Andhra HC (Pre-Telangana)
Dewan Bahadur Ramgagopal Mills Limited ... vs The Board For Industrial And Financial ... on 8 February, 2008
Equivalent citations: [2008]142COMPCAS928(AP), AIR 2008 (NOC) 1485 (A.P.), 2008 CLC 791 (AP)
ORDER V. Eswaraiah, J.
1. Petitioner - Dewan Bahadur Ramagopal Mills Limited (for short "DBR Mills") represented by its Managing Director S. Krishnam Raju (for short "S.K.Raju") questions the order of the Board for Industrial and Financial Reconstruction (for short "BIFR") in Case No. 109/1987, dated 3-5-2007 as illegal, improper and arbitrary as the petitioner company was not given any opportunity to submit its objections, treating it a share holder alone and that the scheme is only between the 4th respondent M/s. Ranga Reddy and Associates (for short "RRA") and the secured creditors of the company and the company could only raise objections as a share holder and give certain suggestions under the scheme submitted by the RRA, but had no right to submit draft scheme as a creditor or the company or any other person.
2. The second respondent Industrial Finance Corporation of India (for short "IFCI") is appointed as Operating Agency (for short "OA") under Section 16(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short "SICA") for rehabilitation. Respondents 3, 5, 6 and 8 are the creditors and Respondent No. 9 is the employees union of DBR Mills.
3. Heard the learned Counsel appearing for the petitioner as well as the respective counsels appearing for the respondents.
4. Learned Counsel for the petitioner - company submits that DBR Mills was established by Sri Dewan Bahadur Ramagopal in 1920. Due to financial constraints, the operation of DBR Mills was suspended in 1984 and in 1985 S.K.Raju took over the then sick petitioner company and the rehabilitation scheme as formulated and suggested was accepted by S.K.Raju on the assurance from the Government that it will give guarantee for the institutions and Banks towards the loans and defer the collection of purchase tax, sales tax on finished products and exempt the company from power cut. After taking over the company, S.K.Raju reopened it by investing his share and also raised loans from the Industrial Reconstruction Bank of India (IRBI, later renamed as Industrial Investment Bank of India IIBI) to an extent of Rs. 60 lakhs as part of rehabilitation scheme and certain labour claims were settled, machinery overhauled and production commenced. Later on, as the Government failed to release the guarantee for the balance credit amount due to the institutions to a tune of Rs. 410 lakhs, S.K.Raju failed to implement the rehabilitation scheme.
4(a). As the Government of Andhra Pradesh failed to fulfill its promise in giving guarantee and other reliefs, the company was referred to BIFR as mandated by the provisions of the SICA. The BIFR in its proceedings dated 20.09.1988; 16.08.1989 and 07.03.1990 recorded its displeasure at the State Government for derailing the scheme, saying "The Bench pointed out that the matter has been under active consideration of the State Government for more than two years now. This has meant considerable increase in the cost of rehabilitation estimated by the operating agency in their report submitted in January, 1988, thereby rendering the rehabilitation of unit more and more difficult. It would be in the interest of all concerned that the State Government comes up with the final decision in the matter by 4th April, 1990 as asked by them. If no reply is received from the State Government, notice asking the company to show-cause why it should not be wound up will be issued". As the Government did not come forward to extend the promised guarantees and reliefs for almost four years, thereby upsetting the revival prospects of the company, S.K.Raju submitted an alternative scheme of revival without depending on the promise made by the Government with regard to the guarantees and other reliefs.
4(b). One of the Employees Unions tried to prevent the revival of the company in the hands of S.K.Raju and desired to submit a scheme, but whereas other three major unions accepted the scheme submitted by S.K.Raju, but the objector union never submitted any scheme and finally new scheme was accepted and sanctioned by BIFR in its proceedings dated 19.02.1991. When the said scheme was being implemented, the Andhra Pradesh State Electricity Board (APSEB) disregarded the Government Order for waiving bills during the closure period before take over and granting instalments for payment of dues and demanded payment of all past dues and withdrew power supply, which resulted the effect of revival scheme and therefore, the management was compelled to stop engaging daily labourers leading to labour unrest instigated by one of the four major unions.
4(c). BIFR, Operating Agency and the Financial Institutions showed no consideration for the revival scheme, which lead to closure of the company. The labour union leaders and members threatened S.K.Raju, preventing him from attending most of the proceedings and also indulged in anti-social activities to defame and discredit S.K.Raju with false allegations of selling away the machinery and absconding from the proceedings etc. In spite of several hurdles created by the union leaders and members, S.K.Raju enabled the company to get the Urban Land Ceiling (ULC) exemption for the land and also clarification from the District Collector that the provisions of Inams Abolition Act applies and the company is entitled to claim ownership.
5. Undisputed facts are that: The petitioner company referred the matter under Section 15(1) of SICA to BIFR and BIFR by order dated 20.10.1987 declared the DBR Mills as sick industrial company within the meaning of Section 17(3) of the SICA. The BIFR by order dated 20.10.1987 appointed IFCI as OA in exercise of its powers conferred under Section 17(3) of the SICA enabling the OA to prepare and submit a report. In the meanwhile, the company also made an attempt to submit a package, but the same has not been materialized and the operating agency was unable to take any concrete steps.
6. Learned Counsel for the petitioner submits that the petitioner company has been claiming ownership of the land and the dispute relating to the ownership is still pending. Ultimately the rehabilitation attempts have not been fructified into a viable and acceptable scheme and since the company had been closed from 1991 and as the liabilities were mounting up, the BIFR by proceedings dated 02.12.1994 formed an opinion that the company be wound up in terms of the provisions of Section 20 of SICA and accordingly directed for issuance of public notice for considering the objections/suggestions or alternative proposal, if any, from anyone concerned by 31.03.1995. The company was also directed not to alienate any of the assets of the company in whatever manner. It appears that pursuant to the said public notice, the RRA made a representation before the OA, expressing its interest to take over the company and accordingly, the BIFR vide its orders dated 31.03.1995 considered the proposal of RRA and directed the RRA to deposit Rs. 50 lakhs in a 'Non Lien' Account with State Bank of Hyderabad within four weeks and simultaneously submit proposals to the OA and on submission of the proposals, the OA was directed to examine the proposals. It appears that the RRA did not deposit Rs. 50 lakhs in Non Lien Account and did not submit the proposals relating to taking over the company to the OA within four weeks. The RRA deposited Rs. 50 lakhs in a separate Current Account in May 1995, but not in Non-Lien Account and therefore, the BIFR by order dated 16.06.1995 directed the company, its promoters and RRA to submit detailed revival proposals and further directed the RRA to deposit Rs. 50 lakhs in a Non-Lien Account immediately. The RRA submitted its proposals on 09.11.1995 and also deposited Rs. 50 lakhs in Non Lien Account with State Bank of Hyderabad. The successive attempts made by the company to discharge the company from further proceedings under the SICA have been rejected.
7. Learned Counsel for the petitioner company submit that the OA as well as BIFR without satisfying the capabilities of RRA has taken a lenient view towards it by order dated 11.02.1997 directed the RRA to deposit Rs. 75 lakhs with the OA, IRBI, APIDC in an interest bearing "No Lien" Account in addition to the deposit of earlier Rs. 50 lakhs made in No Lien Account, but the said condition has not been complied with by RRA. Ultimately, the RRA placed draft rehabilitation scheme before the BIFR and the BIFR vide order dated 28.05.1997 directed that the short particulars of the draft scheme shall be published in two daily News Papers for the information of share holders, creditors, employees of the company and other interested parties, who may submit their suggestions/objections, if any, within one month from the date of publication and the BIFR also directed that the scheme shall be circulated to all the concerned for giving their consent in so far as they are concerned within 60 days from the date of publication of the draft scheme.
7(a). Learned Counsel for the petitioner submits that the draft scheme dated 28.05.1997 was not at all circulated to the petitioner company. The BIFR by order dated 12.08.1997 without any notice to the petitioner, directed the RRA, APIDC and the Banks to discuss the outstanding issues in the light of the discussions held and to convey their respective stands regarding the guarantor and security aspects to BIFR within a month. In case, there was no response from any party within one month, then their consent to what was provided in the draft scheme would be assumed. Thereafter on 01.06.1998, the BIFR without giving any notice to the petitioner, sanctioned the scheme subject to certain modifications stated in the said order clarifying that the scheme would be implemented only when the stay is vacated by the Delhi High Court as to whether the valuation of the land is taken into account or not and with regard to the ownership of the land.
8. It is the case of the petitioner that though the petitioner company informed the change of address, the OA failed to send any communication and therefore, the company could not present in any of the meetings held on 08.04.1997, 28.05.1997, 12.08.1997 and 01.06.1998. Ultimately, the Delhi High Court vacated the stay orders and dismissed the writ petition on 14.10.1998. By that time, the RRA failed to implement the revival scheme and did not clear any dues to the financial institutions under one time settlement except depositing Rs. 50 lakhs in Non Lien Account in their own name with State Bank of Hyderabad. Aggrieved by the order of the Delhi High Court, the petitioner company filed S.L.P. No. 17291 of 1998 in Supreme Court of India and the said S.L.P., was dismissed as withdrawn on 18.11.1998. As the suit O.S. No. 1201 of 1995 on the file of the IV Senior Civil Judge, City Civil Court, Hyderabad was pending in regard to the land dispute between the erstwhile land lady of the company and the company against the order of the BIFR dated 01.06.1998 in sanctioning the scheme, the petitioner company filed Appeal No. 144 of 1998 before the AAIFR and the AAIFR by order dated 07.12.1998 stayed the scheme sanctioned by the BIFR envisaging the transfer of management from the existing promoters to the new promoters under the scheme to RRA., for a period of four weeks on the undertaking given by the petitioner company that the dues of the secured creditors will be settled within four weeks. It is stated that while passing the order on 07.12.1998 staying the scheme sanctioned by the BIFR dated 01.06.1998, hearing of appeal was directed to be fixed when the Bench is constituted.
9. It is stated that without informing the petitioner, the AAIFR passed an order on 20.01.1999, it being a holiday and though it was not schedule for hearing. It is stated that on an application moved by the RRA without giving any notice to the petitioner company, passed an order on a holiday on 20.01.1999 directing to maintain status-quo and posted the appeal for hearing on 03.02.1999 and ultimately, the appeal was dismissed by AAIFR on 13.04.1999, after hearing the petitioner, on the ground of limitation.
10. The petitioner company questioned the order of the AAIFR dated 13.04.1999 in Appeal No. 144 of 1998 before this Court in W.P. No. 10110 of 1999 and this Court after hearing the concerned parties, allowed the writ petition, directing the AAIFR to hear the appeal on merits and dispose of the same within two weeks from the date of receipt of the said order as the dismissal of the appeal on the ground of limitation was illegal and unsustainable by order dated 03.08.1999. Pursuant to the remand by the High Court, the AAIFR heard the appeal on 06.01.2000 and made the following order:
The DRS was circulated by BIFR by their order dated 28.05.1997. The appellants (DBR Mills) have received the certified copy of that order on 17.11.1998. They are entitled to any opportunity to make all their submissions before BIFR in response to the DRS. On 12.08.1997 and 01.06.1998, the appellants were not heard by BIFR. In their order dated 01.06.1998 BIFR has erroneously recorded the consent of the counsel for DBR Mills to the one time settlement terms indicated by Punjab National Bank whereas the counsel for DBR Mills was not present at that hearing.
There is nothing before this Authority to show that notices of hearing before BIFR on 12.08.1997 and 01.06.1998 were received by the appellants. The learned Counsel for the appellants has argued that notices of hearing were not received by the appellants. In fact, even the notice of hearing of this appeal to both the DBR Mills and RRA was received back from the postal department. The appellants are entitled to the hearing before BIFR to protect their interest and submit their suggestions/objections in response to the DRS. Therefore, BIFR's orders dated 12.08.1997 and 01.06.1998 are set aside. The case is remanded to BIFR for fresh consideration after hearing the appellants and all other concerned parties. Notice of hearing shall be given to BIFR to the counsels for the appellants and the RRA also.
11. The RRA filed Review W.P.M.P. No. 2590 of 2006 in W.P. No. 10110 of 1999 to review the order of the High Court dated 03.08.1999 and the said review petition has been dismissed by order dated 28.01.2006. It is stated that during the pendency of the review, there was a stay and therefore, the proceedings were stalled at the instance of the RRA from 2000 to 2006 for a period of six years. It is further stated that the RRA as well as the Employees Unions filed W.P. Nos. 7798 and 7670 of 2000 respectively questioning the order of the AAIFR dated 06.01.2000 and both the writ petitions were dismissed by order dated 23.02.2007 by this Court. Thus, it is stated that the orders of the AAIFR dated 06.01.2000 in setting aside the orders of the BIFR dated 12.08.1997 and 01.06.1998 have become final and therefore, it is for the BIFR to hear all the parties and dispose of the matter in accordance with law.
12. After dismissal of the review and writ petitions filed by RRA and the employees unions, hearing was held on 01.03.2007 by BIFR and directed the RRA and OA to submit a certified copy of each of the final orders of the Hon'ble Supreme Court, the High Court and AAIFR, including the High Court's recent orders dated 21.02.2007 to the Board. They were also directed to furnish a copy of the order, if any, staying BIFR proceedings within two weeks to the Board. The Bench further conveyed its displeasure over the absence of IFCI in the hearing. The Bench directed IFCI (OA) to inspect the position of plant, machinery and land and submit a report to the Board within two weeks. The Bench would pass further orders on the next day of hearing on 02.05.2007.
13. The BIFR on 03.05.1997 heard arguments of the petitioner DBR Mills and the petitioner company contended that the BIFR orders dated 12.08.1997 and 01.06.1998 were set aside by the AAIFR vide its order dated 06.01.2000, which was upheld by the High Court. As per the remand order of the AAIFR, the case has to be heard afresh by the BIFR and the petitioner company is entitled for an opportunity of submitting any objections/suggestions on the draft scheme circulated by the BIFR. The opportunity of hearing includes the opportunity to submit revival scheme also to the Board. The IRBI had approved one time settlement to the company and the company had submitted proposals for settlement of dues of other secured creditors also and accordingly requested to submit a revival scheme to operating agency.
14. The learned Counsel for RRA submits that the company failed to implement the scheme sanctioned by the Board in 1991 and the company did not submit any rehabilitation proposal to the Board in response to the show cause notice for winding up of the company. The RRA has submitted rehabilitation proposals for winding up of the company along with Rs. 50 lakhs and the RRA has come into picture only when the company had been afforded all opportunities for its revival. The company was not resourceful enough or reliable to submit any fully tied up Draft Revival Scheme (DRS). Further there was no order from any authority to afford the company another opportunity to submit a rehabilitation proposal. The RRA further submitted that it was prepared to bring in the additional money required for renovation of the building, up gradation of plant and machinery etc., and applicable interest on the settled amount with the secured creditors and also further requested to sanction the scheme with changes agreed to by the company. The RRA was prepared to turn the net worth of the company positive within a period of two years. Accordingly, the BIFR passed the order dated 03.05.2007 rejecting the arguments of the company and the scheme circulated by the Board vide its order dated 28.05.1997 on the proposal of RRA was sanctioned with the following changes:
(i) Changes carried out in the DRS from 28-5-1997 to 1-6-1998 i.e., the date the scheme was earlier sanctioned may be incorporated.
(ii) The promoter of M/s RRA would provide for additional funds required for renovation of the building, up gradation of plant and machinery and start up expenditure etc.
(iii) M/s. RRA would provide for applicable interest to the secured creditors on the settled amounts with them under OTS.
The Bench further directed the OA to incorporate the above changes in the DRS circulated vide Board's order dated 28.05.1997 and submit the same to the Board within 15 days along with two CDs/floppies for issuing the sanctioned scheme.
15. The aforesaid order of the BIFR dated 03.05.2007 has been questioned in this writ petition. Though an appeal lies against the said order passed by the BIFR to the AAIFR under Section 25 of SICA, the contesting respondent RRA consented to hear the writ petition on merits instead of relegating the petitioner to file an appeal before the appellate authority, as it would cause further delay in resolving the disputes among the parties. In view of the aforesaid consent of the contesting respondent RRA, the writ petition has been heard on merits.
16. Learned Counsel for the petitioner contends that the impugned order of the BIFR dated 03.05.2007 in not giving reasonable opportunity to protect the interest of the petitioner and to submit suggestions/objections in response to the draft scheme pursuant to the remand order of the AAIFR dated 06.01.2000 in which the earlier orders of the BIFR dated 12.08.1997 and 01.06.1998 are set aside directing fresh consideration after hearing the petitioner and all the other concerned parties, is illegal and arbitrary. It is further submitted that the effect of setting aside the orders of the BIFR dated 12.08.1997 and 01.06.1998 by order dated 06.01.2000 is that the status that was available before passing the order dated 12.08.1997 shall prevail. The status prior to passing order dated 12.08.1997 was that the draft scheme dated 28.05.1997 which had been placed before the BIFR for the purpose of circulating the draft scheme to all the concerned within 60 days from the date of publication of the draft scheme and the short particulars of the draft scheme shall be published in two daily news papers for the information of the shareholders, creditors, employees and other interested parties for submitting their suggestions/objections within one month from the date of the publication. It is stated that the draft scheme dated 28.05.1997 was not at all circulated to the petitioner company and even as per the order dated 12.08.1997, which was set aside, goes to show that the future of the draft scheme on the basis of the position emerging at the end of the month would be decided. The BIFR by order dated 01.06.1998 sanctioned the scheme for its implementation only after the vacation of the stay by the Delhi High Court and the OA was directed to submit a copy of the revised scheme. It is stated that the as the said orders dated 12.08.1997 and 01.06.1998 were set aside, the petitioner is entitled to submit its objections in accordance with Section 18(3)(a) of SICA.
17. To appreciate the legal contentions, it is just and proper to extract the relevant portions of the draft scheme and subsequent orders.
Draft Scheme:
1...
2...
3...
4...
5...
6...
7. We direct that short particulars of the Draft Scheme shall be published in two daily newspapers - one in English and the other in the regional language for the information of shareholders, creditors, employees of the company and other interested party (ies), who may submit their suggestions/objections, if any, within one month from the date of publication.
8. The scheme shall also be circulated to all concerned for giving their consent insofar as they are concerned within sixty days from the date of publication of the Draft Scheme.
9. The case will then come up for hearing on 12.08.1997 at 10.30 AM.
Para 12 of Order dated 12.08.1997:
12. After hearing the submissions and having regard to the facts of the case, the Bench directed that RRA, APIDC and the banks should discuss the outstanding issues in the light of the discussions held today. They would convey their respective stands regarding the guarantee and security aspects to BIFR within one month. In case there was no response from any party within this duration, their consent to what was provided in the DRS would be assumed. Further, as per the submission of RRD today within this time the decisions of the High Court in the case should also be available. The status in this regard along with the copies of DHC orders, if any, should also be sent to BIFR by RRA/the OA at the end of one month. The Bench would decide about the future of the DRS on the basis of the position emerging at the end of one month.
Para 9 of order dated 01.06.1998:
9. Considering the facts and circumstances on records and submissions made at today's hearing the Bench sanctioned the scheme subject to the modifications stated above. The Bench, however, clarified that the scheme would be implemented only when the stay is vacated by the Hon'ble High Court. The OA was directed to submit a copy of the revised scheme along with the annexures taking in view the modifications as discussed in today's hearing within three days as from today.
18. The draft scheme dated 28.05.1997 and the orders dated 12.08.1997 and 01.06.1998 were questioned before the AAIFR but the appellate authority by order dated 13.04.1999 dismissed the appeal as time barred. The said order of the AAIFR dated 13.04.1999 was questioned in W.P. No. 10110 of 1997 and this Court by order dated 13.08.1999 after extracting Sections 18(3)(a) and Section 25 of SICA allowed the writ petition setting aside the order dated 13.04.1999 of AAIFR and remanded the matter to AAIFR to dispose the appeal on merits.
19. Pursuant to the order of this Court, AAIFR allowed the appeal on 06.01.2000 and the relevant Paras 9, 10 and 11 are extracted as under:
9. The DRS was circulated by BIFR by their order dated 28.05.1997. The appellants have received the certified copy of that order on 17.11.998. They are entitled to any opportunity to make all their submissions before BIFR in response to the DRS. On 12.08.1997 and 01.06.1998, the appellants were not heard by BIFR. In their order dated 01.06.1998 BIFR has erroneously recorded the consent of the counsel for DBRML to the OTS terms indicated by PNB whereas the counsel for DBRML was not present at that hearing.
10. There is nothing before this Authority to show that notices of hearing before BIFR on 12.08.1997 and 01.06.1998 were received by the appellants. The learned Counsel for the appellants has argued that notices of hearing were not received by the appellants. In fact, event the notice of hearing of this appeal to both DBRML and RRA was received back from the postal department.
11. The appellants are entitled to the hearing before BIFR to protect their interests and submit their suggestions/objections in response to the DRS. Therefore, BIFR's orders dated 12.08.1997 and 01.06.1998 are set aside. The case is remanded to BIFR for fresh consideration after hearing the appellants and all other concerned parties. Notice of hearing shall be given to BIFR to the counsels for the appellants and the RRA also.
20. A perusal of the aforesaid order goes to show that the draft scheme dated 28.05.1997 was received by the petitioner - DBR Mills only on 17.11.1998 and it was not at all circulated to the petitioner and the petitioner was not also heard by BIFR while passing orders on 12.08.1997 and 01.06.1998, therefore, the appellate authority set aside the orders of the BIFR dated 12.08.1997 and 01.06.1998 and remitted the matter to BIFR for fresh consideration after hearing the petitioner and all others concerned and the petitioner is entitled to be heard before the BIFR to protect its interest and submit its suggestions/objections in response to the draft scheme.
21. As the petitioner/DBR Mills became a sick industrial company, the Board of Directors of the company made a reference to the board for determination of measures, which shall be adopted, with respect of the company under Section 15(1) of SICA. Under Section 15(2) of SICA the Central Government, State Government or any financial institution or scheduled bank have got sufficient reasons to believe that the company has become a sick industrial company are entitled to make a reference to BIFR for determination of measures, which may be adopted with respect to such company. Admittedly, in the instant case, neither the State Government or the Central Government or any financial institution has referred to declare the company as a sick industrial company for determination of the measures but the company itself made a reference. On receipt of such reference, the BIFR shall make an enquiry for determining as to whether the company has become sick industrial company and for the purpose of the conducting an enquiry the board may appoint an Operating Agency to enquire into and make a report with respect to such matters as may be specified in the order under Section 16(2) of SICA. Section 17, Section 18 (1) (a) & (b), 18(3) (a) & (b) and 18(4) to (6) of SICA are extracted as under:
Section 17. Powers of Board to make suitable order on the completion of inquiry -
(1) If after making an inquiry under Section 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be, by order in writing, whether it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time.
(2) If the Board decides under Sub-section (1) that it is practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, the Board shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to make its net worth exceed the accumulated losses.
(3) If the Board decides under Sub-section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in Section 18 in relation to the said company, it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such measures in relation to such company.
(4) The Board may, -
(a) if any of the restrictions or conditions specified in an order made under Sub-section (2) are not complied with by the company concerned, or if the company fails to revive in pursuance of the said order, review such order on a reference in that behalf from any agency referred to in Sub-section (2) of Section 15 or on its own motion and pass a fresh order in respect of such company under Sub-section (3);
(b) if the operating agency specified in an order made under Sub-section (3) makes a submission in that behalf, review such order and modify the order in such manner as it may deem appropriate.
Section 18. Preparation and sanction of schemes -
(1) where an order is made under Sub-section (3) of Section 17 in relation to any sick industrial company, the operating agency specified in the order shall prepare, as expeditiously as possible and ordinarily within a period of ninety days from the date of such order, a scheme with respect to such company providing 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) ...
(d) ...
(e) ...
(f) ...
(2) ...
Section 18(3)(a). The scheme prepared by the operating agency shall be examined by the Board and a copy of the scheme with modification, if any, made by the Board shall be sent, in draft, to the sick industrial company and the operating agency and in the case of amalgamation, also to any other company concerned, and the Board shall publish or cause to be published the draft scheme in brief in such daily newspapers as the Board may consider necessary, for suggestions and objections, if any, within such period as the Board may specify.
(b) The Board may make such modifications, if any, in the draft scheme as it may consider necessary in the light of the suggestions and objections received from the sick industrial company and the operating agency and also from the trasferee company and any other company concerned in the amalgamation and from any shareholder or any creditors or employees of such companies:
Provided that where the scheme relates to amalgamation the said scheme shall be laid before the company other than the sick industrial company in the general meeting for the approval of the scheme by its shareholders and no such scheme shall be proceeded with unless it has been approved, with or without modification, by a special resolution passed by the shareholders of the company other than the sick industrial company.
Section 18(4). The scheme shall thereafter be sanctioned, as soon as may be, by the Board and shall come into force on such date as the Board may specify in this behalf:
Provided that different dates may be specified for different provisions of the scheme.
Section 18(5). The Board may on the recommendation of the operating agency or otherwise, review any sanctioned scheme and make such modifications as it may deem fit or may by order in writing direct any operating agency specified in the order, having regard to such guidelines as may be specified in the order, to prepare a fresh scheme providing for such measures as the operating agency may consider necessary.
Section 18(6). When a fresh scheme is prepared under Sub-section (5), the provisions of Sub-sections (3) and (4) shall apply in relation thereto as they apply to in relation to a scheme prepared under Sub-section (1).
22. In the instant case, the scheme prepared by the operating agency was placed before the board on 28.05.1997 for the purpose of taking over the company as contemplated under Section 18(1)(b) of SICA. BIFR directed to publish the draft scheme in brief in two daily newspapers and also directed to circulate the scheme to all the concerned for giving their consent within 60 days. Admittedly, the scheme dated 28.05.1997 was not circulated to the petitioner company till 17.11.1998 and the subsequent orders dated 01.06.1998 and 12.08.1997 were also passed without any notice to the petitioner, therefore, those two orders sanctioning the scheme have been set aside. If that be so, the draft scheme alone is available on the file of BIFR. Under Section 18(3)(b) the board is entitled to make modifications in the draft scheme in the light of the suggestions/objections received from the sick industrial company and the OA and also from the proposed transferee company, shareholders or any creditors or employees. If no suggestions or objections are received from the sick industrial company or from any other it is open for BIFR to sanction the scheme under Section 18(4) of SICA.
23. The board may on the recommendations of OA or otherwise is also entitled to review any scheme directing the operating agency to prepare fresh scheme. Therefore, even the sanctioned scheme is not final and the board is competent to review the sanction scheme also on the recommendations of the operating agency or for any other compelling reasons. When a fresh scheme is prepared under Sub-section (5) of Section 18 the provisions of Sub-sections (3) and (4) of Section 18 of SICA shall apply in relation to the draft scheme prepared under Section 18(1) of SICA. The scheme is contemplated under Section 18(1) of SICA is either for the financial reconstruction of the sick industrial company or for the proper management of the sick industrial company by change in it or taking over the management of the sick industrial company. The scheme other than the reconstruction or taking over can also be by amalgamation, sale etc. But if the company or the creditors desire for financial reconsideration, the scheme shall be as per Section 18(1) of SICA. Pursuant to the notification issued by the OA relating to the petitioner sick industrial company, it is open for any person to come forwards for taking over the company and for its sanction under Section 18(1)(b) of SICA.
24. In the instant case, the draft scheme at the instance of RRA was prepared by the OA for taking over the management under Section 18(1)(b) of SICA and the BIFR directed to publish the draft scheme in brief in two daily newspapers and also to circulate the scheme to all the concerned. As the scheme was not circulated within two months from the date of draft scheme i.e. 28.05.1997 it is contended by the learned Counsel for the petitioner that the petitioner is entitled for submitting its suggestions/objections within 60 days. It is further stated that such objections and suggestions can also be by way of making a proposal of a better draft scheme for the financial reconstruction of the sick industrial company. It is stated that under Section 18(3)(b) of SICA the sick industrial company is entitled to make suggestions/objections in respect of the draft scheme and as that opportunity was not given, the action of BIFR in rejecting the contention of the petitioner to provide an opportunity to submit objections/suggestions on the draft scheme is illegal and unsustainable. It is stated that the objections and suggestions also include coming up with a better scheme for the reconstructions of the company under Section 18(1)(a) of SICA. BIFR taking into account the past conduct to the petitioner company that it had earlier failed to submit a fully tied-up DRS, the opportunity of submitting objections/suggestions will be only with regard to DRS circulated by the board but not provided another opportunity.
25. I am of the opinion that if the company comes up with a better proposal than the draft scheme dated 28.05.1997 and if the OA, BIFR satisfy with the suggestions/objections of the petitioner company, it is always open for BIFR to formulate a fresh scheme under Section 18(1) of SICA. Under Section 18(5) of SICA even after the sanction of the scheme, the board is empowered to make such modification as it deems fit and direct the OA to prepare a fresh scheme and if such fresh scheme is prepared under Section 18(5) the provisions of Sub-sections (3) and (4) of Section 18 shall apply in relation thereto as they apply in relation to scheme prepared under Section 18(1) of SICA. In the instant case, the draft scheme was prepared under Section 18(1)(b) and objections/suggestions were called for but the petitioner was not given any opportunity to submit objections/suggestions under Section 18(3), therefore, the petitioner is entitled to submit suggestions/objections and if the board satisfies itself with such suggestions/objections the board is entitled to direct the OA to prepare a fresh scheme. If the fresh scheme is prepared the same procedure has to be followed calling for objections/suggestions from all the concerned.
Therefore, the object of SICA goes to show that any scheme must be in the interest of sick industry, its workers and creditors.
Any scheme should be for the protection of employment, for the optimum use of funds of the financial institutions and for revival of a potentially viable sick industrial company as quickly as possible.
It may not be in the interest of a particular management in charge when the company became sick but the company cannot be deprived of its right to file objections/suggestions as contemplated under Section 18(3)(a) & (b) of SICA. Even now if the petitioner comes forward with a better proposal and if such better proposal by way of suggestions/objections are trustworthy, inspires confidence of BIFR and in the interest of the company and its employees it is open to the Board to take a just, fair and reasonable decision. Therefore, I am of the opinion that it cannot be said that RRA has a vested interest and that it can deprive the right of the petitioner to object and submit suggestions to the draft scheme.
26. In view of the aforesaid facts and circumstances of the case and for the reasons as stated above, the impugned order is set aside and the matter is remitted to BIFR permitting the petitioner to submit its suggestions/objections as contemplated under Section 18(3)(a) read with Section 18(1)(a) of SICA within thirty (30) days from the date of receipt of a copy of this order by making a deposit of Rs. 50,00,000/- with the BIFR towards settlement of part claims of the workers to test its bonafides. On such deposit of Rs. 50,00,000/- it is open for the BIFR to direct the OA to disburse the said amount of Rs. 50,00,000/- towards the part claims of the workers. On such submission of the suggestions/objections along with deposit of Rs. 50,00,000/-, the suggestions/objections of the petitioner - company shall be considered by the BIFR in accordance with law as indicated above and pass appropriate orders without any undue delay. If such deposit along with suggestions/objections is not made, it is open for BIFR to proceed further as per the impugned order.
The writ petition is accordingly allowed. There shall be no order as to costs.