Rishabh Agro Industries Limited vs Union Of India & Ors.
2017 Latest Caselaw 1446 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                         Judgment reserved on : February 07, 2017
%                        Judgment pronounced on : March 17, 2017


+      WP (C) 6300/2015


Rishabh Agro Industries Limited                          ... Petitioner
                        Through :     Ms. Purti Marwaha, Adv.

                          versus

Union of India & Ors.                                   .... Respondents
                          Through :   Mr. Jasmeet Singh, CGSC for UOI
                                      Mr. Vishal Mahajan with
                                      Mr. S.S. Rai, Advs. for R-2.

CORAM:
HON'BLE MS. JUSTICE INDIRA BANERJEE
HON'BLE MR. JUSTICE ANIL KUMAR CHAWLA


                            JUDGMENT

A. K. CHAWLA, J.

1. The petitioner invoking the jurisdiction of this Court under Article

226 read with Article 227 of the Constitution of India seeks issuance of

appropriate writ for setting aside an order dated 12.5.2015 passed by

Appellate Authority for Industrial and Financial Reconstruction (AAIFR),

New Delhi in short "the impugned order".

2. Facts emerging from the record are that the petitioner company had

set up a plant at Roz-ka-Meo, Sohna, Haryana for processing of 2.5 lakh

litres of milk per day for manufacture of milk products viz. dairy whitener,

butter, ghee, condensed milk etc. The plant was so set up by the petitioner

in association with Haryana State Industrial Development Corporation

Limited (HSIDC) and Haryana Agro Industries Corporation Limited

(HAIC). The cost of the project estimated at Rs.1395 lac was financed by

term loans of Rs.450 lac comprising of Rs. 300 lac from IDBI; Rs.75 lac

from State Bank of Patiala and Rs.75 lac from Punjab National Bank

besides equity share capital of Rs.914 lac and state subsidy of Rs.31 lac.

Subsequent over run of Rs.392 lac was financed by additional term loan of

Rs.275 lac by IDBI and equity share capital of Rs.117 lac. The petitioner

commenced its commercial production in November, 1994. Initially,

though, the petitioner earned profit, due to severe liquidity crunch, it could

not meet the repayment obligations of the banks and the financial

institutions and its performance was not satisfactory during FY 1996-97

mainly due to liquidity crunch, erratic power supply, rejection of goods by

buyers etc. and it incurred losses of Rs.802 lac on overall turnover of

Rs.2390 lacs, leading to complete erosion of its net worth. The petitioner

thus, made reference to the BIFR under Section 15(1) of Sick Industrial

Companies (Special Provisions) Act, 1985 in short "SICA" on 30.6.1997.

On 1.12.1997, BIFR declared the company 'sick' and appointed IDBI as its

operating agency (OA) under Section 17 (3) of "SICA", to examine the

viability of the petitioner company and formulate a rehabilitation scheme.

It appears that prior to the petitioner company being declared sick by

BIFR, the Hon'ble Punjab and Haryana High Court had passed an order of

winding up of the company on 5.9.1997 but the Hon'ble Supreme Court

vide its order dated 7.9.1998 ordered that no further proceeding of

winding up shall be taken before the Hon'ble High Court. It also

transpires that in view of the subsequent developments, AAIFR had set

aside the order of BIFR and directed the promoter to submit a

rehabilitation scheme with BIFR and in pursuance thereof, BIFR once

again appointed IDBI as the OA under Section 17(3) of SICA to prepare

the draft rehabilitation scheme. Consequently, a rehabilitation scheme

came to be prepared. As for the unsecured loan of HSIDC, the DRS

provided that the dues of HSIDC (outstanding bridge loan against State

subsidy) be settled at RS.30 lac on receipt of state subsidy of Rs.30 lac

from the Govt. of Haryana. In case, the State Subsidy is not received, the

same was proposed to be settled at Rs.6 lac (@ 20% at par with the

secured creditors) against the principal outstanding of Rs. 30 lac, without

interest and Rs. 6 lac, being the shortfall if created in future will be

brought in by the Strategic investor as unsecured loans. Upon

consideration, BIFR approved the scheme with certain modifications and

directions inter-alia providing for the settlement of the dues of unsecured

creditors (including HSIDC and MMTC) at 20% of the principal

outstanding in terms of the DRS. Aggrieved thereof, HSIDC preferred an

appeal before AAIFR. Vide order dated 12.5.2015, AAIFR deleted the

scheme approved for HSIDC and substituted it to the effect that the dues

of HSIDC in respect of its bridge loan be settled at Rs.30 lac i.e.100% of

the principal within 60 days from the date on which such payment became

due and that, the petitioner company to also pay interest on the principal

amount on account of delayed payment, if any, in accordance with the

HSIDC policy for such settlements/payments. Aggrieved thereof, the

petitioner company has now filed the instant petition for setting aside of

the impugned order dated 12.5.2015 of AAIFR. According to the

petitioner, the petitioner company had arrived at settlement with all other

secured creditors like IDBI, PNB and State Bank of Patiala at 20% of the

outstanding amounts as One Time Settlement (OTS) and that, HSIDC -

the respondent No.2 represented only 1% of the debts of the total secured

creditors and as per the settled principles of law, the dues accepted by the

majority creditors have to be accepted by the minority creditors. Reliance

in support thereof is placed upon 2010 (157) Comp. Cas. 149 (Delhi)

Oman International Bank S.A.O.G vs. Appellate Authority for

Industrial and Financial Reconstruction and 2011 SCC Online Kar

367 Canara Bank vs. Shimoga Steel Limited. HSIDC - respondent

No.2 on its part, however, has taken a plea that it never consented to the

proposal in DRS for settling its dues @ 20% of the principal amount and it

was so objected to during the course of hearing before BIFR. Also,

according to the respondent No.2, the consent of HSIDC was required in

terms of Section 19 (2) of SICA and that, there was no linkage between

the subsidy payable to the petitioner company by Government and the

settlement of the dues of the respondent No.2- HSIDC. It is also a plea of

the respondent No.2 that no provision of SICA compels an unsecured

creditor to provide concession or write off a part of its dues. Reliance in

support thereof, is placed upon (1993) 2 SCC 299 U.P. Financial

Corporation vs. Gem Cap (India) Pvt. Ltd. and Ors. and 2012 (131)

DRJ 294 (DB) Continental Carbon India Ltd. vs. Modi Rubber Ltd.

3. It is a matter of record that HSIDC was an unsecured creditor and it

did not consent for settlement of its dues for any sum less than payable as

per its policy, which provided for the settlement at 100% of the principal

within 60 days without interest or payable within one year with interest @

13%. BIFR however approved a scheme, which provided for settlement

of dues of HSIDC at 20% of the principal amount of Rs.30 lacs, which

comes to Rs.6 lacs. Having considered the ratio of Oman International

Bank's case (supra), the concurrent bench of this Court in Continental

Carbon's case (supra) held that an unsecured creditor has the option not to

accept the scaled down value of its dues and wait, till the scheme of

rehabilitation of the sick company has worked itself out, with an option to

recover its debt post such rehabilitation. In a subsequent judgment in

Singer India's case (supra), a concurrent bench of this Court however,

made a reference to a larger bench on the following questions :

"Whether the decision in Modi Rubber case has not properly appreciated the mandate and scope of Section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 ("SICA"). Which would subsume the questions; Whether the Section vests BIFR with broad and extensive powers to take such measures as are necessary for revival of a sick company; and Whether without consent of unsecured creditors, the

scheme for rehabilitation envisaging reduction of their debt its binding on them."

The issue involved in case in hand falls within the purview/scope of

the questions referred to a Larger Bench in Singer India's case (supra).

We therefore, consider that the case in hand be also referred to the Larger

Bench to be considered alongwith Singer India's case.

4. The matter for the purpose, be placed before Hon'ble the Chief

Justice for necessary directions.

A. K. CHAWLA, J.

INDIRA BANERJEE, J.

MARCH 17, 2017 mw/rc