculation then the net worth will get positive, it is urged that RRK
had provided ` 25 Crores as promoters' contribution and in the
Projected Balance Sheet for FY 2011-12 and 2012-13 a refund of `
200 lakhs and ` 300 lakhs respectively of loan and has not shown
increase in capital in any of financial year of the Projected Balance
Sheet. Therefore, RRK's contention that ` 20 crores be treated as
equity is unacceptable, being oblique.
30. On the merits of the schemes of TSL and RRK, a comparative
chart outlining the details of the two schemes, report of OA and
findings of BIFR and AAIFR on the parameters set for evaluation of
the schemes to show that the scheme of TSL is reliable. It is further
argued that RRK is nothing but a front for acquiring INCAB on behalf
of real estate and investment companies, namely Kamala Mills Ltd.
and Fasqua Investments.
Contentions on behalf of workers' union
W.P.(C)5010, 5954 & 5197/2011 Page 23
31. It is argued by counsel on behalf of the workers' union in
W.P.(C)5197/2011 and 5198/2011 that the impugned order should be
interfered with because the best interests of the work force were not
kept in mind in accepting TSL's proposal. It is argued that there are
existing settlements under Section 18 of the Industrial Disputes Act.
The Pune plant is functional since 2009 and the Jamshedpur plant, on
the other hand, is not functioning. The TSL's scheme, contrary to the
Supreme Court's mandate intends to down size the work force which
is detrimental to the objective of rehabilitation. It is highlighted that
TSL in fact intends to outsource the work, contrary to the order of the
Supreme Court. Furthermore, TSL's proposals are silent as to how the
wage settlement would be dealt with - either honored or disregarded,
given that Section 32 of SICA overrides all previous arrangements.
Besides the seniority of service of the existing workers has not been
assured. This is an important element to be kept in mind if TSL
resorts to retrenchment or downsizing.
32. Learned counsel urges that the BIFR's order (dated 09.12.2009)
especially paragraphs 3.6.1 and 3.6.2 clearly demonstrate that the
consent of the important stake holders such as the workers was not
obtained. Another aspect, according to the counsel, is that TSL had no
experience with manufacturing and selling cables. It was lastly urged
that the OA's report was not made available to workers and
consequently the decisions of BIFR and AAIFR cannot be sustained as
they were finalized without following the principles of natural justice.
33. Mr. Sandeep Sethi, learned senior counsel submitted that the
DRP of TSL contemplates that dues of trade creditors would be
W.P.(C)5010, 5954 & 5197/2011 Page 24
written off fully and would not be paid to them. He submits that it is
settled law that for writing off dues of any creditors under the BIFR
Scheme their consent must be obtained, or else their dues are to be
paid fully. He relies on Continental Carbon India Ltd. Vs. Modi
Rubber Ltd. 2012 (131) DRJ 294 (DB). It is submitted that there has
been considerable passage of time of over 9 years since RRK
furnished its scheme and over 6 years since TSL gave its scheme to
the BIFR. Both were based on certain assumptions regarding assets'
value and liabilities payable by the Company. With the passage of
time, these assumptions changed significantly and thus the Scheme
has become irrelevant. It is submitted that in view of increase in value
of assets, if fresh offers are invited it is likely that interested parties
may bid significantly higher for take-over of the Company which will
ensure to the benefit of not only to the Company but its various
creditors.
34. The Schemes were submitted by RRK and TSL at different
points of time i.e. on 21.03.2006 and 22.05.2009 respectively. In
terms of BIFR's directions for Change of Management (COM), the
offers/DRS were to be submitted by interested parties within a period
of 30 days. It was contemplated that all bidders would get an equal
opportunity to bid against the others and thereafter bids would be
evaluated by the OA and BIFR and the best bidder was to be selected
for change of management. In the present case, TSL was permitted to
give its bid in 2009 and at that stage the DRS/offer of RRK was in the
public domain and fully known to TSL. In this view of the matter the
W.P.(C)5010, 5954 & 5197/2011 Page 25
sanctity of the bid process as contemplated by the BIFR was not
maintained and the entire bidding process stands vitiated.
35. The BIFR had specifically directed that while submitting the
DRS in response to the advertisement for COM, the interested parties
would take a cut-off date of 31.03.2005. RRK assumed a cut-off date
of 31.08.2005 in its DRS and TSL assumed the cut-off date of
31.03.2008 in its DRS. This was done without permission of BIFR and
contrary to BIFR's direction. Therefore the DRP/offers had not
complied with the directions of the BIFR and this vitiated the COM
process.
36. The BIFR had while declaring the company to be a sick
industrial company directed the OA to conduct a detailed techno-
economic viability study (TEVS) of the Company, keeping in view the
industry profile as well as perspective for the next 5-7 years with
appropriate demand forecasting and taking into account competition
faced from other units. It had also directed that the Company's
proposal would be examined in the light of the TEVS of the unit as
aforesaid. It is argued that when the bids were received in 2006 and
2009 from RRK and TSL respectively and evaluated by the OA
thereafter, TEVS had become outdated. Furthermore, neither scheme
was examined by the OA in the context of any TEVS. Consideration
of DRS by the Operating Agency thus was not in consonance with the
directions of BIFR and further, such consideration by the OA was only
superficial and neither a detailed examination of the proposals nor are
technically and economically feasible at all. It is submitted that the
Scheme of TSL is neither complete/tied up. There are various errors
W.P.(C)5010, 5954 & 5197/2011 Page 26
and shortcomings in the Scheme. It significantly it provides unequal
treatment to different creditors for the same class. It further does not
have the consent of majority of the secured lenders. Therefore, the
BIFR and AAIFR have both erred in approving the DRP of TSL as
proper.
37. Responding to the submissions of TSL, it was argued on behalf
of the RRK by Mr. Darpan Wadhwa, Advocate that the reference to
the previous litigation and pleadings made therein (on behalf of the
RRK) in the context of the COD are irrelevant. Here, it was urged that
all previous litigations in the Courts were in the context of schemes
propounded by the parties during 2005-06. It was stated that RRK
never filed a revised scheme but merely resubmitted the same scheme.
PARL was allowed to place new scheme on the record which was
never acquiesced but on the other hand protested. It was lastly urged
that the secured creditors' views were not considered and that this
constituted an important omission exposing the legality of the orders
of BIFR and AAIFR.
Analysis and findings
38. The previous discussion would show that there is a chequered
litigation history to the entire dispute. Recapitulation of the broad
facts is essential. Incab was declared sick company in 2000; BIFR
even expressed its prima facie view (in 2004) that given the nature of
the proposals or the lack of them, it would be better (in its prima facie
opinion) to have wound it up. An attempt was thereafter made to find
a new promoter since the existing promoters volunteered to divest
W.P.(C)5010, 5954 & 5197/2011 Page 27
themselves, free of cost or at nominal cost, their existing share
holding. In this initiative, four companies/concerns held themselves
out: RRK, LLL, SJIL and PARL. Of all these, only RRK survives. In
between, during the pendency of the proceedings before the BIFR,
RRK felt aggrieved and approached the AAIFR in respect of the order
made sometime in 2006. AAIFR directed maintenance of status quo
enjoining the secured creditors from creating further rights. The RRK
felt aggrieved and approached this Court. During the pendency of
proceedings in this Court (in W.P.(C)942/2007) at the behest of a
workers' union, TSL was permitted to join the process by an order
dated 23.04.2007. That order records as follows: -
"CM No.5413/2007 in WP(C) No. 942/2007
This is an application moved by the (1) Incab
Industries Employees Association, (2) The Indian
Cable Workers' Union, (3) Incab, Graded Staff
Association and (4) Cable Karamchari Union,
INTUC. The applicants representing these Unions
claimed to have vital interest in the subject matter of the
petition. By this application, leave for intervention in this
petition is sought as also leave to approach Tata Steel
Limited for rehabilitation and revival of Incab. Mr.
Neeraj Kishan Kaul, learned senior counsel on
instructions, submits that Tata Steel Company had
been approached for rehabilitation of the Incab Unit.
Mr. Devashish Kundu and Mr. Tarun Banga,
representing Tata Steel Limited for whom they state they
had filed the Power of Attorney, also pray that 30 days'
time may be granted to them to respond to the
workers' request and make their concrete proposal, if
any. It is made clear that any proposal made by them
would be without prejudice to the rights and contentions
of non-applicants and the four bidders, who claim that
W.P.(C)5010, 5954 & 5197/2011 Page 28
rights have already been accrued in their favour.
Learned counsel for the applicant submits that
Tata Steel Co. Ltd. has the perpetual lease and
responsibility for provision of basic amenities. The
company has been lying closed since 1995. On the one
hand, it is imperative that an expeditious resolution
must be found to end this empasse, on the other
hand, it appears worthwhile to await response of the
Tata, if any, for a period of 30 days. Petitioners
would file a synopsis not exceeding five pages listing
out their proposals as also authorities, if any, relied
on. Respondents No.3, 24, 26, 31 to 33, 38 and 39 may
also file their synopsis in response.
Renotify on 18th July, 2007.
Interim orders to continue.
XXX XXX XXX"
39. Neither RRK nor the other parties, i.e., PARL and other
workers' union felt aggrieved. As a consequence, TSL filed its DRS
in May, 2007. The process of evaluation of various DRSs and revised
DRSs (of different parties), in the meanwhile continued. PARL was
permitted to revise its COD from 31.03.2006 to 31.03.2009. TSL's
COD was 31.03.2008. COD proposed by the RRK in the DRS
furnished by it was 31.08.2005.
40. On 09.04.2009, this Court disposed of W.P.(C)942/2007. In the
meanwhile PARL and other parties were aggrieved by the assignment
of debts by secured creditors to the extent of 85% of the principal
amount and about 80% of the interest due, to sister concerns of RRK.
They had articulated this grievance in writ proceedings. This Court
W.P.(C)5010, 5954 & 5197/2011 Page 29
upheld the assignment of debts by secured creditors. However, as
regards other issues agitated, the Court did not render an opinion on
the merits and left it to the BIFR to decide the issue. Two sets of
SLPs were filed before the Supreme Court - one by RRK and the other
by PARL. The SLP of RRK is pending. PARL was later permitted to
withdraw its petition as it bowed out and withdrew its DRS and
consequently the offer; its writ petition (as noticed earlier, was
withdrawn, and so recorded by the order dated 08.07.2014).
41. The BIFR held various proceedings, which were preceded by
meetings of parties with the OA. The record shows that the OA issued
its report for the first time on 01.09.2009 recommending that TSL's
scheme was best suited. This was discussed on 22.09.2009. On
12.10.2009 RRK sought directions that it should be allowed to file a
revised proposal. The OA conducted a meeting thereafter on
20.10.2009 and by its report of 26.10.2009 again recommended TSL's
proposal for revival. This was discussed by the BIFR in its meeting
dated 12.11.2009. BIFR directed the proposers to file the written
submissions. RRK filed its submissions subsequently on 15.11.2009.
The OA submitted its reply to objections of the proposers on
20.11.2009. BIFR considered the second report of the OA dated
26.10.2009 and directed the OA to recast the report in the specified
format. The OA submitted its supplementary report on 27.11.2009 in
compliance with the BIFR directions (dated 24.11.2009). Again as to
this report, parties were allowed to file responses and objections;
RRK filed its submissions on 02.12.2009. Eventually, on 09-12-
W.P.(C)5010, 5954 & 5197/2011 Page 30
2009, it issued its final order. The appeal by RRK was dismissed by a
majority opinion, in the impugned order of AAIFR.
The points to be decided
42. The contentions of the parties, in the opinion of the Court
require decision on the following points: -
(i) Scope of the present proceedings under Article 226 of the
Constitution of India;
(ii) whether RRK was prejudiced by a different CODs
propounded by the parties as well as use of the "Equalization
chart by AAIFR ; and
(iii) on the merits did the AAIFR fell into error in not
interfering with the decision of BIFR to the effect that TSL's
DRS was the best suited for rehabilitation of Incab.
Point no.1
43. SICA, according to its preamble, was enacted with a view to
securing timely detection of sick companies, owning industrial
undertakings, speedy determination- by a board of experts of the
preventive, ameliorative, remedial and other measures needed to be
taken with such companies and the implementation of measures
deemed appropriate for their revival. The SICA in a sense is a
complete code in itself; under its provisions, a company, which owns
an industrial undertaking that loses its net worth, is compelled to
approach the BIFR with a reference. The BIFR examines the financial
health, balance sheets, commercial viability and other relevant
materials and decides whether indeed the company is sick. Upon the
W.P.(C)5010, 5954 & 5197/2011 Page 31
registration of a reference, Section 22 of SICA operates and all
pending proceedings are kept in abeyance to facilitate the possibility
of revival. BIFR appoints an Operating Agency ("OA"). Based upon
the proposals mooted and discussed, before it, rehabilitation schemes
are furnished and refined. This process would involve not only the
management but also other stake holders, such as secured and
unsecured creditors (and wherever they exist), consortium of banks
and financial institutions, workers unions etc. If the BIFR is
convinced- on the basis of advice tendered by the OA- that a particular
DRS is feasible and can revive the sick company, it sanctions it. BIFR
maintains a continuing jurisdiction to oversee the implementation of
the sanctioned revival plan, rehabilitation scheme and wherever
necessary, make consequential or clarificatory directions. Upon the
company achieving net worth or the successful completion of the
rehabilitation scheme, BIFR may close a given reference.
44. This, broadly, being the scheme of enactment, the deep
involvement of the two statutory agencies - one an expert advisory
body (the OA) and the other an expert adjudicatory or quasi-judicial
body (BIFR) becomes immediately apparent. The BIFR's orders -
even at the interim stage - can be challenged before the AAIFR.
These include orders modifying the schemes, orders permitting
impleadment of parties or anything which is likely to impinge the draft
proposals of one or the other parties that may eventually impact a plan
for rehabilitation that is under consideration before the BIFR. Thus,
an appellate body (AAIFR) exercises legal and factual appellate
review over the orders of the BIFR. By statute, it is designated as the
W.P.(C)5010, 5954 & 5197/2011 Page 32
final authority as to the fact determination in a particular cause or
matter.
45. It is in this background that the role and authority of the High
Court under Article 226 of the Constitution is to be examined. The
Court's jurisdiction - it has been reiterated time and again - does not
encompass appreciation or determination of primary facts. It does not
admit re-appreciation of purely fact based findings, barring rare
instances of utterly unreasonable factual findings, i.e where a body or
tribunal authorized to render such findings does so in utter disregard
of the record or arrives at conclusions which no reasonable body
similarly circumstanced would have. The essence of judicial review
is in ensuring procedural integrity in decision making (i.e. overseeing
whether the decision maker has taken all the relevant factors,
eschewed irrelevant factors and applied its mind to all the
circumstances that decision or the process leading to the decision is
not tainted by mala fides or illegality and that procedural fairness is
adhered to).
46. In the words of this Court in A.R.C. Cement Ltd. & Anr. v.
AAIFR1,
"This Court cannot sit in judgment nor scrutinize the
figures just to find holes in the inferences drawn by the
BIFR an AAIFR under the aforesaid Act. Where an
expert body including Operating Agency has scrutinised
the matter, weighed it, considered it, even if it is possible
to come to a different conclusion on the basis of
arguments by the learned counsel for the petitioner, this
AIR 1998 Del 359
W.P.(C)5010, 5954 & 5197/2011 Page 33
Court would not exercise the present powers as an
appellate jurisdiction."
47. In a similar vein, Shri Sitaram Sugar Company Limited and
Anr. v. Union of India and Ors2., , it was held as follows: -
"47.Power delegated by statute is limited by its terms and
subordinate to its objects. The delegate must act in good
faith, reasonably, intra vires the power granted, and on
relevant consideration of material facts. All his decisions,
whether characterised as legislative or administrative or
quasi-judicial, must be in harmony with the
Constitution and other laws of the land. They must be
"reasonably related to the purposes of the enabling
legislation". See Leila Mourning v. Family
Publications Service, 411 US 356. If they are manifestly
unjust or oppressive or outrageous or directed to an
unauthorised end or do not tend in some degree to the
accomplishment of the objects of delegation, court might
well say, "Parliament never intended to give authority to
make such rules; they are unreasonable and ultra vires".
per Lord Russel of Killowen, C.J. in Kruse v. Johnson,
[1898] 2 Q.B. 91.
48. The doctrine of judicial review implies that the
repository of power acts within the bounds of the power
delegated and he does not abuse his power. He must act
reasonably and in good faith. It is not only sufficient that
an instrument is intra vires the parent Act, but it must
also be consistent with the constitutional
principles: Maneka Gandhi v. Union of India, [1978] 1
SCC 248.
49. Where a question of law is at issue, the Court may
determine the rightness of the impugned decision on its
own independent judgment. If the decision of the
(1990) 3 SCC 223
W.P.(C)5010, 5954 & 5197/2011 Page 34
authority does not agree with that which the court
considers to be the right one, the finding of law by the
authority is liable to be upset. Where it is a finding of
fact, the Court examines only the reasonableness of the
finding. When that finding is found to be rational and
reasonably based on evidence, in the sense that all
relevant material has been taken into account and no
irrelevant material has influenced the decision, and the
decision is one which any reasonably minded person
acting on such evidence, would have come to, then
judicial review is exhausted even though the finding may
not necessarily be what the court would have come to as
a trier of fact. Whether an order is characterised as
legislative or administrative or quasi-judicial, or,
whether it is a determination or law or fact, the judgment
of the expert body, entrusted with power, is generally
treated as final and the judicial function is exhausted
when it is found to have "warrant in the record" and a
rational basis in law: See Rochester Tel. Corp. v. United
States, 307 US 125 (1939). See also Associated
Provincial Picture Houses Ltd. v. Wednesbury
Corporation, [1948] 1 K.B. 223.
XXXXX XXXXX
52. The true position, therefore, is that any act of the
repository of power, whether legislative or administrative
or quasi-judicial, is open to challenge if it is in conflict
with the Constitution or the governing Act or the general
principles of the law of the land or it is so arbitrary or
unreasonable that no fair minded authority could ever
have made it."
48. It is, therefore, held that under Article 226 of the Constitution,
this Court cannot put themselves in the place of the primary decision
maker with a view to entering the area of fact appreciation; especially
when an appellate tribunal or body has gone into the merits of the
W.P.(C)5010, 5954 & 5197/2011 Page 35
factual exercise involved in the decision making. Judicial review can
be the recourse where procedural irregularity or unfairness, illegality,
lack of good faith or demonstrable and manifest mis-appreciation of
facts so glaring that no reasonable person or body charged with the
duty in question would have arrived at such decision, is apparent from
the record. The first point is decided in the above terms.
49. This concerns the decision on one of the major arguments of
RRK, i.e. that the BIFR fell into error in applying differential cut off
dates in the schemes considered by it; the argument is that as a quasi
judicial body, it ought to have devised a method or uniform standard,
"equalizing" so to speak, the inherently different proposals (DRS)
preferred before it. The reply by TSL is firstly, that RRK did not urge
this on the several occasions when it could have, and secondly that the
issue is really irrelevant.
50. At the outset, this Court has to keep in mind that unlike cases
where DRS proposals for revival of a company are considered on
merits, what is involved is the right of one or the other company (in
this case, either RRK or TSL) to first take over the management of
Incab. It is only thereafter that such successful bidder (for the
management) can file what is known as a "fully tied up" DRS that can
be taken for the rehabilitation of the company. In other words, what
was advertised was the transfer of management of the company, on the
basis of a plan to be furnished to the BIFR. It cannot be said that the
DRS furnished would be one carved in stone; whereas it would be
W.P.(C)5010, 5954 & 5197/2011 Page 36
indicative and broadly have to be adhered to, the company which is
deemed successful after almost a decade of litigation would get a
proper "look into" the sick company's finances and affairs after which
it would submit proposals or modifications to the existing DRS filed
before BIFR.
51. RRK filed its scheme on 21.03.2006 proposing the COD at
31.08.2005. On 12.04.2006 BIFR, directed proposers to file fully tied
up scheme. RRK filed revised Scheme on 10.05.2006 with COD
31.08.2005. At the same time, it challenged the said BIFR order
before AAIFR, contending that its proposal was the best. AAIFR, on
22.09.2006 upheld BIFR's order and asked parties to file a revised
scheme within two weeks before BIFR. RRK did not file any revised
scheme; it filed W.P.No.942/2007 before this Court. In those
proceedings, with the permission of the High Court, TSL filed its
scheme on 22.05.2007 with COD 31.08.2008. RRK continued to
assert that its scheme was the best. This Court finally disposed off that
writ petition by order-dated 09.04.2009, by directing parties file
schemes before the BIFR. Delhi High Court gave another opportunity
i.e. 3rd opportunity to RRK to file fresh proposal. The third revised
proposal was filed by RRK on 22.04.2009 it continued COD of
31.08.2005. During the pendency of WP 942/2007, after TSL was
permitted to file its proposal (which it did in 2007), RRK never
objected and raised the issue of differential COD (considering that
TSL's COD was 31.03.2008). On, 12.10.2009, after the order of the
Supreme Court, during the resumed proceedings before BIFR, RRK
filed an application on the ground that PARL had filed a revised
W.P.(C)5010, 5954 & 5197/2011 Page 37
scheme, that it be allowed to file a revised scheme. Also RRK
additionally asked BIFR to fix uniform COD. The minutes of hearing
and proceedings held by BIFR on 12.11.2009, 24.11.2009, and
30.11.2009 do not reflect that this issue was urged by RRK. In this
background of circumstances, it is sufficiently clear that RRK had
several opportunities to urge the issue of differential COD before
BIFR; more appropriately before this Court. During the pendency of
reference before BIFR (after remand by this Court was upheld) it was
open to it to seek orders or directions either from this Court, or the
AAIFR, especially because the TSL's proposal- with a differential
COD was known. The only instance when RRK sought orders was on
the ground that PARL had been given opportunity to revise its
proposal and that it should have been afforded the opportunity to do
so.
52. The constant refrain that RRK had urged the issue of a
differential cut off date, before BIFR is belied also by the fact that
though in its MA 150/2009, the question was no doubt urged
(preceded by observations on a particular date by the OA) the minutes
of proceedings in all hearings that took place on and after 24.10.2009
are silent on this aspect. There was even a hearing before BIFR on
30.11.2009, when parties were asked to file written submissions. Even
at that stage, RRK did not urge this issue; more importantly it did not
highlight how the omission to determine a common COD prejudiced
it. The letter/submissions addressed to BIFR (on 02.12.2009) is silent
about any prejudice ensuing due to the differential COD of the parties.
W.P.(C)5010, 5954 & 5197/2011 Page 38
53. The AAIFR, before which the issue (differential COD) was
urged, acknowledged that this was a fact. However, it took note of an
equalization table furnished during the hearing and was of the opinion
that the said document (chart) was a mere method of ironing out the
differences between the figures (based on different COD) and that the
basic assumption of liabilities, etc, were the same. It therefore
concluded that the use of differential COD was a "condonable
technical flaw" which did not render individual schemes fatal.
54. The position of the revised proposals, reflecting the assets and
liabilities of Incab, as presented in RRK's proposal, is reflected below:
R.K. Cable As of 31-08-2005 Restructured- as of 31-
08-2005
Assets ` 5855.14 ` 205.02
Liabilities ` 12,447.42 lakhs ` 6420.03 lakhs
TSL As of 31-03-2008 Restructured
Assets ` 10,719.64 lakhs ` 8163.11 lakhs
Liabilities ` 10,719.64 lakhs ` 8163.11 lakhs
(secured &
unsecured)
Furthermore, the final order of BIFR notes as follows:
"2.2 The Bench observed from the DRS submitted by
TSL that SBI (OA) vide letter dated 4.5.2007 sent in
W.P.(C)5010, 5954 & 5197/2011 Page 39
response to the letter dated 30-4-2007 of TSL had given
the position of principal dues of the secured creditors of
M/s Incab Industries Ltd as on 31-3-2006 as Rs. 4875
lakh. The Bench asked SBI (OA) how they had arrived at
the figure. The representative of SBI (OA) clarified that
SBI had ascertained the figures from the secured
creditors. The Board observed that TSL had taken the
principal dues of the secured creidtors at Rs. 4875 lakh
on page 39 of the DRS and proposed to pay Rs. 2437.50
lakh (50% of principal)."
TSL's revival scheme thus, was premised on the information made
available to it by Incab. Its DRS in fact states that the proposal was
itself premised on the limited material made available and that it had
asked the company to furnish the latest details of liabilities and dues
but that they had not been compiled. Coupled with this, and the fact
that PARL's revised DRS had a COD of (31.03.2010), it was up to
RRK to seek opportunity to update or revise its scheme, if it felt that it
was placed in a handicap. That it was given an opportunity earlier, is
not disputed; however the history of the litigation shows that it never
sought to highlight this aspect when matters were pending before
AAIFR (after the order of this court dated in WP 942/2007). Having
let the opportunity pass, it could not have contended - without proof
of substantial prejudice- that the differential COD constituted an error
of law.
55. If one understands that the differential COD was really a non-
issue, because the two rival proposers were in fact basing their
assumptions on the same set of figures (i.e. financial documents
pertaining to Incab as of 31.03.2006) though their DRS contained
W.P.(C)5010, 5954 & 5197/2011 Page 40
differential COD (RRK's being 31.08.2005 and TSL's 31.03.2008,
since it came into the picture in 2007) and significantly, given that
RRK chose to re-present the DRS with COD at 31.08.2005 (i.e. on 22-
04-2009) (Ref. page 285-286, Vol 2/WP 5010/2011) there can be no
cause for complaint. Here, the use of the equalization chart in the
opinion of the Court, cannot be characterized as an illegality or
irregularity of such magnitude that it would invalidate the entire
proceedings and order of AAIFR. That chart, as TSL points out, was a
submission, more in aid of understanding by the appellate authority.
56. A High Court, in exercising certiorari jurisdiction, is to keep
itself within well defined bounds of that authority. That necessarily
means that fact appreciation is ruled out- at least ordinarily; if the
Tribunal (here the BIFR and AAIFR) are conferred specific
jurisdiction, it is not every error (of fact and law) which are capable of
correction, but those which impinge on that special jurisdiction. In
other words, the tribunal is allowed a margin of appreciation or margin
of error, within the bounds of its jurisdiction. It is only when such
margins are transgressed that certiorari can be invoked.3 In the case of
Ref. T.C. Basappa v T. Nagappa AIR 1954 SC 440 (that a writ court "does not
review or reweigh the evidence upon which the determination of the inferior
Tribunal purports to be based. It demolishes the order which it considers to be
without jurisdiction or palpably erroneous but does not substitute its own views
for those of the inferior Tribunal."); also Hari Vishnu Kamath v Syed Ahmad
Ishaque 1955 SCR 1104 to the effect that " It may therefore be taken as settled
that a writ of certiorari could be issued to correct an error of law. But it is
essential that it should be something more than a mere error: it must be one which
must be manifest on the face of the record."
W.P.(C)5010, 5954 & 5197/2011 Page 41
SICA, the Supreme Court in Raheja Universal Ltd vs NRC Ltd & Ors4
explained the special nature of jurisdiction in the following terms:
22. The BIFR has been vested with wide powers and,
being an expert body, is required to perform duties and
functions of wide-ranged nature. If one looks into the
legislative intent in relation to a sick industrial company,
it is obvious that the BIFR has to first make an effort to
provide an opportunity to the sick industrial company to
make its net worth exceed the accumulated losses within
a reasonable time, failing which the BIFR has to
formulate a scheme for revival of the company, even by
providing financial assistance in cases wherein the BIFR
in its wisdom deems it necessary and finally only when
both these options fail and the public interest so requires,
the BIFR may recommend winding up of the sick
industrial company. So long as the scheme is under
consideration before the BIFR or it is being implemented
after being sanctioned and is made operational from a
given date, it is the legislative intent that such scheme
should not be interjected by any other judicial process or
frustrated by the impediments created by third parties
and even by the management of the sick industrial
company, in relation to the assets of the company. In
other words, the object and purpose of the Act of the
1985 is to ensure smooth sanctioning of the scheme and
its due implementation."
57. The mere fact that parties persisted with submitting different
CODs and - especially in RRK's case, that despite several rounds of
litigation, it chose not to revise that date; or even seek revision, is
sufficient indication that all of them felt that it was not inherently
arbitrarily or unfair. Once the parties went to the experts: in this case,
the OA, repeatedly and their proposals were appraised and discussed,
2012 (4) SCC 148.
W.P.(C)5010, 5954 & 5197/2011 Page 42
up to a week before the final order, in the absence of prejudice the
court is of opinion that there was no illegality in this regard; likewise,
TSL's explanation that the equalization chart was an attempt to submit
that the differences (seemingly of an irreconcilable at a broad and
superficial level) were not fundamental, but rather to see the figures
from one common perspective is neither unreasonable nor incapable
of acceptance. The Court therefore, holds that the grievance on this
aspect is of no consequence.
58. As to the relative merits of the three proposals, the impugned
order - to the extent it is relevant, is reproduced below:
62. Before we proceed to evaluate the three schemes
comparatively, it will be useful to look at the cost of
rehabilitation scheme and the means of finance by the three
proposers. The following table gives the comparative position
as submitted by the three bidders (Ref: SBI (OA)'s report dated
24.10.2009:
(A) ESTIMATED TISCO RR PEGAUSS ASSETS
COST OF THE KABLES RECONSTRUCTION
REHABILITATION LTD. PVT. LTD. (PARL)
SCHEME (RRK)
(1) Payment to
secured creditors
(a) Banks and FIs 2163.50
(b) Debentures 274.00
(Public)
Sub total (1) 2437.50 4091.18 7039.32
(2) PAYMENT TO
UNSECURED
CREDITORS
(a) Fixed Deposit 27.75
(b) Unsecured Non- 27.75
W.P.(C)5010, 5954 & 5197/2011 Page 43
convertible
debentures
(c) Short term loans 18.75
Sub Total (2) 74.25 0.00 3465.77
(3) PAYMENT TO
LEADER GROUP
(a) Share purchase 0.00 175.00
(b) Liability for bank 0.00 0.00
borrowing paid by
leader
Sub Total (3) 0.00 175.00
(4) Capital
Expenditure for
Renovation/start up
expenses/new
machinery
(a) Start up expenses 240.00 100
(b) Other capital 1025.00 292.11
expenditure
Sub Total (4) 1265.00 392.11 1500.00
(5) PAYMENT FOR
PRESSING
CREDITORS
(a) Sales Tax 343.00
(b) Excise duty 45.00
(c) ESI and LIC 52.00
(d) Income Tax 2.00
(e) Electric dues, 2372.01
water etc. (Tata Steel
dues)
(f) Municipal Taxes 146.00
(g) Mumbai Port 24.00
trust
(h) Trade creditors 0.00
(i) DOT bill 0.00
discounting
Sub Total (5) 2984.01 2808.00
W.P.(C)5010, 5954 & 5197/2011 Page 44
(6) Payment to
Employees
(a) Payment to 359.00
workers for past
dues
(b) PF dues 370.00
(c) Emp. Coop. 0.00
Society
(d) Gratuity 1741.00
Sub Total (6) 2470.00 425.00 1000.00
(7) Margin money 639.00 816.75 3185.22
for working capital
Total 9869.76 8708.04 16190.31
(1+2+3+4+5+6)
(B) PROPOSED
MEANS OF
FINANCE
(1) Equity capital 3201.00 2500.00 2500.00
(2) Fresh Term loan 5500.00 2708.00
from banks/financial
institutions.
(3) Sale of 2000.00 1800.00
unproductive
assets/Long term
deposit by leasing
out the unproductive
and/or surplus
assets/fixed assets.
(4) Loan from 1500.00 2500.00
others/body
corporate/associate
concerns
(5) Working capital 4000.00
loans
(6) Sales tax 2328.94
Department
W.P.(C)5010, 5954 & 5197/2011 Page 45
(7) Accruals from 8428.17
operations
(8) Short term loan 1000.00
TOTAL (1+2+3+4) 8701.00 8708.00 22557.11"
59. TSL proposed infusion of equity infusion of ` 32.01 crores;
RRK proposed ` 25.00 crores (as did PARL). TSL's equity
investment was the highest. RRK did not show any equity infusion in
"the sources of application of funds", the `25 crores were treated as
Promoters' loan. RRK has later argued that after withdrawing `5
crores ` 20 crores would be equity. It was noted that the three rival
proposals did not show preference capital in means of finance. TSL
showed that 50% of the principal dues of the secured creditors will be
converted into 11% cumulative preference shares which will be
redeemed only when the net worth of the company becomes positive.
TSL did not show any interest free unsecured loan. The AAIFR
observed that:
"66. RRK has proposed Rs.1500 lacs as loan from
Kamala Mills although they have not shown this in
"Sources and application of funds". The OA has said that
no support papers in this regard have been produced.
67. PARL has proposed Rs.3500 lacs out of which
Rs.1000 lacs would be short term loan for which they
have claimed to have received RBI permission. For the
remaining Rs.2500 lacs, they claim that they are
discussing with many investors but nothing has been
finalized.
68. TSL has proposed Rs.5500 lakhs of loan which
consists of a term loan of Rs.3130 lacs and working
W.P.(C)5010, 5954 & 5197/2011 Page 46
capital loan of Rs.2370 lakhs. The OA (SBI) has opined
that TSL has submitted the supporting papers for the
same.
69. RRK has shown borrowings of Rs.3000 lakhs from
banks, and a working capital loan of Rs.3110 lakhs in the
'Sources & application of funds" as against Rs.2708.04
lakhs shown in the cost of the scheme. RRK has further
said in the joint meeting convened by the OA that their
working capital requirements will be met by (a) their own
sources; (b) Rs.3400 lakhs from the HDFC bank; and (c)
Rs.1500 lakhs from Dimexon Diamond Ltd.
70. PARL had proposed Rs.4000 lakhs as working
capital loan in the means of financing consisting of
Rs.2500 lakhs as loan from Government of Jharkhand
(GOJ) and Rs.1500 lakhs as working capital loan. But
OA (SBI) has stated that it has received from GOJ a fax
stating that they are not giving any soft loan for IIL's
rehabilitation. PARL's representative had said that they
have secured Rs.2500 lakhs from the Yes Bank and are
discussing with many investors for funds, however, this is
not a firm tying up of means of finance.
71. TSL has not considered any sale of assets in the
means of finance. RRK has proposed Rs.2000 lakhs as
sale of assets but has not given any details of assets
proposed to be sold. Pegasus has proposed Rs.1800
lakhs for sale of assets.
72. TSL and RRK have not proposed any deferment of
sales tax whereas PARL has proposed Rs.2328 lakhs for
deferment. But OA (SBI) has said that PARL has not
given any document in support of sales tax deferment
scheme approved by GOJ.
73. The means of finance proposed by TSL aggregate
to Rs.8701 lakhs, whereas the cost of scheme proposed
W.P.(C)5010, 5954 & 5197/2011 Page 47
by them is Rs.9869.76 lakhs. There is a shortfall of
Rs.1168.76 lakhs. TSL has proposed to met this shortfall
out of the initial accruals of the sick company (IIL)
during the rehabilitation period.
74. RRK's means of finance is Rs.8708.04 lakhs which
matches the cost of finance at Rs.8708 lakh. The sale of
unproductive assets has been assumed at Rs.2000 lakh.
Sale of assets of any kind, however, is often uncertain,
and may not conform to the timeliness assumed for
revival.
75. PARL's means of finance totals up to Rs.22537.11
lakhs which is much higher than the cost of the scheme of
Rs.16190.31 lakhs. If we analyze Pegasus's means of
finance, we find that accruals have been assumed at
Rs.8428.17 lakhs. The sale of unproductive assets has
been assumed at Rs.1800 lakhs. And as we have
discussed above, there are uncertainties in their
projections of working capital, loans at Rs.4000 lakhs
and other loans of Rs.2500 lakhs. The sale of
unproductive assets is likely to cause unpredictable delay
in liquefying these assets, not to speak of the ;disputes
and workers' opposition that may also attend such sales.
Since the revival process is an extremely sensitive phase,
such deals can critically imperil the revival measures.
76. The DSCR for TSL is 1.57, for RRK is 1.36 and for
PARL 2.39. The net worth of IIL will become positive in
the 5th year of operation in TSL's scheme, in the 6th year
in Pegasus's scheme and it is not becoming positive in
RRK's scheme during the rehabilitation period."
60. The OA was involved in the examination and evaluation of the
proposals as well as hearings before the BIFR at various stages and
later, the AAIFR. Consistently, it was of the opinion that TSL's
proposals were the best for revival of the company (Incab) and also to
W.P.(C)5010, 5954 & 5197/2011 Page 48
secure the best interests of the workforce. The OA adopted a three fold
criteria, viz. (a) credibility and capability of the bidder/proposer; (b)
reputation in the domestic and international market and (c) strength
and weakness of the scheme. In this regard, it is relevant here to notice
that whereas RRK no doubt is in the business of cable manufacturing,
yet, according to the OA, TSL had the competitive edge on account of
its reputation financial strength and ability to command managerial
and other resources.
61. The following chart (extracted from the AAIFR's impugned
order) describes, at a glance the commitments made by the rival
bidders towards employees' rehabilitation:
(Note: All figures are in lakhs of Rupees)
Workers* TSL* RRK
Total payment to 2470 1175
workers
Arrears of wages 370 NIL (no wages for
closure period)
PF dues 370 180 (sacrifice of PF
contemplated)
Employees Co-op NIL 119.25
Gratuity 1741 753.83
Interest on gratuity NIL 32.22
Bonus NIL 9.70
TOTAL 2470 1175
Wage Packet and 1342.00 998.33
security of services (6
year average)
62. It can be seen from the above that TSL has assured greater
benefits, at least as far as allocations go, to the workers. The
W.P.(C)5010, 5954 & 5197/2011 Page 49
authorities below noted that TSL's average salary package for 1600
workers was ` 83,875/- per annum as against RRK's `62,395; TSL
assured 6% befit after three years whereas RRK assured 5% benefit
after 3 years; TSL allocated ` 6 crores for VRS and RRK allotted ` 5
crores. The cost of the scheme, according to TSL's proposal, was
`98.69 crores. After deduction of payouts to secured creditors, (`24.37
crores) the net cost was ` 74.32 crores. For RRK, the total cost of the
scheme disclosed was `65.57 crores. After deduction of payments to
secured creditors (` 21.49 crores) the net cost worked out to `43.59
crores. After analyzing the dues payable to banks -as communicated
and commented upon by the OA, the AAIFR concluded that TSL's
cost of the scheme was the highest among the bidders.
63. Similarly the AAIFR noted that although the figures for capital
expenditure proposed were tentative as TSL had requested for a
realistic appraisal of the state of machinery and plant, it had
nevertheless committed a figure of ` 12.65 crores as opposed to
RRK's ` 0.50 crores (Rupees fifty lakhs).
64. After undertaking a detailed analysis of the stated and relevant
parameters (credibility, commitment of funding, equity infusion,
worker rehabilitation and payouts towards wage arrears and statutory
dues, technology up-gradation funding commitment, capability of net
worth turning positive, payout to tax authorities, payments to secured
and unsecured creditors etc.) it was concluded that TSL's plan had the
least loose ends and showed a possibility of Incab turning around, and
regaining its net worth.
W.P.(C)5010, 5954 & 5197/2011 Page 50
65. This Court finds unmerited RRK's submission that TSL's
proposal- especially its plan of paying 100% electricity dues and
writing off 50% of secured creditors' dues, is a "self serving" one.
This is because every proposal is a comprehensive package. If each
component is individually to be taken apart and scrutinized, the
integrity of the whole would be undermined. Besides, there is nothing
intrinsically unjustified or unfair in the proposal, given that RRK's
proposal too envisions payouts to various bodies and entities, some of
whom may be asked to sacrifice or give up a part of their rights.
66. This Court notices that the workers' submissions are articulated
on two expected lines: first that there would be employment loss (due
to downsizing and alleged outsourcing) and that existing settlements
would not be honoured. This Court is conscious of the fact that one of
the principal aims of revival of a sick company is the interest of
workers, who face a loss of livelihood, in the event of an eventual
winding up. At the time, the promoter or investor who wishes to take
over the company has to realistically appraise itself about the
possibility of a turnaround; while ensuring that the least inconvenience
is caused. A look at the two proposals would reveal that both RRK and
TSL proposed payment of amounts towards Voluntary Retirement
Schemes (VRS). This meant that both considered VRS proposals; as
far as arrears of wages went, the provisioning by TSL was superior (at
least 20% over and above the figure of arrears payable to individual
workmen during the closure period, assumed for 1600 workers, by
RRK). In the circumstances, this Court cannot now hold that the
assurances held out by RRK are better, on a fresh or independent
W.P.(C)5010, 5954 & 5197/2011 Page 51
comparison. Furthermore, even as regards other dues (PF, gratuity etc)
the amounts committed by TSL are higher.
67. This Court holds as insubstantial and meritless, the argument on
behalf of Incab's existing management that (a) TSL's offer should not
have been considered and that (b) an accurate appraisal could not have
been made, since the value of assets of the company would have
changed vastly. As noticed earlier, the stage of involvement of the
BIFR here is not strictu sensu consideration of a "fully tied up"
rehabilitation scheme for revival of Incab; rather it is one aimed at
changing the management, to ensure that the best promoter (in
substitution of the existing one) assumes control, infuses capital, and
presents a viable DRS for consideration and ultimate acceptance. A
perhaps simplistic though fitting metaphor, which springs up, would
be the exercise of choosing a good spouse; the successful suitor here
would be the company (proposer) who would be allowed to take
charge, deploy fresh resources (financial and managerial) and bring
back Incab, the sick company, on to its rails. This would entail the
responsibility of taking over the liabilities: both towards secured and
unsecured creditors, but also revenue and workers' dues. Given that
the consideration period of assessing the best-suited company to take
over management itself has spread over 9 years, the note for greater
accuracy (considering Incab's existing management abysmal track
record in handling its affairs) is hollow. Furthermore, this court has
been tasked to consider the correctness of the AAIFR decision, not to
engender another round of litigation.
W.P.(C)5010, 5954 & 5197/2011 Page 52
68. The surviving argument: pressed by both RRK and the workers-
was that the consent of the secured creditors was not obtained, before
BIFR accepted the proposal. At the outset, the Court notices that the
OA is itself a secured creditor- in fact, the lead secured creditor. None
of the secured creditors, who participated in the BIFR proceedings
voiced their objections to the scheme propounded by TSL and backed
by the OA. Two, the present exercise of assessing the best proposal is
the first in a two part series of Incab's rehabilitation. This first step is
to change the management. At this stage, the proposal (by TSL and
RRK) are outlines, laying out what can be expected if the company
given charge of Incab would do, in terms of resources, finances,
payment of dues, etc. This step culminates in the handing over of
management. The second step would be the finalization of the DRS
and its acceptance leading to the actual operation of the scheme that is
"fully worked" out. The BIFR's acceptance of TSL's proposal
(loosely described as DRS) meant that the latter had to submit a final
DRS which was to be assessed and implemented. It is at that stage, the
views of creditors would be considered in detail and appropriate
orders made, under Section 18 of SICA. Furthermore, the Court is also
of the opinion that TSL itself was conscious of these eventualities; its
proposal clarified that Incab's books and financial condition was not
known to it fully; during the hearings too, on more than one occasion,
its counsel submitted that the stage of considering a detailed scheme
had not arisen and that if the proposal sanctioned by BIFR were to be
ultimately upheld, TSL would be legally bound to take into account all
obligations of Incab and deal with them. Therefore the lack of consent
W.P.(C)5010, 5954 & 5197/2011 Page 53
of all secured creditors being an impediment to the change of
management of Incab cannot be a valid argument.
Conclusions
69. In view of the foregoing discussion and findings on all the three
points of controversy, the Court is of opinion that no interference with
the orders of BIFR and AAIFR are called for. The writ petitions
consequently, fail and are dismissed without order as to costs.
S. RAVINDRA BHAT
(JUDGE)
R.K. GAUBA
(JUDGE)
JANUARY 06, 2016
W.P.(C)5010, 5954 & 5197/2011 Page 54
