Calcutta High Court (Appellete Side)
For The vs The Institute Of Chartered Accountants on 26 February, 2010
Author: Dipankar Datta
Bench: Dipankar Datta
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26.2.2010 W.P.No.3085 (W) of 2010
with
CAN 1413 OF 2010
Mr. S.K. Kapoor,
Mr. D. Basak,
Mr. D. Jain
...for the petitioner
Mr. S.N. Mukherjee,
Mr. S. Sen
...for the respondent no.2
Mr. M. Jain, Mr. S. Dutta, Md. Shakil ...for the respondent no.3 Mr. A.K. Mitra, Mr. P.P. Banerjee, Mr. S. Sharma, Mr. A. Das, Mr. S. Sengupta ...for the respondent no.4 Mr. S.C. Prasad ...for the respondent no.11 Mr. J.R. Chatterjee ...for the respondent no.13 Mr. A.K. Banerjee, Mr. A. Chatterjee, Mr. S. Sengupta, Mr. S. Chatterjee ...for the respondent no.14 Mr. B. Mitra, Mr. S. Ray ...for the respondent no.16 Mr. P.S. Sengupta, Mr. A. Roy, Ms. S.Kar Ghosh ...for the applicant/Union The petitioner challenges order dated 14.1.2010 passed by the Appellate Authority for Industrial & Financial Reconstruction (hereafter the AAIFR) on an appeal under Section 25 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereafter the SICA) against the order dated 5.9.2008 passed by the Board for Industrial & Financial Reconstruction (hereafter the BIFR).
It is not in dispute that the main contesting parties have initiated several proceedings before different fora. I need not refer to all such proceedings in great detail at this stage. For the purpose of considering admission of the 2 writ petition and the issue of grant of interim relief, I have noticed the facts leading to the appeal, referred to above, before the AAIFR.
To put it briefly, it appears that during 1988-89 the respondent no.4 (the Godha Group) had taken over management of the petitioner; that the petitioner, on 9.2.1990, was referred to the BIFR (Case No.122/1989); that a scheme was framed by the operating agency viz. IDBI, under Section 17(2) of the SICA; that on 15.3.1994 the BIFR directed preparation of a new scheme under Section 17(3) of the SICA, the earlier scheme having failed; that insurance claim had been raised in the meantime in respect of a fire that broke out in the mill of the petitioner on 16.2.1993 which, however, was rejected by the Insurance Company pursuant whereto proceedings reached the National Consumer Disputes Redressal Commission; that the mill of the petitioner was closed down in November, 2001 and suspension of work was declared due to labour unrest; that three additional directors were inducted on 9.10.2002 and 72% share holding was transferred in favour of Ashok Kala group, the group allegedly in management of the petitioner now; that according to the Godha group, documents were fabricated resulting in change of shareholding illegally and fraudulently; that the National Commission by its order dated 19.5.2005 determined on contest that in the proceedings relating to the insurance claim the petitioner 3 would be represented by the Kala group and not the Godha group; that proceedings that were earlier initiated by UCO Bank before the Debts Recovery Tribunal were compromised and settled by and between the Bank and the Kala group representing the petitioner by a one-time settlement under which payments were made by the Kala group to the Bank; that pursuant to an understanding, a tripartite agreement/deed of assignment was executed on 8.12.2006 by the petitioner, the IDBI (the assignor) and the respondent 2 herein, Uniglobal Papers (P) Limited (hereafter Uniglobal) (the assignee) for Rs. 120.85 lacs under which the debts were assigned to Uniglobal and assets of the petitioner were sold to Uniglobal; that such transfer was admittedly not effected with the permission of the BIFR; that an order dated 8.3.2007 was passed by the BIFR restraining the petitioner not to dispose of its assets without the consent of the BIFR and its secured creditors; that the insurance claim was allowed on 4.12.2007 by the National Commission and a sum of Rs. 3.12 crores was directed to be paid by the Insurance Company; that a proceeding was initiated before the Company Law Board (hereafter the CLB) being CP No.210 of 2007 by the Godha group, alleging that the Kala group had illegally and fraudulently transferred substantial shares to itself and their associates and that the composition of the Board had been changed with a view to sell out substantial assets of the petitioner, with the prayer to declare that transfer of 4 shares is null and void and that sale and transfer of the assets of the petitioner is also null and void; that on such petition an order dated 20.12.2007 was passed by the CLB directing that without its permission the respondents before it shall not effect any change in the status quo with regard to either the shares or the fixed assets of the petitioner, and that in so far as the insurance claim is concerned the respondents would be at liberty to use the same towards payment of statutory dues, if any, but for any other payment the permission of the Board should be obtained; and that by an order dated 5.9.2008 the BIFR discharged the petitioner from the purview of the SICA taking note of disposal of its assets including the factory prior to the Board's order dated 8.3.2007, passed in exercise of power conferred by Section 22A of the Act.
This order of the BIFR was the subject matter of challenge before the AAIFR.
According to the AAIFR, the following questions arose for its consideration:
"i. Whether during the pendency of the DRS for consideration in a reference case before BIFR, the change of management from Godha Group to Ashok Kala Group and subsequently to M/s Uniglobal P. Ltd. can take place without the permission of the BIFR under the provisions of SICA;
ii. Whether the impugned order dismissing the reference is valid?
iii. Whether similar relief can be granted by BIFR, after the withdrawal of the declaratory suit by Godha Group from the Kolkata High Court? iv. Whether BIFR has failed to hear and decide the applications filed by the appellant as well as by IDBI and UCO Bank and thereby violated 5 the principles of natural justice and the basic object of SICA?"
Operative part of the order dated 14.1.2010 of the AAIFR reads as follows :
"Considering the totality of the facts and circumstances of the case and after considering various arguments raised by the parties, we are of the view that the change of management from Godha Group to Ashok Kala Group and subsequently to M/s. Uniglobal Papers (P) Ltd without the permission of the BIFR cannot be recognised and is not binding on the BIFR. The question of transfer of shares is already pending before the CLB, subsequent transfer of property in favour of M/s. Uniglobal Papers (P) Limited after change of management is also not binding on the BIFR. Consequently, the BIFR can only recognise the management of Godha Group, which existed at the time of filing of the reference and formulation of the DRS before the change of management of UPML to Ashok Kala Group and therefore, we are of the view that the management and possession of assets of the UPML should be restored to Godha Group. The amount of Rs. 50 lakhs deposited by the Godha Group in an NLA Account with OA is to be utilized for the revival of the company and if not, the same shall be refunded to them. We have also observed that the dismissal of reference is not proper after the declaration of the company as a sick industrial company in terms of section 3(1)(o) of SICA. The reference cannot be deregistered once the company is declared as sick. Therefore, under the circumstances, we allow the appeal, set aside the impugned order and remand the case to BIFR to consider the formulation of a fresh or modified DRS within a period of 3 months from the date of communication of this order and, thereafter, proceed further to finalise the DRS in accordance with law."
The selfsame order of the AAIFR has been subjected to challenge before this Court by Uniglobal in W.P. No.1191 (W) of 2010. On 28.1.2010, a learned Judge of this Court while admitting it passed the following interim order :
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"In the meantime, let there also be an interim order directing the parties herein to maintain status quo with regard to the possession of the assets and properties of the Universal Paper Mills Ltd. until further order and no further steps should also be taken for restoration of the possession of the assets of the said Universal Paper Mills Ltd. to Godha Group pursuant to the impugned order passed by the AAIFR until further order in the event the same has not yet been restored".
It has been represented before me in course of hearing that the respondent no.s 3 and 4 have approached the Delhi High Court with an independent writ petition claiming certain relief which, according to them, ought to have been granted by the AAIFR while allowing the appeal. On such petition notice has been issued on 27.1.2010 and the petition has been made returnable on 7.4.2010.
I have also been informed of institution of proceedings under Article 139A of the Constitution read with Section 25, Civil Procedure Code by the respondents no.3 and 4 before the Supreme Court praying for transfer of W.P. No. 1191 (W) of 2010 from this Court to the Delhi High Court, registered as Transfer Petition (Civil) No.151 of 2010. By order dated 19.2.2010, notice has been issued returnable in four weeks.
I have heard Mr. Kapoor, Mr. Mukherjee, Mr. Mitra (duly assisted by Mr. P.P. Banerjee, learned Advocate), Mr. Chatterjee and Mr. Banerjee, learned Senior Advocates representing the petitioner, the respondents 2, 4, 13 and 7 14 respectively as also Mr. Jain and Mr. Prasad, learned Advocates for the respondents 3 and 11 respectively.
I have also heard Mr. Sengupta, learned Advocate appearing in support of the application for addition of party, being CAN 1413 of 2008, filed by the Union of a section of employees owing allegiance to the Godha group.
Mr. Mitra raised preliminary objection in respect of maintainability of the writ petition. According to him, the present petition has been filed in gross abuse of the process of law. He relied on the decision of this Court dated 27.7.2009 on W.P. No.7034 (W) of 2009 (Harsh Vardhan Lodha vs. The Institute of Chartered Accountants of India & ors.) in support of his submission that successive writ petitions on the selfsame cause of action would not be maintainable. It was also contended by him that the petitioner did not approach the Court of Writ with clean hands and, therefore, is not entitled to equitable relief.
He thereafter argued on the merits of the petition. Contentions that were raised before the learned Judge on 28.1.2010 in connection with W.P.No.1191(W) of 2010 were reiterated before me.
First, I shall consider the objection that the petitioner has abused the process of law. The impugned order of the AAIFR obviously has affected the legal rights of Uniglobal as well as the present petitioner. They have distinct causes of action to move the Court. Institution of 8 separate writ proceedings by them for enforcement of their respective rights cannot amount to abuse of the process of law by the petitioner. In Harsh Vardhan Lodha (supra), it was found that during the pendency of the first writ petition, a second writ petition was moved by the self same petitioner on a cause of action which was not distinct from the earlier one and in such circumstances, for reasons recorded therein, the Court held the second writ petition to have been filed in gross abuse of the process of law. I have failed to find the materiality of the ratio laid down in the said decision to the facts of the present case.
The other objection raised on behalf of the respondent no.4 that the petitioner did not approach this Court with clean hands is now taken up for consideration.
It appears that the present petition was moved ex parte on 12.2.2010 before a learned Judge of this Court, having determination for that day to hear it in my absence. A limited interim order was granted, till 19.2.2010, staying further operation of the impugned order. The AAIFR having passed the impugned order on 14.1.2010, I am convinced that there was no real urgency in moving the writ petition ex parte on 12.2.2010. Despite the same, nothing turns on it. I did not extend the limited interim order passed by the said learned Judge; instead I have applied my mind independently, upon hearing all the parties who chose to advance arguments before me, while 9 considering whether the petitioner is entitled to fresh interim order or not. The benefit that the petitioner intended to reap by moving the petition ex parte does not survive now. I, therefore, do not consider that the petitioner is disentitled to have his prayer for grant of interim relief considered by me uninfluenced by whatever means he adopted initially to steal a march over the respondents 3 and 4.
The preliminary objection, according to me, is without substance and, accordingly, stands overruled.
For the purpose of deciding whether interim relief ought to be granted or not, I have looked into the contents of the writ petition, the short affidavit filed on behalf of the respondent no.4 as well as the petitions filed before the Supreme Court and the Delhi High Court, referred to above.
It was contended on behalf of the petitioner before the AAIFR that transfer of assets and change of management of a sick industrial company referred to the BIFR prior to any order being passed by the BIFR under Section 22A of the SICA is not impermissible since there is no specific statutory bar. Reliance in this connection was placed on the decision of the Supreme Court reported in (1995) 4 SCC 276 (U.P. State Sugar Corporation Ltd. vs. U.P. State Sugar Corporation Karmachari Association & ors.). In paragraph 23 of the said decision, reasons which weighed in the mind of the Hon'ble Judges of the Supreme 10 Court for declining to concur with the views of the High Court were recorded. Paragraphs 22 and 23 of the decision being relevant are quoted below :
"22. According to the learned Judges of the High Court the limitation on the right of a sick industrial company or a potentially sick industrial company to dispose of its assets flows from the pendency of the proceedings under Sections 16 and 17 of the Act and they have not placed reliance on Section 22-A for such a limitation. They have observed :
'During the pendency of proceedings either under Section 16 or consideration of any scheme under Section 17, in the examination of the sickness of a sick industrial company, or, for that matter, a potentially sick industrial company within the meaning of Chapter IV, alienation of assets is not envisaged under the Act of 1985. Equity prohibits it.
This is a rule of common sense and prudence that the substratum or the equity base of a company must not be reduced while a special statutory authority (the Board) examines the matter of industrial sickness. It is only this examination which permits the Board to come to a conclusion after having gone through the experience which is presented under the Act to either make arrangements for the rehabilitation of a company or to recommend winding up of a company, when the circumstances are such that the erosion of its assets is of no avail, implying thereby that the sickness is terminal and its death is imminent. The power of the Board to revive a company cannot be interfered with by alienation of its assets as that would tantamount to violation of the law, i.e., the Act of 1985'.
23. We find it difficult to subscribe to this view. It runs counter to the express terms of Section 22-A of the Act which confers a limited power on the Board to pass an order prohibiting a sick industrial company from disposing of its assets only during the period specified in clauses (a) and (b). Except when the Board passes an express order in accordance with the provisions of Section 22-A, it is not possible to infer a limitation from the provisions of the Act on the right of a sick industrial company or a potentially sick industrial company to dispose of its assets. Insofar as a potentially sick industrial company is concerned, there appears to be no reason why such a company, in order to revive itself, should not be able to dispose of its assets. The High Court, in our opinion, was in error in holding that the Corporation was not competent to sell the 8 sugar mills which it was proposing to sell in view of the provisions contained in the Act. The judgment of the High Court cannot, therefore, be upheld and the appeal must be allowed."
11Although the decision in U.P. State Sugar Corporation Ltd. (supra) was cited before the AAIFR, it did not care to advert to it. Instead, while deciding the first issue formulated by it supra, it proceeded to record as follows :
"18.*** BIFR and AAIFR have consistently held that when a DRS is pending for consideration, there cannot be any change of management by the company without the permission of the BIFR. This is because...............It has been consistently held by this Authority that a company, which is under SICA and for which a rehabilitation scheme is under preparation cannot be permitted to change its own management without the permission of the BIFR.*** ***".
The AAIFR also relied on a Division Bench decision of the Delhi High Court dated 11.4.2008 on W.P. (C) No.8048/2007 (Arrow Syntex Pvt. Ltd. & ors. vs. AAIFR & ors.) wherein it was held as follows :
"5. We have given our careful consideration to the submissions made at the Bar and perused the record. The BIFR was, in our opinion, perfectly justified in declining to recognize the agreement executed between the two groups which was unsupported by the prior permission of the BIFR and indeed amounted to a back door change of the management of the company during the pendency of the proceedings before the Board. The company having been declared to be a sick industrial company, any scheme or arrangement intended to revive or rehabilitate the same had to be only in accordance with the provisions of the Act and under the supervision of the Board. It is evident from a plain reading of Section 17 and 18 of the Act thaty the Scheme prepared by the operating agency had to be examined by the Board and sanctioned with or without modification after taking into consideration the suggestion received from the sick industrial company and the operating agency as also from the transferee industrial company and any other company concerned in the amalgamation or from any shareholder, creditor or employee of such companies. What is important is that in terms of Section 18(8) of the Act, on and from the date of the coming into 12 operation of the sanctioned scheme, the same becomes binding on the sick industrial company and the transferee company or, as the case may be, the other company and also on the shareholders, creditors, guarantors and employees of the said companies. Any difficulty arising in giving effect to the provisions of the sanctioned scheme can also be removed only by the Board on the recommendations of the operating agency or otherwise by an order that the Board may pass. Suffice it to say that the process of formulation of the scheme and its sanction and implementation and matters relating thereto are all regulated by the provisions of the Act and had to be completed under the directions of the Board. Any arrangement which the Directors of the two companies, namely, the petitioner no.1 and respondent No.3 in the present case may have entered into without approval of the BIFR would therefore fall foul of the scheme and spirit of the Act and could therefore be ignored by the Board as it indeed has done in the instant case."
In course of hearing, the contesting parties placed before me order dated 3.10.2008 passed by the Supreme Court on the Special Leave Petition filed against the aforesaid decision of the Delhi High Court. The order reads thus :
"Special Leave Petitions are dismissed. However, if the petitioner now seeks to enter into an agreement with the sick company, it can do so only after making the operating agency a party to the new agreement and, thereafter, move the BIFR for appropriate orders."
The aforesaid order of the Supreme Court, in my opinion, does not lay down a principle of law having the effect of binding precedent under Article 141 of the Constitution.
According to Mr. Banerjee, assisting Mr. Mitra, the decision in U.P. State Sugar Corporation (supra) stands impliedly overruled by a three judge bench decision of the 13 Supreme Court reported in (2008) 7 SCC 619 (Tata Motors Ltd. vs. Pharmaceutical Products of India Ltd.) and, therefore, omission of the AAIFR to advert to the decision in U.P. State Sugar Corporation (supra) should really be of no consequence while I decide the issue of legality and validity of the impugned order.
By relying on the short affidavit filed on behalf of the respondent no.4, it was contended by him that the order of the AAIFR had been implemented inasmuch as the management of the petitioner had been restored in favour of the Godha group and, therefore, I ought not to grant interim relief by unsettling the position as it stands now.
Mr. Banerjee and Mr. Sengupta echoed the submissions of Mr. Banerjee.
According to Mr. Kapoor, the decision in U.P. State Sugar Corporation (supra) was not even referred to in the decision in Tata Motors (supra). The said decision still holds the field and the question of it being overruled, either expressly or impliedly does not at all arise.
Having perused the decision in Tata Motors (supra) as well as the decision of the Supreme Court reported in (2005) 8 SCC 219 [NGEF Ltd. vs. Chandra Developers (P) Ltd.] which has been quoted extensively therein, I find that the issues that fell for consideration there were entirely different, viz. between the SICA and the Companies Act, which one would have primacy. I am thus unable to hold that the decision in U.P. State Sugar 14 Corporation (supra) has been impliedly overruled; on the contrary, the ratio thereof does not even seem to have been diluted. I, therefore, accept the contention of Mr. Kapoor that the decision in U.P. State Sugar Corporation (supra) is binding on me under Article 141 of the Constitution.
I have found it incomprehensible as to how the AAIFR could have relied on its own decision given previously and the decision in Arrow Syntex (supra) rendered by the Division Bench of the Delhi High Court in preference to the decision in U.P. State Sugar Corporation (supra). I consider it to be gross impropriety on its part to turn a blind eye to the said decision and to take a view that runs counter to it.
Sale of the assets of the petitioner in terms of the tripartite agreement/deed of assignment referred to above without the permission of the BIFR purporting to sell the shares of the petitioner to Uniglobal does not stand vitiated in the absence of permission granted by the BIFR and to this extent I hold that the AAIFR has committed a jurisdictional error in taking a view to the contrary.
In my opinion, the view taken by the Delhi High Court in its decision in Arrow Sintex (supra) is inconsistent with the law declared by the Supreme Court in U.P. State Sugar Corporation (supra) and mere dismissal of the Special Leave Petition filed against it with 15 the incidental direction cannot erode the efficacy of the decision in U.P. State Sugar Corporation (supra).
On this ground alone, I am inclined to hold that the petition deserves to be admitted and a strong prima facie case for grant of interim order has been made out.
The writ petition is admitted. For the reasons aforesaid, I direct that the order of the AAIFR impugned herein shall not be given any further effect until further orders of this Court.
Since the order of the AAIFR did not direct the petitioner to hand over management to the Godha group but observed that management and possession of assets thereof should be restored to the Godha Group, steps taken by the respondents 3 and 4 as disclosed in the short affidavit are again, prima facie, unauthorised and to obviate any further confusion, it is further directed that the status quo that was prevailing on the date the AAIFR passed the impugned order shall continue, also until further orders.
The respondents shall be at liberty to file counter affidavit by six weeks; reply, if any, thereto may be filed by two weeks thereafter.
The parties shall be at liberty to mention the writ petition for hearing before the appropriate bench once the time for exchanging affidavits is over or the affidavits are exchanged, whichever is earlier.
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So far as CAN No. 1413 OF 2010 is concerned, I find that two other unions of workmen are respondents in this petition. There is no reason as to why the applicant should be told off at the gate. I am inclined to and, accordingly, allow the same subject to just exceptions that may be taken at the stage of final hearing. The petitioner shall implead the applicant as additional respondent in the writ petition by amending the cause title thereof here and now. Copy of the writ petition shall be served on the advocate- on-record for the added respondent in course of this day. The directions for exchange of affidavits supra shall also govern the added respondent.
Photocopy of this order, duly countersigned by the Assistant Registrar (Court), may be furnished to the learned Advocate for the parties on the usual undertaking as well as on production of the counterpart of the application for certified copy of this order.
(DIPANKAR DATTA, J.)