Calcutta High Court
Industrial Investment Bank Of India ... vs Badrinarayan Alloys And Steels Ltd. And ... on 21 September, 2006
Equivalent citations: 2007(1)CHN336
Author: Bhaskar Bhattacharya
Bench: Bhaskar Bhattacharya
JUDGMENT Bhaskar Bhattacharya, J.
1. This mandamus appeal was heard along with a separate writ application filed by the appellant by which they challenged the order dated 24th April, 2006 passed by the Appellate Authority for Industrial and Financial Reconstruction ("AAIFR") in Appeal No. 146 of 2005 thereby modifying the scheme framed by the Board of Industrial and Financial Reconstruction ("BIFR") to a little extent.
2. The facts giving rise to filing of the two writ application, one by the respondent No. 1 herein and the other, by the appellant may be epitomised thus?' (1) The respondent No. 1 herein (hereinafter referred to as the sick company) filed a reference before the BIFR which was registered as Case No. 170 of 2000. The BIFR vide its order dated 8th June, 2001 declared the respondent No. 1 as a sick company in terms of Section 3(1)(c) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the SICA) and appointed the appellant herein as the operating agency.
(2) The appellant No. 1 before us prepared a one-time settlement-cum-rehabilitation proposal for the company and based on the report and proposal of appellant No. 1, a rehabilitation scheme was prepared and ultimately, by an order dated 17th September, 2002, the BIFR sanctioned the scheme.
(3) In the said scheme, it was envisaged that the net worth of the company would become positive by 2003-04 and the accumulated losses would be wiped off by 2004-05. The appellant No. 1, namely, IIBI was appointed as the monitoring agency to supervise the progress of implementation of the said scheme. The said scheme inter alia provided that the sick company might have the option to prepay the entire loan.
(4) The appellant by its letter dated 10th October, 2002 confirmed that the scheme sanctioned by the BIFR was already circulated for implementation by all concerned and further pointed out the settlement amount to be paid by the sick company to the IIBI and other terms and conditions of the scheme. In Clause VI of the said letter, the IIBI confirmed that the sick company might have the option to prepay the entire loan.
(5) For the rehabilitation and long-term survival of the sick company, various creditors including IIBI, the West Bengal Industrial Development Corporation Ltd. and the Bank of Baroda reconstructed their loans. Under the scheme, IIBI as also the WBIDC waived liquidated damages, penal interest and compound interest upon the date of approval.
(6) The sick company continued to liquidate their loan payable to the other secured creditors as envisaged in the sanctioned scheme and prepaid the dues of the WBIDC upon arriving at a one-time-settlement.
(7) On August 5, 2005, the sick company made application before the BIFR for deregistration of the company and for its discharge from BIFR and along with its said application, the sick company also submitted the copy of the audited annual account of the company for the year ending 31st March, 2005 which showed that company's net worth had become positive as on 31st March, 2005. The West Bengal Industrial Development Corporation and the Development of Industrial Reconstruction, Government of West Bengal by their letters dated 2nd August, 2005 and 10th August, 2005 issued their 'No Objection Certificates' for deregistration of the sick company.
(8) IIBI also prepared a status-report and submitted the same before the BIFR under the cover of its letter dated 22nd August, 2005. The IIBI, by its said status-report submitted to the BIFR, recommended the deregistration of the sick company and also recorded that sick company was implementing a project involving expansion of the steel melting capacity and installation of billet castings and the expansion of rolled products and installation of sub-station to source power involving an estimated outlay of Rs. 2752.52 lakh.
(9) The BIFR, vide its order dated 22nd September, 2005 discharged the sick company from its purview and also relieved the IIBI, the appellant from its responsibility as the monitoring agency. In paragraph 5(ii) of the said order, it was inter alia directed that the unfulfilled obligations under the sanctioned scheme would continue to remain in full force during the tenure of the scheme and should be discharged by all concerned agencies.
(10) After the order dated 22nd September, 2005 passed by the BIFR discharging the sick company from the purview of BIFR, by a letter dated 27th September, 2005 the sick company requested the IIBI to approve the prepayment of the outstanding amount.
(11) It may be mentioned here that BIFR permitted the IIBI to recompense subject to the approval of BIFR. Taking advantage of the said observation of the BIFR, IIBI authority refused to accept the said prepayment and to release the mortgage and charge. In the meantime, the sick company preferred an appeal before AAIFR against the order of the BIFR which permitted the IIBI to recompense. Ultimately, AAIFR by a judgement and order dated 24th April, 2006, in the appeal preferred by the sick company directed the parties to settle the amount in accordance with the Clause 16.1 of the sanctioned scheme and refused to allow the IIBI to exercise the right of recompense.
(12) In spite of order passed by the AAIFR, the IIBI having refused to accept prepayment and discharge the mortgage, the sick company preferred a writ application being W.P. No. 948 of 2006 before a learned Single Judge of this Court thereby praying for direction upon IIBI to release the charge on the fixed assets of the sick company on prepayment of the loan and to permit the creation of part passu charge over the fixed assets of the sick company. The sick company in the said writ application also prayed for interim order restraining the IIBI from refusing to receive and accept the prepayment of its outstanding loan and also restraining them from raising objection in creating pari passu charge over its fixed assets in favour of the WBIDC and other banks and financial institutions.
(13) On such an application, the learned Single Judge by order dated 3rd August, 2006 passed an interim order to the effect that in the event the sick company deposited a sum of Rs. 1,04,13,075/- on or before 8th August, 2006 with the appellants before us, they should release the title-deeds which are lying with them for signing and executing the agreement with the WBIDC within 48 hours from the date of such deposit.
3. Being dissatisfied with the aforesaid interim order, the IIBI has preferred the APOT No. 378 of 2006 before us.
4. In connection with the aforesaid appeal, the IIBI authority prayed for stay of operation of the order passed by the learned Single Judge and at the time of hearing of such stay application, Mr. Mitra, the learned senior Advocate appearing on behalf of the appellant submitted that his client had also filed a separate writ application being W.P. No. 1105 of 2006 before the learned Single Judge challenging the order of AAIFR by which its right to recompense has been disallowed. Since the fate of the appeal preferred against the interim order passed in the writ application filed by the sick company depends upon the decision in the other writ application filed by the appellant before us, all the parties suggested that the separate writ application filed by the appellant should also be heard along with this appeal and accordingly, we decided to hear out analogously the appeal preferred against the grant of interim order as well as the separate writ application filed by the appellant challenging the order passed by the AAIFR.
5. Accordingly, both the matters were heard together.
6. In the separate writ application filed by the appellant, namely, W.P. No. 1105 of 2006, the appellant has challenged the order dated 24th April, 2006 passed by the AAIFR by which the AAIFR set aside that portion of the order of BIFR by which BIFR approved the right of the appellant to recompense subject to the approval of BIFR.
7. While setting aside that portion of the order of BIFR, the AAIFR has arrived at the following finding:
9. We find that the cut-off date for SS(02) was 30.9.01. The net worth of the appellant company was expected to become positive during FY 03/04 and the accumulated loss was expected to be wiped out during FY 04/05. The company's net worth became positive on 31.3.2005; however, the company had accumulated losses amounting to Rs. 171 lakhs on 31.3.2005. It is evident from the records that during the year 2003-04, the company had earned a net profit of Rs. 131.50 lakh as against a net profit of Rs. 288.97 lakh envisaged in the sanctioned scheme. During the year 2004-05, the company had a positive net worth of Rs. 123.59 lakhs as against Rs. 311.24 lakh envisaged in the scheme. The accumulated losses remained at Rs. 171.15 lakh by the end of FY 04/05 as against nil losses projected in the scheme.
10. By the impugned order dated 22.9.2005, BIFR arrived at the conclusion that SS (02) for the revival of SBASL had been substantially implemented and the net worth of the company had turned positive as at the end of 31.03.05. The CA's certificate dated 1.8.05 reveals that the company's net worth was positive by Rs. 123.59 lakh as on 31.3.2005. The details were as under:
(Amount of Rupees)
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Equity share capital 2,60,00,000
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General Reserve (Subsides from Govt. of West 34,74,310 2,94,74,310 Bengal) on Capital Account.
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Less:
Preliminary Expenses (To the 50,625 extent not written off)
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Profit and Loss Account Debit 1,70,64,205 1,71,14,830 Balance
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Positive Net worth as on 31.3.2005 1,23,59,480
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11. While deciding Appeal No. 417/03 in the matter of M/s Trichy Steel Rolling Mills Limited, we had recorded a finding that the right of recompense can be granted on the basis of annual review of working results only when it is demonstrated that the cash flow actually obtained was better than what was envisaged in the projections contained in the sanctioned scheme. In the instant case even through during FY 04/05 the net worth/accumulated loss as realized was less than what was projected the fact remains that the net worth of the company was positive to the extent of Rs. 123.59 lakhs, notwithstanding the fact that the accumulated loss remained at Rs. 171.15 lakhs. In this situation allowing IIBI to exercise the right of recompense was not justified.
12. In view of the aforesaid facts, we set aside the direction contained at para 5(ii) of the impugned order which allows IIBI to exercise the right of recompense in accordance with clause 16.5 of SS (02) and also direct the appellant company to settle the amount payable towards dues in accordance with Clause 16.1. of SS (02).
8. As the fate of the appeal preferred by the appellants depends mostly upon their success in the separate writ application filed by them, we, at the very outset, propose to dispose of the separate writ application filed by the appellant.
9. Mr. Mitra, the learned senior Advocate appearing on behalf of the appellants submitted before us that although the company's net worth became positive on 31st March, 2005 and the sick company earned a net profit of Rs. 595.81 lakh, which together with the depreciation of Rs. 142.61 lakh resulted in actual excess free-cash of Rs. 738.42 lakh indicating that the sick company-was financially able to recompense his clients who have sacrificed a sum of Rs. 424 lakh in the process of rehabilitation of the sick company. According to Mr. Mitra the AAIFR did not take into consideration the aforesaid admitted fact and at the same time did not follow its own practice of giving the right to recompense as followed in other cases, such as the one indicated in the order itself, namely, in the case of M/s. Trichy Steel Rolling Mills where the appellate authority found that right to recompense could be granted on the basis of only review of working result when it is demonstrated that the cash-flow actually obtained was better than what was envisaged in the projections contained in the sanctioned scheme. He, thus, prays for setting aside the order of AAIFR and for a direction upon the AAIFR to consider the earlier decision.
10. Mr. Saktinath Mukherjee, the learned senior Advocate appearing on behalf of the respondent company has, however, opposed the aforesaid contention of Mr. Mitra and has contended that a writ application is not all maintainable against the order of the AAIFR as the AAIFR is also an authority created by the statute for the purpose of rehabilitation of a sick company. Mr. Mukherjee contends that the appellant itself having agreed to forgo its right to claim liquidated damages, compound interest and penal interest, now cannot turn round and claim the relief of recompense even if the company has recovered. Mr. Mukherjee in this connection relies upon the following decisions:
1. Bengal Lamp Ltd. and Anr. v. State of West Bengal and Ors. reported in 100 C.W.N. 343;
2. Diamond Plastic Industries and Ors. v. Govt. of A.P. and Ors. :
3. Burn Standard Company Limited v. Burn Standard Officers' Association (Head Office) and Ors. reported in 2001(3) CHN 451;
4. Eastern Paper Mills and Anr. v. Board for Industrial & Financial Reconstruction and Ors. reported in 1997 (2) CLT 454.
11. Mr. Mukherjee next contends that it was rightly pointed out by the AAIFR that if at this stage, the right to recompense is given to the appellant, the company will again become sick as the net-profit-value will become negative. Mr. Mukherjee, thus, contends that this Court sitting in a writ jurisdiction should not interfere with the discretion exercised by the AAIFR which is an expert body created by the statute for handling this type of a case of rehabilitation of a sick company and thus, even if from the self-same materials another view is possible, such fact is not a ground for interference. He, thus, prays for dismissal of the writ application.
12. Mr. Mitra, in reply, relied upon the decision of the House of Lords in the case of Anisminic Ltd. v. Foreign Compensation Commission and Anr. reported in 1969 (2) AC 147 in support of his contention that there is no bar in interfering with the decision of the Tribunals like AAIFR in an appropriate case.
13. After hearing the learned Counsel for the parties and after going through the materials on record we find that for the first two years although the company earned profit, yet, the same was not according to the expectation envisaged in the scheme. In the year 2005-06, however, the company had an excess income than the one expected in the scheme but still, having regard to the amount of profit in the previous two years it could not wipe out the insufficient profits of the previous years in comparison to those mentioned in the scheme. It appears from the scheme framed by the BIFR that the entire amount will be required to be liquidated in the year 2007 and the company wants to make prepayment which is sanctioned by the scheme of BIFR. The scheme further envisaged that in case of prepayment, no further premium should be taken from the company. Therefore, the decision of the AAIFR did not stand in the way of the appellant in accepting the prepayment when it had not even challenged the order passed by the BIFR sanctioning prepayment without premium. As regards the right to recompense, it is true that in the year 2005-06 the company had an excess earning than the one indicated in the scheme but at that stage, the net worth of the company would have come to negative if the appellant was permitted to recompense. We further find that while framing the scheme, the appellant had forgone the liquidated damages, compound interest and penal interest but did not forgo the simple interest. The scheme was framed on the basis of consent of the parties and in such a situation, the appellate authority having decided on consideration of the materials on record that the overall performance of the company under the scheme was still not above the expectation indicated in the scheme and decided not to give the right of recompense to the appellant for the survival of the sick company, a Writ Court, like a First Appellate Court, should not sit over such decision. Only in the rare cases, where the decision of the AAIFR is on the face of it perverse or based on wrong calculation, that a Writ Court can interfere.
14. In the case before us, we find that for the year ending March 31, 2003, the BIFR expected that the sick company would earn a profit of Rs. 53.88 lakh whereas the company suffered a loss of Rs. 66.51 lakh. For the next year, according to the Scheme framed by the BIFR the company was required to earn a profit of Rs. 288.97 lakh but the company earned Rs. 131.50 lakh. For the year ending March 31, 2005, of course, the company earned a profit of Rs. 511.06 lakh which was more than the amount mentioned in the scheme viz. Rs. 379.88 lakh, but the overall profit of the company in these years was Rs. 576.05 lakh in comparison to the amount of Rs. 722.73 lakh mentioned in the scheme. The company having a cash-flow less by Rs. 158.61 lakh against the projection even on March 31, 2005, we are unable to accept the contention of Mr. Mitra that it is a case which falls within the exceptions indicated in the case of Anisminic (supra), justifying interference with the discretion exercised by the AAIFR in favour of the sick company.
15. We, therefore, find that it is not a fit case where this Court should interfere with the discretion exercised by the AAIFR in favour of the sick company for its revival by which it refused the right of recompense claimed by the appellant. We, thus, find no merit in the writ application filed by the appellant.
16. We now propose to deal with the decisions cited by Mr. Mukherjee.
17. In the case of Bengal Lamp Ltd. and Anr. v. State of West Bengal and Ors. (supra), all that has been held by the Division Bench is that it is not for this Court to consider the respective merit or demerit of any scheme furnished by the writ petitioners or by any other promoters including the intervener and such consideration lies within the exclusive jurisdiction of the BIFR which is a statutory body. Accordingly, it was held that it is not desirable that this Court should deal with the allegations made by the respondents against the petitioners as regards their alleged act of bad faith and misconduct etc. in terms of the provision of the said Act which is a beneficial statute. It is the solemn duty of the BIFR, according to the Division Bench, to find out the ways and means for speedy determination by it of the preventive, remedial and other measures, required to be taken with respect of the sick companies. We respectfully agree with the view taken by the Division Bench in that matter but the said decision cannot, at any rate, be described as a precedent for the proposition of law that decision of the AAIFR can in no case be challenged before a Writ Court.
18. In the case of Diamond Plastic Industries and Ors. v. Govt. of A.P. and Ors. (supra), all that has been laid down by the Supreme Court is that in a case where the supplier of the goods to the sick company, certain units whereof were taken over by another company and the reamining ones by the State Government, raised disputes against the reduction in the price of the goods supplied by it to the company, the decision of such dispute by the BIFR should be held binding upon the parties including the State Government as per undertaking given before the BIFR. In our view, the said decision does not lay down a proposition of law that the decision of the BIFR or that of the AAIFR can in no case be challenged in proceedings under writ jurisdiction. It is rightly pointed out by Mr. Mitra, the learned Advocate appearing on behalf of the appellant that if a Tribunal while acting within its jurisdiction makes an error of law which it reveals on the face of its recorded determination, then the Court, in the exercise of its supervisory function, may correct the error. If a particular issue is left to a Tribunal to decide, Mr. Mitra continues, then even where it is shown that in deciding such issue, the Tribunal has come to a wrong conclusion that does not imply that the Tribunal has gone outside its jurisdiction; but if the Tribunal improperly exercises jurisdiction as pointed out by the House of Lords in the case of Anisminic (supra), the Court can exercise its power of judicial review. Mr. Mitra in this connection appropriately relies upon the following observations of the House of Lords in the case of Anisminic (supra):
Lack of jurisdiction may arise in various ways. There may be an absence of those formalities or things which are conditions precedent to the Tribunal having any jurisdiction to embark on an inquiry; or the Tribunal may at the end make an order that it has no jurisdiction to make; or in the intervening stage, while engaged on a proper inquiry, the Tribunal may depart from the rules of natural justice; or it may ask itself the wrong questions; or it may take into account matters which it was not directed to take into account. Thereby it would step outside its jurisdiction. It would turn its inquiry into something not directed by Parliament and fail to make the inquiry which Parliament did direct. Any of these things would cause its purported decision to be a nullity.
Further, it is assumed, unless special provisions provide otherwise, that the Tribunal will make its inquiry and decision according to the law of the land. For that reason the Courts will intervene when it is manifest from the record that the Tribunal, though keeping within its mandated area of jurisdiction, comes to an erroneous decision through an error of law. In such a case, the Courts have intervened to correct the error.
In the present case, none of the aforesaid circumstances exists.
19. In the case of Burn Standard Company Limited v. Burn Standard Officers' Association (Head Office) and Ors. (supra), a Division Bench of this Court merely refused to interfere with the scheme made by the BIFR. That decision, in our view, is not an authority for the proposition of law that in no case can a Writ Court interfere with the decision of the BIFR or its appellate body. If it appears that on the face of it, a Tribunal has committed errors, as pointed out in the observations quoted above, a Writ Court can surely interfere.
20. We, thus, find that a Writ Court can in any of the given situations as pointed out in the case of Anisminic Limited v. Foreign Compensation Commission and Anr. (supra), can interfere with the decision of any Tribunal over which it has authority in terms of Article 226 of the Constitution of India and as such, a writ application challenging decision of the AAIFR is quite maintainable but only in the limited types of cases as pointed out above.
21. In the case of Eastern Paper Mills and Anr. v. Board for Industrial & Financial Reconstruction and Ors. (supra), on the basis of the direction of the Appellate Authority for Industrial and Financial Reconstruction, there was a scheme for winding up of the company and consequently, a winding up proceeding was initiated which ended in winding up of the company. The company preferred an appeal before the Division Bench which was pending. At this stage, a writ application was filed by the company for expeditious disposal of the execution case allegedly started for execution of a previous consent decree between the company and a bank. The learned Single Judge disposed of the writ application by granting opportunity to the parties to mention the matter before the appropriate Court for disposal of the execution case. The Division Bench set aside the order of the learned Single Judge by directing the parties to approach the Appellate Court against the order of winding up to canvass the points relating to the direction of the BIFR on merit. We fail to appreciate how the decisions can be of any help to Mr. Mukherjee's clients.
22. We, accordingly, at the same time, find no merit in the extreme submission of Mr. Mukherjee that in no case can a decision of the AAIFR be challenged in a writ application.
23. The moment we hold that the writ application is bereft of any substance, we find that the appellants cannot have any lawful ground to oppose prepayment of the amount in terms of the scheme as the scheme itself suggests that in case of prepayment, the appellant is bound to accept it and cannot claim any premium. Therefore, the appellant, a State within the meaning of Article 12 of the Constitution of India, has acted arbitrarily in refusing to accept the prepaid amount offered by the sick company as per the scheme itself which has attained finality. Mr. Mukherjee appearing on behalf of the appellant, however, fairly concedes before us that in showing the amount with interest, the figure given by his client in the writ application which was accepted by the learned Single Judge, there was mistake in the calculation and it should be Rs. 1,25,23, 434/- although it was submitted before the learned Single Judge that the amount should be Rs. 1,04,13,075/-.
24. We, therefore, modify the order passed by the learned Single Judge in other writ application by directing that if the respondent No. 1 pays the total amount of Rs. 1,25,23,434/- to the appellants, they will immediately release the mortgage as the scheme itself indicates that on prepayment the mortgage will be liquidated and they are bound to return the same and the appellant did not even challenge the decision of the BIFR by preferring any appeal.
25. We, thus, modify the order passed by the learned Single Judge to this extent that instead of rupees one crore four lakh thirteen thousand and seventy-five, if the respondent No. 1 deposits a sum of rupees one crore twenty-five lakh twenty-three thousand four hundred and thirty-four only to the appellant, it will immediately release the mortgage in favour of the sick company. The appeal preferred by the appellant against the grant of ad interim injunction is disposed of by the modification of the order impugned to the extent indicated above. The claim of the appellant that the amount should be Rs. 1,31,06,662/- is apparently wrong inasmuch as in arriving at that figure the appellant included a sum of Rs. 6,72,322/- as EMI but the amount should be Rs. 89,094/- as in case of prepayment, the additional interest up to the time of scheduled payment will not be required to be paid.
26. Both the appeals and the separate writ application filed by the appellant are, thus disposed of accordingly. In the facts and circumstances, there will, be however, no order as to costs.
Prabuddha Sankar Banerjee, J.
27. I agree.