Kerala High Court
M/S.Sudarsan Clay & Ceramics Ltd vs The Appellate Authority For Industrial ...
Author: K. Vinod Chandran
Bench: K.Vinod Chandran
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN
MONDAY, THE 26TH DAY OF MAY 2014/5TH JYAISHTA, 1936
W.P.(C).No.14887 of 2013 (I)
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PETITIONER:-
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M/S.SUDARSAN CLAY & CERAMICS LTD.,
HAVING ITS REGISTERED OFFICE AT IIIrd FLOOR,
NORTH AVENUE, PARAMARA ROAD, ERNAKULAM, KOCHI - 682 018,
REPRESENTED BY ITS DIRECTOR.
BY ADVS.SRI.PARAMJITH SINGH PATWALIA (SENIOR ADVOCATE),
SRI.M.GOPIKRISHNAN NAMBIAR
SRI.P.GOPINATH
SRI.P.BENNY THOMAS
SRI.K.JOHN MATHAI.
RESPONDENTS:-
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1. THE APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RE-CONSTRUCTION,
10TH FLOOR, JEEVAN PRAKASH,
25, KASTURBA GANDHI MARG, NEW DELHI - 110 001,
REPRESENTED BY ITS SECRETARY.
2. THE BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTION,
JAWAHAR VYAPAR BHAVAN,
1, TOLSTOY MARG, 9TH FLOOR ANNEXE, STC BUILDING, NEW DELHI - 110 001.
3. THE FACT MANAGERIAL STAFF HOUSE CONSTRUCTION
CO-OPERATIVE SOCIETY LTD.,
NO.E 243, SANTHINAGAR ANNEXE, RAJAGIRI P.O.,
SOUTH KALAMASSERY - 683 104, KERALA STATE,
REPRESENTED BY ITS SECRETARY.
WP(C).NO.14887 OF 2013 - 2 -
* ADDITIONAL RESPONDENTS 4 TO 7 IMPLEADED:
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Addl.R4. S.JAYATHILAKAN, AGED 71 YEARS, S/O.K.SREEDHARAN NAIR,
"KARTHIKA", FRANKLIN GARDEN, KUTTIKKATTUKARA,
UDYOGAMANDAL.P.O., ERNAKULAM DISTRICT.
Addl.R5. MEERA AUGUSTINE , AGED 68 YEARS, W/O.LATE M.K.AUGUSTINE,
HOUSE NO.57, SANTHINAGAR, RAJAGIRI.P.O. - 683 104.
Addl.R6. K.RAMACHANDRAN NAIR, AGED 69 YEARS, S/O.M.KRISHNA PILLAI,
NO.34/2342, "SREERAGAM", KANNAYATHIST CROSS ROAD,
MAMANGALAM, PALARIVATTOM.P.O., KOCHI-683 025.
Addl.R7. V.I.ROSILY, AGED 70 YEARS, W/O.GEORGE.P.JOSEPH,
HOUSE NO.65, SANTHINAGAR, RAJAGIRI.P.O., 683 104.
* [ADDITIONAL RESPONDENTAS 4 TO 7 ARE IMPLEADED AS PER ORDER
DATED 05.11.2013 IN IA 14168/2013].
* * ADDITIONAL 8TH RESPONDENT IMPLEADED:-
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Addl.R8. P.C.CYRIAC IAS (RTD.) , AGED 71 YEARS, S/O.P.K.CHACKO,
28/3551, WATER FRONT ENCLAVE, ELAMKULAM, KOCHI - 682 020.
* * [ADDITIONAL RESPONDENT NO.8 IS IMPLEADED AS PER ORDER
DATED 11/11/2013 IN IA 12673/2013].
R1 & R2 BY ASST. SOLICITOR GENERAL OF INDIA SRI.P.PARAMESWARAN NAIR.
R3 BY ADVS.SRI.R.P.BHATT (SENIOR ADVOCATE),
SRI.P.SANTHALINGAM (SENIOR ADVOCATE)
SRI.S.SHARAN
ADDL. R4 TO R7 BY ADVS. SRI.P.SANTHALINGAM (SENIOR ADVOCATE)
SRI.S.SHARAN
SRI.G.P.SHINOD.
ADDL. R8 BY ADV. SMT.JEENA JOSEPH.
ADVOCATE COMMISSIONER SRI.K.B.GANGESH.
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 04-04-2014,
THE COURT ON 26-05-2014 DELIVERED THE FOLLOWING:
WP(C).No.14887 of 2013 (I)
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APPENDIX
PETITIONER(S)' EXHIBITS:-
---------------------------------------
EXT.P1- TRUE COPY OF THE ORDER REGISTERING THE REFERENCE
DATED 22.3.1990 OF THE BIFR.
EXT.P2- TRUE COPY OF THE ORDER DATED 15.10.2003, OF THE BIFR.
EXT.P3- TRUE COPY OF THE ORDER DATED 27.9.2004 OF THE BIFR,
RECOMMENDING WINDING UP OF THE PETITIONER COMPANY.
EXT.P4- TRUE COPY OF THE ORDER DATED 20.7.2005 PASSED BY THE AAIFR
APPEAL NO.238/2004.
EXT.P5- TRUE COPY OF THE JUDGMENT DATED 26.5.2010 IN R.F.ANO.194/2006
OF THIS HON'BLE COURT.
EXT.P6- TRUE COPY OF THE ORDER PASSED ON 1.3.2006 BY THE BIFR.
EXT.P7- TRUE COPY OF THE ORDER DATED 24.4.2007 PASSED BY THE AAIFR.
EXT.P8- TRUE COPY OF THE JUDGMENT DATED 26.5.2010 IN
W.P[C]NO.17155 OF 2007 OF THIS HON'BLE COURT.
EXT.P9- TRUE COPY OF THE ORDER PASSED ON SLP NO.1385/2011 BY THE
HON'BLE SUPREME COURT COURT DATED 11.7.2011.
EXT.P10- TRUE COPY OF THE ORDER ORDER DATED 9.4.2012 IN MA Nos.478/2011
TO 480/2011 BY THE BIFR.
EXT.P10(a)- TRUE COPY OF THE JUDGMENT DATED 21.8.2012 IN O.S.NO.618/2005
OF THE SUB COURT ERNAKULAM.
EXT.P11- TRUE COPY OF THE APPEAL NO.132/2012 FILED BY THE PETITIONER
BEFORE THE AAIFR DATED 15.6.2012 (WITHOUT ANNEXURES).
EXT.P12- TRUE COPY OF THE APPEAL FILED BY THE 3RD RESPONDENT AND
NUMBERED AS APPEAL NO.136/2012 BEFORE THE AAIFR
(WITHOUT ANNEXURES) DATED 25.06.2012.
EXT.P13- TRUE COPY OF THE ORDER DATED 27.5.2013 IN APPEAL NO.132/2012 &
136/2012 BY THE AAIFR.
EXT.P14- TRUE COPY OF THE PROCEEDINGS OF THE BIFR DATED 7.5.2007.
W.P.(C).NO.14887 OF 2013 - 2 -
EXT.P15 - TRUE COPY OF THE APPEAL NO.221 OF 2004 ALONG WITH INTERLOCUTORY
APPLICATION FILED BY M/S. SAFE CARE ASSOCIATES BEFORE THE AAIFR.
EXT.P16 - TRUE COPY OF THE ORDER OF THE AAIFR IN APPEAL NO.220/2008
DATED 06.04.2010.
EXT.P16(a) - TRUE COPY OF THE ORDER OF THE AAIFR IN APPEAL NO.168/2009
DATED 30.06.2010.
EXT.P16(b) - TRUE COPY OF THE ORDER OF THE AAIFR IN APPEAL NOS.65/2011 AND
111/2011DATED 27.09.2012.
EXT.P17 - TRUE COPY OF THE NOTIFICATION NO.SO 857(E) OF THE CENTRAL
GOVERNMENT IN THE MINISTRY OF INDUSTRY, DATED 10.12.1997
(RELEVANT EXTRACT).
RESPONDENT(S)' EXHIBITS:-
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EXT.R3(a) TRUE COPY OF THE INTERIM ORDER DATED 8.11.2004 IN APPEAL
NO.221/2004 PASSED BY AAIFR.
EXT.R3(b) TRUE COPY OF THE RELEVANT EXTRACT OF APPEAL MEMO.
EXT.R3(c) TRUE COPY OF THE AGREEMENT DATED 6.1.2005 EXECUTED BETWEEN
SUDARSAN CLAY AND CERAMICS LTD.
EXT.R3(d) TRUE COPY OF THE CANCELLATION LETTER NO.Ref.No.SCA/SST/DTR/206/04
DATED JUNE 7, 2004 ISSUED BY SCCL.
EXT.R3(e) TRUE COPY OF THE CRIMINAL COMPLAINT FILED BY T.P.MURALEEDHARAN
ON BEHALF OF SAFE CARE ASSOCIATES.
EXT.R3(f) TRUE COPY OF THE FORM NO.32 STATEMENT OBTAINED BY THE 3RD
RESPONDENT FROM THE REGISTRAR OF COMPANY.
EXT.R3(g) TRUE COPY OF THE RELEVANT EXTRACT OF DRAFT REHABILITATION
SCHEME DATED 5.2.2007.
EXT.R3(h) TRUE COPY OF THE APPEAL NO.238/2004 FILED BEFORE AAIFR ON 8.11.2004.
EXT.R3(i) TRUE COPY OF THE REPORT DATED 6.3.2006 ISSUED BY THE SPECIAL
TAHSILDAR, ALUVA TO THE DISTRICT COLLECTOR.
EXT.R3(j) TRUE COPY OF THE FORM NO.8 OBTAINED BY THE 3RD RESPONDENT
FROM REGISTRAR OF COMPANIES.
W.P.(C).NO.14887 OF 2013 - 3 -
EXT.R3(k) TRUE COPY OF THE APPLICATION DATED 14.5.2008 SUBMITTED BY
Mr.V.R.DESAI TO THE CHOORNIKARA GRAMA PANCHAYAT.
EXT.R3(l) TRUE COPY OF THE AGREEMENT EXECUTED BETWEEN SCCL AND
THIS RESPONDENT ON 6.1.2005.
EXT.R3(m) TRUE COPY OF THE COUNTER AFFIDAVIT FILED IN I.A.NO.6417/2006
IN O.S.NO.850/2006 DATED 3.8.2006 OF THE MUNSIFF COURT, ERNAKULAM.
EXT.R3(n) TRUE COPY OF THE LETTER DATED 23.06.2005 WRITTEN BY
SHRI.T.P.MURALEEDHARAN TO THE COMMISSIONER OF COMMERCIAL TAXES.
EXT.R3(o) TRUE COPY OF THE STATEMENT SHOWING DIRECTORS OF
SUDARSAN CLAY AND CERAMICS LTD. FROM 2005 TO 2013.
EXT.R3(p) TRUE COPY OF THE DIRECTORS OF TEMPLE VALLEY FARMS AND
INFRASTRUCTURE PVT. LTD. FROM 2005 TO 2013.
EXT.R3(q) TRUE COPY OF THE COMMUNICATION DATED 13.07.2004 ISSUED BY T.S.SANIL,
MANAGING PARTNER OF SAFE CARE ASSOCIATE TO THE JOINT REGISTRAR
OF CO-OPERATIVE SOCIETIES, ERNAKULAM.
EXT.R3(r) TRUE COPY OF THE COUNTER AFFIDAVIT IN W.P.29077/2004 ON 18.10.2004
FILED BY SAFE CARE ASSOCIATES BEFORE THE HON'BLE HIGH COURT OF
KERALA, ERNAKULAM.
EXT.R3(s)(i) TRUE COPY OF THE BALANCE SHEET OF M/S.SHILPA CONSTRUCTIONS
OWNED BY T.S.SANIL AS ON 31.3.2004.
EXT.R3(s)(ii) TRUE COPY OF THE BALANCE SHEET OF M/S.SHILPA CONSTRUCTIONS
OWNED BY T.S.SANIL AS ON 31.3.2005.
EXT.R3(s)(iii) TRUE COPY OF THE BALANCE SHEET OF M/S.SHILPA CONSTRUCTIONS
OWNED BY T.S.SANIL AS ON 31.3.2006.
EXT.R3(s)(iv) TRUE COPY OF THE BALANCE SHEET OF M/S.SHILPA CONSTRUCTIONS
OWNED BY T.S.SANIL AS ON 31.3.2007.
EXT.R3(s)(v) TRUE COPY OF THE BALANCE SHEET OF M/S.SHILPA CONSTRUCTIONS
OWNED BY T.S.SANIL AS ON 03.3.2008.
EXT.R3(s)(vi) TRUE COPY OF THE CERTIFICATE DATED 6.3.2007 ISSUED BY THE
STATE BANK OF INDIA.
EXT.R3(s)(vii) TRUE COPY OF THE STATEMENT SHOWING THE MANPOWER AS ON 1.1.2008.
W.P.(C).NO.14887 OF 2013 - 4 -
EXT.R3(t)(i) TRUE COPY OF THE STATEMENT GIFEN BY T.S.SANIL IN W.P.(C).1909/2011
OF THE HON'BLE HIGH COURT OF DELHI.
EXT.R3(t)(ii) TRUE COPY OF THE ORDER DATED 4.4.2011 PASSED BY THE HON'BLE HIGH
COURT OF DELHI.
EXT.R3(t((iii) TRUE COPY OF THE ORDER DATED 19.4.2011 PASSED BY THE HON'BLE HIGH
COURT OF DELHI.
( true copy )
vku/-
K. Vinod Chandran, J
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W.P.(C).No.14887 of 2013-I
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Dated this the 26th day of May, 2014
JUDGMENT
The petitioner is a Public Limited Company, which carried on a scheduled industry under the Industries (Development and Regulation) Act, 1951 [for brevity "IDR Act"], being manufacture and sale of various ceramic products. It had two units; one for manufacturing pottery and another for stoneware and tiles, employing around 500 workmen. In the year 1989, the accumulated loss exceeded the net worth of the Company. In accordance with the Sick Industrial Companies (Special Provisions) Act, 1985 [hereinafter referred to as "SICA"], the Company approached the Board for Industrial and Financial Reconstruction [for brevity "BIFR"]. The Company was registered as a "sick industry" as per Exhibit P1 on 22.03.1990 and thenceforth, was eligible to the benefits under the SICA. Two schemes for revival had not fructified and the third scheme with diversification into real estate, according to the petitioner, has brought the Company, out of the red.
WP(C).14887 of 2013 - 2 -
2. The 3rd respondent, who had entered into an agreement for sale of 15 acres of land owned by the petitioner-Company, purportedly under a sanction accorded by the BIFR; aggrieved by the later cancellation of the agreement for sale, assails the continuation of the petitioner under the umbrella of the SICA; as a fraud on the very statute. The diversification into the real estate business is also alleged to be a fraudulent measure adopted by the Company to sell off its assets, especially landed properties, which were agreed to be sold to the 3rd respondent. Such diversification and the change in management to achieve such diversification is projected as a reason for discharging the Company from the protection under the SICA. The 3rd respondent seeks to sustain the discharge of the Company, with retrospective effect, from 2003.
3. The proceedings before the BIFR as also those between the Company and the 3rd respondent have been continuing for more than two decades. The present litigation is a direct off-shoot of the orders passed by the BIFR as modified by the Appellate Authority for Industrial & Financial Reconstruction [for brevity "AAIFR"], which orders were made on an application made by the 3rd respondent pursuant to the directions of the Hon'ble Supreme Court;
WP(C).14887 of 2013 - 3 -
in Exhibit P9 order, which disposed of Special Leave Petitions in the earlier round of litigations. The interpretation to be placed on the said order of the Supreme Court as also the authority of the BIFR to discharge a sick Company registered under SICA; prospectively or retrospectively, are the essential questions raised before this Court in the present proceedings.
4. In the context of the long drawn out litigation, a statement of the earlier round of litigation is imperative. Having been registered as a sick industry as per Exhibit P1; in 1994, on an application made in 1989, a scheme for revival, named "SS-94", was introduced and on failure, a show cause notice for winding up was issued by the BIFR, upon which a second scheme was introduced, as "SS-02", which also met the same fate of the first scheme. Noticing that the Company had been with the BIFR for 14 years without any perceived revival being effected, a further show cause notice for winding up was issued. Having heard the submissions on behalf of the Company explaining the reasons for the failure of the revival schemes, the Company was permitted to sell 15 acres of its land, out of about 20 acres it owned, after obtaining a valuation report from an approved valuer. Among other things, such permission was granted WP(C).14887 of 2013 - 4 -
by Exhibit P2 dated 15.10.2003 and the show cause notice issued on 31.07.2003 was kept in abeyance to facilitate the Company; to report compliance of the terms of Exhibit P2 within 31.12.2003.
5. The controversies now agitated by the 3rd respondent, before this Court are the outcome of the sanction for sale of 15 acres granted to the petitioner-Company as per Exhibit P2. On 30.12.2003, the petitioner entered into an agreement for sale with M/s.Safe Care Associates [SCA] for an amount of Rs.3.6 crores. The sale did not materialize and SCA was left with the payment made by it, as advance, towards the said agreement. The petitioner then entered into an agreement on 07.07.2004 with the 3rd respondent for the sale of the aforesaid 15 acres. An extent of 2.60 acres is also said to have been conveyed to the 3rd respondent on 14.07.2004. At that stage, the matter was taken up before the BIFR. The BIFR, in Exhibit P3 order dated 27.09.2004, found that the finalisation of the sale was not made through a duly constituted Asset Sale Committee [ASC]. The Company was found to have not cleared all its liabilities nor succeeded in turning its net worth positive.
6. The Company was found to have continuously and deliberately flouted all the directions of the Board and to be indulging WP(C).14887 of 2013 - 5 -
in activities unilaterally and without informing the Board. The BIFR, hence, recorded its opinion that the Company is not viable on a long term basis and recommended winding up by Exhibit P3 dated 27.09.2004. The petitioner and SCA filed separate appeals before the AAIFR from Exhibit P3 order. The 3rd respondent filed a writ petition before this Court and against the dismissal of the writ petition, filed an appeal before the Division Bench. The appeal, W.A.No.46 of 2005, filed by the 3rd respondent was disposed of by judgment dated 10.01.2005, directing the 3rd respondent to approach the AAIFR, which had, in the other two appeals already filed, stayed the operation of the order of the BIFR. Subsequently, by Exhibit P4, the AAIFR, on consent of all parties, remanded the matter to the BIFR directing fresh consideration after taking into account the developments pursuant to Exhibit P3 order.
7. Here, it is to be noticed that in the meanwhile the petitioner-Company had entered into a fresh agreement with the 3rd respondent on 06.01.2005, which is produced by the 3rd respondent as Exhibit R3(c). The earlier agreement of 07.07.2004, was referred to in Exhibit R3(c) and the fresh agreement was said to have been necessitated due to non-payment of the sale consideration as per the WP(C).14887 of 2013 - 6 -
earlier agreement for reason only of the litigation initiated by SCA, before the Civil Court having jurisdiction over the subject land. It is also pertinent that the 3rd respondent also filed a suit for specific performance as O.S.618 of 2005 on 19.11.2005, which stood dismissed as not maintainable under the provisions of Sections 21 and 22 of SICA, against which the 3rd respondent had filed R.F.A.No.194 of 2006 before the High Court.
8. On remand being made by the AAIFR, the matter came to be taken up by the BIFR. The BIFR by Exhibit P6 order noticed that the Company did not have any employee in its rolls and was no more an "industrial undertaking", as per the provisions of the IDR Act. The sale proceedings were also found to have been not finalized through ASC. Among others; the petitioner, SCA and the 3rd respondent were heard by the BIFR. The contentions of SCA are not to be noticed herein, since they do not pursue their claims under the agreement executed by it with the petitioner-Company. The 3rd respondent asserted its right to get the land conveyed in its name and expressed its willingness to remit the balance amount of sale consideration, provided it is so directed by the BIFR [paragraph 9 of Exhibit P6]. The BIFR having considered the rival contentions, directed the petitioner WP(C).14887 of 2013 - 7 -
to refund the advances received from both SCA and the 3rd respondent, with a reasonable interest; and also directed deposit in a No Lien Account [NLA] with the Monitoring Agency. The Company was further directed to submit Modified Draft Rehabilitation Scheme [MDRS], which was also directed to be examined by the Monitoring Agency. The order Exhibit P6 dated 01.03.2006, passed with the above directions, was challenged before the AAIFR, which appeals, by the SCA and the 3rd respondent, were dismissed by Exhibit P7. The SCA seems to have, not further pursued the matter.
9. The 3rd respondent, a Co-operative Society, as also an Association of its members, filed separate writ petitions before this Court against Exhibit P6 order, as confirmed in Exhibit P7. The said writ petitions along with the Regular First Appeal filed by the 3rd respondent herein, against the dismissal of the suit filed for specific performance, were taken up together by a Division Bench of this Court and disposed of by separate judgments. Exhibit P5 judgment of this Court in R.F.A. found that the Court below ought not to have decided the maintainability of the suit under Section 26 of SICA. It was found that the 3rd respondent having not invoked sub-section (1) of Section 22, to obtain leave of the BIFR, the bar under Section 26 is WP(C).14887 of 2013 - 8 -
not relevant. The consent of BIFR having not been obtained under Section 22(1), it was held that the suit ought to have been rejected and the matter was remitted only for the purpose of rejection of the plaint, which would entail the plaintiff, the 3rd respondent herein, to get back the Court Fee paid. The Court Fee paid on appeal was also directed to be refunded.
10. The writ petitions were also considered on the same date. It was noticed by the Division Bench in Exhibit P8 judgment, which disposed of the writ petitions, that after Exhibit P7, the BIFR had proceeded further and accepted a Modified Rehabilitation Scheme-2007, submitted by the Monitoring Agency-IDBI. The said scheme was found to be governing the affairs of the Company, which scheme was found to be put into operation through IDBI, who was appointed as the Operating Agency. The Society, the 3rd respondent herein, was held to have challenged only Exhibits P6 and P7 orders. The Association of Members all the same, had challenged the subsequent scheme sanctioned by the BIFR. The specific argument taken up by the 3rd respondent in the said proceedings was that the Company no longer required to be treated as sick, since it cleared all its outstanding dues. The factory was said to be not in existence, WP(C).14887 of 2013 - 9 -
disentitling the petitioner from being treated as an industrial establishment.
11. The Division Bench noticed that there was no challenge against the original initiation of the proceedings under SICA and the only contention was that there was no requirement thenceforth for treating the Company as a 'Sick Company', which was the argument before the AAIFR also. The locus standi of the 3rd respondent-Society before the BIFR and the AAIFR was found to hold good, only if the 3rd respondent is treated as a creditor, who seeks return of advance amounts as an alternative relief to specific performance. The status merely of a vendee was found to disentitle the 3rd respondent from maintaining an appeal from the order of the BIFR before the AAIFR. The Association of members was also held to have no locus standi.
12. The Division Bench clearly held that the treatment as a sick industrial company or otherwise would emanate from the definition clause under Section 3(1)(o) of the SICA. The petitioner-Company having not turned its net worth positive as against the accumulated loss, was held to be entitled to be continued. The Division Bench also noticed that the proceedings under SICA would WP(C).14887 of 2013 - 10 -
logically end in either resurrection of the sick company or on failure of the revival scheme; in winding up of the Company. The writ petitions, hence, were dismissed.
13. The judgment of the Division Bench, Exhibit P8, was challenged before the Hon'ble Supreme Court and the Hon'ble Supreme Court passed order dated 11.07.2011, produced herein as Exhibit P9, which is extracted hereunder:
"Having heard learned advocates on both sides, we are of the view that, till date, the petitioner has not moved B.I.F.R. contending that Respondent No.1 has ceased to be a SICA Company. In the circumstances, if so advised, the petitioner may move B.I.F.R. within four weeks. If such an application is made, B.I.F.R. will decide the matter expeditiously, preferably within four weeks from the date of receipt of the application. We make it clear that the B.I.F.R. will decide the application uninfluenced by the observations made by the High Court in the impugned judgment. All contentions on both sides with regard to cessation of the Company as SICA are kept open.
We are informed that, from 2007, the Revival Scheme is on-going. We make it clear that for a period of four weeks from today, Respondent No.1 will not create any third party rights in respect of the WP(C).14887 of 2013 - 11 -
lands/property, which is the subject-matter of the Revival Scheme. The Revival Scheme shall continue to operate, subject to the above direction that no third party rights will be created in respect of that asset.
Subject to above, the special leave petitions are disposed of".
14. The said order and the liberty granted therein resulted in the 3rd respondent filing three applications, numbered as Misc.Application Nos.478, 479 and 480 of 2011, before the BIFR, which were allowed as per Exhibit P10, directing the reference to be de-registered, since, according to the BIFR, the manufacturing activities carried on in the premises of the petitioner, being that of manufacture of cement blocks, was not an activity coming within the IDR Act as also for the further reason that the minimal investment in plant and machinery, reverts the Company to the status of a small scale industrial undertaking, which does not come under the scope of SICA.
15. Appeals were filed by both the petitioner and the 3rd respondent, culminating in Exhibit P13 order of AAIFR, which held that the petitioner-Company had no protection of SICA from 2003 WP(C).14887 of 2013 - 12 -
onwards and, hence, ordered de-registration to be related back to the year 2003. Exhibits P10 and P13 are challenged in the present writ petition by the petitioner. The 3rd respondent and the additional respondents seek to uphold the order of AAIFR.
16. In fact the additional respondents 4 to 8 had been impleaded only in these proceedings and they were not before the BIFR. Their status is akin to that of the Association which filed a writ petition against the earlier orders of the BIFR as affirmed by the AAIFR; which stood disposed of along with the writ petition filed by the 3rd respondent herein as per Exhibit P8. The status of the additional respondents remains the same as held by the Division Bench of this Court in Exhibit P8, declaring them to have no locus standi or right to sue the Company on any grounds. Their contentions are noticed and considered herein only since they have been impleaded in the writ petition. Reference has been made to an actual conveyance having been executed with respect to certain extents of property. It may not be proper for this Court to go into such contentions at this stage, especially since the same is also in pursuance of the agreement for sale, which stands cancelled as per the earlier order of the BIFR.
WP(C).14887 of 2013 - 13 -
17. I have heard learned Senior Counsel Sri.Paramjith Singh Patwalia for the petitioner-Company, learned Senior Counsel Sri.R.P.Bhat for the 3rd respondent, learned Senior Counsel Sri.P.Santhalingam for additional respondents 4 to 7 and learned counsel Smt.Jeena Joseph for additional respondent No.8.
18. Senior Counsel Sri.Patwalia, would contend that the logical conclusion of proceedings with respect to a Company registered under the SICA, would be (i) rehabilitation or (ii) liquidation by resort to winding up, as has been held by the Division Bench of this Court; inter parties, in Exhibit P8. The petitioner would urge for a remand to the BIFR for consideration as to which of these two conclusions are to be arrived at on the basis of the facts and figures at this point of time. Even while passing Exhibit P10 order, the contention of the petitioner is that the BIFR should have looked at the balance-sheet of the Company and if the net worth had turned positive, as against the accumulated loss, then the petitioner-Company ought to have been declared as rehabilitated, thus moving out of the scheme and purport of the SICA. If such a conclusion could not have been arrived at, then necessarily, the BIFR should have considered the viability of a further scheme or on a WP(C).14887 of 2013 - 14 -
finding that rehabilitation is not feasible, should have recommended winding up. The Company having been registered as a sick industrial Company and admittedly one capable of being registered under SICA, there cannot be any de-registration on account of either the manufacturing activity having come to a stand still or for reason of a change in management or even a change in the activities of the Company. It is also asserted that the change in management and the diversification into real estate business was one notified to the BIFR under the third scheme of revival, sanctioned by the BIFR, as is evident from Exhibit P14. The implementation of the new scheme, MRS-07, which is the third rehabilitation scheme, has also been noticed by the Division Bench in Exhibit P8 as also the Hon'ble Supreme Court, urges the petitioner.
19. Sri.R.P.Bhat, learned Senior Counsel appearing for the 3rd respondent, however, would contend that the Division Bench judgment of this Court is of no avail, since the Hon'ble Supreme Court has, by Exhibit P9, left all questions open. It is more than two decades since the petitioner-Company had been enjoying the protection of SICA with no revival or an attempt to revival having been made by the petitioner. Both the schemes for rehabilitation had ended WP(C).14887 of 2013 - 15 -
in failure and even at the time when the second scheme was introduced, in 2003, the substratum of the Company had been completely effaced by reason of no manufacturing activity being carried on. The Company; by remaining under the umbrella of SICA, without attempting any revival by implementation of the schemes, it is submitted, has played a fraud on the statute. AAIFR has specifically taken note of the factual situation existing as in 2003 and had de-registered the Company from 2003 itself, which, according to the learned Senior Counsel, is perfectly in tune with the mandate of the statute, examined in the background of its objects and reasons.
20. Learned Senior Counsel Sri.P.Santhalingam would allege that the management change, bringing in the partners of SCA, a real estate firm, which had entered into an earlier agreement for sale, is again a fraud played on the statute; as also the creditors of the Company. According to the learned Senior Counsel, this is a fit case wherein this Court has to undertake the exercise of lifting the corporate veil, so as to set aside the very implementation of the alleged third scheme, permitting diversification of the activities of the Company into real estate business. In effect, the partners of the real estate Company, SCA, has taken over the management of the WP(C).14887 of 2013 - 16 -
Company and has converted the industrial undertaking into a real estate business, having enjoyed the protection of SICA in all these years, is the plea urged. Smt.Jeena Joseph would, however, canvass for the position that at least at this point of time, the suit filed by the respondent-Society, for specific performance, ought to be directed to be taken to the file of the competent Civil Court. The learned counsel have relied on a number of decisions, which shall be referred to in the course of the judgment.
21. What is to be considered first, is the scope and ambit of the liberty reserved by the Hon'ble Supreme Court by Exhibit P9 order. It has to be noticed at the outset that it cannot be said that Exhibit P8 judgment of the Division Bench and the findings therein are completely effaced by Exhibit P9 order. The Special Leave Petitions filed were disposed of by the said order, however leaving liberty to the "petitioner" [3rd respondent herein] to move the BIFR contending that respondent No.1 [the petitioner-Company herein] has ceased to be a SICA Company. Only with reference to that it was observed that the BIFR will decide the applications uninfluenced by the observations made by the High Court in the impugned judgment. One has to necessarily look at the contentions raised by the 3rd WP(C).14887 of 2013 - 17 -
respondent in the earlier proceedings and that agitated before the BIFR, after Exhibit P9 order.
22. The contentions of the 3rd respondent in the earlier round of litigation, prior to Exhibit P9, have been noticed in paragraph 5 of Exhibit P7:
"(a) whether the cancellation of the agreement between FACT and SCCL is justified;
(b) whether SCCL has ceased to be a sick industrial company since it has settled the dues of its secured creditors and, therefore not entitled to benefits provided under SICA;
(c) whether SCCL has become a real estate firm and has ceased to be an industrial undertaking in respect of which no rehabilitation is justified under SICA; and
(d) whether a change of management had been engineered surreptitiously in favour of SCA which is impermissible under SICA".
The AAIFR confirmed the findings of the BIFR on all the aforesaid issues.
23. With respect to the first issue, the AAIFR found that the 3rd respondent was entitled only to receive back the advance WP(C).14887 of 2013 - 18 -
money with reasonable interest, at the rate of 6% per annum. On the second issue, it was found that since no evidence was placed that the net worth has turned positive, the cover of the petitioner-Company under SICA could not be dropped. The mere induction of the partners in a real estate Company in the management was found to be of no consequence. With respect to the industrial activity having been totally stopped and real estate business, which does not come within the ambit of industry, having been started; it was left for the consideration of the BIFR in the modified rehabilitation scheme. It was also found that the management was not surreptitiously changed, since it was duly notified to the BIFR and there is no order passed by the BIFR prohibiting transfer of shares or proscribing a change in the Board of Directors. This order affirming the order of the BIFR, was confirmed by Exhibit P8 judgment of this Court. This Court also noticed that there was no contention raised or evidence adduced regarding the net worth of the Company having turned positive. The Division Bench also noticed that the logical conclusion of a proceeding initiated under SICA can only be a winding up order or an order finding the 'Sick Company' having come out of the ambit of the SICA; by its net worth having exceeded the accumulated loss.
WP(C).14887 of 2013 - 19 -
24. Going by the specific issues noticed herein above by the AAIFR, it is very evident that the 3rd respondent had not even raised a contention of the petitioner's net worth having turned positive as against its accumulated loss. This aspect was specifically noticed by the Hon'ble Supreme Court as having been never raised by the 3rd respondent before the BIFR and, hence, the liberty, left open by the Hon'ble Supreme Court; was to agitate the said issue before the BIFR. The BIFR was directed to adjudicate the issue untrammelled by any of the observations of the Division Bench of the High Court, since otherwise, the specific finding, that no evidence was let in on that aspect, by the Division Bench of this Court, would interdict the petitioner from further raising such contention before the BIFR. This, in the opinion of this Court, is the limited ambit and scope of the remand permitted by the Hon'ble Supreme Court. The scope of remand, hence, has to be confined to the specific issue, as has been held in K.P.Dwivedi v. State of U.P. [(2003) 12 SCC 572]. The other issues raised by the 3rd respondent and answered by the BIFR and the AAIFR cannot be reagitated and the same stands affirmed by Exhibit P8 judgment of this Court.
WP(C).14887 of 2013 - 20 -
25. The subsequent proceedings initiated, have to be examined in the background of the confined order of remand made. The prayers made by the petitioner in Misc. Application Nos.478, 479 and 480 of 2011, purportedly on the strength of Exhibit P9, are found in Exhibit P10 under specific heads of the said applications, which are extracted hereunder:
Misc. Application No.478/2011:
"a. The transaction of agreement dated 7.7.2004 with petitioner society be directed to be completed forthwith. b. SCCL be ordered to be wound up forthwith since any chance now given will perpetuate further fraud; c. Directions of injury into malfeasance/mismanagement and fraud against persons concerned.
d. Substitute the present management by professional management or appointment of Professional Directors. e. Direct audit of accounts and work by an independent Auditor Chartered Accountant".
Misc. Application No.479/2011:
"Adjudicate the question as to whether it has got jurisdiction to entertain the continuance of the proceedings of the company having no factory or workers and which has turned out to be a real estate group and is managed by the real estate group. It may also be kindly examined whether the continuance of the proceedings will promote the interest of the real estate group".
WP(C).14887 of 2013 - 21 -
Misc.Application No.480/2011 "Examine whether Safecare Associates, Temple Valley Farms and Plantations Pvt. Ltd. & M/s.Purnima Homes Pvt. Ltd. have played fraud and deception by their collusive tactics by adopting unfair methods and in case any such fraud the matter may be directed to be decided by the Civil Court by taking evidence and for that purpose, if necessary, permission may also be granted for instituting the Civil Suit and to continue the proceedings already initiated under Sec.22(1) of SICA".
26. The prayers made as (a) in Misc. Application 478 of 2011 and those made in Misc. Applications 479 and 480 of 2011 could not at all be proceeded with, since the Hon'ble Supreme Court, while disposing of the Special Leave Petitions, had not reserved any liberty with respect to the said issues, which were elaborately considered by the BIFR, AAIFR and the Division Bench of this Court, in the earlier proceedings. Those were issues specifically agitated by the 3rd respondent before the BIFR in the earlier round of litigations and urged before the Appellate Authority as also before this Court. In considering prayer (b) in Misc.Appln.No.478 of 2011, necessarily the issue of net worth and the present liabilities assume relevance. But, if WP(C).14887 of 2013 - 22 -
such indices, commend a decision against winding up, then that alone cannot lead to the Company being de-registered, as will be presently elaborated upon. With respect to the prayers (c) to (e) in Misc.Application No.478 of 2011, the same do not come within the circumscribed remand order made. However, reference to that shall be made later on, in this judgment, since the said questions emanating generally out of the intention behind the statute, stands alone and distinct from the issues considered in the earlier round. The liberty reserved by the Hon'ble Supreme Court, however, was confined to the issue which was never agitated before the lower authorities. So much is clear from the words used by the Hon'ble Supreme Court:
"... we are of the view that, till date, the petitioner has not moved B.I.F.R. contending that Respondent No.1 has ceased to be a SICA Company.
xxx xxx xxx All contentions on both sides with regard to cessation of the Company as SICA are kept open".
27. The issue to be considered, hence, would revolve around the definition of a "sick industrial company" as indicated in Section 3(1)(o) of the SICA. It is to be noticed that, on a Company WP(C).14887 of 2013 - 23 -
being registered as sick and an enquiry being commenced under the SICA or when a scheme is sought to be implemented, necessarily there would be instances where, by reason only of abject cash crunch, the industrial activity comes to a total stand still. However, that alone cannot lead to the Company being removed from the scope and ambit of SICA. The Company approaching the BIFR under the SICA would be in financial doldrums; with the creditors at their door-steps and the financing agencies refusing to pump further funds into the Company. The industrial activity also would have then, come to a stand still for non-availability of working funds. The industrial activity then could be commenced only if further funds are infused, which definitely has to come from the financial agencies. The financial agencies surely would agree for further facilities, only on a viable scheme of revival being proffered and the BIFR sanctioning the same. It is to this end, that there is a provision for appointing an Operating Agency/Monitoring Agency to examine the viability of revival as also to monitor the implementation of the revival scheme. This is the scheme and purport of the SICA and the revival envisaged therein. The proceedings under the SICA can only result in either the Company being declared as (i) no more entitled to be kept under the WP(C).14887 of 2013 - 24 -
SICA for reason of it having been revived and made itself financially viable and operational or (ii) recommended to be wound up; the latter of which necessarily has to be taken up by the jurisdictional High Court.
28. The legislative scheme of SICA and its nature and scope with specific emphasis on the powers conferred on the BIFR by Sections 22 and 22A have been elaborately dealt with by the Hon'ble Supreme Court in Raheja Universal Ltd. v. NRC Ltd. [(2012) 4 SCC 148]. The facts of the said case reveal that the appellant before the Supreme Court was concerned with an agreement of sale executed by the sick industrial company, who was the respondent, in favour of the appellant; purportedly before registration of the scheme. The respondent-Company having incurred losses resulting in acute financial crunch, was sought to be revived by a consortium of five Nationalized Banks. So as to bring in additional funds, a Memorandum of Understanding was signed by the respondent with the appellant on 13.04.2006 agreeing to sell around 344 acres of property, in continuation of which a principal agreement for sale was executed on 01.03.2007. A supplementary agreement was also executed on 29.09.2007 to rectify certain mistakes which occurred in WP(C).14887 of 2013 - 25 -
the earlier agreement. A second supplementary agreement too stood executed on 17.08.2010. In the meanwhile, the respondent-Company submitted a proposal to the consortium for Corporate Debt Restructuring (CDR), which was approved by the consortium and the payments received against the sale agreement was used for the CDR mechanism.
29. Disputes arose with respect to the payments to be made under the agreements, which affected the revival plans and the situation was further worsened by labour disputes. The Company eventually approached the BIFR on 03.12.2008 and the BIFR, by order dated 16.07.2009 prescribed 30.07.2007 as the cut-off date for the coming into operation of the sanctioned scheme under Section 18 (8) of SICA. The order passed under Section 17(3) treated the land as an investment and put certain restrictions thereupon, including that of sale of assets. The AAIFR, however, found that the BIFR could not have interfered with the sale, the agreement for which was already entered into, registered, acted upon and in the process of completion. The legislative scheme of SICA was gone into elaborately and after discussion of precedents on the subject, the three Judge Bench of the Hon'ble Supreme Court declared the enactment to be a WP(C).14887 of 2013 - 26 -
self-contained code having overriding effect over the other laws (para 48).
30. The functions of the BIFR were succinctly stated in paragraph 49:
"BIFR has been vested with wide powers and, being an expert body, is required to perform duties and functions of wide-ranged nature. If one looks into the legislative intent in relation to a sick industrial company, it is obvious that BIFR has to first make an effort to provide an opportunity to the sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, failing which BIFR has to formulate a scheme for revival of the company, even by providing financial assistance in cases wherein BIFR in its wisdom deems it necessary and finally only when both these options fail and the public interest so requires, BIFR may recommend winding up of the sick industrial company. So long as the scheme is under consideration before BIFR or it is being implemented after being sanctioned and is made operational from a given date, it is the legislative intent that such scheme should not be interjected by any other judicial process or frustrated by the impediments created by third parties and even by the management of the sick industrial company, in relation to the assets of the company".
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31. To clarify the law, the Hon'ble Supreme Court stated so in paragraph 55:
"... we would state that the matters which are connected with the sanctioning and implementation of the scheme right from the date on which it is presented or the date from which the scheme is made effective, whichever is earlier, would be the matters which squarely fall within the ambit and scope of Section 22 of SICA 1985 subject to their satisfying the ingredients stated under that provision".
32. The powers under Sections 22(3) and 22-A were dilated upon. The power under Section 22(3) was found to be possible of segregation under two different heads; one, the power simplicter, to suspend the operation of all or any of the contracts, agreements, etc., to which a sick industrial company is a party; and the other to make them enforceable with such adaptation and in such manner as may be specified by the BIFR. Section 22-A was found to be a power over and above the wide powers vested under Section 22, which enable the BIFR to pass injunctive or restraint orders in relation to the assets of the sick industrial company; however, subject to the limitation of such orders being operative during the period of preparation or consideration of the scheme under Section 18. Hence, WP(C).14887 of 2013 - 28 -
the power of the BIFR to even interfere with agreements entered into prior to the implementation of the scheme was found to be proper and coming within the legislative purpose and object of the Act. The Act was found to be a special law having precedence over the general laws; but for those clearly exempted under Section 32.
33. Learned Senior Counsel for the petitioner would place reliance on NGEF Ltd. v. Chandra Developers (P) Ltd. [(2005) 8 SCC 219] to urge that a Company declared sick under SICA would continue to have such status till it is wound up. The said observation of the Hon'ble Supreme Court was only in the context of the Company Court passing an order directing the execution of sale deed, with respect to certain properties owned by it; after the BIFR recommended winding up, but before a winding up order was passed. The Hon'ble Supreme Court declared that till a winding up order is passed by virtue of the provisions of sub-section (4) of Section 20 of SICA, and the SICA being enacted later to the Companies Act, the BIFR retains jurisdiction of the assets of a sick Company despite its recommendation to wind up being sent to the High Court. The said proposition has no application herein. Considerable persuasion is however afforded by the two judgments of the Division Bench of the WP(C).14887 of 2013 - 29 -
Delhi High Court in understanding the culmination of proceedings under the SICA.
34. M/s.Sinergy Steels Ltd. v. AAIFR & Others [W.P.(C). No.13505 of 2009 dated 21.09.2010, of the High Court of Delhi] was a case in which the sick Company, with respect to which, a Sanctioned Scheme was put into implementation. The Company achieved positive net worth in the very next financial year, even before the scheme was fully implemented. The BIFR hence discharged the Company from the purview of SICA, which was confirmed by the AAIFR. The Division Bench of the Delhi High Court held that a Sanctioned Scheme has to be implemented in its entirety and to discharge a sick Company from the purview of SICA merely on net worth turning positive, would result in absurdity.
35. The said decision was followed by another Division Bench in Director of Income Tax v. BIFR & Others [W.P.(C).No. 1940 of 2011 and connected cases dated 23.03.2011, of the High Court of Delhi]. The said writ petitions before the Delhi High Court also raised a similar issue as to whether the discharge of reference by the BIFR, on the sick Company's net worth having turned positive, would entitle the Department to withdraw the concessions, which form WP(C).14887 of 2013 - 30 -
part of a Sanctioned Scheme. The Division Bench noticed that the registration of reference is a significant event which triggers the provisions of the SICA. After registration, the BIFR is empowered to make an enquiry and in the course of enquiry, appoints an Operating Agency for preparing a rehabilitation scheme. The scheme having been accepted by the BIFR after hearing the objections of the concerned parties, the same has legal force and binds the sick Company, the share holders, creditors, guarantors and so on and so forth. The implementation of such a scheme provides for protection from institution of legal proceedings as also suspension of the legal proceedings already initiated as per Section 22 of the SICA.
36. It was so held in paragraphs 11 and 12:
"11. In view of the afroesaid provision there can hardly be any doubt that once a scheme is formulated after a reference is gone through the process of Sections 17 and 18 of the SICA, the said scheme would have the force of law notwithstanding anything inconsistent therewith contained in any other law. Thus, neither the party making any concessions at the time of the formulation of the scheme nor the company at whose behest the scheme is formulated and sanctioned can get out of the scheme. As noticed above, a draft scheme is sanctioned under the provisions of sub-section (4) of Section WP(C).14887 of 2013 - 31 -
18 of the SICA. Once a draft scheme is sancitoned it is binding on those concerned as is reflected in sub-section (8) of Section 18 and Section 19(3) of SICA. Thus, once a sanctioned scheme or any of its provisions is made operable it binds the sick industrial company, and the entities referred to in Section 18 (8) and 19(3) of SICA. In these circumstances, the Department cannot surely be heard to argue that the provisions of the scheme are not binding on it.
12. We have to keep in mind that any scheme is a package to rehabilitate the company. It is possible that such rehabilitation may result in early success or at times may take a greater period of time to achieve financial stability. If the argument of the Department were to be accepted it would imply that if a sick industrial company achieves success in making its net worth positive, all benefits of a sanctioned scheme would stand withdrawn whether exhausted or not, even though the mergence from sickness, and its continued health is dependent on the sanctioned scheme being fully implemented. This would, according to us, defeat the very purpose of formulating a sanctioned scheme. A sanctioned scheme in myriad ways would ordinarily devise ways and means by which the assets of the referrer are to be dealt with. The provisions of the sanctioned scheme would bind both the referrer and those who are party to it, including those in respect of which SICA makes a specific provision. It has to be appreciated that to forge a consensus on rehabilitation of a sick industrial company is no mean task. But once consensus is WP(C).14887 of 2013 - 32 -
arrived at, and a scheme is sanctioned, it cannot equally be jettisoned without due deliberation and adherence to the provisions of law. Thus, the apprehension of the Department that assets will be salted away is misconceived. The company which is the beneficiary of the sanctioned scheme can be brought to heel by taking recourse to appropriate remedies in order to obtain its obeisance to the sanctioned scheme".
37. The Division Bench of the Delhi High Court held that the mere fact of the net worth becoming positive, hence, does not provide an automatic exit route from the proceedings before the BIFR. Following the earlier Division Bench in M/s.Synergy Steels Limited (supra), it was held that the Department cannot resile from the concessions made at the stage when the scheme was formulated and sanctioned. This Court is inclined to respectfully agree with the proposition propounded in the aforesaid decisions of the Delhi High Court. This Court also finds considerable justification in the said view, since what is intended by SICA is that a Company which has turned "sick" as defined under the provisions of the Act should be rehabilitated and put back on the rails so as to ensure that its continued operation is financially viable. At every juncture, on the WP(C).14887 of 2013 - 33 -
Company's net worth turning positive, it cannot be discharged from the purview of SICA. That alone does not necessarily indicate that the Company has acquired a stable financial base, so as to ensure continued performance, which is the intention behind the SICA. Hence, even on the net worth turning positive at the initial stage of the implementation of the scheme, the same would indicate only the efficacy of the scheme and does not at all mean that the implementation of the scheme in its entirety is not required.
38. In the instant case, the discharge made from the purview of the SICA is not on the finding of the net worth having turned positive. As was noticed herein above, the remand order of the Hon'ble Supreme Court, specifically, was with respect to the coverage of the Company under SICA. This can be only on the net worth turning positive and following the aforesaid Delhi High Court decisions, after the scheme has been implemented in its entirety. Hence, mere book values are not the sole indices; and the financial viability for continued profitable operation of the industry is what is to be looked at. The petitioner in the present case impugns Exhibit P10 order dated 09.04.2012 of the BIFR which discharged the petitioner-Company from the purview of SICA for reason of it having WP(C).14887 of 2013 - 34 -
lost its industrial character and having reduced itself to a small scale industrial undertaking. The order of the AAIFR, which confirmed the order of the BIFR, modified the operative portion of discharge, to have retrospective effect from the year 2003; by Exhibit P13 dated 27.05.2013.
39. At the risk of repetition, it has to be noticed that the earlier proceedings, which went upto the Hon'ble Supreme Court and culminated in Exhibit P9 order, was specifically with respect to the cancellation of sale agreements entered into by the petitioner-Company with SCA and the 3rd respondent herein. The order of the BIFR, Exhibit P6 dated 01.03.2006, to that end was confirmed by the AAIFR by Exhibit P7 dated 24.04.2007. The challenge against Exhibits P6 and P7 were negatived by a Division Bench of this Court in Exhibit P8 dated 26.05.2010; the Petition for Special Leave to Appeal against which, led to Exhibit P9 order dated 11.07.2011. The limited remand made by the Hon'ble Supreme Court does not permit re-adjudication of the said issues, which stands concluded inter-parties, in the earlier round of litigation.
40. Sri.P.Santhalingam placed reliance on Yash Deep Trexim (P) Ltd. v. Namokar Vinimay (P) Ltd. [(2014) 1 SCC 545] to WP(C).14887 of 2013 - 35 -
sustain the order of the BIFR and the AAIFR, discharging the Company registered under the SICA from the ambit of the SICA. This Court is of the opinion that the facts are clearly distinguishable and the law laid down does not at all apply to the facts of the instant case. The Hon'ble Supreme Court in the afore-cited decision was concerned with the question as to whether the provisions of SICA are applicable to foreign companies registered in India. The question eventually was not answered, since the Hon'ble Supreme Court found that even otherwise the Company could not fall within the ambit of "sick industrial company" as defined under the SICA. There were in existence disputes with regard to the management of the Company; and different groups of share holders staked their claims to the management, which claims essentially were on account of the vast tracts of immovable properties; in the ownership and possession of the Company. The BIFR framed a scheme for revival, which was set aside by a learned Single Judge of the jurisdictional High Court; but was restored by the Division Bench.
41. The Supreme Court was concerned with the appeals from the aforesaid order of the Division Bench. The Supreme Court took note of certain connected facts with respect to acquisition of WP(C).14887 of 2013 - 36 -
substantial property by the State and the compensation received by the Company towards such acquisition. The respondent-Company thus was entitled to receive Rs.170 crores on account of compensation for acquisition and after clearing all statutory and contractual liabilities, the Company was left with a surplus of nearly Rs.50 crores. The Hon'ble Supreme Court also found that the rehabilitation scheme framed by the BIFR was yet to be implemented; and held so in paragraph 19:
"That the respondent Company would be left with a surplus of about Rs.50 crores after meeting all its losses and liabilities is a common ground amongst all the contesting parties. The rehabilitation scheme framed by the Board by its order dated 4-10-1999 is yet to be implemented. In the aforesaid situation keeping in view the object and scheme of the Act and the virtual consensus of the contesting parties with regard to the present financial health of the respondent Company it is clear that the Company can no longer fall within the ambit of the expression "sick industrial company" as defined in Section 3(1)(o) of the Act. Further applicability of SICA to the respondent Company, therefore, does not arise".
42. One cannot but notice that the money which had come to the Company therein, was on account of the compulsory WP(C).14887 of 2013 - 37 -
acquisition, which acquisition stood unassailed and the scheme framed by the BIFR was not implemented at all. In the present case, however, as was noticed earlier, the agreement for sale, executed with the 3rd respondent was specifically under a scheme of revival (SS-02), on the sanction granted by the BIFR. The said agreement stood cancelled by the BIFR on account of the procedure having not been complied with, as stipulated by the BIFR, especially without the approval of the Asset Sale Committee [ASC]. SS-02 had not been implemented successfully; nor had the sale fructified or any consideration passed on to the Company. The advance made, as per the terms of the agreement, were; on the directions of the BIFR, kept in a No Lien Account, which the proposed purchaser, the 3rd respondent herein, could get back on making a request before the financial institution wherein such deposit has been made. Hence, even the advance money had not been used in implementation of the scheme.
43. Declaring the overriding effect of SICA, the Hon'ble Supreme Court in Raheja Universal Ltd. (supra)succinctly stated the conclusions with reference to the facts in paragraphs 90 to 93 as under:-
WP(C).14887 of 2013 - 38 -
"90. It is the case of the appellant Company before us that they have got an interest in the immovable property by virtue of the memorandum of understanding, agreements dated 1.3.2007 and 17.8.2010 and by part-performance, as they had been given possession of the land in question. It was contended that as their interests were duly protected under the provisions of TPA 1882, BIFR/AAIFR, in exercise of its powers under Sections 22(1), 22(3) and 22-A of SICA 1985, cannot place any restriction upon their title or interest in the immovable property. In other words, the contention is that vis-a-vis SICA 1985, the provisions of TPA 1882 shall prevail.
91. TPA 1882 is a general law and control and operates in a very wide field. It was an Act enacted for and related to transfer of immovable property in India and to decide the disputes as well as to resolve the confusion and conflict, which was in existence, as the courts were forced to decide the disputes according to their own notions of justice and fair play. TPA 1882 does not have application to a particular situation or class of persons.
92. On the contrary, SICA 1985 is a special legislation providing for imperative functioning of specialised bodies like BIFR and AAIFR and is intended to apply to a very specific situation, i.e., where company is a sick industrial company. It has no application even to other different kinds of companies within the purview of the Companies Act, except sick industrial companies.
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93. The legislature has undoubtedly given an overriding effect to the provisions of SICA 1985 and even restricted the jurisdiction of the civil courts, as is demonstrated from the language of Sections 26 and 32 of SICA 1985. Thus, we have no hesitation in holding that the provisions of SICA 1985 shall prevail over the provisions of TPA 1882".
44. In Yash Deep Trexim (supra) the removal from the ambit of SICA was made only since funds had been infused from other sources; specifically by way of compensation on acquisition of landed properties and on the scheme itself having not been implemented. In Raheja Universal Ltd. (supra), the interdiction of the agreement entered into prior to the cut-off date, prescribed by the BIFR, was also held to be proper; but, however, reserving the liberties of the appellant therein to agitate its rights and liabilities arising out of such agreements before the appropriate authorities on cessation of such interdiction. Such reservation of liberty was specifically on the wording of sub-section (3) of Section 22, wherein a limitation, of maximum of seven years, was prescribed with respect to suspension of proceedings as contemplated therein. In the present case even WP(C).14887 of 2013 - 40 -
that would not be applicable, since the agreement for sale cannot be said to be one divorced from the terms of implementation of the revival scheme SS-02. It was in furtherance of the object of revival that the BIFR permitted sale of 15 acres of property. It was only on the basis of such sanction by the BIFR that the petitioner-Company entered into an agreement for sale with the 3rd respondent. The said agreement was found to have been entered into without following the formalities prescribed by the BIFR and was cancelled by the BIFR itself. It is also to be noticed that the cancellation of agreement made by the BIFR is no more an issue available for adjudication, since that has attained finality in the earlier litigation.
45. It is also significant that, when the earlier litigation was going on, after Exhibit P7 order was passed; on 07.05.2007 the BIFR had taken up the matter for hearing, the proceedings of which is evidenced by Exhibit P14. Exhibit P14 referred, to the two rehabilitation schemes, being "SS-94" and "SS-02", which failed and the show cause notice issued by the BIFR as to why the Company should not be recommended for winding up. The BIFR also specifically took note of the proceedings, in the mandatory hearing held on 15.10.2003, evidenced by Exhibit P2, which permitted the WP(C).14887 of 2013 - 41 -
Company to sell 15 acres of its land as per procedure laid down in the sanctioned scheme and to comply with the Sanctioned Scheme before 31.12.2003, failing which the show cause notice was held to have revied operation. Subsequently on the non-implementation of the terms of the Sanctioned Scheme [SS-02], the BIFR had recommended winding up of the Company by Exhibit P3 order dated 27.09.2004. This order, in appeal, was set aside on consent of all parties. It is to be specifically noticed that the 3rd respondent herein, who had not filed an appeal from Exhibit P3 order, was, however, a party to the appeal. This was by virtue of the impleadment made, as permitted by a Division Bench of this Court in the writ proceedings, which the 3rd respondent initiated against Exhibit P3 order. The recommendation of the BIFR, to wind up the Company, dated 27.09.2004, was set aside on consent of all parties, including the 3rd respondent.
46. The said fact assumes significance in so far as considering the present order of the AAIFR discharging the Company with effect from the year 2003. In the year 2003, the Sanctioned Scheme-2002 was in implementation and the sick Company was permitted by the BIFR to sell 15 acres of land so as to facilitate WP(C).14887 of 2013 - 42 -
rehabilitation of the industry. The proceedings for such sale made by the sick Company; first to SCA and then to the 3rd respondent, was found to be bad by the BIFR as per Exhibit P3 order dated 27.09.2004, which recommended the winding up of the Company. The said order, as noticed above, was overturned on consent and on fresh consideration, Exhibit P6 and Exhibit P7 orders were passed, respectively by the BIFR and AAIFR, cancelling the agreements made in pursuance of the Sanctioned Scheme (SS-02); as being violative of the terms of the Scheme. The advance amounts received were directed to be deposited in a Non Lien Account, and were never used by the Company.
47. In this context it is also to be noticed that the 3rd respondent relies on an agreement dated 01.06.2005, being the second agreement executed between the petitioner-Company and the 3rd respondent. This obviously was made in continuation of the first agreement dated 07.07.2004. As on 01.06.2005, it is pertinent, that there was no scheme in operation, since the proceedings before the BIFR had then, by Exhibit P3 order dated 27.09.2004, recommended winding up of the Company. True, this order was stayed by the AAIFR in appeal, which appeal was allowed by consent on 20.07.2005.
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Evidently, the agreement executed on 01.06.2005 is one executed in pursuance of the implementation of "SS-02" and the first agreement dated 07.07.2004. Those agreements stood cancelled by Exhibits P6 and P7; confirmed by a Division Bench of this Court.
48. Considering the retrospective discharge made by the AAIFR with effect from 2003, again; it has to be remembered that the earlier order recommending winding up of the Company [Ext.P3], was set aside on consent and remanded. While the proceedings for cancellation of agreements, subsequently made by the BIFR by Exhibit P6 and confirmed by AAIFR by Exhibit P7, was challenged before this Court and the Hon'ble Supreme Court, the proceedings before the BIFR continued as per Exhibit P14. The BIFR sanctioned "Modified Rehabilitation Scheme, 2007" (MRS-07) and directed implementation of the provisions of the said scheme, by all the agencies in a time bound manner. It is in implementation of the said scheme, that the petitioner-Company had amended the objects of the Company and engaged itself in real estate business.
49. Whether the scheme was properly implemented or not, is for the BIFR to consider. But, the fact remains that there is no challenge against Exhibit P14 order, by any of the parties, including WP(C).14887 of 2013 - 44 -
the 3rd respondent, who was represented in the proceedings of the review hearing held on 07.05.2007, as evidenced from Exhibit P14. Definitely the implementation of the scheme, viz., MRS-07, could be looked into by the BIFR. However, the discharge made retrospectively from a date anterior to the date of the implementation of the third scheme, being MRS-07, is not permissible. In such circumstance, Exhibit P13 order of the AAIFR is liable to be set aside.
50. It is pertinent that, as was specifically pointed out by the learned Senior Counsel for the 3rd respondent, there is no prayer in the writ petition to set aside Exhibit P10 order of the BIFR. The prayer is confined to setting aside of Exhibit P13. However, the learned Senior Counsel appearing for the petitioner has put forward considerable arguments assailing Exhibit P10 order of the BIFR and Ground `H' has been specifically urged to contend that once BIFR declares a Company to be a sick Company in terms of the SICA, neither the BIFR nor the AAIFR has the power to de-register the reference in relation to that Company. What is essentially argued is that once a Company is registered as sick, a de-registration would lead to a review of the order of registration, which is not permissible.
51. Lily Thomas v. Union of India [(2006) 6 SCC 224] WP(C).14887 of 2013 - 45 -
and Haryana State Industrial Development Corpn. Ltd. v. Mawasi [(2012) 7 SCC 200] were placed to urge that the power to review is not one inherent, but must be conferred by law. Even when there is specific power to review; the jurisdiction is circumscribed, within the limits of the power conferred under the statute and can only be to correct patent mistakes and not to substitute one view with another. P.D.Aggarwal v. State of U.P. [(1987) 3 SCC 622] and State of Andhra Pradesh v. Ch.Gandhi [(2013) 5 SCC 111] were relied on to emphasise the scope of retrospective amendment, which could not, in any manner, take away vested rights. The above two propositions, on the strength of precedents, are projected to challenge the order of the BIFR in discharging the petitioner-Company from the cover of SICA. The copntention, essentially, is that once registered under SICA, a de-registration would be a review of the earlier order, which is not permitted by the statute.
52. The power to review is conferred on the BIFR specifically by sub-section (4) of Section 17 of SICA. Section 17 speaks of the powers of the BIFR to make a suitable order on completion of inquiry. Sub-section (1) speaks of an order, in writing, on the basis of an inquiry under Section 16 as to whether it is WP(C).14887 of 2013 - 46 -
practicable for the Company to make its net worth exceed the accumulated losses within a reasonable time. If under sub-section (1) the BIFR is satisfied about the practicability of the Company turning around within a reasonable time; under sub-section (2), again by an order in writing, the BIFR shall, subject to any conditions or restrictions imposed, give the Company reasonable time as the BIFR deems fit, to make its net worth exceed the accumulated losses. However, if under sub-section (1) of Section 17 the BIFR finds the practability of revival to be negative; under sub-section (3) it can appoint an Operating Agency to prepare a scheme for revival of such Company. On such order being passed under sub-section (3) of Section 17, necessarily the BIFR has to proceed further under Section 18 as to the preparation and sanction of schemes. The power to review conferred under sub-section (4) is to review the order passed under sub-section (2) so as to pass an order under sub-section (3) or to review an order passed under sub-section (3) to modify, in accordance with the recommendation of the Operating Agency, as deemed fit by the BIFR; to facilitate implementation of the revival scheme. Power of review, hence, does not extend to de-registration of a Company. In the instant case, it is to be noticed WP(C).14887 of 2013 - 47 -
that the BIFR by Exhibit P10 de-registered the Company when there was a scheme; termed MRS-07, approved by the BIFR, which was in the process of implementation. Definitely on a report from the Operating Agency, the order passed, produced as Exhibit P14, could be reviewed under sub-section (4) of Section 17; but it cannot lead to a de-registration.
53. It is fairly clear on a reading of the provisions that, the SICA provides for discharge of the Company on successful implementation of a rehabilitation scheme; or otherwise, mandates a recommendation for winding up, which has to be forwarded to the jurisdictional High Court. The discharge now made by the BIFR is on the premise that the sick Company originally registered by the Board has lost its industrial character, in so much as being reduced to a small scale industrial undertaking. Inter alia reasons have been stated that the manufacturing activity undertaken by the Company is only of cement bricks, which is not a scheduled industry covered under the IDR Act. The plant and machinery is stated to have been sold in 2005 itself, without approval of the BIFR. The present plant and machinery found in the premises of the Company is stated to be only having a value of Rs.10.55 lakhs. The sale proceeds of the company is said to WP(C).14887 of 2013 - 48 -
be 90% from real estate and only 10% from other activities, which, as stated above, is not covered under the scheduled industrial activity. The Company is stated to have not renewed the factory licence from 2003 onwards also. It is in this context that the sustainability of the order of the BIFR has to be examined.
54. It is to be acknowledged that even de hors a challenge to Exhibit P10 order, this Court exercising extra-ordinary jurisdiction under Article 226 would be justified in looking at whether the intention of the Act, under which the Company had been given protection for more than two decades and a half, has been achieved. There were two schemes implemented earlier, which did not bring about the desired effect of turning the net woth positive. It was in such circumstance that by Exhibit P14 a third scheme; mooted by the then Operating Agency (IIBI), was approved by the BIFR. It is to be specifically noticed that the change in objects of the Company, bringing in real estate business as also the change in Directors were specifically noticed by the BIFR, while sanctioning implementation of MRS-07. The contention of the learned Senior Counsel appearing for respondents 3 to 7 urging this Court to pierce the corporate veil, has to be considered in the above factual context. The concept of a WP(C).14887 of 2013 - 49 -
Company having a distinct legal entity from its members and the process of lifting such corporate veil has been succinctly explained in New Horizons Ltd. v. Union of India [(1995) 1 SCC 478]:
"In law, a company is a legal entity distinct from its members. By the process, commonly described as "lifting the veil", the law either goes behind the corporate personality to the individual members or ignores the separate personality of each company in favour of the economic entity constituted by a group of associated companies. This course is adopted when it is found that the principle of corporate personality is too flagrantly opposed to justice, convenience or the interest of the Revenue. There are cases where the court has looked behind the facade of the company and its place of registration in order to determine its residence and for this purpose the test laid down is the place of the central management and control".
55. It is clear that such exercise is resorted to when the devise of a separate legal entity is employed merely to evade a statutory liability or when the same results in flagrant illegality; opposed to justice. In the present case, there is no such surreptitious change evolved without the BIFR being notified. The Company, WP(C).14887 of 2013 - 50 -
which was a closely held Company, effected a change in management by transfer of shares by the existing share holders to the Directors of M/s.SCA, the latter of whom was the first intended purchaser of the 15 acres of land of the petitioner-Company. The induction of such share holders into the Director Board as also the change in object were professed to be for revival of the Company. This Court is of the opinion that no purpose would be served in lifting the corporate veil other than finding a change of Directors and management, which, in any event, was with notice to the BIFR and stood approved by Exhibit P14.
56. However, that is not to say that the present Directors of the company could sell off the property of the Company and without revival of the industrial undertaking; merely be discharged from the cover of SICA. Merely discharging the Company from the purview of the SICA, after finding that the terms of the Modified Rehabilitation Scheme [MRS-07] have not been complied with, would go against the scheme and spirit of the Act. Having availed of the various benefits, which comes with the registration under the SICA, the Company cannot be merely discharged from the coverage of the SICA on the premise that it has been reduced to a small scale WP(C).14887 of 2013 - 51 -
undertaking. The implementation of the scheme sanctioned under the SICA is intended at rehabilitation and revival of the industry. Even the permission granted by the BIFR to sell off the lands owned by the Company should necessarily result in the money so acquired, being used to turn around the industry. The ultimate intention of the Act is to promote industry and enable sick industries to rehabilitate itself by providing a healthy financial environment, to be put back on rails. The Sanctioned Schemes approved by the BIFR are towards providing such environment by affording concessions, as agreed to, by the stake holders in the Company. If the ultimate result of the rehabilitation is not achieved and the sale proceeds obtained by sale of assets, as permitted by the BIFR, is not used towards this end, then necessarily the BIFR would have to proceed further as permitted under the provisions of SICA. Here, it is to be specifically noticed that in the earlier round, in Exhibit P8, AAIFR specifically noticed that the change in object and absolute cesstion of industrial activity is to be considered by the BIFR; while monitoring implementation of MRS-07.
57. The statement of objects and reasons of the SICA addresses the concern of the Government with respect to loss of revenue to the Central and State Governments by reason of loss of WP(C).14887 of 2013 - 52 -
production and loss of employment and locking up of investible funds of banks and financial institutions due to ill effects of sickness in industrial companies. It was to enable full utilization of industrtial assets and to afford maximum protection of employment as also to optimise the use of the funds of the banks and financial institutions, that, it was deemed fit to bring in a legislation to provide for revival and rehabilitation of potentially viable sick industrial companies; definitely in public interest. A comprehensive legislation, constituting a Board [BIFR] as also an Appellate Authority [AAIFR] to look into the viability of sick industrial companies and to provide for schemes for revival was brought in under the statute. Comprehensive measures for an inquiry into the viability of a particular industrial undertaking, preparation and sanction of schemes for revival, with powers for directing waiver of certain liabilities as also providing for infusing more funds, was the scheme of the legislation to realise the intent of renewed industrial activity. SICA also provide for suspension of legal proceedings, contracts, etc., by Section 22, enabling a potentially viable sick industrial company, to avoid any process under law against its properties, without the consent of the BIFR or the AAIFR constituted under the enactment.
WP(C).14887 of 2013 - 53 -
58. Wide powers are conferred on the BIFR, in implementation of schemes of revival approved by the BIFR. It is evident that the financial institutions as also the Central and State Governments are obliged to make concessions and keep in abeyance recovery proceedings, otherwise lawfully permissible, all with the avowed objective of the revival of the industrial undertaking, to achieve the end result of continued and revived industrial production as also providing and preserving avenues of employment. An industrial company having been declared sick and having taken up the implementation of a scheme sanctioned by the BIFR, cannot merely be discharged from the cover of the SICA, on the sole ground of net worth turning positive without the industrial undertaking being revived and put on the track of viability enabling continued operations. A sick industrial company having availed of the benefits under the SICA as also those conceded by the financial institutions and Revenue Departments; all in the interest of revial of the industry, cannot merely be let loose on such revival having not fructified. This definitely would lead to a fraud being perpetrated on the statute.
59. In the instant case, it has to be noticed that three revival schemes were sought to be implemented from 1990 onwards.
WP(C).14887 of 2013 - 54 -
Necessarily there would have been concessions granted by the financial institutions as also the State and Union Revenue Departments, at various stages, all of which would be wasted if the industrial production is not revived. The change in objectives of the Company; bringing in real estate business, as permitted in MRS-07; also is with the object of reviving the industrial production of the Company. The present order of the BIFR, merely discharging the Company, gives freedom to the Directors; being the share holders, to merely walk away with the Company; after having put to jeopardy and peril, the revenues due to the Government, as also amounts due, by way of interest and penal interest and even principal loan amounts, to the financial institutions, for over two decades and a half. The loss thus suffered by the exchequer and of public monies were with the larger public interest of reival of a sick industry; the legislative intention behind SICA. This Court does not have the figures to determine the concessions so granted under the three schemes, nor is it expected of this Court to make a roving enquiry into those aspects, when the SICA itself provides for such eventualities to be curbed and effective action by the BIFR.
WP(C).14887 of 2013 - 55 -
60. The diversification of activities, as also the subsequent event of apartments having been constructed in a portion of the subject land was done on the implementation of a scheme of rehabilitation in the year 2007. The 3rd respondent cannot challenge such implementation at this stage, since the 3rd respondent was very much a party before the BIFR when MRS-07 was sanctioned. The implementation of the third scheme was noticed specifically in Exhibit P8 judgment of the Division Bench of this Court as also by the Hon'ble Supreme Court in Exhibit P9 order. The challenge of the 3rd respondent, as was specifically noticed in Exhibit P8, was only against Exhibits P6 and P7 orders and not the further proceedings regarding implementation of the scheme MRS-07. Though the members of the Association had challenged the third scheme before the High Court, the Division Bench in Exhibit P8 rejected the locus standi of the Association. The 3rd respondent, despite the specific finding in Exhibit P8 with respect to the implementation of the subsequent MRS-07, did not assail it by independent proceedings. The Hon'ble Supreme Court while disposing of the Special Leave Petitions also specifically noticed the scheme being in operation. Hence, the same is no longer open for consideration. The rights of WP(C).14887 of 2013 - 56 -
the persons who had purchased properties in pursuance of the implementation of MRS-07 would have to be considered by the BIFR. The 3rd respondent having chosen not to have challenged the third scheme till date, cannot claim any right over and above that acquired by such persons, who have entered into valid agreements with the Company in pursuance of the third scheme sanctioned by the BIFR.
61. Exhibit P14 is the third scheme sanctioned by the BIFR, termed MRS-07, which was sanctioned at the instance of the first Operating Agency, being IIBI, which later was IDBI. The salient features of the scheme took note of the change in management as also the funds brought in by the new Directors and the change in objectives of the Company; incorporating real estate business. The sale of landed properties for developing the same and construction of apartments are with the avowed object of reviving the industry. The third scheme, approved in 2007, was to be implemented before 2009. The IDBI, which was later, appointed as the Operating Agency, had filed a report before the BIFR and on hearing the parties, Exhibit P10 order was passed by the BIFR. The report of the IDBI has been encapsulated by the BIFR in paragraph 22 of its order [Exhibit P10]:
WP(C).14887 of 2013 - 57 -
1) A cement brick manufacturing unit with a plinth area of around 300 sq.mts is seen functioning in the premises, which is covered with aluminium roofing on top and on 3 sides with Tin sheets. The unit is located around 75 mts on the left side of the main entrance. A cement store is also located near the unit.
2) Around fifty persons were seen working at the unit site. It was reported by the company official that these workers are being engaged on daily wage basis. Board displayed at the site indicate that 53 persons were also shown to us.
3) Two cement brick moulding machines, one mixture machine were operating in the unit. Sri.Eldo, who identified himself as the supervisor of the unit informed that the cement brick moulding machine has capacity to produce around 800 cement bricks per day. Around 5 to 6 lorry loads of finished cement bricks were seen stacked on both sides of the unit, which he informed were kept ready for delivery. Most of the cement bricks are reported to be sold to M/s.Desai Homes. From the KVAT Returns shown to us by the company, it is observed that the Taxable Turnover for the month of December 2001 and January 2012 was Rs.5.01 lakhs and Rs.4.89 lakhs respectively.
WP(C).14887 of 2013 - 58 -
4) Small display boards depicting the name of the
company along with TIN No. was seen at the main
entrance and also in the Cement Brick Manufacturing unit. A Kirloskar make General was also available at the premises.
5) Civil construction work reported to be of their ongoing residential flat complex under the brand name Global Village was seen progressing at the site (on the right side of the main entrance). The structural work of G+4 floors in 2 Towers were seen completed".
62. The observations of the BIFR is noted in paragraph 23 of the very same order:
(i) It is not denied by the company that plant and machinery was sold in 2005 itself. After selling almost all the plant and machinery there are hardly any machinery left and this has been done without the approval of BIFR and MDRS does not envisage selling of plant and machinery like this. Presently, the cost of plant and machinery are estimated only Rs.16.27 lakhs.
WP(C).14887 of 2013 - 59 -
(ii) As stipulated in MDRS, the company was to start its manufacturing activity in June, 2007. It is not done so far. It is only using cement mixture machine to make cement bricks for its sister company which is not a scheduled industry covered under the IDR Act. The company was to make ceramics tiles which has not been done so far. This is a major deviation from the scheme. In fact it appears that the company has not implemented the important and major part of the scheme at all.
(iii) The Board had approved this scheme in the hearing held on 7.5.2007 and the scheme period was up to 2009. The scheme period was already over. The company has not approached BIFR either for modification of the scheme or for extension of the scheme. It appears that the company was interested only to seek protection of SICA and was not interested in revival of its industrial activity.
(iv) About 90% of the sale of the company is from real estate and only 10% from other activities which is also not covered under the schedule industry.
Apparently the company is doing only real estate business.
(v) It is also noted that the company is not having factory licence since 2004 and during the inspection WP(C).14887 of 2013 - 60 -
of the IDBI (OA) has revealed that only cement bricks are made by using cement mixture machine for its sister concern and that activity is not covered under schedule industry".
63. Having found the implementation of the scheme to be not proper, the BIFR merely de-registered the Company; thus effacing the entire exercise carried on in the last two and a half decades as also the implementation of three schemes for revival. It is almost akin to putting the clock back, to save time.
64. It is in this context that the prayer made by the 3rd respondent as (c) to (e) in Misc. Application No.478 of 2011 assumes significance. At the risk of repetition, the same is extracted hereunder:
"c. Directions of injury into malfeasance/mismanagement and fraud against persons concerned.
d. Substitute the present management by professional management or appointment of Professional Directors. e. Direct audit of accounts and work by an independent Auditor Chartered Accountant".
65. Whether the said issues could have been raised by the 3rd respondent is a moot question. However, the BIFR necessarily WP(C).14887 of 2013 - 61 -
would have to consider the said issues, since it cannot wash its hands by mere discharge of a Company which was registered under the SICA and three schemes of revival, were sought to be implemented, over a period of 25 years. If the revival of the industrial activity has not been made possible, definitely the BIFR has to examine the aforesaid issues. It is to be emphasised that the issue of net worth having turned positive is not the sole consideration and the most significant aspect would be the revived industrial activity. Funds infused and concessions granted; if have not culminated in the revival of the industry; definitely points to diversion of funds, which the BIFR is competent to address and take action.
66. This Court had appointed a Commissioner, who filed an interim report and a final report, along with photographs. This Court would not, at this stage, look deep into the Commissioner's Report for fear of pre-empting the BIFR. Suffice it to indicate that, as has been noticed by the BIFR, there is no industrial activity of production, carried on in the premises, as scheduled under the IDR Act. The Registry shall forward a copy of the interim report and the final report along with the documents produced with it, submitted by the Advocate Commissioner, to the BIFR. The BIFR shall consider the WP(C).14887 of 2013 - 62 -
matter afresh on the four issues raised in Misc.Application No.478 of 2011 as (b) to (e). Exhibit P10 order of the BIFR is set aside to facilitate such consideration. The parties are relegated back to the BIFR for consideration of the issue as to when the Company's net worth turned positive, if at all it did and whether revival of industrial activity has occasioned at all. The implementation of MRS-07, definitely should result in re-commencing industrial activity. That was the intention of the sale of excess land. If the net worth of the petitioner has turned positive and that is for the reason of the diversification into real estate business, then that should logically result in the rehabilitation of the Company. If the Company is merely discharged from SICA, then that would be an abuse of the procedure under SICA.
67. The Directors cannot be permitted to merely walk away with the sale proceeds and pocket the same. If that is permitted, the concessions, conceded by the State revenue departments and financial institutions, at the stage of implementation of the revival schemes, would have been misapplied, thus resulting in loss to public exchequer.
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68. Though the 8th respondent has specifically urged for an order directing the II Additional Sub Court, Ernakulam to take on file the suit filed by the 3rd respondent and earlier rejected, that is not an issue which would come within the scope of the writ petition which is filed challenging Exhibit P10 and P13 orders of the BIFR and AAIFR. Neither would that be permissible on the findings rendered by this Court on the cancellation of the agreements.
Writ petition, hence, stands allowed on the following terms:
(i) Exhibits P10 and P13 are set aside and the parties are relegated back to the BIFR.
(ii) The BIFR shall specifically consider the implementation of the scheme MRS-07 and if the Directors who were cast with the responsibility of implementation of the scheme have failed to put the funds received from real estate business towards reviving the industry, then the BIFR shall take appropriate action as provided under SICA, specifically under Chapter IV.
(iii) BIFR will also have to consider whether any action or proceedings have to be taken under Section 24 of SICA after looking at the report of the Operating Agency on the actual implementation of WP(C).14887 of 2013 - 64 -
the scheme. The BIFR is also not powerless in so far as effectuating proper implementation of a scheme by adopting the various devices and measures listed out in sub-section (1) and sub-section (2) of Section 18; with emphasis on reviving the industry as such.
(iv) The BIFR shall consider whether the implementation of the scheme MRS-07 is possible at this stage and whether the same can be continued on suitable measures being taken as provided under sub-sections (1) and (2) of Section 18.
(v) The BIFR shall consider the viability of revival based on the observations made by this Court and shall pass an order within a period of six months from today.
(vi) Parties shall suffer their respective costs.
Sd/-
K.Vinod Chandran Judge.
vku/-
// true copy //