Modi Rubber Ltd. vs Board for Industrial and Financial Reconstruction

Sanjay Kishan Kaul, J.

C.M. No. 7560 of 2005:

Allowed subject to all just exemptions. W.P. (C) No. 10284 of 2005:

Rule D.B.

With the consent of learned Counsel for the parties, the petition is taken up for final disposal.

The petitioner-company filed an application before the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the said Act") on 4-2-2004. There are various proceedings pending between the petitioner and its secured as well as unsecured creditors where directions have been passed from time to time.

The limited question which arises for consideration in the present petition is on account of a prayer made by the petitioner under the provisions of Sections 19A and 22(3) of the said Act to avail of the public offer issued on behalf of Holdcem Cements India (P.) Ltd. (HCIPL) for purchase of 23,10,000 equity shares of the face value of Rs. 10 each of Ambuja Cement Eastern Ltd. (ACEL) held by the petitioner, the shares held by the petitioner-company are approximately 1.02 per cent of the total holding of ACEL. The offer has been made in view of the acquisition of shares of ACEL by HCIPL. The last date for availing of the said offer was 6-6-2005.

The application of the petitioner was not being considered by the BIFR on account of there being problems in constitution of the Bench as sufficient number of members were not available in the Board. The petitioner thus approached this Court. A Writ Petition (Civil) No. 10248 of 2005, was filed which was disposed of on 3-6-2005, directing the chairman and the existing members of the Board to consider the application filed by the petitioner-company. The application was considered and in terms of the impugned order dated 4-6-2005, the same has been rejected. The petitioner has, thus, filed the present proceedings.

It may be noted, insofar as the secured creditors as well as unsecured creditors (OCCL) before this Court are concerned, there is no objection to the petitioner availing of the said offer whereby the petitioner will get Rs. 70 per share so long as the amount is kept separately and is made available for disbursement at the direction of the BIFR. Thus, the secured creditors and the unsecured creditors may be heard on the issue of disbursement of this amount. This petition could have been disposed of with the consent of the parties but in view of the fact that one of the unsecured creditors M/s. Morgan Securities and Credit (P.) Ltd. (MSCPL) is opposing the present writ petition, this could not be done.

Learned Counsel for the respondent MSCPL has raised a preliminary objection arising from the provisions of Section 15(1) read with Section 3(da) of the said Act to contend that the reference itself is not maintainable. On this account in terms of the impugned order, a finding has been made in favor of the petitioner. Learned Counsel for MSCPL submits that the said party has in fact a right to go in appeal on this Court before the appellate authority. We do not consider it necessary to go into this question in the present proceedings. The only question is whether the petitioner should be permitted to avail of the offer of Rs. 70 per share and the amount be preserved for disbursement in terms of the direction of the BIFR, whether to the unsecured or secured creditors.

Learned Counsel for the MSCPL has stated that there are interim directions passed by various Courts. Insofar as this party is concerned, it is stated that a winding up petition was filed before the Allahabad High Court which was admitted but in terms of order of the Division Bench of said Court, the order has been kept in abeyance. It is, however, stated that there are interim orders granted by learned Company Judge which have not been stayed by the Division Bench. It is further stated that the said party also availed of the legal recourse by invoking the jurisdiction of the arbitrator under the Arbitration and Conciliation Act, 1996, which has resulted in passing of the award dated 6-5-2004, in favor of the MSCPL and there are some injunctive orders forming part of the said award. Learned Counsel for the petitioner states that this award has been challenged in the proceedings before this Court but it is not disputed that there was no stay granted in respect of the award.

In the conspectus of the aforesaid facts, it has been contended by learned Counsel for MSCPL that the provisions of Section 22 cannot be availed of by the petitioner, it would be useful to reproduce the relevant provisions, which are as under:

Suspension of legal proceedings, contracts, etc.-(1). Where in respect of an industrial company, an inquiry u/s 16 is pending or any scheme referred to u/s 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal u/s 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority.

** ** ** (3) Where an inquiry u/s 16 is pending or any scheme referred to in Section 17 is under preparation or during the period of consideration of any scheme u/s 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising there under before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board:

Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate.

Sub-section (3) of Section 22, in our considered view, makes it clear that the same has to be made to rehabilitate the applicant-company. Thus, various recoveries and orders are required to kept in abeyance. In our considered view, despite the injunctive orders, such power is vested with the Board under Sub-section (3) of Section 22. We are unable to accept the submission of learned Counsel for the MSCPL that since there is an award in favor of MSCPL, under the Arbitration and Conciliation Act, 1996, which is later Act to the said Act, a higher status has to be conferred upon such an award. The award only results in an enforceable decree with the right of any party to file objections within the parameters permitted under the Arbitration and Conciliation Act, 1996. Thus, it is clear to us that even if there is such an award, that does not preclude the BIFR from passing appropriate directions and in fact enforcement of such award can be kept in abeyance. A reference may also be made to the provisions of Section 32 of the said Act, which also shows the overriding power of the BIFR which is again in furtherance of the scheme and objects of the said Act.

We may add at this stage that since learned Counsel for the MSCPL had vehemently contended before us that the offer of Rs. 70 per share may not be an appropriate offer and that there may be possibility of share price going up manifold, it was put to learned Counsel whether MSCPL is willing either to purchase the said share for a price of Rs. 70 per share or is willing to make up the deficiency on account of the fact that the share may not get such price at subsequent date. This was not acceptable to learned Counsel for MSCPL.

In our considered view, MSCPL has adopted a policy of a dog in the manger by not permitting the amount to be released for the benefit of the creditors. It is possibly because MSCPL is unsecured creditor and Court cannot permit such unsecured creditors to steal a march over the other secured creditors or the unsecured creditors. This is specially, so, since recovery in pursuance of decree has to take place, the MSCPL still stands in the queue of the unsecured creditors.

In view of the aforesaid, we permit the petitioner to sell 23,10,000 shares of ACEL at Rs. 70 per share in pursuance to the public offer and the amount to be released be kept in a non-lien account of IFCL the secured credit. However, this amount is to be kept in separate account subject to any directions to be passed by the BIFR in this behalf after hearing the submissions of the secured and the unsecured creditors. This amount is to be kept initially in an FDR for 91 days and can be renewed subject to the directions to be passed by the BIFR.

The writ petition standsjiisposed of leaving the parties to bear their own costs.

A request is made at this stage by learned Counsel for MSCPL to keep " this order in abeyance for seven days. The request is declined.

CM. No. 7559 of 2005

Dismissed.