Gujarat High Court
Board Opinion vs Hathising Mfg. Co. Ltd. on 15 January, 2003
Equivalent citations: [2003]43SCL146(GUJ)
Author: K.A. Puj
Bench: K.A. Puj
JUDGMENT K.A. Puj, J.
1. The Board for Industrial and Financial Reconstruction, after having conducted an enquiry under Section 16 of the Sick Industrial Companies (Special Provisions) Act, 1985, in accordance with the procedure laid down therein, has recorded an opinion under Section 20(1) of the said Act on 8-3-1999 in Case No. 180/87 that it is just and equitable that M/s. Hathising Manufacturing Company Ltd. should be wound up and the said opinion was forwarded to this Court for taking further action under the law. Based on this opinion, Company Petition No. 106 of 1999 was registered and placed before this Court for taking further action in the matter. On 15-6-1999, a statement was made before this Court by the ld. advocate appearing for the respondent-company that the appeal has been preferred before the AAIFR against the Board's opinion and an application for stay was also moved and on that ground, time was prayed for and same was granted by this Court.
2. While expressing its opinion, the Board has observed that the accumulated losses, as seen from the audited accounts for 1997-98, have further increased by Rs. 141.25 lakhs and that no viable or credible proposal had emerged till date despite further opportunities given to all concerned. The Board has further observed that the promoters were neither serious nor resourceful enough to revive the company which had been before the Board for about 12 years. A package for revival in terms of Section 17(2) of the Act and the subsequent scheme sanctioned by the Board under Section 18(4) of the Act could not also revive the company. As there was no rehabilitation proposal with means of finance fully tied up, for consideration of the Board despite ample opportunities having been given to all concerned, the Bench confirmed its prima facie opinion that the sick industrial company-M/s. Hathising Manufacturing Co. Ltd. was not likely to make its net worth exceed its accumulated losses within a reasonable time while meeting all its financial obligations, and that the company as a result thereof was not likely to become viable in future and that it was just, equitable and in public interest that it should be wound up under Section 20(1) of the Act.
3. The appeal preferred by the petitioner company against this Board's opinion before the appellate authority was dismissed by an order dated 1-11-1999. While dismissing the appeal, the appellate authority have observed that though the principal dues of the IDBI & IIBI are about Rs. 3.60 crores, the total outstanding dues (inclusive of interest etc.) of the financial institutions, SBI & Govt. of Gujarat amount to Rs. 19 crores. The appellate authority have further observed that even if it is assumed that the development of shopping complex will generate a profit of Rs. 5 crores over a period of five years, this would not be sufficient even to defray the interest on the outstanding dues over the said period. The appellate authority have not seen any possibility of enabling company to fulfil its financial obligations. It was further observed that the petitioner's case has been with BIFR for about 12 years and during this period, the dues of the financial institutions have increased considerably. Repeated opportunities given by BIFR did not lead to any workable and successful scheme for the rehabilitations of the petitioner-company. The package of reliefs and concessions approved by the secured creditors prior to 1988 failed to rehabilitate the petitioner company. The scheme sanctioned by BIFR on 24-6-1996 also failed to revive the company. The advertisement given by the Board did not yield any positive development in the form of rehabilitation by change in management. The petitioner-company was too heavily indebted and the proposal presented before the appellate authority by the company did not give any hope of enabling the company to meet its financial obligations. In this view of the matter, the appellate authority have not seen any reason for interference in the order passed by the BIFR and the appeal was dismissed.
4. Being aggrieved by the aforesaid two orders, the petitioner-company has filed Special Civil Application No. 8726/2000 before this court some-
times in May 2000. Likewise, the TLA has also filed Special Civil Application No. 9330/2000 before this court challenging the above referred two orders almost during the same period. It is in this background that all these matters namely; one company petition and two special civil applications are placed for hearing before this Court.
5. As far as Company Petition No. 106/1999 is concerned, several orders were passed by this court from time to time on different proposals given by the petitioner-company and on payment of certain amounts to the secured creditors. On 11-10-2000, this Court has directed the petitioner-company to deposit some amount to test the bona fide of the company so as to consider the scheme proposed by the petitioner. Accordingly, this court has directed the petitioner-company on 20-10-2000, after hearing the submissions at length, to deposit Rs. 15 lakhs before the next date of hearing i.e. 8-11-2000. The petitioner-company miserably failed to adhere to the direction given by this court on 3-5-2001. This Court has directed the company to pay Rs. 5 lakhs on 14-5-2001, next Rs. 5 lakhs on 24-5-2001 and remaining Rs. 5 lakhs on 24-5-2001. On 18-6-2001, the petitioner-company requested for time to forward fresh proposal for settlement. On 25-6-2001, the court granted time to put proposal for settlement within 10 days or to pay Rs. 10 lakhs. On 20-8-2001, the petitioner-company has asked for time to give concrete proposal with a direction to the Financial Institutions to consider the said proposal. This Court has directed the company to deposit an amount of Rs. 7 lakhs. The petitioner-company has deposited Rs. 7 lakhs but the financial institutions have rejected the scheme for settlement and hence, this Court has directed the petitioner-company on 24-9-2001 to put forward a concrete proposal. Thereafter, several proposals were put forward by the petitioner-company which were not found favour with the Banks and financial institutions and hence, the secured creditors have insisted for hearing of the matter on day-to-day basis.
6. Mr. S.N. Soparkar ld. Sr. Advocate appearing for the petitioner-company in Special Civil Application No. 8726/2000 submitted that the order passed by BIFR as well as AAIFR are absolutely illegal and unlawful and they are contrary to the express provision contained in Section 20(1) of Sick Industrial Companies (Special Provisions) Act, 1985. Mr. Soparkar invited the attention of this Court to the provisions of Section 20 which deals with the winding up of Sick Industrial Companies. It reads as under :
"20. Winding-up of sick industrial company.
(1) Where the Board, after making inquiry under Section 16 and after consideration of all the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of the opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court.
7. According to Mr. Soparkar, Section 20(1) of the Act pre-supposes three conditions and all the three conditions are independent conditions and they have to be complied with before forming any opinion about the winding up of the sick industrial company. These three conditions are: (i) the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations; (ii) the company as a result thereof is not likely to become viable in future, and; (iii) it is just and equitable that the company should be would up. The first two conditions are in respect of the financial position of the company, however, the third condition brings within its sweep several other aspects which are to be weighed with the Board while forming an opinion that it is just and equitable to wind up the company. Mr. Soparkar has further submitted that the word "just and equitable" used in that section stand all together on a different footing and they are not used as a result or consequences of the financial break-down of the sick industrial company. These words cast an obligation on the Board to from its opinion after taking into consideration all the relevant facts and circumstances of the case and not merely on the basis that the company is unable to make its net worth exceed accumulated losses within a reasonable time and that the company is not able to be viable in near future. Even if these two conditions are satisfied, but the court is of the view that looking to the workers' interest, social obligation or other relevant factors, it is not just and equitable to wind up the company, in that case, the Board is not supposed to forward its opinion to the High Court for winding up of the sick industrial company. Mr. Soparkar has further submitted that the BIFR has merely reproduced the section while forming its opinion about the winding up of the company and has not at all applied its mind to the just and equitable clause contained in Section 20(1) of the Act. While confirming the order of BIFR, the AAIFR has not at all taken into consideration the third condition regarding just and equitable factor of Section 20(1) of the Act and both the orders are passed without any application of mind and hence, the same are required to be quashed and set aside.
8. Mr. Soparkar has further submitted that it is not obligatory on the part of this Court to accept the opinion forwarded by the BIFR. The entire scheme of the Act does not contemplate a situation where the order passed by the BIFR is automatically binding to this court. The Court is not supposed to act as mere rubber stamp while considering the opinion of the BIFR. In this connection, Mr. Soparkar has relied on the decision of the Madras High Court in the case of (1) J.M. Malhotra v. Union of India [l997] 89 Comp. Cas. 600, wherein it is held that the opinion submitted by the BIFR forms the basis for ordering winding up of the sick industrial company by the High Court, it is nevertheless open to the High Court to go into the correctness of the opinion so submitted by the BIFR and decide as to whether it should proceed with the winding up of the sick industrial company, in accordance with the provisions of the Companies Act. This is clear by the use of the words, "and may proceed and cause to proceed" in Sub-section (2) of Section 20 of the Sick Industrial Companies (Special Provisions) Act. Therefore, it cannot be held that it is obligatory on the High Court to order winding up of the sick industrial company once it receives an opinion from the BIFR in this regard without examining the correctness of such opinion. Mr. Soparkar has further submitted that the Supreme Court while rejecting the SLP against the High Courts' view which had rejected the challenge to the Constitutional validity of Sub-section (2) and held that Sub-section (2) of Section 20 of the Sick Industrial Companies (Special Provisions) Act has to be construed to mean that the High Court in deciding the question of winding up of the company has to take into account the opinion of the Board forwarded to it under Sub-section (1) and is not abdicate its own function of determining the question of winding up.
9. Mr. Soparkar has further relied on the decision of this Court in the case of Board for Industrial & Financial Reconstruction v. Unity Steels Ltd. [2002] 109 Comp. Cas. 236, wherein it is held as under :
"When Section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 provides for tendering of the opinion of the Board for Industrial and Financial Reconstruction for winding up of a sick industrial company, it would necessarily mean that the High Court to whom such an opinion is tendered will be required to follow the procedure with regard to admission of a petition registered as a result of such an opinion tendered under Section 20 of the Sick Industrial Companies (Special Provisions) Act. Otherwise, the role of the High Court would be that of a rubber stamp upon the receipt of the opinion of the BIFR, Section 20(2) of the Sick Industrial Companies (Special Provisions) Act has to be construed to mean that the High Court in deciding the question of winding up of the company has to lake into account the opinion of the BIFR forwarded under Sub-section (1) and is not to abdicate its own function of determining the question of winding up. The mandate of the statute as appearing in Rules 96 and 99 read with Rule 24 of the Companies (Court) Rules, 1959, will stand violated and the very purpose behind the same will also stand defeated, in case a winding up order is passed upon receipt of the BIFR's opinion." (p. 236)
10. Mr. Soparkar has further submitted that so far as the petitioner-company is concerned, it is not just and equitable to wind up the said company as the company is a running unit and its manufacturing activities are going on and about 600 workers are regularly getting their wages from the company. All other statutory dues arc also being paid by the company and the company has repeatedly made proposals for payment of the dues of the secured creditors, however, secured creditors are not prepared to sacrifice looking to the larger interest of the workers and economical revival of the company. In this view of the matter, he has submitted that the opinion given by the BIFR and confirmed by the AAIFR should not be accepted by this Court. Mr. Soparkar has relied on the decision of this Court in the case of Navjivan Trading Finance (P.) Ltd., In re [1978] 48 Comp. Cas. 402, wherein this Court has held that:
"... Winding up is the last thing that the court would do and not the first thing that the court would do having regard to its impact and consequences, for winding up of a company would result in, (1) closing down of a unit which produces some goods or provides some services; (2) it would throw out of employment numerous persons and result in grave hardship to the members of families of such employees; (3) loss of revenue to the State by way of collection that the State could hope to make on account of customs or excise duties, sales tax, income-tax, etc; (4) scarcity of goods and in diminishing of employment opportunities. The court would not, therefore, be too keen or too anxious to wind up a company by an order of court only on the ground that the company is unable to pay its debts. In fact, it would be a blow to do so, so long as there is any possibility of resurrecting the company..." (p. 416)
11. Mr. Soparkar has thereafter relied on the decision of this Court in the case of New Swadeshi Mills of Ahmedabad Ltd. v. Dye-Chem Corporation [1986] 59 Comp, Cas, 183, wherein it is held that:
"Even if there are huge debts, secured as well as unsecured, which, as a matters stand, are far beyond the means of the company, whose winding up is sought, to meet, the company court will exercise a sound discretion in deciding whether to wind up the company or not and in doing so consider many relevant factors. It may be that despite the inability to pay its debts, a company has still prospects of coming back to life and if the court is told of any specific proposal, which in the opinion of the court is likely to materialise, the court will be inclined to give a chance to resurrect the company. It should be the policy of the court to attempt to revive though at the moment the company may not be solvent and may not be able to meet its obligations to its creditors. But this should be done only if it is shown that there is reasonable prospect for resurrection and survival. It may be easy for a court when once it is shown that the company is unable to pay its debts to bury it deep and distribute whatever is available as distributable surplus. But it is the duty of the court to welcome revival rather than affirm the death of the company and for that purpose, the court is called upon to make a discreet exercise." (p. 183)
12. In support of his submission, Mr. Soparkar has relied on the decision of this Court in the case of Rishi Enterprises, In re 1991 (2) 32 GLR 1213 that even in those cases where the company is closed it has been laid down that it is the duty of the court to welcome revival rather than affirm the death of the company. It would not be right to say that creditors can insist on winding up of the company by the court as a matter of right if the position of the company is such that it would be unable to pay its debt to them even if the company can resurrect. The petitioning creditor cannot be permitted to insist for a pound of flesh from the company which may be a death-blow to the company only on the ground that for a temporary period a running company is not in a position to pay the debt.
13. Mr. Soparkar has further relied on the decision of this Court in the case of American Express Bank Ltd. v. Core Health Care Ltd. [1999] 96 Comp. Cas. 841, wherein it is held that as against the creditor's right to get an order of winding up ex debito justittae, where, from the materials it appears that the company is commercially solvent and the present state of affairs is the result of a temporary set back in business, or where the court is satisfied that the petitioner holds security for his debt and that security is sufficient to pay the debt by realisation of security, and he has a right even after the winding up order is made to remain outside the winding up and realise his dues directly, the court may be satisfied that a winding up order is not envisaged in a situation, where, on principle the order would not benefit the petitioner, nor the company's creditors generally.
14. Lastly, Mr. Soparkar has relied on the decision given by the Division Bench of this Court in the case of Tata Iron & Steel Co. Ltd. v. Micro Forge (India) [2000] (2) 41 GLR 1594, wherein this Court has articulated certain important chronicles and contours to be kept in the mental radar before reaching to the conclusion in a winding up petition, which, inter alia, includes that:
(1) If the company is an ongoing concern having regular business and employment of employees, the court cannot remain oblivious to this aspect. The effect of winding up would be of putting an end of the business or an industry or an entrepreneurship, and in turn, resulting into loss of employment to the several employees and loss of production and effect on the larger interest of the society.
(2) Winding up of a company, as such, is nothing but a commercial death or insolvency, and therefore, the Company Court is obliged to take into consideration not only the temporary inability, or disability to make the payment of debts, but the entire status and position of the company in the market.
(3) Though, ordinarily, an unpaid creditor may aspire for an order of winding up, then "ex debito justtciae" rule is not of inflexible mandate, but is, as such a matter of discretion of the Court.
(4) Section 433 is also indicative of the fact that even if one or more grounds mentioned in Section 433 exist, it is not obligatory for the Court to make an order of winding up. The court has discretionary power. The Court must in each case exercise its discretion in deciding whether in the circumstances of the case, it would be in the interest of justice to wind up the company. It is a well-known rule of prudence that even in case where indebtedness to the petitioning person is undisputed, the court does not pass an order for winding up where it is satisfied that it would not be in the larger interest of justice to wind up the Company.
(5) It is, also well-settled that a winding up order shall not be made on a creditor's petition, if it would not benefit him or the company's creditors in general.
(6) The Court is also obliged to consider that, it would be in the interest of justice to give the Company sometime to come out of the momentary financial crisis or any other temporary difficulty as winding up is a measure of last resort.
(7) Winding up course cannot be adopted as a recourse to recovery of the debt.
(8) It is also necessary to consider whether the respondent-company has become defunct or has closed its business for quite sometime, whether it is commercially insolvent. For the purpose of finding commercial insolvency, a mere look into the financial data is relevant to examine about its soundness. In all matters relating to winding up, the court may have regard to the wishes of the creditors and contributories and may, if necessary, ascertain their wishes appropriately. If the company is solvent, the wishes of the contributories would carry more weight as they arc persons, mainly, interested in the assets.
(9) The element of public policy in regard to commercial morality has, likewise, to be taken into account before determining the winding up issue. The Court has also to consider the purpose and policy behind Sections 433 and 557 of the Companies Act.
(10) Winding up is the last thing the Court would do and not the first thing to do having regard to its impact and consequences. Winding up of a company would ensue :
(a) closing down of a company which is engaged in production or manufacture or which provides some services;
(b) it would throw out of employment numerous persons and result in gross hardship to the members of families of the employees;
(c) loss of revenue to the State by way of collection of taxes which otherwise should have been collected, on account of customs, excise duties, sale tax, income tax etc.
(d) scarcity of goods and diminishing of employment opportunities.
15. On the basis of the aforesaid submissions as well as authorities relied upon by Mr. Soparkar, he has strongly urged that the opinion given by the BIFR with regard to the winding up of the petitioner company should not be accepted and even if this Court is not inclined to accept his submission, the matter may be remanded to BIFR for considering the issue regarding just and equitable clause contained in Section 20(1) of the Act as both the authorities have miserably failed to consider this aspect of the matter.
16. So far as Special Civil Application No. 9330 of 2000 filed by TLA is concerned, Mr. D.S. Vasavada ld. advocate appearing for the petitioner submits that the order passed by the BIFR as well as AAIFR are absolutely illegal, arbitrary and in contravention of Articles 14 and 21 of the Constitution of India. He has further submitted that both the authorities have acted contrary to the judgment delivered by this Court in the case of Textile Labour Association v. State of Gujarat [1995] 1 GLH 12, wherein it is held that in view of the express language of Article 21 of the Constitution of India, it is clear that the said Article is not restricted for enforcement against the State only and Article 226 also provides for issuing writ under Article 226 of the Constitution for enforcement of Fundamental Rights to any person who need riot be an authority of the State and it can be a private party. The Court has further observed that the question involved in the petition is of right to life and livelihood of 2700 workmen and their families. The Court cannot be oblivious of the fact that on account of closure of numerous mills in Ahmedabad, utterly miserable conditions have resulted for the families of the unemployed workmen. There have been instances of suicides because of utter economic hardship on account of unemployment of such mill workers. There have been cases of premature deaths because of lack of economic support, medical treatment and medicines. Many other undesirable consequences flow even driving the people to criminal activities including prostitution. In such miserable circumstances, if right to livelihood and a bare necessity of human dignity cannot be enforced, though guaranteed by the Constitution, the Court cannot justify its existence for the enforcement of Fundamental Rights.
17. Mr. Vasavada further submitted that since the production has been continued by the company and the workmen/employees are also paid wages regularly, it is in the interest of the society at large that the winding up order should not have been recommended by the authorities. Mr. Vasavada further submitted that both BIFR as well as AAIFR have not taken into consideration very fact that the economic life of more than 600 workers are involved and hence they should not have recommended the winding up of the company. In sum and substance, Mr. Vasavada has supported that the stand taken by the company and the arguments canvassed by Mr. Soparkar on behalf of the company.
18. Mr. Sandeep Singhi and Mr. R.M. Desai ld. advocates appearing on behalf of the secured creditors have supported the orders passed by the authorities and submitted that the Board's opinion should be accepted by this Court and both the special civil applications filed by the company as well as by the TLA should be dismissed. It is submitted on behalf of the secured creditors that the petitioner-company was declared as sick industrial company by BIFR vide its order dated 12-1-1998. The BIFR thereafter, approved and continued ongoing modernisation-cum-rehabilitation scheme sanctioned earlier by the financial institutions/banks. Further reliefs as well as concessions were given by the financial institutions arid the repayment schedule were revised with an intention to see that the company is revived. However, in spite of these concessions, the petitioner-company's performance remained dismal and it defaulted in repayment of the assistance provided even as per the revised schedules. It is further submitted that the IDBI was appointed as operating agency under Section 17(3) of the Sick Industrial Companies (Special Provisions) Act, 1985 to examine the viability and prepare a scheme for rehabilitation of the company. Thereafter, the rehabilitation package was worked out, inter alia, envisaging a One Time Settlement, of dues of the financial institutions. The said Scheme was sanctioned by the BIFR on 26-4-1996, however, the company could not implement the said scheme and it was declared as failed by the BIFR vide its minutes dated 18-2-1998. It is further submitted that another scheme proposed by the financial institutions has also failed and ultimately the BIFR concluded in clear term that the promoters were neither serious nor resourceful to revive the company and gave a prima facie opinion for winding up the affairs of the company at its meeting held on 29-6-1998. Even thereafter, one more opportunity was given to the company to present a viable scheme vide its order dated 10-9-1998 and the promoters have failed to present viable revival scheme. After taking into consideration all these efforts and endeavours made by the financial institutions to allow the promoters of the company to revive the company and ultimately when they have failed, the BIFR has finally expressed its opinion vide order dated 8-3-1999 to wind up the company. Before AAIFR also adequate opportunities were given to the company. The proposals given by the company did not lend any support and hence AAIFR has come to the conclusion that the proposal put forward by them do not enable the company to fulfil its financial obligations. Even review application filed against the order of AAIFR also came to be rejected on 7-1-2000.
19. Mr. Singhi has further submitted that it is not even correct that the conditions laid down in Section 20(1) have not been fulfilled so as to justify the conclusion drawn by BIFR as well as AAIFR to wind up the petitioner-company. He has further submitted that both the authorities were mindful of the fact that case was pending before the BIFR for more than 3 2 years and several opportunities were given for revival of the company. Different schemes were proposed and all of them have failed. The just and equitable clause contained in Section 20(1) of the Act should not read in isolation but the implication thereof should be viewed in the light of the earlier two conditions laid down in the section as well as in the background of the entire proceedings conducted before the BIFR. As the authorities have precisely done the same thing before arriving at the conclusion that it is just and equitable to wind up the company.
20. In support of his submission, Mr. Singhi has relied on the decision of the Orissa High Court in the case of Orissa Vegetable Oil Complex Ltd. v. Board for Indus trial & Financial Reconstruction AIR 1999 Ori. 40, wherein the court has taken the view that it cannot be denied that the basic idea is to revive sick units, if necessary, by extending further financial assistance after thorough examination of the Unit by experts and only when the unit is found to be no more capable of rehabilitation, the option of winding up may be resorted to. But, the question is, should financial assistance be provided time and again and every time the unit becomes sick or is there a stage at which it has to be stopped. According to the petitioner, it should go on and on, whereas according to the opp. parties it can go on up to a particular stage and no further. Indeed, keeping in mind the intention of the Legislature a unit should be assisted up to a point and up to a particular limit but further assistance or rehabilitation has to be stopped at a point of time and this is a question that can best be determined by those who understand the problems - those who possess expertise in the field. In the case at hand, the Board after taking all aspects into consideration has come to a prima facie opinion that it is not feasible to revive or rehabilitate the company. It was, therefore, prima facie of the opinion that it would be just and equitable to wind up the sick industrial company as the promoters are not in a position to garner the funds required for financing the cost of the scheme framed under Section 18 of the Act. The order has been passed after taking all relevant aspects that need to be considered in the matter like the one at hand.
21. Mr. Singhi has further relied on the decision of this Court in the case of Board Opinion v. Rajprakash Spg. Mills Ltd. [2000] 102 Comp. Cas. 276, wherein this Court has given several reasons while accepting the Board Opinion, as confirmed by the appellate authority, which inter alia, includes that the respective expert bodies had considered the scheme suggested by the company on the merits and found that the same was not viable. Therefore, it was not possible to hold that the opinion of the BIFR was palpably wrong or was such that no reasonable man of ordinary prudence would reach such a decision. This court has further held that even on independent assessment of the material on record, the inescapable conclusion was that it was just and equitable that the company should be wound up as the company was unable to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and as a result thereof the company was not likely to became viable in future.
22. Mr. Singhi has further relied on the decision of this Court in the case of Madhu Fabrics Ltd. v. State Bank of India [2001] 107 Comp. Cas. 487, where the order of the Board for Industrial and Financial Reconstruction showed that ample opportunities had been given to rehabilitate the petitioner-companies but that the promoters were either not serious enough or resourceful enough to mobilise funds required for rehabilitation and that no rehabilitation proposal with means of finance fully tied up was put up, despite ample opportunities having been granted. It is held by this Court that no illegality had been committed by the BIFR or the AAIFR nor was it shown that the orders were mala fide, warranting interference in the matter.
The Court has further held :
(i) That the petitioner-companies, having filed a scheme and sought directions in respect thereof under Section 391, had waived their right to challenge the orders of the BIFR and the AAIFR. Moreover, in spite of ample opportunities no scheme for rehabilitation was presented. The presentation of the scheme for rehabilitation by way of draft amendment in the main petitions was nothing but a further attempt to continue the proceedings and thereby to take advantage of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985.
(ii) That in the name of the workers, who were quite few in number, the manufacturing activities could not be allowed to continue, especially when the dues of the financial institutions and secured creditors running into crores of rupees remained outstanding. These workers could be re-employed by the new management provided the running concern was taken over.
(iii) That no purpose would be served by remanding the matter to the BIFR for passing a fresh order on reconsideration especially when the secured creditors who were a class by themselves present in the court were objecting per se to sanction of the scheme.
23. I have heard the ld. advocates appearing for the respective parties and I have also gone through the orders passed by the authorities below and the pleadings of the parties. It is true that the opinion expressed by BIFR is not binding to this court and the court has to take an independent decision after evaluating the facts placed before it as well as after considering the reasons given and conclusion drawn by the authorities below while recommending the winding up of the sick industrial company. However, looking to the facts of the present case, the court is of the view that the orders passed by the authorities below cannot be considered to be in violation of the provisions contained in Section 20(1) of the Act. As observed earlier, Section 20(1) contains three conditions and the Board has to be satisfied about the fulfilment of all the three conditions. There is no dispute even according to the petitioner that condition Nos. 1 and 2 are unquestionably satisfied. The net worth could not exceed the accumulated losses within a reasonable period as ample opportunities were given to the company over the long span of more than 12 years. There is no possibility of reviving the company in the near future as the dues of the secured creditors were mounting up whereas the net worth of the company is totally eroded or virtually reduced to a very negligible amount. The running of the unit or manufacturing activities or production made by the company cannot be placed as an umbrella or shelter of a sick unit. The company is running and workers are paid only because company is not fulfilling its obligations towards the secured creditors. Loan and advances given in the years 1986 to 1988 have not been paid and in the process the net worth of the company was completely eroded. One limb of the society cannot be and should not be benefited at the cost of the other limb. If the company is not in a position to satisfy the dues of the secured creditors, the company cannot make an excuse that since it has been paying the wages regularly to the workers, it should be allowed to continue. All the authorities cited by the ld. advocate appearing for the petitioner are on the points that sufficient opportunity should be given to the company for revival, but it does not mean that the secured creditors should be asked to wait for indefinite period. The funds provided by the secured creditors to the sick unit are also public funds and if the recovery is not enforced or their funds are blocked for indefinite period, the public at large would be a sufferer. The non-performing assets of the banks and financial institutions are mounting up only because of blocking of funds mainly in the corporate sector. If the recovery is stopped and the sick companies are allowed to run, the ultimate outcome would be a closure of the banks and financial institutions. It is in this background that the opinion formed by BIFR and AAIFR appears to be just and equitable and they have not committed any error in forming their opinion. This court has rightly taken the decision in the case of Rajprakash Spg. Mills Ltd. (supra) as well as Madhu Fabrics Ltd. (supra) while accepting the Board opinion. This court is in complete agreement with the reasonings given in these two decisions and based on this, accepts the opinion given by the Board with regard to the winding up of the company.
24. In the light of the aforesaid discussion, both the special civil applications are dismissed. However, this Court is not inclined to pass winding up order straightway as before passing the order, the legal formalities are to be observed. Considering the provision contained in the Companies Act, 1956, this Court is admitting Company Petition No. 106/1999 and pass the order with regard to the publication of the advertisement in the two newspapers, one in English Daily namely "Indian Express", Ahmedabad Edition and other Gujarati Daily namely "Jansatta-Loksatta", Ahmedabad Edition. The final hearing of this petition is fixed on 26-2-2003.
25. The IDBI is directed to publish the advertisement with regard to the admission and final hearing of the petition on 26-2-2003. Before parting with this judgment, it is necessary to clarify that the court has not straightway passed the order of winding up though in the given facts and circumstances of the case, such an order could have been passed and the facts and circumstances of the present case warrant this court to pass such an order, however, since the company is working and workmen are being paid their wages regularly, the court thinks it fit and proper to impose the conditions on the company to pay equivalent amount to the secured creditors in their respective proportion which company is paying to the workmen every month. The company is, therefore, directed to place the monthly pay bills of the workers for the month of January 2003 before the court on the next date of hearing i.e. 26-2-2003 and also place on record that the equivalent amount is paid to the secured creditors. This arrangement is not only for a period of one month, but till the dues of the secured creditors are paid, this arrangement is directed to be continued and if any breach is committed at any point of time of this arrangement, the company would be ordered to be wound up. Accordingly, Special Civil Application Nos. 8726 of 2000 and 9330 of 2000 are hereby dismissed and Company Petition No. 106/1999 is admitted and ordered to be advertised in the above terms.
Further Order After the judgment is pronounced today, Mr. Chudgar, ld. advocate appearing for the Company in Company Petition No. 106 of 1999 and Mr. D.S. Vasavada, ld. advocate appearing for the respondent No. 7 requests to grant stay against the operation of the judgment. Mr. Roshan Desai, ld. advocate appearing for the IDBI and Mr. Sandeep Singhi, ld. advocate appearing for IIBI have objected to against granting of stay against this judgment. Mr. Singhi has submitted that this Court has imposed the condition failing which the winding up order would be required to be passed and if the winding up order is passed, that would relate back to the date of forming of opinion by BIFR and in that case any payment made to the workers would get preferential treatment. He has therefore submitted that if at all this Court is inclined to grant stay against the operation of the order, the workers should also not be paid any amount during this period.
I have heard the ld. advocates appearing for the respective parties on this point and I am of the view that the order regarding admission and advertisement is required to be stayed up to 31st January, 2003. However, this Court is not inclined to grant any stay against the condition which is to be fulfilled with regard to the payment made to the secured creditor. The IDBI which is the operating agency is therefore directed not to issue any advertisement regarding admission and final hearing of this petition till 31st January, 2003.