Amitabh Textile Mills Ltd. vs Official Liquidator and Others

This company appeal arises from the order dated July 29, 2005, passed by the company judge of this Court in Misc. Company Application No. 11 of 2001, Amitabh Textiles Mills Ltd. v. Board for Industrial and Financial Reconstruction, Finance Ministry Government of India, New Delhi and Anr.

The relevant facts of the case are that the appellant Amitabh Textile Mills Ltd. (ATML) is registered under the Companies Act, 1956, having its registered office at Prem Nagar, Dehradun. The company was established for manufacture of cotton and synthetic yarn and it started production in July, 1960. The Government of Uttar Pradesh extended term loan and the Punjab National Bank granted working capital assistance to the company. During 1970-75 the unit expanded its capacity and took term loans from the U.P.F.C. Unfortunately the unit became a sick industrial company on February 26, 1998. A reference u/s 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 ("the SICA") was made by the company to the BIFR for revival/rehabilitation. During the reference proceedings the BIFR appointed IDBI for formulating measures for revival of the unit. The IDBI consented to grant term loan assistance for rehabilitation package. In 1990, Sri M.M. Tayal took approval of the BIFR to induct Sri Sandhu Ram Gupta, a new promoter/managing director of the company and Sri M.M. Tayal, resigned from the board as managing director. The Punjab National Bank, respondent No. 3 assisted the sick unit by granting working capital term loan facility under the RBI guidelines during 1992-93. When the matter was before the BIFR and the draft rehabilitation scheme (DRS)-96 circulated by the BIFR vide order dated November 5, 1996, was a non starter the IDBI reported on November 3, 1997, that the revised DRS was not acceptable and since the promoters were unable to bring in the need based funds to revive the unit, the BIFR recommended winding up of the company u/s 20 of the SICA vide its order dated December 4, 1998. Aggrieved by the said order dated December 4, 1998, an appeal was filed u/s 25 of the SICA before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). The AAIFR vide its interim order dated July 13, 1998, had directed that ATML would deposit Rs. 5 lakhs with IDBI within two weeks and submit a valuation report of the assets of ATML and private properties of the promoters and the one-time settlement amount as per DRS-96 would be updated by adding interest up to December 31, 1998. Subsequently, the promoters showed their inability to deposit the amount of Rs. 5 lakhs to the IDBI. The AAIFR vide order dated January 6, 1999, gave a finding that there was no possibility of revival of ATML and dismissed the appeal and recommended the winding up orders of the BIFR to the High Court. The aforesaid opinion recommending the winding up of the company was referred to the Allahabad High Court in Company Case No. 1 of 1998 by the BIFR. Meanwhile during 2001-02 and 2002-03 Sri Sandhu Ram Gupta made changes in the board, inducting Sri Vijay Kumar Gupta, Sri Omkar Chand Garg, Sri Dinesh Jain and Sri O.P. Bhardwarj as co-directors so as to make efforts and take steps to provide necessary finances to assist the company to rehabilitate itself. But they did not bring in any need based capital funds for revival of the unit and some of them resigned on April 6, 2002.

Company Petition No. 1 of 1998 was subsequently transferred to this Court and it was registered as Company Petition No. 11 of 2001. Upon notice to show cause as to why winding up proceedings may not be concluded as recommended by the BIFR, the managing director of the company Sri Sandhu Ram Gupta filed his objections in April, 2001, inter alia, pointing out that the only reason for the AAIFR dismissing the appeal was non-compliance to deposit an amount of Rs. 5 lakhs with IDBI and non-agreement of the amount with the Punjab National Bank.

The appellant preferred applications on September 23, 2003 and September 24, 2004, praying the company court not to proceed with the winding up of the company as it had filed one-time settlement proposals with the IDBI and Punjab National Bank. It is also informed that a new promoter, namely, Sri Baldev Singh Mann and his associates had been identified who promised to bring in the need based funds for revival and rehabilitation of the sick company and they would invest monies for enabling the company to arrive at one-time settlements with the IDBI and PNB. A compromise with the secured creditors, namely, IDBI and PNB was proposed u/s 391 of the Companies Act, 1956, which envisaged a compromise or arrangement between the company and its creditors or between the company and its members. On May 25, 2004, an application was filed before the company court praying for induction of Sri Baldev Singh Mann and Sri Deepak Jain as promoter directors of the company and they would bring funds for settlement of secured creditors and for revival of the sick industrial company. It was also informed that a one-time settlement had been approved both by the IDBI and PNB vide their letters dated June 24, 2004 and June 25, 2004. Objections were invited from the secured creditors for induction of Sri Baldev Singh Mann and Sri Deepak Jain. The company court on August 6, 2004, passed an order under Sections 255, 441 and 443, of the Companies Act, approving induction of the co-promoters Sri Baldev Singh Mann and Sri Deepak Jain as directors of the company and also directed to prepare the rehabilitation scheme, submit the same to the secured creditors and after the approval of the secured creditors, file the same in the court. Thereafter, the appellant prepared a rehabilitation scheme and forwarded the same to IDBI and PNB vide its letter dated September 28, 2004 and filed a copy of the rehabilitation scheme with the company court vide its application dated November 16, 2004, which was allowed vide order dated December 21, 2004, to circulate the scheme for rehabilitation to all affected parties and invite their comments.

Ultimately, upon liquidation of the one-time settlement of its claims, PNB issued a no dues certificate dated January 18, 2005, confirming the deposit of an amount of Rs. 2,25,05,232.57 in full and final settlement of its claims. Similarly, upon clearance of one-time settlement amount arrived at with the IDBI, the same issued a no dues certificate dated March 16, 2005, confirming the receipt of an amount of Rs. 1,19,00,000 in full and final satisfaction of its claim against the company. The said scheme of compromise was made with the IDBI and PNB u/s 391 of the Companies Act on the strength of the amounts provided by the said new promoters to the tune of Rs. 4 crores. The IDBI and PNB filed their consent for compromise and withdrawal of their cases in the Debts Recovery Tribunal, New Delhi after compromising for a settlement of Rs. 1.57 crores vide order No. 1088/DRT/II/UPC dated March 24, 2005. The appellant-company also approached the UPFC on June 12, 2005, for arriving at a one-time settlement requesting waiver of penal interest and other dues and requested them to make settlement on principal amount in interest free instalments.

It is the further case of the appellant that the new promoters also arranged the deposit of Rs. 3 lakhs by demand draft dated July 5, 2005. Towards further steps for rehabilitation of the company and liquidating all claims and debts, the company also approached the State Government of Uttaranchal with a request to convene a meeting of all affected parties. The State Government consented the request and convened a meeting on July 7, 2005. In the said meeting recommendations were made by the Government to the affected parties to ensure revival and rehabilitation of the sick industrial unit and also approved sale of such surplus land belonging to the appellant, which was free from mortgage and was lying vacant to ensure rehabilitation of the unit.

On July 2, 2005, the Uttaranchal Power Corporation (UPCL) had approved a one-time settlement in three instalments of the electricity dues pending and outstanding against the appellant, waived the penal charges for late payment of electricity dues, waived charges for additional power load and allowed new connection, etc. The appellant also deposited an instalment of Rs. 5 lakhs on July 15, 2005. The State Government also directed the Labour Commissioner, Uttaranchal to decide and reconcile the wages and other dues payable to the workmen. The Central Excise Department was also requested to fix instalments for repayment of their dues. Similarly, the State Government requested the UPFC to fix instalments and waive penalties and penal interest for the payment of their dues. That more than 80 per cent, of the amounts due to financial institutions and State of U.P., has already been paid and it is only some minor dues to the UPFC, IDBI and State of U.P. which remain to be paid which aggregate to about Rs. 85 lakhs.

The learned company judge vide order dated July 29, 2005, has concluded that the viability of the company for rehabilitation cannot be looked into by the court and proceeded with the winding up proceeding.

Feeling aggrieved by the above order the appellant-company has preferred this appeal for setting aside the impugned order dated July 29, 2005 and issuing an appropriate order or direction to the company court or BIFR, whichever is found fit in the larger interest of justice and equity to approve the rehabilitation scheme which was directed to be formulated by the company court in its directions dated August 6, 2004 and which was circulated to the IDBI and PNB vide letter dated September 28, 2004 and filed with the company court in Misc. application dated November 16, 2004 (annexure 12).

During the pendency of the appeal, Smt. Raghuveri Devi and other workers of the Mills ; U.P.F.C.; Sri Rajendra Kumar Goyal, one of the directors, and other employees of the State Insurance Corporation filed intervention applications, which were allowed and all these persons have been impleaded as respondents/interveners in this appeal.

We have heard learned Counsel for the parties and perused the record.

The contention of the appellant-company is that on a miscellaneous application dated July 24, 2005, wherein the appellant desired to apprise the company court of the latest developments, including the rehabilitation proposal, as narrated above, the company judge, even without notice and without apparent consideration and appreciation of all such aforesaid efforts made towards the rehabilitation of the company, as well as the compromises actually effected, vide impugned order dated July 29, 2005, confirmed the opinion of the BIFR for winding up of the company and issued notice to the official liquidator to complete the proceedings within six months and directed the promoters from alienating or changing the nature of the factory or company and disposed all the pending applications filed by the appellant before the company court. The impugned order being wrong, incorrect and untenable in law is liable to be set aside being ex-facie violative of the principle of natural justice.

Learned Counsel for the respondents have argued that this company appeal is devoid of any force as the company judge has passed a reasoned order which does not require any interference. It has further been submitted that there is no reason available with the company at this stage to request for remanding the matter for issuing the direction to the BIFR to reconsider the matter afresh looking into the fact that the financial position of the company has now been improved.

The record reveals that the director of the appellant-company has filed an affidavit before this Court showing therein that numerous creditors of the company have been settled with and their dues liquidated in full. The appellant-company has averred in the affidavit that the Punjab National Bank, who was one of the secured creditors of the appellant-company has issued "no dues certificate" and the "no dues certificate" issued by the bank has been annexed by the appellant-company. The appellant-company has also averred that similarly the IDBI, Industrial Investment Bank of. India Limited (IIBI), Uttar Pradesh Financial Corporation (UPFC), Uttaranchal Power Corporation Ltd. (UPCL), who are the secured creditors to the appellant-company have also entered into a compromise with the company and have issued "no dues certificate". Likewise the appellant-company has also deposited 3.11 lakhs rupees with the Cantonment Board towards the dues of the company, as well as the maximum dues pertaining to the workmen/employees, have also been paid by the company through cheques and maximum number of cheques for encashment have duly been acknowledged. The company has also deposited the provident fund dues amounting to Rs. 16,22,947 with EPFO on April 21, 2006. The company has also deposited a sum of Rs. 10.21 lakhs towards the dues in respect of the Employees State Insurance Corporation (ESIC).

It has further been averred in the affidavit that the scheme of rehabilitation/settlement as filed by the appellant-company through its directors also envisaged payments to certain other creditors, as also redemption of shares which includes the State of U.P., UPSIDC, Uttaranchal Trade Tax Department, Income Tax and Sales Tax Department, the rehabilitation scheme duly covers the proposal towards settlement of such creditors. It has further been averred that after filing of the draft rehabilitation scheme with the learned single judge, a meeting was held under the aegis of the Secretary Industrial, Uttarakhand, on July 7, 2005, i.e., prior to the passing of the impugned order on July 29, 2005.

On the basis of the aforesaid affidavit as well as the documents filed along with the same it is evident that even after passing of the impugned order dated July 29, 2005, numerous creditors of the appellant-company have been settled with and their dues liquidated in full.

The finding recorded by the learned single judge that "the viability of the company for rehabilitation cannot be looked into by the court for the simple reason that the question has already been covered by the BIFR and that finding has been affirmed by the appellate court", does not find support in view of the decision of the hon''ble apex court propounded in the case of V.R. Ratnaraju v. Union of India reported in [1997] 89 Comp Cas 609, in which it has been held that (page 610):

It is obvious that Sub-section (2) has to be construed to mean that the High Court in deciding the question of winding up of the company has to take into account the opinion of the Board forwarded to it under Sub-section (1) and is not to abdicate its own function of determining the question of winding up. So read, Sub-section (2) does not suffer from any infirmity. This in substance is the view taken by the High Court in the impugned order.

The hon''ble Madras High Court in the case of J.M. Malhotra v. Union of India reported in [1997] 89 Comp Cas 600, has confirmed the finding of the single judge of the Madras High Court observing there that (headnote):

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.

The Division Bench of the Calcutta High Court in the case of Eastern Paper Mills Ltd. v. Board for Industrial and Financial Reconstruction reported in [2002] 109 Comp Cas 1065, has also held as under (page 1071) : "As to the question whether on mere opinion of the BIFR/AAIFR the company could have been wound up, the judgment in J.M. Malhotra and others Vs. Union of India and others, , relied upon by the learned Additional Solicitor General is relevant as also the observations made therein. In that case, the question of constitutional vires of Section 20 of the Act was the subject-matter of decision. The contention was that Section 20 of the Act is violative of Article 14 of the Constitution. While upholding the constitutional validity of Section 20 of the Act, it was held (page 607):

Therefore, it is not possible to hold that even though the opinion submitted by the Board forms the basis for directing the winding up of the sick industrial company by the High Court, the High Court is precluded from examining the correctness of such opinion. 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 Board in this regard without examining the correctness of such opinion, on hearing the concerned parties. However, normally, such opinion being one tendered by the Board consisting of experts acting judicially will have a greater weight in deciding the question as to proceeding with the winding up of the sick industrial company. Such opinion of the Board cannot lightly be brushed aside. Even otherwise, it is a jurisdiction conferred upon the High Courts under the Companies Act.

In view of the observations made by the Madras High Court as well as the Calcutta High Court, which has found support by the hon''ble apex court, we are of the opinion that the learned single judge should not have formed the opinion that "the finding recorded by the BIFR has been confirmed by the Appellate Authority, has become conclusive and thus this Court does not require any interference", cannot be said to be justified. As we have discussed above, that several documents have been filed by the appellant-company in order to show that the numerous creditors of the appellant-company have been settled with and their dues liquidated in full, hence it would be just and proper to direct the Board to reconsider the matter afresh and if the financial position of the company has improved then this factor should be taken note of by the Board.

We have also considered the following rulings cited on behalf of learned Counsel for the respondents:

(1) [2008] 1 SCC (L & S) 957 (Hindustan Fasteners P. Ltd. v. Nasik Workers Union).

(2) Konark Investments Ltd. and Others Vs. Union of India (UOI), .

(3) Maqboolunnisa Vs. Mohd. Saleha Quaraishi, .

(4) Security and Finance Private Ltd. (In Liquidation) Vs. B.K. Bedi and Another, .

(5) National Textile Workers'' Union and Others Vs. P.R. Ramakrishnan and Others, .

After thoroughly considering the rulings cited above, we are of the view that the same do not apply to the facts and circumstances of the present case at this stage. However, the respondents may cite those rulings during the proceedings before the Board for Industrial and Financial Reconstruction (hereinafter called as "the Board") and it will be open for the Board to decide the matter in view of the decisions cited by the parties.

The Board would accordingly reconsider the matter. If the Board comes to the conclusion that the company still requires to be subjected to winding up proceeding, then the Board shall also consider that the dues pertaining to the employees/workmen of the company are settled in full. The Board shall also reconsider the matter with regard to this fact as to whether the financial position of the company has improved. However, possession with regard to the property of the company will remain with the official liquidator till the matter is finally disposed of by the Board. After the matter is finally decided by the Board, if the Board comes to the conclusion that possession should be delivered to the company in the interest of the parties, then it will be open for the Board to decide this question without seeking further direction from this Court in this regard.

In view of the above observations made by the present company petition stands disposed of.

Consequently, the present appeal also stands disposed of.