Delhi High Court
Bennett, Coleman & Co. Ltd. And Others vs Appellate Authority For Industrial And ... on 19 July, 1995
Equivalent citations: AIR1996DELHI172, [1996]85COMPCAS230(DELHI), AIR 1996 DELHI 172, (1996) 85 COMCAS 230, (1996) BANKJ 281, (1995) 4 COMLJ 11
Author: D. P. Wadhwa
Bench: D.P. Wadhwa
ORDER D. P. Wadhwa, J.
1. These two petitions under Article 226 of the Constitution have been filed challenging the order dated 19th December, 1994 of the Appellate Authority for Industrial and Financial Reconstruction, New Delhi (for short the Appellate Authority) dismissing the two separate appeals of the petitioners by a common judgment; substantially confirming the order dated 6/16 June, 1994 passed by the Board for Industrial and Financial Reconstruction 'BIFR' for short). Both the authorities, namely, the BIFR and the Appellate Authority, have been constituted under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 ('SICA' or 'Act', for short) under which proceedings had been held and impugned orders made. The sick industrial company, as defined under clause (o) of Section 3 of the SICA, in the present case is Andhra Cement Limited (ACL). Petition bearing No. 5184/94 has been filed by Bennett, Coleman and Co. Ltd. and five other petitioners constituting one group (collectively referred to as the BCCL), having substantial shareholding in ACL. BCCL claims to be promoter of ACL and is staking its claim of preferential right to the revival of ACL in preference to others. In this petition there are as many as 19 respondents, all of whom are, however, not represented before us. Petition bearing No. 32/95 has been filed by Dr. M. P. Jain who states that he was Managing Director of ACL. In this petition there are 23 respondents and again all of them did not appear before us. Dr. Jain also claims his right as promoter of ACL.
2. BCCL acquired controlling interest in ACL in 1973 by acquiring 33.76% shareholding (later reduced to 22.11%). Dr. Jain was appointed Joint Managing Director of ACL in 1975, and subsequently as Managing Director. Mr. A. K. Jain of BCCL group was appointed as Chairman of Board of Directors of ACL and that was in 1975'. AGL which was doing well and was a large cement producing company fell into bad days. Dr. Jain continued to be the Managing Director of ACL up to the expiry of his term in 1989 and was succeeded by Mr. Amitab Tayal who was appointed for a very short term and, therefore, Dr. Jain took over again as the Managing Director.
3. ACL became a sick industrial company as defined under SICA and consequently made a reference to BIFR on 16th March, 1990 under Section 15 of the Act for determination of the measures which should be adopted in respect to the company. As required under Section 16 of SICA, BIFR held an enquiry and declared ACL a sick industrial undertaking. Under sub-section (1) of Section 17, BIFR examined whether it was practical for ACL to make its networth exceed the accumulated losses within a reasonable time. On 23rd July, 1990, BIFR ascertained from the "promoters" whether they were capable of reviving the company and after making enquiries from Dr. Jain who was the Managing Director at that time, it came to the conclusion that it was not possible for the company to do so on its own and, therefore, the stage envisaged by sub-section (3) of Section 17 was reached. The Industrial Development Bank of India (IDBI) was appointed as the Operating Agency with a direction to explore the possibility of revival of the company keeping in mind the measures and guidelines as enumerated in the order of the BIFR. During the course of proceedings before" the BIFR on 3rd December, 1991 a question arose as to who was the existing promoter of the company. While Mr. A. K. Jain submitted that it was BCCL, Dr. Jain claimed that it was he and for that purpose he relied on an agreement executed between him and BCCL on 23rd November, 1989. BIFR did not accept the contention of Mr. A. K. Jain. It was of the view that under the agreement relied on by Dr. Jain, Mr. A. K. Jain had resigned as Chairman of the Board of Directors of ACL and had also accepted part payment of the cost of shares held by BCCL and agreed to be transferred to Dr. Jain and further that Mr. A. K. Jain having agreed to transfer the shares and having accepted part payment had in fact handed over the company to Dr. Jain and de facto abandoned it. The Appellate Authority, however, was of the view that it was ACCL which was the promoter of ACL.
4. A person having controlling shares in a company would be able to control the affairs of the company and regulate the same. He can exercise complete superintendence and manage the company through the Board of Directors and the Managing Director which would in turn be his nominee. BCCL had substantial shareholding in ACL which would also mean that it had controlling interest in the company. BCCL, however, could not be said to be promoter of ACL inasmuch as it had not taken any steps preceding the incorporation of ACL which was in 1936. Admittedly the promoters were Mr. D. L. N. Raju and Associates and KCP Group acquired the shareholding interest in the company in the year 1970. It was in 1973 that BCCL acquired shares of ACL which had earlier been held in KCP Group, No doubt, BCCL had substantial shareholding in ACL and was, thus, had enough shares to control the affairs of ACL. It could, however, not be said that BCCL was the promoter. In short, all that could be said that BCCL was controlling the affairs of the company or that it had dominant voice in managing the ACL. To say that BCCL is promoter of ACL would be a misnomer. The expression "promoter" has not been defined in the Companies Act, 1956. This expression is, however, used in Section 62 of that Act dealing with civil liability for misstatement in the prospectus. Sub-section (6) of this section, however, says that the expression "promoter" for the purpose of Section 62 means a promoter who was a party to the preparation of the prospectus or of the portion thereof, containing the untrue statement, but does not include any person by reason of his acting in a professional capacity for persons engaged in procuring the formation of the company.
5. In this view of the matter, no grievance can be made by Mr. Bhatt that in the earlier stages of the proceedings before the BIFR no notice had been issued to BCCL who was the promoter of ACL. As far as BIFR was concerned ACL was another shareholder though having substantial shareholding and it was not necessary for the BIFR to issue any separate notice to BCCL, and that notice issued to ACL, which was represented by its Managing Director Dr. Jain, was enough notice for the purpose of SICA. It is also difficult to believe that BCCL was ignorant of the proceedings pending before the BIFR. BCCL, therefore, cannot have any grievance that it was not associated in the proceedings before the BIFR on behalf of the ACL up to the time when ACL was represented through the Managing Director, Dr. Jain and till BCCL put in its appearance.
6. We, however, do not think that that controversy as to who is the promoter would have any bearing in the present petitions as the question is relevant only up to the stage when the BIFR decides that it is practicable for the sick industrial company to make its networth exceed its accumulated losses within a reasonable time and gives time to the company for the purpose. We have not seen any principle of law which gives the promoter any preferential right for revival of the company after the stage under sub-section (2) of Section 16 is crossed. It may, however, be a matter of propriety to give the promoter a right for revival, etc., of the sick industrial company if the acceptable scheme, given by any other party containing measures for revival, etc., of the company is similar to that given by the promoter. Even then the BIFR may take into consideration the facts and circumstances which led to the company becoming sick, and determine whether these causes were entirely due to the fault of the promoter or were due to force majeure or causes for which promoters could not be blamed. It may take into consideration whether the promoters have a sound managerial team and can provide finance for revival of the company. Also whether the banks, the financial institutions, the Governments and other authorities have confidence in the promoter. That is not the case before us. It had been conceded before the BIFR that it was not practicable for the company to make its networth exceed the accumulated losses of its own within a reasonable period and the banks and financial institutions as well as the State of Andhra Pradesh were not agreeable to any sacrifices or concessions if the management was to be given either to the BCCL or Dr. Jain. The Appellate Authority found that the dispute between BCCL and Dr. Jain appeared to have played a substantial role in making the company sick. There were serious allegations against Dr. Jain that during the his tenure there were irregularities and illegalities in handling the finances of the company. These in fact were also found by the auditors appointed by the BIFR. Dr. Jain on the other hand, blamed BCCL for not infusing the money required by the company and that it was due to shortage of money that the company suffered losses and became sick. It may be noticed that when the scheme was sanctioned, which is now impugned before us, ACL had run into losses amounting to about Rs. 265/- crores, while the equity of ACL was Rs. 20 crores.
7. It is not necessary for us to go into the circumstances under which agreement was entered into between BCCL and Dr. Jain for the transfer of shareholding held by BCCL in favour of Dr. Jain, and why it fell through. We also do not think it was necessary for BIFR to issue any separate notice to BCCL which was only a shareholder, though may be a substantial shareholder, when Dr. Jain had been appearing before the BIFR as Managing Director of ACL. Mr. A. K. Jain on behalf of BCCL appeared before the BIFR for the first time on 3rd Debember, 1991 after the stage under sub-section (3) of Section 17 of the Act had been reached, and the Operating Agency appointed. Both BCCL and Dr. Jain were given opportunity to present revival scheme for rehabilitation of ACL. BIFR examined various schemes presented to the Operating Agency and found that the one that given by DAIL (Duncan Agro Industries Ltd.) to be in accordance with the principles of the Act and sanctioned the scheme by order dated 6th June, 1994, and the scheme was signed on 16th June, 1994.
8. The Appellate Authority examined various contentions raised by BCCL and Dr. Jain challenging the order of the BIFR sanctioning the scheme of DAIL. The Appellate Authority found that Dr. Jain had no financial resources for revival of the company and the collaborator given by him was nonexistent. It also found that the scheme given by DAIL was based on reliefs and concessions given by banks and financial institutions and the Government of Andhra Pradesh and all of them unequivocally refused to provide any financial assistance for any proposal of Dr. Jain or BCCL. It was clear that in the absence of the reliefs and concessions given by the banks and financial institutions and the Government of Andhra Pradesh it was not possible for revival of the company. The Appellate Authority thus, after considering various contentions raised by Dr. Jain and BCCL, negatived the same. The Appellate Authority held that the order of the BIFR sanctioning the scheme of DAIL was in accordance with the provisions of the Act except on the question of share valuation. It was, thus, of the view that the scheme sanctioned in favour of DAIL should be implemented expeditiously and the matter should be remanded to BIFR for reconsideration of the question of valuation of the shares after getting an expert opinion in that regard. It may be noticed that as per the scheme, BCCL was required to transfer, its shareholdings to DAIL and the value of the shares of face value of Rs. 10/- was fixed at Rs. 2.50/-.
9. We are not sitting in appeal against the order of the Appellate Authority and our jurisdiction is limited. We have only to see if the order of the Appellate Authority is within the four corners of the SICA. We no doubt exercise judicial review over administrative and quasi-judicial authorities. The Supreme Court in Tata Cellular v. Union of India, , while dealing with the scope of judicial review in contractual matters, which principle will apply to this case as well, said as under:--
"The duty of the Court is to confine itself to the question of legality. Its concern should be:
1. Whether a decision-making authority exceeded its powers?
2. committed an error of law.
3. committed a breach of the rules of natural justice.
4. reached a decision which no reasonable Tribunal would have reached, or
5. abused its powers."
10-11. The principal objections of Mr. Bhatt, learned counsel for BCCL have been four fold, namely:--
(1) The BCCL being the promoters were always ready to act on the report of the Operating Agency but their case was rejected for no apparent reasons and a third party DAIL was introduced to take over ACL;
(2) No power exists under Section 18 of SICA for transfer of ownership of a company and the section envisages a scheme containing measure for the proper management of the sick industrial company by change or taking over of its management;
(3) The scheme postulates certain directions which are contrary to law of the land; and (4) The scheme involves tax concession amounting to over Rs. 200/ - crores and it was not circulated to the Income-tax department and in view of the judgment of this Court in Garware Plastics & Polyester Ltd. v. The Appellate Authority and others, CWP No. 1493/95, decided on 8th August, 1994, the scheme would be invalid.
12. Taking up the last point first, it was submitted that the scheme had been sanctioned in violation of Section 19 of SICA inasmuch as the scheme was not circulated to the Central Board of Direct Taxes, therefore, no tax concession could have been granted to DAIL. Under Section 19, a scheme may provide for various measures for rehabilitation of the sick industrial company including concessions or sacrifices from the Central Government or other authority. But then that scheme to be circulated to the Central Government as well as to the Central Board of Direct Taxes (CBDT) constituted under the Central Boards of Revenue Act, 1963. The Court did hold that CBDT was not a Central Government and the scheme should have been circulated to it before any tax concession be granted. A circular had been issued by the CBDT dated 30th December, 1993 wherein CBDT referred to two earlier circulars (Circular No. 573 dated 5th October, 1988 and Circular No. 576 dated 31st August, 1990) in connection with the procedure to be followed in respect of grant of "consent" by the Central Government in cases involving financial assistance to be given under Direct Tax Laws for rehabilitating sick industry, under SICA. The CBDT by circular dated 30th December, 1993 withdrew the two earlier circulars and gave the following directions:--
"3. While issuing the two circulars, the provisions of Section 19(2) of SICA were not considered. According to Section 19(2) all parties concerned with giving financial assistance for the rehabilitation scheme should have their consent. It has, therefore, been decided to withdraw the above circular with immediate effect. Each case of fiscal concession of financial assistance under the Direct Tax Laws will now be considered in each individual case on merits for the purpose of consent as contemplated in Section 19(2) of SICA, 1985 and consent or denial of consent will be conveyed to BIFR by the Central Government.
The nodal agency for co-ordination between the BIFR and Central Board of Direct Taxes and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and Central Board of Direct Taxes will be the Director General (Admn.)"
13. The question that arises is, if "this circular dated 30th December, 1993 would apply in the present case. Mr. Bhatt said it could apply inasmuch as the scheme was sectioned on 6yh June, 1994, though Mr. Shanti Bhushan, learned counsel for DAIL, submitted that the circular dated 30th December, 1993 came to be known to BIFR only on 17th June, 1994 when CBDT sent copies of circular to BIFR on BIFR writing a letter for the purpose after getting information of the issuance of the circular from newspaper reports. The impugned scheme, no doubt, had been circulated to the Central Government in the Ministry of Industry, Department of Industrial Development, and the response of the Ministry (addressed to BIFR) was received by letter dated 29th March, 1994 and it is not disputed that the same was taken into consideration while sanctioning the scheme. This Court did hold in Garware's case that, in the absence of scheme having been circulated to CBDT, it would be invalid. Mr. Bhatt submitted that this part of the decision had been upheld by the Supreme Court in the appeal against the judgment of this Court in Garware's case: The judgment of the Supreme Court is reported as M/s. S.R.F. Limited v. m/S. Garware Plastics and Polyesters Ltd., .
The relevant portion of the judgment of the Supreme Court reads as under (Para 14, at Pp. 1689 and 1690 of AIR SCW) :--
"13. It is true that no notice was issued by the Board either to the Central Government or to the Central Board of Direct Taxes. The Central Government shall be required to pass an order under Section 72A of tax benefits and that therefore it is entitled to be heard. Since merger scheme, which was given effect from April 1, 1992 involves tax concessions and sacrifices enumerated in Sections 70, 71 and 72 as set off. So, there would be great revenue losses. Therefore, Central Government and Central Board of Direct Taxes arc necessary and proper parties before the Board. The Board before finalising merger scheme and approving its draft scheme for merger of the sick industrial company with a healthy company, notice should be given to the Central Government as well as to the Central Board of Direct Taxes. Admittedly, by two letters SRF had given up the benefits under Section 72A. The counsel for the SRF had given an undertaking in the High Court and reiterated before this Court that the merger scheme would be effective from April 1, 1994. Consequently, the benefits of set off under Sections 70, 71 and 72 have been marginalized and, therefore, no considerable revenue loss would occur to the public exchequer. Any minor benefits would be consequential to the offer of merger with the healthy company. In these appeals and before the High Court, they are imp leaded as respondents and were heard through Sri Ahuja, learned senior counsel, who has stated that there would be no loss of revenue to the State and benefit under Section 43B of Income-tax Act is bound to be given to a company revived on either basis. In that view, the order passed by the Board and approved by the Appellate Authority are not vitiated by any error of law warranting interference."
14. It may be noted that in this very judgment the Supreme Court stressed on the expeditious disposal of the matter by BIFR, the Appellate Authority and the High Court, while considering the objects of the SICA. It would be, thus, seen that the Supreme Court did not think it necessary to refer the matter to BIFR as the tax concessions were found to be negligible, and therefore, not warranting any interference. In the present case, DA1L has brought on record a letter dated 27/30 January, 1995 addressed to the Director, ACL, by the Director of Income-tax (Recovery) in the Directorate of Income-tax (Recovery), Government of India (Department of Revenue), New Delhi, which is as under:--
"Sir, The company has been granted by BIFR concession under Sections 72, 41(1) & Section 80 read with Section 139(3) of the Income-tax Act.
2. The grant of concessions by BIFR to the company are in order.
Your faithfully, Sd/-
(S. N. Bhargava) Director of Income-tax (Recy.)"
15. Mr. Shanti Bhushan said that this letter was received in response to communication dated January 11, 1995 sent by ACL to the Director General of Income-tax (Admn.), the authority concerned, as per circular/letter dated 30 December, 1993 of CBDT. Mr. Shanti Bhushan referred to the impugned order of the Appellate Authority which said that it was for the Income-tax department to interpret their circulars and to apply the concessions to the scheme sanctioned on 6 June, 1994 though signed on 16 June, 1994. The Appellate Authority had observed as under:--
"Since it is for the purpose that in case the Income-tax Department does not agree to the exemption sought under the scheme. DAIL will look after the matter at their end. It is also important to note that additional affidavit has been filed on behalf of DAIL sworn in by Mr. K. Varadan, Senior, Manager of DAIL in which it has been mentioned that notwithstanding any changes, amendments or modifications that this Authority may make in the order of 18th June, 1994 issued by BIFR, DAIL is and will continue to be willing, ready, capable and committed to implement the same subject to its right to appeal and subject to the final orders of the superior Court (s) as the case may be. It has also been mentioned that DAIL confirms its willingness to arrange such additional funds, subject to such time frame as may be specified in the final order. It has also been mentioned that looking to the approximate losses accumulated of the rate at Rs. 4.5 crores per month and to facilitate expeditious enforcement of rehabilitation as per the preamble of the Act, this unequivocal undertaking is being made. It has also been mentioned that DAIL's unequivocal commitment for implementation of the final rehabilitation scheme (including inducting such further funds as may be deemed necessary, under the finally sanctioned scheme) may be taken into account by this Authority and it may be permitted to implement the scheme. In view of this undertaking, there arises no question of setting aside the Scheme on this count. It is no illegality committed by the BIFR. Further, it was done in accordance with the contents of the circular effective on 6th June, 1994 and if any amount is required to be paid as per the directions of the CBDT, in any way, the new promoter has undertaken to bring in the additional money for that purpose."
By another letter dated March 23, 1995 of Mr. S.N. Bargava, director of Income-tax (Recy.) to ACL he has clarified his earlier letter. The letter reads as under:--
"The Director, M/s. Andhra Cements Ltd.
C/o. Duncans 12th Floor, H. T. House, 18-20, Kasturba Gandhi Marg, New Delhi-110001.
Sir, Please refer to our letter dated 30-1-1995 regarding the grant of various concessions to you by BIFR.
2. CBDT in its letter F. No. 246/115/93-A & PAC-I (copy addressed to BIFR & AAIFR) has nominated Director General of Income-tax (Admn.) as the nodal agency for co-ordination between the BIFR and CBDT& AAIFR. BIFR in its letter of 27-4-1994 to all O As has intimated that a senior officer of the CBDT would be deputed in the joint meetings organized by the OAs and the representative of the CBDT would also participate in the Bench hearing where the OAs report comes up for consideration. The draft scheme thereafter will be circulated among others to the CBDT for consent. Notices of the joint meetings would be addressed to Director General (Admn.) under whom Director of Income-tax (Recy.) is working.
3. Our letter dated 30-1-1995 is in pursuance to the above arrangement.
Yours faithfully, Sd/-
(S. N. Bhargava) Director of Income-tax (Recy)".
16. Thus, considering the overall effect of the scheme of tax concessions and the fact that whatever tax concessions under the Income-tax which the scheme envisages have not been objected to and rather found to be in order by the concerned authority, we reject the contention raised by the BCCL that the scheme is invalid on the ground that the scheme before it was sanctioned was not circulated as per circular dated 30 December, 1993 of the CBDT.
17. Mr. Bhatt was hard explaining to us that judgment of the Supreme Court in Navnit R. Kamani and others v. R. R. Kamani, , did not constitute any binding precedent for this Court to follow and that this Court could give its own interpretation of the relevant provisions of the SICA which could well be different to what the Supreme Court said in Kamani's case. His submission, as noted above, was that authorities under SICA had no power to direct transfer of shares of BCCL to DAIL under the impugned scheme. This, Mr. Bhatt said, could be done only when a scheme envisaged the amalgamation of the sick industrial company with any other company. In support of his submission Mr. Bhatt heavily relied on the provisions of the Industries (Development & Regulation) Act, 1951 [I (D&R) Act for short] as he said the impugned scheme, in effect, only provided for change in management of ACL, the sick company.
18. Chapter III-A of the I (D&R) Act contains provisions for direct management or control of Industrial Undertakings by Central Government in certain cases. Industrial undertaking has been defined under clause (d) of Section 3 of this Act which means any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government. Section 18A of I(D&R) Act, on which reliance was placed by Mr. Bhatt, prescribes that if the Central Government is of the opinion that (a) an industrial undertaking to which directions have been issued in pursuance of Section 16 has failed to comply with such directions, or (b) an industrial undertaking in respect of which an investigation has been made under Section 15 (whether or not any direction have been issued to the undertaking in pursuance of Section 16), is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest, then the Central Government may authorise any person or body of persons to take over the management of the whole or any part of the undertaking or to exercise in respect of the whole or any part of the undertaking such functions of control as may be specified in the order. Under sub-section (2) of this section, any order made under subsection (1) shall have effect for such period not exceeding five years as might be specified. The order under sub-section (1) could, however, also continue in the circumstances mentioned in proviso to sub-section (2). The explanation to Section 18A is as under:--
"Explanation: -- The power to authorise a body of persons under this section to take over the management of an industrial undertaking which is a company includes also a power to appoint any individual, firm or company to be the managing agent of the industrial undertaking on such terms and conditions as the Central Government may think fit."
The explanation shows that the industrial undertaking could also be a company.
19. Section 18B prescribes the effect of an order under Section 18A. Under Section 18C, if it is found that any contract has been entered into in bad faith and was detrimental to the interests of the industrial undertaking, that could be cancelled or varied on an application made to the Court. Under Section 18D, there is no right to any compensation for the loss of office or for the premature termination of his contract of management as mentioned in clauses (a) and (b) of Section 18B. Under Section 18E, certain provisions of the Companies Act, 1956, would be inapplicable where the management of an industrial undertaking, being a company, had been taken over by the Central Government. Under Section 18F, the Central Government could at any time cancel the order issued under Section 18A.
20. As to how the working of the industrial undertaking, management of which is assumed by the Central Government, is effected we might refer to Section 18B of the 1 (D&R) Act which, in relevant part, is as under:--
"18-B. Effect of notified order under Section 18A. -- (1) On the issue of a notified order under Section 18A authorising the taking over of the management of an industrial undertaking,--
(a) all persons in charge of the management, including persons holding office as managers or directors of the industrial undertaking immediately before the issue of the notified order, shall be deemed to have vacated their offices as such;
(b) any contract of management between the industrial undertaking and any managing agent or any director thereof holding office as such immediately before the issue of the notified order shall be deemed to have been terminated; .
(c) the managing agent, if any, appointed under Section 18A shall be deemed to have been duly appointed as the managing agent in pursuance of the Indian Companies Act, 1913 (7 of 1913) (now the Companies Act, 1956), and the memorandum and articles of association of the industrial undertaking, and the provisions of the said Act and of the memorandum and articles shall, subject to the other provisions contained in this Act, apply accordingly, but no such managing agent shall be removed from office with the previous consent of the Central Government;
(d) the person or body of persons authorised under Section 18A to take over the management shall take all such steps as may be necessary to take into his or their custody or control all the property, effects and actionable claims to which the industrial undertaking is or appears to be entitled, and all the property and effects of the industrial undertaking, shall be deemed to be in the custody of the person or, as the case may be, the body of persons as from the date of the notified order; and
(e) the persons, if any, authorised under Section 18A to take over the management of an industrial undertaking which is a company shall be for all purposes the directors of the industrial undertaking duly constituted under the Indian Companies Act, 1913 (7 of 1913) (now the Companies Act, 1956) and shall alone be entitled to exercise all the powers of the directors of the industrial undertaking, whether such powers are derived from the said Act or from the memorandum or articles of association of the industrial undertaking or from any other source.
XXX XXX XXX XXX On the basis of the provisions as contained in Chapter III-A of the I (D&R) Act an argument was thus raised that BIFR or the Appellate Authority could not transfer the ownership of the sick industrial company itself and that proper management of the sick industrial company does not envisage transfer of shares of the sick industrial company. We find there is no sound basis of such an argument. As to what are the effects of assuming management of an industrial undertaking by the Central Government under Chapter III-A of I(D&R) Act have been fully specified under Section 18B of that Act.
21. Sub-section (1) of Section 18 of SICA under which a scheme is to be prepared by the Operating Agency has to provide for any one or more of the following measures, namely:--
"(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, 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)."
Then under sub-section (2), the scheme may provide for any or more of the following, namely:--
(a) the constitution, name and registered office, the capital, assets, powers, rights, interest, authorities and privileges, duties and obligations of the sick industrial company or, as the case may be,_of the transferee company;
(b) the transfer to the transferee company of the business, properties, assets and liabilities of the sick industrial company on such terms and conditions as may be specified in the scheme;
(c) any change in the Board of Directors, or the appointment of new Board of Directors, of the sick industrial company and the authority by whom, the manner in which and the other terms and conditions on which, such change of appointment shall be made and in the case of appointment of a new Board of Directors or of any director, the period for which such appointment shall be made;
(d) the alteration of the memorandum or articles of association of the sick industrial company or, as the case may be, of the transferee company for the purpose of alter ing the capital structure thereof, or for such other purposes as may be necessary to give effect to the reconstruction or amalgamation;
(e) the continuation by, or against, the sick industrial company or, as the case may be, the transferee company of any action or other legal proceeding pending against the sick industrial company immediately before the date of the order made under sub-section (3) of Section 17;
(f) the reduction of the interest or rights which the shareholders have in the sick industrial company to such extent as the Board considers necessary in the interests of the reconstruction, revival or rehabilitation of the sick industrial company or for the maintenance of the business of the sick industrial company;
(g) the allotment to the shareholders of the sick industrial company, of shares in the sick industrial company or, as the case may be, in the transferee company and where any shareholder claims payment in cash and not allotment of shares, or where it is not possible to allot shares to any shareholder the payment of cash to those shareholders in full satisfaction of their claims -
(i) in respect of their interest in shares in the sick industrial company before its reconstruction or amalgamation; or
(ii) where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced;
(h) any other terms and conditions for the reconstruction or amalgamation of the sick industrial company;
(i) sale of the industrial undertaking of the sick industrial company free from all encumbrances and all liabilities of the company or other such encumbrances and liabilities as may be specified to any person, including a co-operative society formed by the employees of such undertaking and fixing of reserve price for such sale;
(j) tease of the industrial undertaking of the sick industrial company to any person including a co-operative society formed by the employees of such undertaking;
(k) method of sale of the assets of the industrial undertaking of the sick industrial company such as by public auction or by inviting tenders or in any other manner as may be specified and for the manner of publicity therefor;
(l) transfer or issue of the shares in the sick industrial company at the face value or at the intrinsic value which may be at discount value or such other value as may be specified to any industrial company or any person including the executives and employees of the sick industrial company;
(m) such incidental, consequential and supplemental matters as may be necessary to secure that the reconstruction or amalgamation or other measures mentioned in the scheme are fully and effectively carried out."
22. It was submitted that various clauses under sub-section (2) have reference to the measures stipulated in the scheme prepared under sub-section (1). It was submitted that clauses (a), (b), (c), (d), (e), (g), (h) and (1) have reference to clause (c) of sub-section (1), and while clause (f) of sub-section (2) has reference to clause (a) of sub-section (1); clauses (i), (j) and (k) of sub-section (2) have reference to clause (b) of sub-section (1) of Section 18. Clause (m) of sub-section (2) is stated to be a general provision. In short, the argument of Mr. Bhatt was that clause (1) of sub-section (2) of Section 18 which deals with the transfer and issue of shares in the sick industrial company could be invoked only if the scheme stipulated for amalgamation of sick industrial company with any other company with the sick industrial company. It was stated that the scheme in the present case did not provide for amalgamation of sick industrial company, and so the order of transfer of shares of ACL as visualised by the scheme was illegal and could not be given effect to.
23. The two Acts, i.e. I(D&R) Act and SICA, operate in different fields though there would appear to be some overlapping; I(D&R) Act was enacted for the development and regulation of certain industries. The Act applies to industries mentioned in the Schedule to the Act and SICA is applicable to those very companies having industries as mentioned in the Schedule to I(D&R) Act. Chapter III of I(D&R) Act contains provisions for regulation of industries. The Act is more of preventive nature so that the industrial undertaking does not fall sick, thus hampering the production of material necessary for the economic development of the country. Section 15 gives power to the Central Government to cause investigation to be made into industrial undertakings in the circumstances mentioned thereunder. Section 15A authorises the Central Government to move the High Court for permission to make or cause to be made investigation into a company which is being wound up for the purpose of running or restarting industrial undertaking in the interest of general public and, in particular, in the interests of production, supply or distribution of articles or class of articles relatable to the concerned scheduled industry. Under Section 16, the Central Government has been authorised to issue directions to industrial undertaking after investigation had been made under Section 15. Then, as noted above, Chapter III-A deals with power of Central Government to assume management or control of industrial undertakings in certain cases where the industrial undertaking to which directions had been issued in pursuance to Section 16 has failed to comply with such directions, or the industrial undertaking in respect of which an investigation has been made under Section 15, it being managed in a manner highly detrimental to the scheduled industry concerned or to public interest.
24. Under sub-section (2) of Section 18A of I(D&R) Act, a time limit is prescribed for which management of the industrial undertaking can be taken over by any person or body of persons so authorised. There is no such limitation for any scheme formulated under Section 18(1) of SICA containing measures for the proper management of the sick industrial company by change or take over of the management. Moreover, under SICA, it is revival of the sick industrial company and it is in that context the issue of management arises. The scheme can include transfer of controlling shares or substantial shareholders interest.
25. But then in Kamani's case where also the sick industrial company was revived, shares had been transferred to the employees of that company on a certain value, and provisions of SICA had been invoked there. Mr. Bhatt, therefore, had to meet a formidable challenge, and to meet that an argument was raised that this Court was not bound to follow the law laid by the Supreme Court in Kamani's case. Before we examine Kamani's case in detail we may note both SICA and I(D&R) Act separately prescribe respectively the effect when management of an industrial company is assumed by the Central Government under Section 18A of I(D&R) Act and a scheme which would be sanctioned by BIFR under Section 18 of SICA.
26. Kamani's case came up to Supreme Court on the basis of a Special Leave Petition arising out of various litigations between different branches of a family headed by Mr. Ramjibhai Kamani, an industrialist, on his death. The Court appointed Justice A.C. Gupta, a retired Judge of the Supreme Court, to go into the disputes between the family members and it noted that in the course of proceedings it came to light that Kamani Tubes Ltd. (KTL) had stopped production and ceased working and that workers had not been paid their wages which amounted to about Rs. 2.5 crores and that neither KTL was closed or workers retrenched in accordance with law and the workers still continued to be on the rolls of the company. Justice Gupta had recorded that the workers through their Kamani Employees Union (KEU) extended their hand of cooperation so that KTL comes out of red. The Court recorded that a proposal was mooted that 90% of the shares of the KTL be sold. Meanwhile, the workers sought leave to frame a scheme of their own for revival of the sick unit. Since nothing was coming out of their offer, the workers filed an application (CMP 3805/87) in the Supreme Court praying for order and directions for sale of shares of KTL to KEU at such price as the Court might deem fit and proper and on such terms and conditions as might be stipulated and also sought a direction to BIFR to take expeditious remedial and other measures for the revival of the factories of KTL including a direction to BIFR to consider the scheme of the applicants for revival and rehabilitation of KTL. The Court by order dated October 13, 1987 (reported as (1987) 4 JT (SC) 150) directed the BIFR to file a feasibility report in respect of the scheme presented by the workers for the revival of the KTL. The Court further directed that BIFR might hear the workers as well as different groups of Kamani family before making its recommendations. The BIFR then held a number of hearings and in those hearings the participants were the representatives of KEU, financial institutions, banks, State Government, Central Government and different groups of Kamani family. IDBI was entrusted with the examination of the scheme presented by KEU. IDBI submitted its report which was again discussed in subsequent hearings by the BIFR and view of various agencies such as banks, State Government, Central Government, etc., and the commitments regarding reliefs and concessions that would be available from those agencies were obtained. The BIFR submitted its feasibility report to the Court and after considering the same and hearing various parties the Court, with the consent of the parties, directed that the matter be placed before the BIFR for consideration whether it should proceed to pass an order in terms of the proposed scheme as revised in consultation with IDBI under Section 18(4) of SICA. The relevant part of the order of the Court is as under:--
"In compliance with the Court's order 13th October, 1987, the Board for Industrial and Financial Reconstruction, New Delhi, established under S. 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 in consultation with the Industrial Development Bank of India, constituted under S. 3 of the Industrial Development Bank of India Act, 1964, as its operating agency within the meaning of S. 3(1) of the Act, considered in depth the scheme submitted by the Kamani Employees Union and has evaluated the same by its feasibility report dated 12th January, 1988. We have heard learned counsel for the parties and they agree to the order we propose to make.
We direct that the matter shall now be placed before the Board for Industrial and Financial Reconstruction for consideration as to whether it should proceed to pass an order in terms of the proposed scheme as revised in consultation with the Industrial Development Bank of India under S. 18(4). The Board shall come to a decision after notice to all the parties and it shall act in conformity with the provisions of the Act. The Board may, if necessary, frame its own scheme or adopt the proposed scheme framed by the Kamani Employees Union, with such modifications as it deems fit. The Board shall also be at liberty to consider any alternative scheme at its discretion but the whole exercise shall be completed within eight weeks from today. If the objections to the Kamani Employees Union's scheme are not sustained the said scheme shall be dealt with according to law."
27. BIFR again heard the matter and prepared a draft scheme for revival of KTL. This draft scheme was circulated to all the parties concerned and short particulars thereof were also published in two news dailies for the information of the shareholders, the creditors and the employees etc. in general. The parties were given due notice for making suggestions/raising objections with respect to the draft scheme. Thereafter on examining various suggestions/objections and after hearing all the parties, the BIFR sanctioned a scheme which was placed before the Court for further orders. The Court then examined the provisions of SICA with reference to Statement of Objects and Reasons and observed as under:--
"The scheme envisaged by S. 18 of the Act inter alia provides for the reduction of the interest or rights of the shareholders in the sick industrial companies to the extent necessary for the reconstruction, revival or rehabilitation of the sick company. There is also a very salutary provision which contemplates transfer of the shares in the sick industrial company at face value or intrinsic value (which may be discounted value or such other value as may be specified) inter alia to the employees of the sick industrial companies. The provision for transferring the shares to the employees which makes manifest the intention of the legislature to encourage the employees to take over the sick units and to clothe the competent authority with power to direct the transfer of the shares to the employees in this behalf. Thus the authority and competence of the Board to issue a direction for the transfer of the shares to the employees has the full backing of the benevolent legislation enacted especially in order to restructure or revive the sick undertakings."
The Court also approved the transfer of shares of face value of Rs. 10/- per share at Re. 1/- per share to the employees. It found that the valuation of the shares fixed at Re. 1/- per share by the BIFR was proper, and observed as under:--
"Having given our anxious consideration to this factor even on our own, we are fully convinced and fully satisfied that the Board was perfectly right in directing the members of the Kamani family to transfer the shares at the rale of Re. 1/- per share in order to effectuate the scheme for revival of KTL. We may also mention that the BIFR was wholly right that the provisions of the Act were immune from challenge by virtue of the declaration contained in S. 2 of the Act attracting the application of Art. 31C of the Constitution. Turning to the merits of the Scheme sanctioned by BIFR, it does not suffer from any infirmity. It has been considered to be feasible and economically viable by experts. It envisages the management by a Board of Directors consisting of fully qualified experts and representatives of Banks, Government and of the employees. The Scheme has the full backing of the nationalized Banks and the encouragement from the Central Government and the State Government which have made commitments for granting tax concessions."
Then the Court held as under:--
"Since the scheme is being framed under the statutory authority and directive in order to revive the same in the larger public interest and inasmuch as there is a necessary declaration contained in S. 2 of the Act which attracts the applicability of Art. 31C of the Constitution, the decision rendered by the BIFR is unassailable and unimpeachable. Besides, the scheme has been framed as per the direction and mandate of this Court in exercise of its inherent jurisdiction and its constitutional jurisdiction under Art. 142 of the Constitution and therefore the framing of the scheme and the enforcement of the sanctioned scheme does not detract from or have any impact on the obligation incurred by the guarantors in regard to the debts incurred by KTL in the pasts. The concerned Banks were and are bound by the directives and mandates. Having given our anxious consideration to the decision rendered by BIFR sanctioning the scheme taking into account all the factors we fully agree with the reasoning and conclusion of BIFR and hereby stamp the scheme with the imprimatur of this Court."
28. Mr. Bhatt said that Kamani's case did not reach the Supreme Court in pursuance to any proceedings under SICA and need not be followed. We are unable to agree to this submission. It is correct that there was no reference to BIFR under Section 15 of SICA for determination of the measures which shall be adopted with reference to the sick industrial company and that BIFR did not make any enquiry if any industrial company has become a sick industrial company under Section 16 of SICA. Provisions of sub-sections (1) and (2) of Section 17 of SICA were also not gone into by the BIFR and BIFR also did not independently come to the conclusion that it was not practicable for KTL to make its networth exceed the accumulated losses within a reasonable time and that it was necessary and expedient in the public interest to adopt all or any of the measures specified in Section 18 of SICA. But the fact remains that the highest Court of the land was of the opinion that KTL had become a sick company; had stopped production and ceased working since August, 1985 (the date of order being 19 September, 1988); KTL had not resorted to closure of the unit or to retrenchment of the workers in accordance with the relevant provisions of law; while in the eyes of law and in theory the workers continued to be on the rolls of KTL, they had not been paid wages for over eight months since December 1984 till stoppage of work in August, 1985 and ever since till then and that the arrears till August, 1988 worked out in the region of Rs. 6-1/2 crores; and even the employees contribution to Provident Fund which had been deducted from the wages of the workers had been wrongly retained by the management and criminal prosecutions were pending in the Court. No one disputed before the Court that KTL had become a sick industrial company within the meaning of SICA and stage had been reached where an order had to be passed under subsection (3) of Section 17 of SICA. As noted above, the Court directed the BIFR by order dated 13 October, 1987 to examine the scheme prepared by the workers KEU and also gave directions subsequently to the BIFR to examine the scheme as per provisions contained in Section 18 of SICA. It could not be disputed that all the requirements of subsection (3) of Section 17 and Section 18 of SICA were met and the scheme was approved by the BIFR under sub-section (4) of Section 18 of the Act. The Court then, as noted above, stamped the scheme with the imprimatur of the Court. We may also note that the Court as well examined the scheme presented by A. P. Kamani, which was not before the BIFR but which A. P. Kamani said deserved to be considered, having regard to his claim that his scheme was preferable to the workers scheme Sanctioned by the BIFR. The Court itself examined the merits of both the scheme --
that presented by A. P. Kamani and that sanctioned by the BIFR, and rejected the application of A. P. Kamani. It is correct that A. P. Kamani could have filed an appeal before the Appellate Authority under Section 25 of the SICA when the matter could again have come up before the Supreme Court by means of a Special Leave Petition. There cannot be any bar to the Supreme Court itself examining the scheme sanctioned by the BIFR without the matter being referred to the Appellate Authority constituted under SICA. We are, thus, of the opinion that the provisions of SICA have been squarely met and there is no scope for us to accept the argument of Mr. Bhatt that the judgment of the Supreme Court in Kamani's case was not binding on us. In this view of the matter, we need not examine the various judgments cited by Mr. Bhatt to show that we are not bound to follow the judgment of the Supreme Court in Kamani's case, or that for the purpose of proper management of the sick industrial company it was not legal to transfer the shares at a certain value. As regards the valuation of the shares, we may note that the matter has been remanded back to BIFR by the Appellate Authority.
29. In support of his submission that the judgment of the Supreme Court in Kamani's case did not declare any law to be binding on this Court under Article 142 of the Constitution, Mr. Bhatt did refer to the following decisions:--
1. Food Corporation of India v. State of Punjab;
2. Municipal Corporation of Delhi v. Gurnam Kaur, ; and
3. Krishena Kumar v. Union of India, .
30. As to what is the effect when management and the control of the management of the industrial undertaking is assumed by the Central Government, Mr. Bhatt had also referred to a decision of the Supreme Court in Balkrishan Gupta v. Swadeshi Polytex Ltd., , which is as under (para 39) (of SCC). (Para 35, at p. 536 of AIR) :
"One other subsidiary contention urged on behalf of the appellants relates to the effect of an order made by the Central Government on April 13, 1978 under Section 18-AA(1)(a) of the Industries (Development and Regulation) Act, 1951 taking over the management of Swadeshi Cotton Mills along with five other industrial units belonging to the Cotton Mills Company which was the subject matter of dispute in Swadeshi Cotton Mills v. Union of India, and the order of extension passed by the Central Government on November 26, 1983 which is the subject matter of dispute in a case now pending before this Court. It is urged on behalf of the appellants that on the passing of the above said orders the Cotton Mills Company lost its right to exercise its voting rights in respect of the shares in question. There is no substance in this contention. What was taken over under the above-said orders was the management of the six industrial units referred to therein and not all the rights of the Cotton Mills Company. The shares belong to the Company and the orders referred to above cannot have any effect on them. The Department of Company Affairs, Government of India rightly expressed its view in the letter written by C. Khushaldas, Director in the Department of Company Affairs on April 9, 1979 to B. M. Kaul, Chairman of the Cotton Mills Company that the voting rights in respect of these shares continued to vest with the Cotton Mills Company and that manner in which those voting rights were to be exercised was to be determined by the Board of Directors of the Cotton Mills Company. Hence the passing of the orders under Section 18AA of the Industries (Development and Regulation) Act, 1951 has no effect on the voting rights on the Cotton Mills Company."
For one, it is not possible to accept the contention of Mr. Bhatt that the Supreme Court did not declare any law in Kamani's case , and, two, even if that be so we feel bound by the interpretation given by the Supreme Court directly on the point in issue.
31. As to the claim of BCGL as promoter of ACL we have already held otherwise and against what has been argued on this issue by BCCL.
32. Mr. Bhatt then said that the impugned scheme gave various directions to the Central Government which were against the provisions of law and that the Central Government was incapable to comply with those directions and further that for implementation of the scheme compliance with those directions was necessary and as such the impugned scheme being unworkable was invalid, and on that account the impugned scheme was bad. He said no reply had been given by any of the respondents on the issue, thus, raised. Mr. Shanti Bhushan, learned counsel appearing for DAIL, however, submitted that various concessions, sacrifices and directions on various matters given under the impugned scheme were binding on the parties under the Act. In reply to one of the directions given to the Central Government in the impugned scheme to extend the period of limitation for ACL for filing recovery suits against debtors by three years Mr. Shanti Bhushan submitted that BCCL had no locus standi to raise this ground in these proceedings inasmuch as BCCL was not a debtor whose rights were affected by this provision and further that this matter was not agitated before the Appellate Authority. He further said that if there was any such concession that was not feasible in the circumstances, it would be for the new promoter to take care of the additional resources needed for which an affidavit was filed with the Appellate Authority by DAIL and duly taken on record by the Appellate Authority. Mr. Shanti Bhushan said that the impugned scheme was not ultra vires the Act and in this connection referred to Section 32(1) of SICA. This section is as under:--
"32. Effect of the Act on other laws.-- (1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum of Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act.
(2) ....."
33. To understand the implication of this provision we may as well reproduce the reliefs and concessions provided to the ACL in the impugned scheme by the Central Government:--
"F. CENTRAL GOVERNMENT:
(a) To exempt DAIL from relevant provisions of MRTP Act, Companies Act, Securities (Contracts and Regulations) Act, SEBI Act and other applicable Acts and notifications/circulars issued from time to time under these Acts for the purpose of acquiring shares of ACL and for making any capital issue for raising the funds required for implementing the scheme;
(b) To exempt DAIL and its associate Companies from restrictions contained in Companies Act and other relevant Acts for providing inter corporate loans, to ACL as provided in the scheme;
(c) To exempt ACL under Section 41(1) of IT Act, 1961 in respect of remission arising out of obligation undertaken by Banks/Institutions under the scheme;
(d) To exempt the company from the applicability of provisions of Section 80 read with Section 139(8) of I.T. Act, 1961 for non filing of I. T. Returns, if any, by ACL in time for the period prior to take over;
(e) To exempt the company from applicability of provisions of Section 72 of the I. T. Act, 1961, for the period the unit remained closed and extend the period of carry forward of losses to that extent;
(f) To exempt ACL from the applicability of provisions of Section 293(1)(d), Section 81 and other relevant applicable provisions of the Companies Act, 1956, relating to acceptance of loans and raising of capital for the revival of the company;
(g) To exempt new management from liabilities of any penal proceedings, prosecutions and penalties under any statute by State Govt., Central Govt. in respect of past defaults, if any, of previous management; and
(h) To extend period of limitation for "ACL for filing" recovery suit against debtors by 3 years;
(i) To cover dues of Rs. 672.10 lakhs towards Cement Regulation Accounts into soft loan repayable in 5 instalments, first instalment to be paid on completion of 3 years after finalisation of rehabilitation package with interest @ 8 1/2% p.a. In the event of default, interest @ 14-1/2% p.a. would be leviable. Interest would also be recovered along with instalments after 3 years."
34. Could it be said that under this provision the BIFR had authority to extend the period of limitation beyond what is provided under the Limitation Act, 1963. We do not think BIFR has any such power given to it under the Act. What Section 32(1) provides is that provisions of the Act would prevail if there is any inconsistency between the provisions of this Act and any other Act. It must be understood that the Rules which are to be framed under the Act must be within, the framework of the Act and cannot travel beyond that. Section 36 of the Act empowers the Central Government to make rules. This rule making power is for the purpose of carrying out the provisions of the Act and cannot travel beyond that.
35. The scheme to be framed under the Act and the Rules has to be within the four corners of the Act and the Rules. Section 18(2) clearly specifies what the scheme could provide. If the Act had provided that the BIFR could extend or limit the period of limitation under Limitation Act only then it could have issued such a direction. But we have been unable to see any provision in the Act which gives any such power to BIFR. To that extent the direction given to the Central Government to extend the period of limitation for ACL for filing recovery suit against debtors by three years is bad. Similarly, where the Central Government itself under any provision in the Act or any other enactment has no power to grant any relief, the BIFR could not order the Central Government to exercise that power. Parliament can never have intended to confer such a power on a quasi judicial body, i.e., BIFR, which itself is a creation of the statute, to nullify the provision of any Act like the Limitation Act or to give directions to the Central Government or any other authority when there is no law under which the Central Government or the authority has power to carry out the directions so given. The Supreme Court in Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd., did consider the provisions of the Act as well as of the State Financial Corporations Act, 1951, both containing non obstante clause [Sec. 32(1) in the present Act and Sec. 46-B of the State Financial Corporations Act, 1951] and held that the Act being later enactment non obstante clause under Section 32(1) of the Act would prevail over that of State Financial Corporations Act. This judgment, in our view, has no application to the present case. We, however, do not think that our holding that directions to the Central Government under the impugned scheme which directions the Central Government could not comply, it not having authority to do so under any law, could not make the impugned scheme to be invalid. Further, if on that account DAIL finds any difficulty in implementing the scheme it can well approach the BIFR again for appropriate directions. Sub-section (5) of Section 18 of the Act would appear to empower the BIFR for that purpose.
36. Mr. Ganesh, appearing for Dr. Jain in CWP No. 32/95, said that the Appellate Authority had wrongly denied the right of Dr. Jain to be treated as existing promoter who had, thus, preferential right to have his scheme sanctioned. It is difficult for us even to hold that Dr. Jain can ever be treated as existing promoter. He was not even having substantial shareholding in the company and was not having controlling interest. Merely because he had entered into an agreement with BCCL Group of Companies for purchase of their shares and in part performance thereof he had paid an amount of over crore of rupees to BCCL and had also surrendered possession of tenanted premises belonging to the company in New Delhi to BCCL could be of no avail to Dr. Jain to be treated as existing promoter inasmuch as the agreement was contingent or conditional upon approval by the IDBI and the financial institutions which they refused. As we have said above, in our view, even BCCL could not be treated as existing promoters. Moreover, as seen above, at a stage after Section 17(2) it is not very material who is the promoter of the sick company though promoter may yet have a preference to rehabilitate or revive the sick company if its scheme is equal to any other scheme and promoter was not responsible for making a company a sick company and too depending upon various factors enumerated above depending upon the facts and circumstances of each case.
37. To stress his point that Dr. Jain was an existing promoter, Mr. Ganesh referred to writ petition filed by him in this Court earlier, it being CWP No. 5193/93, when the BIFR had refused to consider the scheme given by Dr. Jain. In that Dr. Jain had contended that he was the existing promoter of the sick company. It is stated that that petition was allowed and the BIFR was directed by order dated 30 November, 1993 to consider the scheme of Dr. Jain. It cannot, however, be said that the Court ever held Dr. Jain to be the existing promoter and in any case BCCL was not a party in those proceedings. No advantage can, therefore, be derived by Dr. Jain from the proceedings in CWP No. 5193/93. BIFR thereafter did consider the scheme presented by Dr. Jain but rejected the same on the ground that he was not in a position to arrange the requisite finance for his scheme. Financial institutions and the banks also did not agree to provide any financial assistance for the scheme given by Dr. Jain and in absence of that it could not have been possible for the BIFR to sanction the scheme given by Dr. Jain. Mr. Ganesh said that in the scheme that was originally presented by Dr. Jain he had asked for complete waiver of interest. Since it was not acceptable and because banks and financial institutions had agreed to accept flow of stream of payments from DAIL over a period of 16 years from the date of sanctioning of the scheme, Dr. Jain's scheme merely envisaged the working out of the present discounted value of the said scheme of payments which the banks and financial institutions had already agreed to accept. He further said that payment of the entire present value in one lump sum within ten days after sanctioning of Dr. Jain's scheme was more acceptable and did not require any consent of the banks and the financial institutions inasmuch as the payment of present value by way of 1/10th settlement, thus, did not impose any sacrifice at all on the banks and the financial institutions which otherwise would have required their consent under sub-section (2) of Section 19 of the Act. We do not think that could be the sole ground for accepting the scheme of Dr. Jain and other considerations could be overlooked.
38. After the stage of sub-section (2) of Section 17 had passed BIFR directed the Operating Agency to find out the best suitable management for the company and both BCCL and Dr. Jain were also considered entitled to give their respective proposals to the Operating Agency. Of various proposals received, the Operating Agency found the proposal given by DAIL to be more acceptable with certain changes. BIFR also was of the opinion that out of the various proposals received the proposal of DAIL was only feasible. By order dated 27 January, 1994 the BIFR directed circulation of the draft rehabilitation scheme of DAIL for consent of all the parties as required under S. 19 of the Act. Against this order Dr. Jain had preferred an appeal before the Appellate Authority. A stay order was passed on 24 February 1994 by the Appellate Authority with assurance of the counsel for Dr. Jain that Dr. Jain was in a position to bring sufficient money to rehabilitate the company and that he would deposit an amount of Rs. 25 crores in no lien account with the Bank of Baroda. We may also note that by letter dated 30 July, 1992 the Bank of Baroda had reported that in the consortium meeting of the banks held on 7 July, 1992 one of the decisions arrived at was that the management of the company should be changed and should not be entrusted either to Dr. Jain or to BCCL. The prospective promoter as mentioned by the Appellate Authority was one Mrs. Shaon of Tamil Nadu. DAIL found out that there was no such person at the address given by Dr. Jain. Counsel for Dr. Jain submitted that Dr. Jain had no direct contact with that lady and it was only through a certain person that he know about her. In this view of the matter the stay order granted in favour of Dr. Jain was vacated by the Appellate Authority. It was thereafter that the BIFR heard the matter on 8 June, 1994 and considered the objections/ suggestions filed in pursuance to the draft scheme and sanctioned the same in favour of DAIL. The scheme was, however, signed on 16 June, 1994.
39. It was then submitted by Mr. Ganesh that the Appellate Authority had completely excluded from its consideration the documents issued by "world renowned financial house of Soros" by which firm commitments were given by Soros providing entire finance required by Dr. Jain's scheme and further that this was also backed up by two deposits aggregating to Rs. 50 crores which were earmarked bank accounts and meant specially for implementation of Dr. Jain's scheme. We do not think the Appellate Authority committed any error in excluding from consideration the offer of Soros at that stage in appeal. Of course, there was no bar on the Appellate Authority to take into consideration any further development or fresh schemes but, as noted above, in the present case considering the past track record of Dr. Jain it rightly did not consider the offer of Soros. It may be noted that Dr. Jain himself was not contributing any funds to take over the unit and his earlier attempts to bring funds for his scheme from third sources did not materialise and in fact showed his conduct or lack of loyalty of his sources. We need not examine the arguments addressed by Mr. Ganesh in any detail as we find that both the BIFR and the Appellate Authority properly applied their minds in not accepting the scheme presented by Dr. Jain. We find no irregularity or illegality or any error in the impugned order of the Appellate Authority for us to interfere. It may be noted that the Supreme Court in the case of S.R.F. v.
Garware (1995 AIR SCW 1681) (supra) stressed the need for expeditious disposal of the proceedings considering the objects of the SICA and when the livelihoods of workers were involved. It does appear to us that whole attempt of Dr. Jain was, perhaps, to delay and to block any attempt to revive and rehabilitate ACL, a sick company.
40. Dr. Jain had stated before the BIFR in answer to a query as to whether he would be able to arrange the finances required of his own that this was beyond his capacity considering the amount of funds required. He conceded that it would not be practicable for the company to make its networth positive of its own within any reasonable period. The Appellate Authority also noted that Dr. Jain had made various attempts to bring in the required funds but all of them failed. It recorded as under:--
"His first attempt in the year 1992 was on the basis of a letter from GTC Industries Ltd. which the BIFR considered to be as being in very general terms. Dr. Omkar Goswami, representing ACL submitted that the total net-worth of GTC was only of the order of Rs. 24 crores and therefore, the BIFR had rightly not considered them to be a resourceful party. Two other proposals were also of a similar type. In December 1993, Dr. M. P. Jain named one Akshay International of Singapore and submitted that, that party was willing to fund US $ 60 million which was apparently readily available and lying in a specified account of an European Bank. Dr. Jain insisted on his scheme being sanctioned so that he may get the money. According to the letter from the High Commission of India, Akshay International of Singpore, no longer existed at the address given by Dr. M. P. Jain and had left the premises shortly before March, 1993 and its telephones were also surrendered. Vide order dated 27th January, 1994, the draft scheme of DAIL was ordered to be circulated. By the time the order dated 27th January, 1994 was passed, the FIs had lost confidence in Dr. M. P. Jain and the stand taken by them was that they would not support his proposal. That order was challenged in Appeal by Dr. M. P. Jain and the stand taken by them was that they would not support his proposal. That order was challenged in appeal by Dr. M. P. Jain. At the hearing before this Authority on 24th February, 1994, Dr. M. P. Jain agreed to deposit Rs. 25 crores in a no lien account with the Bank of Baroda, Delhi, to demonstrate his bona fides and seriousness. He wanted 15 days time for the purpose and his prayer was allowed. The order dated 27th January, 1994 passed by the BIFR was stayed. Dr. M. P. Jain could not deposit the amount. On 10th May, 1994 he came with a case that one Mrs. Shaon of Tamil Nadu was prepared to finance Dr. M. P. Jain a rehabilitation package by bringing in a huge amount. DAIL came with a case that a person like Mrs. Shaon was not located at the address given by Dr. M. P. Jain, Dr. M. P. Jain could not throw light on the point and the stay order passed by this Authority was vacated."
41. The Appellate Authority also observed and in our opinion rightly that Dr. Jain had not taken any categoric stand and his submission that he was and still was ready and willing to bring in money and rehabilitate the company was devoid of force. It was, therefore, not necessary for the Appellate Authority to even note that he had other sources of funds for financing the scheme by Soros, which according to Mr. Ganesh, was a world renowned financial house and which argument was strenuously addressed before us as well. It would appear to us that it was another ploy by Dr. Jain to delay the rehabilitation of the company. The Appellate Authority then came to the conclusion that Dr. Jain was lacking both in managerial capability as well as financial capacity and that he was not in a position to rehabilitate the company. This is quite a finding of fact which cannot be interfered with. In these circumstances, the Appellate Authority committed no error when it did not go into the capacity or capability of Soros when Dr. Jain himself was persona non grate for the financial institutions, the banks and the Government of Andhra Pradesh.
42. Lastly, we may note that the Appellate Authority considered the argument of DAIL that there was a connivance between A. K. Jain and Dr. M. P. Jain in entering into the agreement dated 23 November, 1989 and in that context referred to Clause 7 of the agreement which, is as under:--
"7. The Purchaser is aware that the Company is occupying offices at (i) Times House, 7-Bahadur Shah Zafar Marg, New Delhi; and (ii) 8-Camac Street, Calcutta. The Purchaser shall ensure that the Company vacates the said premises on or before the 30th November, 1989. The Purchaser shall give certified copies of Board Resolutions of the Company to this effect to the Vendors immediately on the execution of this agreement."
It was, thus submitted that ACL was made to part with valuable tenancy rights in the aforesaid premises. Then it was contended by BCCL and Dr. Jain that these premises were of no use to ACL and that possession was surrendered to save liability of rent. The Appellate Authority, however, did not express any view on this as it was stated that the rights of the parties under the aforesaid agreement were subject matter of disputes before an arbitrator.
43. The Appellate Authority also came to the conclusion that there was material to show that whatever reasons there might be. BCCL was not particular for running ACL in a profitable manner by infusing the required money or provide suitable management and held that it was not entitled to any right of preferential treatment to rehabilitate the company on the ground of it being the existing promoter.
44. Thus applying the principles enumerated on the scope of judicial review, we find no merit in these petitions and we dismiss the same with costs. Counsel fee Rs. 5,000/- in each of the two petitions. Following the order of the Supreme Court in M/s. S.R.F. Ltd. v. M/s. Garware Plastics and Polyesters Ltd., 1995 (2) SCALE 187 : (1995 AIR SCW 1680 we would also direct that costs when realised be paid to Indian Council of Legal Aid & Advice, Chamber No. 3, Lawyers Chambers, Delhi High Court, New Delhi. Rule is discharged.
45. Petitions dismissed.