Amei Power Limited vs Appellate Authority for Industrial and Financial Reconstruction, New Delhi and others

Krishna Saran Shrivastav, J. 1. Assailing the order passed by the second respondent and confirmed by the first respondent in Appeal No.204/1997, dated 17-4-1998, by this writ petition under Article 226 of the Constitution of India, the petitioner seeks a declaration that the order passed by the B.I.F.R. and confirmed by the appellate authority is illegal and contrary to the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 with a further request to direct the 2nd respondent to reconsider the matter of rehabilitation of the petitioner-company.

The facts giving rise to this writ petition, in brief, are that at the reference made by the petitioner-company to the second respondent, the reference was registered as Case No.89/1996 and after consideration, the 2nd respondent held that the petitioner-company was sick industrial company within the meaning of the Sick Industrial Companies (Special Provision) Act, 1985 (for short, ''SICA''). The 2nd respondent also found that it was not possible for the petitioner-company to revive on its own and, therefore, appointed Industrial Development Bank of India (IDBI) as the operating agency u/s 17(3) of SICA in order to examine the viability of the petitioner-company. The 2nd respondent has directed the promoters of the petitioner-company to submit a comprehensive rehabilitation proposal to the operating agency on or before 28-2-1997. Advertisement for change of management was also issued on 17-3-1997. The same promoters made an offer for rehabilitation which offer was examined by the operating agency. Many loose ends were found by the operating agency, therefore, the 2nd respondent gave another opportunity to the promoters and directed them to deposit a sum of Rs.75 lakhs in the no-lien account with the State Bank of Hyderabad on or before 30-5-1997. This direction was given in order to ascertain the seriousness of the promoters and their resources. They were also directed to furnish the required information to the operating agency on or before 21-5-1997 to enable it to formulate an appropriate rehabilitation scheme for the petitioner-company. The second respondent had also made it clear that if the concerned promoters would fail to deposit the aforesaid amount within the stipulated period or fail to furnish the requisite information to the operating agency, the 2nd respondent may direct issuance of show cause notice for winding up the petitioner-company without holding further enquiry.

The concerned promoters did not deposit the amount. The operating agency in its report to the 2nd respondent stated that the information furnished by the concerned promoters was inconsistent with the data that had been submitted earlier. The 2nd respondent reached the conclusion that the concerned promoters were not serious in rehabilitation and were not able to mobilise funds for rehabilitation of the petitioner company though ample opportunity was given. Therefore, it has formed an opinion to issue a show cause notice to the petitioner company as to why it should not be wound up.

The Managing Director of the petitioner-company informed the 2nd respondent that the interested investors did not want to deposit the amount in no-lieu account with the Slate Bank of Hyderabad. Staff members of the petitioner-company also complained that they had not been paid their wages since December, 1996, but they were prepared to even forego their claims. The 2nd respondent-Board found that the concerned promoters had no funds even to reimburse an amount of Rs.54,000/-which the operating agency has incurred in the processing work. They could not pay the charges of the security guards which were only Rs.20.000/- per month. The State Bank of Hyderabad informed the second respondent that it has lost confidence in the present management and it was not possible for it to support them. The 2nd respondent granted another opportunity to the petitioner-company to deposit Rs.75 lakhs in three instalments but the concerned promoters did not agree to this. The 2nd respondent, therefore, opined that there is no likelihood of the petitioner-company to become viable in future and, therefore, it should be wound up u/s 20(1) of the SIC A.

Feeling aggrieved by the impugned order passed by the 2nd respondent, the petitioner-company has preferred Appeal AAIFRNo.204/1987.

The appellate Court dismissed the appeal on 17-4-1998 narrating the aforementioned circumstances and also on the ground that though at the time of admission of the appeal on 18-2-1998, the appellate Court directed the concerned promoters to deposit Rs.75 lakhs in no-lien account in their names with IDBI latest by 15-4-1998 in order to show their bona fides and resourcefulness in the matter of rehabilitation of the petitioner-company as also to submit their upto date revised proposal to the operating agency, the concerned promoters did not comply the direction but requested for a months more time for furnishing the proposal. The appellate Court has also taken into consideration that the debt burden has been increased to approximately about Rs. 3 crore and even the salary of employees could not be paid for a long time. It did not agree to the proposal that the workers would be in a position to form a co-operative society to rehabilitate the petitioner-company for want of proposals in this regard and particularly in the light of the fact that they would not be in a position to raise necessary funds.

The grievance of the petitioner-company, as set out in the affidavit of the Managing Director of the petitioner-company namely Arun Kumar is that due to the change of the management in the year 1994, the Company had suffered huge losses. The bank account of the petitioner-company had been attached by the Assistant Provident Fund Commissioner, Hyderabad, and the Commercial Tax Officer, Gandhinagar, Hyderabad, therefore, the petitioner-company had no funds available for rehabilitation. The advertisement issued by the operating agency in the newspapers inviting proposals for rehabilitation was not properly made because it was made only in small boxes in the newspapers. Sufficient time was not given by the operating agency to furnish the requisite data. The report of the independent consultant namely Mr. Vijay Kumar Raghavan and Associates was not properly considered regarding the techno economic viability. Sufficient time was not given to the concerned promoters to deposit the amount in the no-lien account. Various alternatives provided u/s 18 of the SICA were not considered.

in the case of J.M. Malhotra v. Union of India, (1997) 89 CC 600 (Mad.), it is held that :

"Section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 enables the Board for Industrial and Financial Reconstruction (BIFR), after making enquiry and after considering all relevant facts and material to report and recommend the winding up of a sick industrial company. The Board for Industrial and Financial Reconstruction consists of persons who are experts in the field and is presided over by a person who has been or is qualified to be a judge of a High Court and acts as a judicial body. The report of the BIFR would become the basis for a proceeding to be continued against the sick industrial company for winding up in accordance with the provisions of the Companies Act, dispensing with the requirements u/s 439 or 440 of the Companies Act for initialing winding up.

Even though the opinion submitted by the BJFR forms the basis for ordering winding up of the sick industrial company by the High Court, it is nevertheless open to the High Court to go into the correctness of the opinion so submitted by the BIFR and decide as to whether it should proceed with the winding up of the sick industrial company, in accordance with the provisions of the Companies Act. This is clear by the use of the words "and may proceed and cause to proceed" in subsection (2) of Section 20 of the Sick Industrial Companies (Special) provisions Act. Therefore, it cannot be held that it is obligatory on the High Court to order winding up of the sick industrial company once it receives an opinion from the BIFR in this regard without examining the correctness of such opinion, on hearing the concerned parties."

u/s 18 of the SICA, the operating agency has to prepare a scheme ordinarily within the specified period of ninety days in respect of the sick company providing for any one or more of the following measures :

"(a)the financial reconstruction of the sick industrial company ;

(b) the proper management of the sick industrial company by change in or take over of, management of the sick industrial company ;

(c) the amalgamation of -

(i) the sick industrial company with any other company, or

(ii) any other company with the sick industrial company (hereafter in this section, in the case of sub-clause (i), the other company, and in the case of sub-clause (ii), the sick industrial company, referred to as ''transferee company'') ;

(d) the sale or lease of a part or whole of any industrial undertaking of the sick industrial company ;

(da) the rationalisation of managerial personnel, supervisory staff and workmen in accordance with law ;

(e) such other preventive, ameliorative and remedial measures as may be appropriate ;

(f) such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified in clauses (a) to(e)."

In the case on hand, the operating agency has prepared a scheme for financial reconstruction of the petitioner-company under Clause (a) of sub-section (1) of Section 18 of the SICA. It also advertised for the change of management on 17-3-1997. The grievance of the petitioner-company that because the advertisement was carried only in small boxes in the newspapers, it did not attract the promoters, is without substance because at no point of time, prior to the disposal of the case No.89/1996 by the 2nd respondent, the petitioner-company alleged that due to the inadequate advertisement, the promoters did not come forward. Had the concerned promoters of the petitioner-company been really interested in rehabilitation, they should have, instead of themselves making an offer, contacted the alleged promoters about whom they think that had they been noticed through proper advertisement, they would have made a proposal for the rehabilitation of the petitioner-company. The operating agency has found many loose ends for which the petitioner-company had or has no explanation that the finding of the operating agency was wrong. Second opportunity was given to the concerned promoters of the petitioner-company by allowing them to make a deposit in the no-lien account with the State Bank of Hyderabad and to furnish the required information to the operating agency on or before 21-5-1997 so that it may formulate appropriate rehabilitation scheme for the petitioner-company. But they failed to do so. Third opportunity was given to deposit the said amount in three instalments by the 2nd respondent but with no result. The concerned promoters had supplied data twice which contained mutual inconsistency. Thereafter, show-cause notice was issued to the petitioner-company but it could not give any acceptable explanation. The State Bank of Hyderabad lost confidence in the management of the petitioner-company and declined to support it. The concerned promoters of the petitioner-company had no funds even to reimburse the operating agency the expenses incurred by it in formulating the scheme. The petitioner-company could not pay the wages of the workers as also could not meet the charges of the security guards. For all these reasons, the second respondent reached the conclusion that there was no possibility of the petitioner-company to become viable in future and, therefore, opined for its winding up.

The appellate Court on 18-2-1998 again gave an opportunity to the concerned promoters to deposit Rs.75 lakhs in the no-lien account in the IDBI latest by 15-4-1998 but they did not avail this opportunity.

For the reasons aforesaid, it cannot be said that sufficient time was not given by the operating agency and/or 2nd respondent to enable the concerned promoters to make the demanded deposit. The report of the independent consultant regarding the techno economic viability may be incorrect but the fact remains that no person had come forward in an attempt to rehabilitate the petitioner-company.

The allegation in Para 13 of the writ petition that the concerned promoters of the petitioner-company had agreed to deposit the amount in the no-lien account if more time was given to them, contradicts the contention of the learned Counsel of the petitioner that had the company been in a position to arrange funds, it would not have made a reference for declaring it a sick company.

As noted above, the operating agency has to prepare a scheme with respect to a sick company providing for one or more measures as stated in Para 9 of this judgment. The operating agency has exercised its discretion, and rightly so, in preparing a scheme for financial rehabilitation of the petitioner-company. The concerned promoters or the petitioner-company had never requested the operating agency to prepare a scheme for it by taking appropriate measures mentioned in Clause 18(l)(b) to (da) of the SICA. Therefore, there appears to be no substance in the submission of the learned Counsel of the petitioner-company that the operating agency has failed in its duty to prepare a scheme for the petitioner-company under the remaining Clauses of 18(1) of SICA.

True that this Court has power to examine the correctness of the opinion after giving an opportunity to the concerned parties, but for the reasons stated in the preceding paragraphs, I do not find any fault with the opinion of the 2nd respondent and confirmed by the 1st respondent for winding up the petitioner-company.

In the result, the writ petition being devoid of substance is dismissed. No costs.