Calcutta High Court
Industrial Reconstruction Bank Of ... vs Textile Processing Corporation Of ... on 26 September, 1989
Equivalent citations: (1990)1CALLT152(HC)
JUDGMENT Bimal Chandra Basak, J.
1. This appeal is directed against the order dated 17th August, 1989, passed by the learned trial Judge in C.P. No. 141 of 1986 in Re: Textile Processing Corporation of India. Ltd., (hereinafter referred to as the said petitioner). This appeal is preferred by the Industrial Reconstruction Bank of India (hereinafter referred to as the I.R;B.I.). The facts of this case are as follows. In the winding up petition by the petitioning creditor, the appellant herein, an order of the Board for Industrial and Financial Reconstruction (hereinafter referred to as the Board) constituted under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred in as the 1985 Act) was placed before the Court. It is stated in their petition as follows :
"2. On diverse dates the appellant had granted various amounts of loan to the respondent No. 1 and as on 30th June, 1989, the respondent No. 1 was liable to pay to the appellant the sum of Rs. 4,28,65,000 as principal and the sum of Rs. 2,55,41,039.33 Paisa as the interest as on 30th June, 1989, the total being Rs. 6,84,06,039.33 Paise. Further interest is accruing from day to day. All the assets of the respondent No. 1 are mortgaged and/or hypothecated with the appellant for due repayment of the loan granted by the appellant to the respondent No. 1 along with interest and other charges.
4. For a number of years, the respondent No. 1 has not been running well and has been incurring huge losses every year. It has become a Sick Industrial Company within the meaning of Sick Industrial Companies (Special Provisions) Act, 1985 inasmuch as its accumulated losses are far in excess of its net worth. In view of the fact that the respondent No. 1 became a Sick Industrial Company, a reference was made by it to the Board for Industrial and Financial Reconstruction under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 for determination of the measures which should be adopted with respect to the company. The said reference was registered as Case No. 35 of 1987 by the Board for Industrial and Financial Re- construction.
5. The Board for Industrial and Financial Reconstruction held the hearings of the case of the respondent No. 1 on 4th April, 1988, 30th. November, 1988, 17th May, 1989 and 12th June, 1989. Copies of the minutes of the proceedings held on 17th May, 1989 of the final order passed on 12th June, 1989, are annexed hereto and collectively marked as Annexure "A".
6. From the proceedings of the hearing held on 17th May, 1989 and the final order passed on 12th June, 1989 by the Board for Industrial and Financial Reconstruction, it is clear that the said Board explored the possibility of making the respondent No. 1 viable. The Board gave opportunities to the Government of West Bengal and the Workers to submit their proposals for rehabilitation of the respondent No. 1. The representative of the Workers' Union submitted before the Board that formation of Workers Co-operative to take over the respondent No. 1 is not feasible. The representative of the Government of West Bengal also submitted before the Board that the efforts of the said Government to revive the Unit had not been successful. Efforts of the Board to locate entrepreneurs willing to take over the respondent No. 1 also proved unsuccessful. The Board found that the respondent No. 1 had become non-viable with huge accumulated losses of about Rs. 18 crores as on 30th June, 1989 without any prospect for revival. In the circumstances mentioned above, the Board reached the conclusion that it is just and equitable that the respondent No. 1 should be wound up. The final order of the Board containing its opinion that the respondent No. 1 should be wound up has been forwarded to this Hon'ble Court."
2. These facts are not disputed. Having regard to the importance of this case we set out herein below the minutes of the proceedings held on 17th May, 1989 and the order dated 12th June, 1989"
"IN THE BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION :
Case No. 35/87 in regard to M/s. Textile Proceeding Corporation of India Ltd. (TPCI).
Bench III.
Present: Shri N. C. Banerjee, Member.
Dr. Mahfoo Ahmed, Member.
The following representatives of the public financial institutions, scheduled commercial banks, Government of West Bengal and Employees' Unions are present at to-day's hearings :
Name and designation of the representatives
(a) United Bank of India 1. Shri Dinesh Mukherjee, AGM.
(b) Allahabad Bank 1. Shri S. K. Sharma, Dy. Manager (SUC).
(c) IDBI 1. Shri E. Krishnankutty, Manager.
2. Shri G. M. Ramamurthy, Manager (Legal).
(d) IRBI 1. Shri A. K. Dutt-Mazumder, Manager.
(e) IFCI 1. Mrs. Sarla Chandwani, S.O.
(f) Government of West Bengal 1. Shri D. N. Rakshit, S.O. (IR Deptt.).
(g) UCO Bank 1. Shri K. V. Ramachandram, Chief Officer (CR).
(h) Employees Union 1. Shri Amal Datta, President.
2. Shri Makhan Ch. Gherai, General Secretary.
3. Shri Pratap Kr. Chakraborty, Vice-President.
(i) Shri T. C. Kheria 4. -Individual-
3. We had heard the suggestions and objections, against the formation of opinion by the Bench regarding the winding up of the company at the hearings of the case on 4.5.88 and 30.11.88. Banks and institutions did not have any objection/suggestions to the aforesaid formation of opinion as they were of the opinion that TPCI had become non-viable due to its huge accumulated losses of about Rs. 18 crores as on 30.6.89. IRBI was meeting a part of cash losses towards payment of salary/statutory dues of Rs. 5.50 lakhs per month by extending fresh term loans to the company. Nevertheless, 3 months' time was given to the Government of West Bengal and to the representatives of Employees' Union to submit their proposals for rehabilitation of the unit at their request.
4. Shri Amal Datta, M.P., President, TPCI Employees Union submitted that he had made a number of enquiries about TPCI's non-viability and possibility of rehabilitating it. He submitted that mis-management of TPCI by IRBI was the main cause of losses to the company. According to him, TPCI would be able to process synthetic cloth by adding machinery of Rs. 16 lakhs only and processing of synthetic cloth would make TPCI viable as the contribution from processing of synthetic cloth was substantially higher than processing grey cloth. He was of the view that if IRBI had made the aforesaid investment of Rs. 16 lakhs, the company would have become viable provided the management was adequately strengthened. He assured full co-operation by the workers in improving the production. According to him, TPCI was among the best textile processing company in the region.
5. Shri Datta further stated that formation of Workers Co-operative to take over TPCI would not be feasible. The Workers Co-operative would not be able to make proper marketing arrangement and engage required technical personnel. Further, Workers Co-operative would not be able to bear the losses during the gestation period of 2 to 3 years. Shri Datta added that he was hopeful that Reliance Industries Ltd. (RIL) or some other company might be willing to take over the company after a dialogue with the Government of West Bengal. He requested for allowing 2 more months' time to enable him to persue with an alternate entrepreneurs to take over the company.
6. Shri D. N. Rakshit representing the Government of West Bengal submitted that the efforts of State Government to revive the unit had not been successful. Notwithstanding, the State Government was prepared to extend all possible assistance to any alternate entrepreneur willing to take over the company.
7. Shri S. K. Sharma of Allahabad Bank submitted that unless substan- tial interest from funds were brought in, TPCI could not be revived. The representatives of Allahabad Bank, UCO Bank and financial institutions- IDBI, IFCI, IRBI reiterated the basic commercial non-viability of TPCI and submitted that they had no objection to the proposed winding up of the company. Shri A. K. Dutt Mazumder of IRBI submitted that the accumulated loss of the company as on 30.6.88 aggregated to Rs. 15.50 crores which was likely to go upto Rs. 18 crores by 30.6.89. He further submitted that IRBI will not be able to indefinitely finance the cash losses of the company. However, IRBI agreed to consider maintaining the statusquo until the end of June, 1989.
8. Shri T. C. Kheria, a businessman having dealings with TPCI appeared and stated that he had given a proposal for revival of the company by investing fresh funds to the extent of the margin amount required under Textile Modernisation Fund Scheme. He, however, expressed his inability to invest the minimum required funds of about Rs. 3 to 4 crores in the company.
9. In view of Shri Amal DattaV request, we have given him time upto the end of May, 1989 to make further submissions, if any, while keeping our orders reserved. If no further submissions are received we shall issue necessary orders in the case in the first week of June, 1989.
Sd/- N. C. Banerjee, Sd/- Dr. Mahfooz Ahmed
Member. Member".
ORDER
In continuation of the proceedings dated 17.5.89 in respect of the above ease, after hearing the suggestions and objections against the formation of opinion by the Bench regarding the winding up of the aforesaid company at the hearings of the case on 4.5.88, 30.11.88 and 17.5.89, our orders were kept reserved and Shri Amal Datta, M.P. was given time upto the end of May, 1989 to make further submissions, if any.
2. Whereas no further submission has been received from Shri Amal Datta, M.P., for revival of the company, Allahabad Bank, UCO Bank and and financial institutions-IDBI, IFCI and IRBI had reiterated the basic commercial non-viability of Textile Processing Corporation of India Ltd. and submitted that they had no objection of the proposed winding up of the company. Formation of workers' co-operative to take over and run TPCI had also not been found feasible. The efforts of the Government of West Bengal to revive TPCI had not been successful. Under the circumstances TPCI have become non-viable with its huge accumulated losses of about Rs. 18 crores as on 30.6.89. Without any prospects for its revival and we have reached the conclusion that it is just and equitable that the sick industrial company Textile Processing Corporation of India Ltd. (TPCI) should be wound up. We direct that our opinion to this effect shall be forwarded to the Calcutta High Court for necessary action according to the law. Copies of this order as well as those of the earlier proceedings in regard to this case shall be forwarded to the said High Court.
Sd/- N.C. Banerjee Sd/- Dr. Mahfooz Ahmed
Member. Member."
3. However, the learned Judge passed only the following order after hearing the parties:
"The winding up petition is admitted subject to scrutiny. The winding up petition be advertised once in the Statesman and once in Jugantar. Publication in the official Gazette is dispensed with. Returnable six weeks hence.
Md. Manzurul Haque, Advocate is appointed Special Officer who is directed to take over possession of all books, papers, documents and all other assets of the company and to continue to hold the same until further orders of this Court. It is ordered that if with the assistance of the financial institutions the company can be run, the Special Officer should make all endeavour to run the company in the meantime. In the event it is found that some financial assistance is required for the purpose of protection of the assets of the company, the Special Officer should call a meeting of all the secured creditors and Mr. Adhip Kar, Advocate, is directed to render all possible assistance to the Special Officer. The Special Officer shall be entitled to an initial remuneration of 200 G.Ms, to be paid from out of the funds of the company. If, however, the funds of the company do not permit such payment, the secured creditors and the financial institutions are directed to pay the same in equal proportions. Let the letter dated 14.8.89 of the company be kept on record. The matter is treated as part heard in my list and returnable on 28.9.89. All parties including the Special Officer to act on a signed copy of the minutes of this order upon usual undertaking."
4. Being aggrieved by the same, the I.R.B.I. has made this appeal and the stay application. Having regard to the fact that the appeal involves only a question of law we have heard the appeal itself by "consent of the parties.
5. Dr. Tapas Banerjee, learned Advocate appearing in support of the appeal had drawn our attention to the provisions of Section 15 of the said 1985 Act and submitted that the language of the sub-section (2) of Section 15 of the said Act is mandatory and there is no question of any advertisement when such an opinion of, the Board is before the Court. Section 15 of the said Act is set out hereinbelow.
"20. (1) Where the Board, after making inquiry under Section 16 and alter consideration of all the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of opinion that it is just and equitable that the sick industrial company should be wound up, it may record and forward its opinion to the concerned High Court.
(2) The High Court shall, on the basis of the opinion of the Board, order winding up of the sick industrial company and may proceed and cause to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act, 1956.
(3) For the purpose of winding up of the sick industrial company, the High Court may appoint any officer of the operating agency, if the operating agency gives its consent, as the liquidator of the sick industrial company and the officer so appointed shall for the purposes of the winding up of the sick industrial company be deemed to be, and have all the powers of the official liquidator under the Companies Act, 1956.
(4) Notwithstanding anything contained in sub-section (2) or subsection (3), the Board may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of Section 529A and other provisions of the Companies Act, 1956."
6. In this context he has relied on Section 38 of the Banking Regulation Act, 1949, which is set out hereinbelow, "38. (1) Notwithstanding anything contained in Section 391, Section 392, Section 433 and Section 583 of the Companies Act, 1956, but without prejudice to its powers under sub-section (1) of Section 37 of this Act, the High Court shall order the winding up of a banking company-
(a) if the banking company is unable to pay its debts ;
(b) if an application for its winding up has been made by the Reserve Bank under Section 37 or this section.
(2) The Reserve Bank shall make an application under this section for the winding up of a banking company if it is directed so to do by an order under clause (b) of sub-section (4) of Section 35.
(3) The Reserve Bank may make an application under this section for the winding up of a banking company-
(a) if the banking company-
(i) has failed to comply with the requirements specified in Section 11 ; or
(ii) has by reason of the provisions of Section 22 become disentitled to carry on banking business in India ; or
(iii) has been prohibited from receiving fresh deposits by an order under clause (a) of sub-section (4) of Section 35 or under clause (b) of sub-section (3A) of Section 42 of the Reserve Bank of India Act, 1934; or
(iv) having failed to comply with any requirement of this Act other than the requirements laid down in Section 11, has continued-such failure, or, having contravened any provision of this Act has continued such contravention beyond such period or periods as may be specified in that behalf by the Reserve Bank from time to time, after notice in writing of such failure or contravention has been conveyed to the banking company ; or
(b) if in the opinion of the Reserve Bank-
(i) a compromise or arrangement sanctioned by a Court in respect of the banking company cannot be worked satisfactorily with or without modifications ; or
(ii) the returns, statements or information furnished to it under or in pursuance of the provisions of this Act disclose that the banking company is unable to pay its debts ; or
(iii) the continuance of the banking company is prejudicial to the interests of its depositors.
(4) Without prejudice to the provisions contained in Section 434 of the Companies Act, 1956, a banking company shall be deemed to be unable to pay its debts if it has refused to meet any lawful demand made at any of its offices or branches within two working days, if such demand is made at a place where there is an office, branch or agency of the Reserve Bank, or within five working days, if such demand is mads elsewhere, and if the Reserve Bank certifies in writing that the banking company is unable to pay its debts.
(5) A copy of every application made by the Reserve Bank under sub-section (1) shall be sent by the Reserve Bank to the registrar."
7. He has also relied on two decisions, namely, in the matter of : The Chotanagpur Banking Association Ltd., and Joseph Kuruvilla Vellukunnel v. Reserve Bank of India and Others, .
8. Various parties appeared before us, namely, on behalf of the company, on behalf of the Employees' Union, Staff Union and I.D.E.I. and excepting Mr. Saraf, the learned Advocate appearing for the Employees' Union, other learned Advocates have supported the stand taken by the appellant herein. Mr. Saraf has submitted that it is not obligatory that upon such opinion of the Board, being received by the Court, the Court must pass an order. The Court has still discretion in the matter and, accordingly, an opportunity should be given to the Workers' Union as to whether such an order for winding up of the company should be passed by this Court or not. It is stated that the Workers have a right to make a representation regarding such winding up and this has been recognised by the Supreme Court's decision in the case of National Textile Workers' Union v. P.R. Ramkrishnan, . In any event, he has submitted that even if Section 20(2) of the said Act applies, the usual procedure is to be followed and the procedure for advertisement is not to be given a go-bye. On the merits he also submits that in this case it is the fault of the company for which it is in such a positoin and the workers should not suffer because of their fault.
9. Before we deal with the arguments made we set out herein below the objects and reasons of the 1985 Act which were placed before us by Dr. Banerjee in support of the appeal:
"Annexure 1 Statement of Objects and Reasons The ill effects of sickness in industrial companies such as loss of production, loss of employment, loss of revenue to the Central and State Governments and locking up of investible funds of banks and financial institutions are of serious concern to the Government and the society at large. The concern of the Government is accentuated by the alarming increase in the incidence of sickness in industrial companies. It has been recognised that in order to fully utilise the productive industrial assets, afford maximum protection of employment and optimize the use of the funds of the banks and financial institutions, it would be imperative to revive and rehabilitate the potentially viable sick industrial companies as quickly as possible. It would also be equally imperative to salvage the productive assets and realise the amounts due to the banks and financial institutions, to the extent possible, from the non-viable sick industrial companies through liquidation of those companies."
10. After the company petition is admitted, advertisements are directed to be made. The question is whether the procedure for advertisement has to be strictly adhered to even in case of the opinion of the Board as contemplated by Section 21. In our opinion, the specific provisions of Section 20 and particularly sub-section (2) of the said section, makes it quite clear that the Legislature has thought it fit that in the case of a sick Undertaking a drastic action is to be taken. We should remember that the Companies Act deals with the winding up in general whereas the 1985 Act has been enacted to deal with the peculiar position of a particular type of company. In this context we also refer to the provisions of Section 32 of the 1985 Act. Section 32 of the said Act makes it quite clear that the provisions of the 1985 Act would apply irrespective of anything contrary to the provisions contained in the Companies Act. It is quite clear that the 1985 Act has made a departure in respect of sick undertakings.
11. This is not the solitary instance of such a departure. Another departure was made in respect of Banking Companies under Section 38 of' the Banking Companies Regulation Act which we have quoted hereinabove. This regulation has been construed by the Supreme Court which has upheld' the validity of the same. In our opinion, Section 20 of the 1985 Act is in pari materia with Section 38 of the Banking Companies Regulation Act. It was observed in the case of Vellukunnel v. Reserve Bank of India, AIR SC 1371 (paragraph 31) at page 1383 as follows :
"It must not be overlooked that the winding up of a Banking company takes place before the High Court and under the process of law. The judicial process is excluded only in respect of the momentous decision whether a winding up order should be made or not. This opinion is left to the Reserve Bank, and the Court merely passes an order according to the Reserve Bank's opinion, and then proceeds to wind up the Banking company according to law. The narrow question is whether in leaving this decision to the Reserve Bank law offends the principles of natural justice, and becomes unreasonable, viewed in the light of Article 19 as to become void. This is the point on which the respective parties joined issue and had much to say, and this is the crucial point in this case."
12. It is quite clear from Section 20(2) of the said Act that a distinction is being made in the said section regarding the proceedings to be taken before a winding up order and after a winding up order. In our opinion, sub-section (2) of Section 20 makes it quite clear that the High Court has got no option but to pass an order of winding up on the basis of the opinion of the Board. But after such order is passed, the proceedings in the winding up order in respect of a particular sick industrial company shall be in accordance with the provisions of the Companies Act, 1956. The winding up proceedings consist generally of two parts, one is before the winding up order is passed and another is after the winding up order is passed. In our opinion, by Section 20(2) if there is any opinion of the Board within the meaning of the said Act, than the Court has no option but to pass an order of winding up without following any further procedure laid down in respect of the companies in general. To put it shortly, in that case there is no question of any advertisement to be published. However, after such winding up order is passed, the procedures laid down in respect of winding up proceedings in the Companies Act have full application and will have full effect. In our opinion, a distinction is made so far as the proceedings before and after the Act are concerned by virtue of sub-section (2) the proceedings before the order have been dispensed with in the case of the opinion of the Board within the meaning of Section 20 of the said Act.
13. So far as the right of the Workers to make a representation is concerned, we are of the opinion that no such right can be claimed in a case coming within the scope of Section 20(2) of the Act. The opportunity to be given to the Workmen before a winding up order is passed is laid down by the Supreme Court in the case of Nationd Textile Workers Union v. P. R. Ramkrishnan, . The Supreme Court has laid down the law of the land. However, it is open to the Parliament to amend any existing law which would include any law laid down by the Supreme Court. This position has been made clear by Section 32 of the 1985 Act itself. In any event we may point out that the Workmen were represented before the Board and it is only after hearing the Workmen and after giving a further opportunity to the Workmen, the final order has been passed by the Board. Therefore, even if there is any question of giving any opportunity to the Workmen, that opportunity has been given and has been fully availed of.
14. In the result, we accept the contentions raised in support of the appeal and we reject the contentions raised by Mr. Saraf on behalf of the Employees' Union. Accordingly, we pass the following order.
15. The appeal is allowed. The order passed by the learned Trial Judge dated 17th August 1989 is hereby set aside. There will be an order for winding up of the company.
16. Sub-section (5) of Section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 provides as follows :
"For the purpose of winding up of the sick industrial company, the High Court may appoint any officer of the operating agency, if the operating agency gives its consent, as the Liquidator of the sick industrial com- pany and the officer so appointed shall for the purposes of the winding up of the sick industrial company be deemed to be, and have all the powers of, the Official Liquidator under the Companies Act, 1956".
17. As we are not in a position at the present moment to ascertain as to whether there is any operating agency or whether the operating agency is consenting to act as a Liquidator of the Company in question as provided in Section 20(3) of the 1985 Act, we appoint the Official Liquidator as Liquidator of the company. However, if the operating agency at any point of time is willing to act as such Liquidator, it shall be open to the operating agency or any one on its behalf to apply before this Court to be substituted as the Liquidator of the Company in place and stead of the Official Liquidator.
18. The Official Liquidator shall act according to law and exercise the powers conferred on him under the Companies Act, 1956 immediately. We make it clear that this order shall not prevent any person to make any application before the Court in accordance with law.
19. The Special Officer is directed to hand over the possession of the assets of the company to the Liquidator appointed by us.
20. All parties concerned and the Special Officer and the Official Liquidator to act on a signed copy of the operative portion of the judgment, on the usual undertaking.
Amarabha Sengupta, J.
21. I agree.