WP/10342/1998 of Vs on 20 December 2002

:ORDER

The above writ petitions have been filed for issuance of writ ofcertiorari calling for the records relating to the common order dated 3.4.1998passed in Appeal Nos.218, 239 to 243 of 1997 by the first respondent/AAIFR andquash the same.

2. Since the above writ petitions are filed challenging a commonorder, all the writ petitions are disposed of by this common order. For thepurpose of convenience, the parties are arrayed in W.P.No.10342 of 1998. Thefacts of the case is as follows:-

The third respondent mill owned spinning mill which is referred as Amill and weaving unit as B mill. The profitability of the B mill has starteddeteriorating from the year 1981. On the application made by the thirdrespondent, the Government of Tamil Nadu has referred the matter in July 1992to the Special Industrial Tribunal. The Special Industrial Tribunal haspassed its award dated 28-11-1994 for closure of B mill with the conditionthat the workers of the said mill should be employed in A mill. The losssustained by B Mill had an adverse impact on the A mill, hence the thirdrespondent mill has made a Reference under sec.15(1) of the Sick IndustrialCompanies (Special Provisions) Act, 1985, hereinafter referred to as Act whichwas registered by the second respondent in case number 105/93 on 22.2.1994.The second respondent has declared the third respondent mill as sickindustrial company within the meaning of section 3(1)(o) of the Act as itsaccumulated losses as on 30.1.1993 exceeded its net worth. The secondrespondent appointed the 5th respondent as operating agency under sec.17(3) ofthe Act. The proposals of the third respondent was considered by the secondrespondent, but was unacceptable. The second respondent directed theoperating agency to issue an advertisement inviting offers for rehabilitationof the third respondent mill by change in management. Against the order ofthe second respondent, the third respondent has filed appeal before the firstrespondent. In the said appeal, the order of the second respondent was setaside and the second respondent was directed to examine the proposal of thethird respondent for rehabilitation. A writ petition in W.P.No.12073 of 1 995was filed by the petitioner against the order of the first respondent and thiscourt by order dated 28.1.1997 set aside the order of the first respondent anddirected the second respondent to issue necessary direction to the operatingagency to call for fresh proposals after issuing necessary advertisement andsubmit its report and this court further directed to give opportunity to theparties who had submitted proposals earlier to submit fresh proposals or

update those proposals. The offers received were considered in the JointMeeting on 25.6.1997 by the operating agency and it has submitted its reporton 4.7.1997 to the second respondent. The second respondent has posted thecase for hearing to 18.8.1997. On 18.8.1997, it was found by the secondrespondent that the third respondent has wrongly sent the proposal in sealedcover addressed to the Bench instead of Chairman of BIFR and it got opened inthat office which was treated as procedural lapse. Hence, the secondrespondent was directed both the petitioner and the third respondent tore-submit their updated proposals in sealed covers to reach its office on orbefore 30.9.1997. The third respondent re-submitted the proposal but thepetitioner has upgraded the earlier proposal dated 28.7.1997. The secondrespondent, without any further hearing passed order dated 29.10.1997 statingthat the proposal of the petitioner is better than the proposal of the thirdrespondent and forwarded the proposals to the operating agency to prepare adraft rehabilitation scheme (DRS) on that basis. The second respondent in itsorder further directed the petitioner to deposit a sum of one crore rupeeswithin 45 days of the circulation of the scheme. Aggrieved by the said orderdated 29.10.1997 passed by the second respondent, the third respondent andother Labour Unions filed appeals before the first respondent. All theappeals were disposed of by a common order dated 3.4.1998 directing theoperating agency to prepare a scheme based on arranging of funds by disposingthe assets of B Mill. Against the order of the first respondent, the presentwrit petitions have been filed by the Cheran Group.

2. Learned Senior Counsel Mr.T.R.Rajagopalan appearing for thepetitioner has advanced arguments as under:- The first respondent has exceeded its jurisdiction in framing theissues viz., (a) Is Petitioner's proposal better than that of the thirdrespondent as concluded by the second respondent? (b) Have the petitioner andthe third respondent established their resourcefulness for implementing theirrespective proposals? (c) What is the most viable, workable alternative forthe rehabilitation of the third respondent Mills? The petitioner had nooccasion to c hallenge the same; that the first respondent has erred inframing those issues only at the time of passing final order; that the secondissue raised by the first respondent was certainly not arising out of theimpugned order of the second respondent and therefore, the first respondenthad no jurisdiction to consider the same; that the second respondent itselfhas directed the operating agency to verify and ensure that the means offinance in the petitioner's proposal are tied up; that the operating agencyhas already complied with the directions of the second respondent, examinedthe means of finance of the petitioner and ensured that the funds are tied upand subsequently formulated the draft rehabilitation scheme on the basis ofthe proposal made by the petitioner which has been duly approved by the secondrespondent, published and circulated in terms of the order dated 1.12.1997which has not been challenged by the respondents as such the same has becomefinal; that the issue that what is the most viable, workable alternative forthe rehabilitation of the third respondent Mills is concerned, it is alsobeyond its jurisdiction and directly in conflict with the order in writpetition passed by this court; that the first respondent erred in ignoring thefact that the memorandum of understanding U/sec. 18 (1) of Industrial

Dispuetes Act signed by the petitioner with the majority mill labour unionsrepresenting about 85% of the workmen envisages lesser sacrifices ofwages/salary to the extent of about 9%; that the petitioner's rehabilitationproposal is much potential when compared with the rehabilitation proposal ofthe third respondent; that the second respondent has rightly upheld thememorandum of understanding of the petitioner with the labour unions on2.4.1997 and correctly incorporated the said memorandum of understanding inthe draft rehabilitation scheme of the petitioner for its eventual enteringinto legal settlement under sec.18(1) or 12(3) of the Industrial Disputes Actat the appropriate time. The order of the first respondent setting aside theorder of the second respondent is contrary to the directions given by thiscourt in W.P.No.12073/97 dated 28.01.1997; this court, in the said writpetition has directed the operating agency to call for fresh proposals fromthe parties concerned, assess the same and submit the report before the secondrespondent; that the first respondent has erred in holding that the source offunds formulated by the petitioner is not dependable without actuallyassessing the evidence submitted the the petitioner in support of itsproposal; that the first respondent, having found that the third respondent'sproposal cannot be accepted, ought to have affirmed the order of the secondrespondent and approved the draft scheme as published as per pursuant to theorder of the second respondent dated 1.12.1997; that the first respondent haserred in relying upon the market value as assessed by one Kandaswamy,Chartered Engineer when no material is placed before the Board to show thatthe price of land is Rs.3,00,00,000/= per acre; that the operating agencyconsidered all aspects relating to rehabilitation of the sick industry and hasrecommended the petitioner's proposal as the best proposal for revival of thecompany and having regard to the fact that only other proposal given by thethird respondent not being a feasible proposal, the first respondent ought tohave approved the report of the operating agency and approved the scheme ofthe petitioner; that the first respondent has erred in observing that theinterested parties were not heard and their views were not sought in regard tothe latest proposals of the third respondent and the petitioner is incorrect;that in any event, the first respondent has erred in giving directions to theoperating agency to prepare a revised scheme on the basis of sale of assets ofB Mill.

The learned Senior Counsel appearing for the petitioner relied on thefollowing :-

(i) RISHABH AGRO INDUSTRIES LTD. v. P.N.B. CAPITAL SERVICES LTD. ((2000) 5 SCC 515). In that case, the respondent bank filed a petition forwinding up of the appellant company, later the appellant undertook to makesome payment in instalments and paid the entire principal amount, but, did notpay the instalment of interest. The respondent bank moved an application forrevival of the winding up petition. A learned Single Judge of the High Courtpassed order for winding up and Liquidator was also appointed. The appellantthen moved an application under sec.22 of the Act with the prayer for stayingthe order arising out of the company petition. Ultimately, a Division Benchhas rejected the application on the ground that no such proceedings arepending even on the date of passing of the said order by the Division Bench inthe appeal. The Honourable Supreme Court has allowed the appeal of the

company by setting aside the order of the High Court with a direction that theproceedings pending before the company Judge shall remain in abeyance till thedisposal of the application/appeal before the appellate authority under theSick Industrial Companies Act. The Honourable Supreme Court has held that thesaid Act has been made in public interest with a view to secure timelydetection of sick and potentially sick companies owning industrialundertakings, the speedy determination by a board of experts of thepreventive, ameliorative, remedial and other measures which need to be takenwith respect to such companies and the expeditious enforcement of the measuresso determined. It is further held that the object of the Act appears to be toafford maximum protection of employment, optimise the use of financialresources, salvaging the assets of production, realising the amounts due tothe banks and to replace the existing time-consuming and inadequate machineryby efficient machinery to safeguard the economy of the country and protectviably sick units.

(ii) MAHARASHTRA TUBES LTD. v. S.I.I. CORPORATION OF MAHARASHTRA LTD.((1993) 2 SCC 144) wherein the Honourable Apex Court has held that whenenquiry is pending under sec.16 and 17 or an appeal is pending under sec.25,there should be cessation of the coercive activities of the type mentioned insec.22(1) to permit the BIFR to consider what remedial measures it should takewith respect to the sick industrial company. The Honourable Apex Court, whiledefining the purpose and object of the suspension of proceedings undersec.22(1) held that it is to await the outcome of the reference made to theBIFR for the revivial and rehabilitation of the sick industrial company. TheHonourable Supreme Court has also given opportunity to the respondent companyto seek the consent of the appellate authority under sec.25 of the Act fortaking action under sec.29 of the State Financial Corporation Act, 1951.

3. Learned Senior Counsel Mr.A.L.Somayaji appearing for the thirdrespondent advanced arguments as under:- Pursuant to the order dated 28.1.1997 passed by this court in W.P.No.12073 of 1995, the second respondent issued advertisement invitingproposals for rehabilitation of the third respondent Mills; the operatingagency has received two proposals, one from the third respondent and anotherfrom the petitioner; that the proposal submitted by the third respondentenvisaged the induction of Mr.Y.Jaganatham who has considerable experience ofrunning two sick textile mills pursuant to rehabilitation scheme sanctioned bythe second respondent viz., M/s. Bhavani Mills Limited and M/s.ThiruvepathyMills Limited as a copromoter; that the second respondent directed the partiesto update their proposals and not to submit a revised proposal, but, thepetitioner, after became aware of the proposal submitted by the thirdrespondent submitted their revised proposal; that the averment that thepetitioner had entered into a memorandum of understanding with majority ofworkers is incorrect; that the averment that the proposal of the petitioner issuperior than the third respondent is also incorrect; that the order passed bythe first respondent is not contrary to the order passed in W.P.No.12073 of1995; that the first respondent has jurisdiction to consider not only legalityor otherwise, but also to pass order towards rehabilitation of the thirdrespondent company; that the allegation that issue "b" does not arise out of

the impugned order of the second respondent and that the first respondent hadno jurisdiction to consider the same is unsustainable, indeed one of the majorgrievance of the third respondent is that the second respondent without evenverifying the feasibility and the resourcefulness of the petitioner directedthe operating agency to formulate a draft rehabilitation scheme; that when thepetitioner could not establish its resourcefulness for implementing itsproposal before the first respondent, it could have no grievance about thefirst respondent considering the said issue which ought to have beenconsidered by the second respondent at the threshold; that the burden of theparties does not end with merely submitting imaginary proposal to theoperating agency, it is the bounden duty of the parties to demonstrate theirresourcefulness in implementing the proposal; that the second respondent couldnot have given such a direction to the operating agency without consideringthe track record of the petitioner and without verifying their resourcefulnessin implementing the proposal; that the allegation of the petitioner that theoperating agency having already complied with the directions of the secondrespondent formulated the draft rehabilitation scheme on the basis of theproposal filed by the petitioner and same has been published and circulated interms of the order dated 1.12.1 997, the first respondent ought not haverendered any finding on the issue "b" is unsustainable; that the conclusionreached by the first respondent on the issue "b" would clearly show that theoperating agency and the second respondent have not approached the issues inthe proper perspective and justified the allegation of the existing promotersand the fourth respondent; that when the proceedings are at large before thefirst respondent, it was always open to the first respondent to independentlyexamine the proposals and come to a conclusion; that the allegation that issue"c" framed by the first respondent is completely beyond its jurisdiction andconflict with the order dated 28.1.1997 passed by this court in the wr itpetition is without any basis; that originally the petitioner has envisaged acontribution of Rs.12.14 crores after seeing the third respondent'scontribution of Rs.14.14 crores and submitted a fresh proposal raising toRs.23.75 crores; that the first respondent has correctly gone into the issueas to means or resourcefulness of the parties to generate the equity proposedto be brought in; that in a well reasoned order the proposal of the petitionerwas rejected as a weak team to take over the valuable assets of Sri Hari Millsat a throw away price and found not worthy for consideration; that theallegation that the petitioner is capable of inducting the amount of Rs.23.75crores which was made only in their updated proposal submitted in September1997 is rightly rejected by the first respondent; that the evidence deposed bythe union leaders with the fourth respondent who has successfullyrehabilitated/ revived the Bhavani Mills Limited; the track record of thepetitioner in implementing the rehabilitating/reviving the Bhavani Mill wouldspeak the total incapacity to run any textile mills; that the third respondentwould strictly satisfy and they have better credentials and proven trackrecord to support their claim for satisfying the parameters than thepetitioner; that Lord Krishna Bank has a charge over the properties ofpetitioner for more than ten crores and even full sale is put through, nomoney will be realised; that the first respondent has rightly concluded thatneither the third respondent nor the petitioner has established theircapability to raise adequate resources in order to implement their respectiverehabilitation proposals and ultimately come to the conclusion that adequate

Conclusion

resources can be raised from the disposal of land, buildings and machinery ofB mill, closure of which has been upheld by the Special Industrial Tribunaland direction was issued to the operating agency to prepare a rehabilitationscheme for the third respondent Mills on the basis of sale of assets of B millis perfectly valid and prayed for dismissal of the writ petitions.

The learned Senior Counsel appearing for the third respondent hasrelied on the following judgments:-

(i) BOARD OPINION v. RAJPRAKASH SPINNING MILLS LTD.((2000) 102 CC 296 ). Inthis case both the Board and the appellate authority recommended for windingup of the company as it was unable for the company to pay the dues to thesecured creditors and the workers within a reasonable time. It was held thatthe secured creditors and the workers have a right to make a submission whenthe court is considering the question whether the opinion of the BIFR andAAIFR should be accepted or not. Following the decision of a Division Benchin the case of GUJARAT TRADE UNION MANCH v. GSTC reported in (2000) 99 CC461, it was held by the learned Single Judge that BIFR is that of an expertBody. Ordinarily decision of such a Body is not interfered with unless it ispalpably wrong or is such that no reasonable man of ordinary prudence wouldreach such a decision.

(ii) GUJARAT TRADE UNION MANCH v. GSTC ((2000) 99 CC 461). In this case, aDivision Bench of Gujarat High Court has held that the decision of the Boardis that of expert Body and ordinarily a decision of such a Body is notinterfered unless it is palpably wrong or is such that no reasonable man ofordinary prudence would reach such a decision and ultimately dismissed thewrit petition holding that it was not a fit case for interference.

(iii) A.R.C. CEMENT LTD. v. A.A.I.F.R. ((1999) 97 CC 459). In this case,BIFR found that revival is not viable and recommended for winding up of thecompany. The court held that it will not interfere with the said finding. Itwas held that the statutory functionaries under the Act have to functionwithin limitations and that within the frame work of the law and equity in lawis always a consideration even while interpreting any statute, but whereequities are in contradiction of the law or force the authority to go beyondthe law, no relief in such equity could be granted. Ultimately , the courtheld that the court will not sit in judgment nor scrutinise the figures justto find holes in the inferences drawn by the BIFR and AAIFR.

(iv) B.P.M.E.L.S. UNION v. APPELLATE AUTHORITY ((1999) 96 CC 398). In thiscase, the Calcutta High Court held that sec.20 sub clause 2 of the SickIndustrial Companies (Special Provisions) Act, 1985 amply confers power on theHigh Court to go into the correctness of the opinion submitted by the BIFR forconsidering the winding up of the company and to decide as to whether itshould proceed with the winding up of the company or not in accordance withthe provisions of the Companies Act, 1956. In this case, the learned Singleheld that the writ court would not interfere with the concurrent opinionexpressed by the Board as well as the appellate authority; the questionwhether the company could be revived was a finding of fact which could not beinterfered with by the writ court until and unless it could be show that sucha finding of fact was perverse or that no prudent man could arrive at such afinding of fact on the materials on record and arrived at the conclusion that under Article 226 of the Constitution of India, writ is a discretionary remedyand the facts disclosed in that application would not warrant the writ courtto exercise such a discretion.

(v) J.M.MALHOTRA v. UNION OF INDIA ((1997 89 CC 600). In this case, aDivision Bench of this court has elaborately discussed the scope of sec.20 ofthe Act, considered the objects, reasons and arrangements of the Act and hasheld that the Board consists of persons who are experts in the field that itis presided over by a person who has been or is qualified to be a judge of theHigh Court and it has to record its opinion with reasons after considering allthe relevant facts and circumstances and after hearing all the concernedparties. The Board, while acting under sec.20, acts as a judicial body.There is no scope for the Board to act arbitrarily and adopt differentprocedures and apply different modes or norms.

(vi) K.SITARAMA RAJU v. B.I.F.R. ((1996) 87 CC 22). In this case aReference was made by the Board of Directors of the sick industrial company,BIFR, after holding enquiry under sec.16 of the Act, suggested a package tomake its net worth positive within a reasonable time by order dated30.10.1990, the company could not revive itself. Hence, the second orderdated 23.2.1995 was passed by the BIFR reviewing its order and appointingoperating agency for framing a scheme under sec.18 of the Act. While doingso, BIFR directed the company not to bring about any change in the management.Inspite of the directions issued by the BIFR, the share holders called for anExtra-ordinary General Body Meeting for the purpose of electing ManagingDirector and in fact election was held on 16.5.1995 and one person was electedas Managing Director. The BIFR passed order stating that those responsiblefor contravening its order would be liable for action which was challenged inthe writ petition. The High Court held that BIFR, while determining whether acompany is a sick company does not exercise any judicial or quasi-judicialpowers, but it lays down the rules of conduct for the future and it does notpurport to ascertain and enforce the existing rights. In other words, BIFRexercises only administrative function of ascertaining the sickness of thecompany and framing of a scheme for the purpose of its revival. Section 18 ofthe Act comes into existence only when a scheme is framed. Before a scheme isframed, the question of exercising incidental, consequential or supplementalpowers under sec.18(1)(f) does not arise. The writ petition was allowed andultimately, the order passed by the BIFR was set aside as outside the scope ofsections 15, 16 and 17 of the Act.

(vii) HARI VISHNU v. AHMAD ISHAQUE (AIR 1955 SC 233). This judgment wasrelied on by the learned Senior Counsel for the third respondent to thelimited extent with regard to the correctness and scope of the writ ofcertiorari and the condition under which it could be issued. In this case, aConstitutional Bench, consisting seven Honourable Judges of the HonourableApex Court, following the decisions reported in AIR 1952 SC 192 and AIR 1952SC 179 has held that certiorari will be issued for correcting errors ofjurisdiction, as when an inferior court or Tribunal acts without jurisdictionor in excess of it, or fails to exercise it; when a court or Tribunal actsillegally in exercise of its undoubted jurisdiction, as when it decideswithout giving an opportunities to the parties to be heard, or violates the principles of natural justice; the High Court while issuing certiorari acts inexercise of a supervisory and not appellate jurisdiction. It means the courtwill not review the finding of fact reached by the inferior court or Tribunaleven if they be erroneous; when the legislature does not choose to confer aright of appeal against that decision, it would be defeating its purpose andpolicy, if a superior court were to rehear the case on the evidence andsubstitute its own findings in certiorari.

(viii) VEERAPPA V. RAMAN AND RAMAN LTD. (AIR 1952 SC 192). In this case, aConstitutional Bench of the Honourable Supreme Court has held that writsreferred to in Article 226 are obviously intended to enable the High Court toissue them in grave cases where the subordinate tribunals or bodies orofficers act wholly without jurisdiction, or in excess of it, or in violationof the principles of natural justice, etc., however extensive the jurisdictionmay be, it is not so wide or large as to enable the High Court to convertitself into a Court of appeal and examine for itself the correctness of thedecisions impugned and decide what is the proper view to be taken or the orderto be made.

(ix) PARRY & CO. LTD., v. C.E. ASSOCIATION (AIR 1952 SC 179). In this casea Full Bench the Honourable Apex Court, consisting of three Honourable Judges,has held that an inferior Tribunal vested with the power to exercise judicialor quasi-judicial might have come to an erroneous conclusion, but, where theconclusion is in respect of a matter which lies entirely within thejurisdiction of the Tribunal and does not relate to anything collateral anerroneous decision upon which might affect his jurisdiction, and where recordsof the case do not disclose any error apparent on the fact of the proceedingor any irregularity in the procedure adopted by the Tribunal which goescontrary to the principles of natural justice, there are absolutely no groundswhich would justify a superior court in issuing a writ of certiorari.

4. Learned counsel appearing for the 5th respondent submits that adirection may be issued to the rival parties to deposit atleast 50% of theoutstanding amount as one time settlement within a stipulated time. It isalso submitted by the learned counsel that due to the prolonged litigationbetween the rival parties and pendency of the matter, the secured creditorsare unable to recover their dues and in view of the delay, the value of theplan and machinery of the mill is reduced that even if the secured creditorshave dispose of the properties at the present time, it is unlikely to fetchsubstantial amount.

5. 13th respondent/Tamil Nadu Electricity Board filed countercontending that the Tamil Nadu Electricity Board was liable to pay Rs.3.25crores by way of refund is incorrect.

6. Learned Senior Counsel Mr.Chandru appearing for the respondents 15 and 16 submits that all labour unions aggrieved by the order of the secondrespondent has filed appeal before the first respondent; that closure of Bmill was approved by the Special Industrial Tribunal with the condition toaccommodate all the employees of B Mill in A mill. The learned counselfurther pointed out that the litigation is for the past ten years with the result the workers are put in great hardship and irreparable loss; that someof the workers in the B mill died; that the petitioner has no locus standi tofile the writ petition challenging the order passed by the AAIFR. The learnedcounsel has relied on the decision of the Honourable Supreme Court in NAVNITR. KAMANI V. R.R.KAMANI (AIR 1989 SC 9) wherein in para 12 it has been heldthat "The Act itself has been enacted in order to evolve a speedy and efficientmachinery so that a sick industry could be revived with utmost expedition,production could be started, locked up funds could be utilised for furtheringsocio-economic development. And so that the unemployment of starving workerscould be ended before they are starved to death and they are provided withemployment to enable them to ' live' with dignity instead of 'existing' inhumiliating conditions."

7. Learned Central Government Standing Counsel Mr.K.Gunasekar appearing for the tenth respondent submitted that the third respondent companyis liable to pay a sum of Rs.97,83,091/= towards the arrears of contribution.He also relied upon the following decisions:-

(i) SARVARAYA TEXTILES LTD. v. COMMISSIONER (2001 FJR 99). In this case, ithas been held by the Andhra Pradesh High Court that sec.22 of the SickIndustrial Companies (Special Provisions) Act, 1985 would not confer immunityto the petitioner and the court would not interfere with the attachmentproceedings taken by the respondent authorities for recovery of thecontributions which the petitioner had deducted from the wages of theemployees but had not paid to the Fund.

(ii) UNIVERSAL PAPER MILLS LTD. v. R.P.F. COMMISSIONER (2000 II LLJ 1 193).In this case it has been held that the bar of proceedings against sick companyis not applicable to statutory liabilities under E.P.F. Act.

It seems that the third respondent company was liable to pay certainamount to the tenth respondent. The tenth respondent has been cited as therespondent in the writ petition. Though it was brought to the notice of thiscourt that the third respondent was in arrears of amount, no relief is soughtagainst the third respondent in these writ petitions. Moreover, the tenthrespondent was not a party either before the second respondent or the firstrespondent.

8. Learned counsel Mr.O.Venkatachalam appearing for the 18threspondent submitted that the order of the first respondent rejecting theproposal of the third respondent as well as the petitioner is just, proper andvalid, however, the sale of assets of B mill is not justified. The learnedcounsel submitted that if the vacant site adjacent to the B mill is sold, itwould fetch several crores of rupees out of that sale proceeds, the dues ofworkers, the loan of secured and unsecured creditors could be discharged andby using the remaining sale proceeds, B mill could be revived and prayed fordismissal of the writ petitions. Though the learned counsel submitted that against the order passed by the Industrial Tribunal directing closure of BMill, a writ petition has been filed which was dismissed by this court, asagainst the said dismissal order, an appeal has been preferred, since interimorder prayed for by this respondent was also turned out by the Division Bench.Hence, I have not taken into consideration of the issue which has alien to thesubject matter of these writ petitions.

9. Now we will look into the scheme of the Sick Industrial Companies(Special Provisions) Act, 1985.

Under sec.3(ga) net worth has been defined as the sum total of the paid upcapital and free reserves. Free reserves means all reserves credits out ofthe profits and share premium account, but, does not include reserves creditedout of re-evaluation of assets, write back of depreciation provisions andamalgamation.

Under sec.3(o) Sick Industrial Company is defined as an Industrial Companywhich has at the end of financial year accumulated losses equal to orexceeding its entire net worth. In sec.13 Procedure of Board and appellateauthority are contemplated.

Under sec.13(2) powers of the Board, or, as the case may be, the appellateauthority shall include the power to determine the extent to which the personsinterested are claiming to be interested.

Sec.14 describes that proceedings of the Board or appellate authority shall bedeemed to be a Civil Court and the proceedings shall be deemed to be ajudicial proceeding.

Sec.17(1) empowers that if the Board is satisfied that the company has becomea sick industrial company it shall decide as soon as may be by order inwriting, whether is practicable for the company to make its net worth exceededthe accumulated loss within a reasonable time.

sub section 2 of sec.17 says that if the Board decides under sub-sec.1 ofsec.17 that it is practicable for a sick industrial company to make its networth exceed the accumulated losses, then a reasonable time the Board shall byorder in writing subject to such restrictions or conditions as may bespecified in the order give such time to the company as it may deem fit.

Under sub sec.3 of sec.17, it is stated that if the Board decides that it isnot practicable for a sick industrial company to make its net worth exceed theaccumulated loss within a reasonable time and that it is necessary andexpedient in the public interest to adopt all or any of the measures specifiedin sec.18.

Sec.18(1) contemplates that where an order is made under sub sec.3 of sec.17in relation to any sick industrial company, the operating agency specified inthe order shall prepare as expeditiously as possible and ordinarily within aperiod of 90 days from the date of such order, a scheme providing for any oneor more of the available measures viz., (a) the financial re-construction of the sick industrial company (b) change in or take over of the management (c)amalgamation of sick industrial company with any other company or any othercompany with the sick industrial company (d) sale or lease of a part or wholeof any industrial undertakings of the sick industrial company.

Sec.20 contemplates that the Board can after enquiry opine that the sickindustrial company is not likely to make its net worth exceed the accumulatedloss within reasonable time, it is just and equitable that the company shouldbe wound up, it may record and forward its opinion to the concerned HighCourt. The concerned High Court on the basis of the opinion, order winding upof the sick industrial company or may proceed and cause to proceed with thewinding up.

Sec.21 contemplates that the operating agency has to prepare a completeinventory of assets and liabilities of whatever nature, estimate of reserveprice, lease rent or share exchange ratio, etc.

Sec.22 says that when an enquiry under sec.16 is pending against any companyor any scheme referred to under sec.17 is under preparation or considerationor a sanction scheme is under implementation or when an appeal under sec.25relating to an industrial company is pending, then notwithstanding anythingcontained in the Companies Act or any other law or the memorandum and articlesof association of the industrial company or any other instrument having effectunder the said Act or other law, no proceedings for the winding up of theindustrial company or for execution, distress or the like against any of theproperties of the industrial company etc., shall lie or to be proceeded withfurther except with the consent of the Board or as the case may be theappellate authority.

Sec.25 speaks about the appeal. Any person aggrieved by the order of theBoard under the Act may within 45 days prefer an appeal to the appellateauthority.

Sec.25(2) contemplates that on receipt of an appeal, the appellate authoritymay, after giving opportunity to the appellant to be heard, if he so desiresand after making such further enquiry as it deems fit, confirm, modify or setaside the order appealed against or remand the matter to the Board for freshconsideration.

10. In the light of the arguments of the learned counsel on both sides and scheme of the Act, I proceed to analyse the case.

The first respondent has framed the below mentioned three issues:-

(i) Is Petitioner's proposal better than that of the third respondent asconcluded by the second respondent? (ii) Have the petitioner and the thirdrespondent established their resourcefulness for implementing their respectiveproposals? (iii) What is the most viable, workable alternative for therehabilitation of the third respondent Mills?

The proposals of the Petitioner and the third respondent are asmentioned below:-COST OF SCHEME (Rs. in lakhs)

Purpose Existing Cheranpromoters & GroupCo-promotersAug'97/Sept'97 Aug'97 Sept'97-------- -------------- ------- ------- OTS 1196.00 1027.12 1170.00Labour Dues 284.00 260.00 410.00Capital Expenditure 184.00 150.00 425.00Statutory dues 65.00 147.00 147.00Electricity dues 39.00 38.50 38.00Working CapitalMargin 171.00 100.00 350.00Reopening expenses 10.00 - -Pressing creditors - 160.46 160.00Unsecured loans - 93.00 --------- -------

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1949.00 1976.06 2700.00

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The Petitioner has enhanced the amount in respect of OTS, Labour dues,Capital expenditure and working capital margin in their revised proposals.

11. With regard to OTS dues, the secured creditors namely IIBI,IDBI, ICICI and SBI, the third respondent has offered Rs.11.96 crores i. e.,30% of principal and funded interest on or before 30 days from the date ofacceptance by the second respondent and the balance on or before six monthsfrom the date of sanction. The petitioner has offered Rs.11.70 crores i.e.,25% within 60 days of the sanction and the remaining 75% in 180 days. Thetotal dues of secured creditors inclusive of simple interest, compoundinterest, penal interest and other charges upto 30.09.1997 amounting toRs.11.78 crores and interest for further period from 01.10.1997 was payable.The petitioner has sought for waiver of penal interest. The first respondenthas pointed out that the secured creditors were not prepared for waiver of thesame. Even before this court, they have not agreed for the said waiver. Onproper consideration, the first respondent has rightly concluded that thethird respondent's proposal is slightly better and the conclusion arrived atby the second respondent in this regard is erroneous.

12. In respect of labour dues, the third respondent offeredRs.2.84 crores but the petitioner has offered Rs.4.10 crores in their revisedproposal, which is inclusive of Rs.1.50 crores for voluntary retirementscheme. The labour unions are not willing for the VRS scheme. Moreover, theIndustrial Tribunal has approved the closure of the B mill with the conditionto engage the service of the workers of B Mill in A Mill. The thirdrespondent's proposal was based on continuously availing the service of B millworkers. Hence, the first respondent has rightly found that the thirdrespondent's proposal is better.

13. As far as the capital expenditure is concerned, the thirdrespondent's proposal envisages Rs.1.84 crores, the petitioner's enhancedproposal offers Rs.4.25 crores, which is inclusive of installation of someequipments. The first respondent held that the petitioner's proposal in thisregard is technically justifiable and better.

14. With regard to statutory dues, the third respondent's proposalincludes upfront payment of Rs.65 lakhs out of the total of Rs.302 lakhs, butthe petitioner's proposal envisages all the payment spread over three years.The first respondent has rightly held that both the proposals are misleading.

15. In respect of working capital margin, the third respondent hasmade provisions of Rs.1.71 crores but the petitioner in its revised proposalenvisaged Rs.3.50 crores. Hence, the first respondent has found that thepetitioner's proposal in this regard is better.

16. In respect of re-opening expenses, the third respondent offered Rs.10 lakhs, but nothing has been offered by the petitioner. As thethird respondent has already incurred the said expenses, it was foundsatisfactory to this Court also.

17. The first respondent has pointed out that the petitioner, after became aware of the third respondent's proposal gave a revised proposalwith improved figures. Despite the said fact, the proposal with regard to OTSto secured creditors and payment of workers dues and statutory dues areconcerned, the third respondent's proposal is rightly found by the firstrespondent as better. With regard to capital expenditure and working capitalmargin, the proposal is better than their own proposal submitted in August1997 by the petitioner. On careful comparision of the figures and analysingthe same in depth, the first respondent has concluded that the petitioner'sproposal is not better than the proposal of the third respondent and answeredthe issue against the petitioner.

18. The second issue whether the petitioner and third respondent establish their resourcefulness for implementing their respective proposals isconcerned, the capability of both the parties were analysed by the firstrespondent. Indeed, the second respondent has failed to do the same. It isevident that the 3rd respondent in his proposal offered a contribution ofRs.14.14 crores as equity; whereas, the petitioner offered promoterscontribution of Rs.12.41 crores which was revised to Rs.23.75 crores. Thethird respondent expressed their inability in infusion of funds. They dependupon the co-promoter namely Jaganathan Associates. An amount of Rs.5.30crores is said to have expected from sale of surplus lands of Bhavani MillsLimited and Bungalow owned by Mr. Jaganathan. The first respondent haspointed out that the lands of Bhavani Mills Limited was already hypothicatedto secured creditors, besides that the sale agreement of it are of doubtfulvalue. An amount of Rs.3.25 crores is shown as refund from Tamil NaduElectricity Board to Bhavani Mills Limited, but the said mill is entitled toadjustment of certain amounts in future bills as ordered by the Civil court.The third respondent has also stated that the said Jaganathan Associates hasalready brought in Rs.98 lakhs towards payment of dues of the workers,

purchase of stores etc., which were also certified by Chartered Accountants.The said single act of the Jaganathan Associates is not sufficient toestablish the resourcefulness. Considering all these materials, the firstrespondent has held that the third respondent is not able to show reliablesources of funds from his promoters or co-promoters and Associates to raiseRs.14.14 crores. The first respondent has also taken into consideration theamount of Rs.23.75 crores shown by the petitioner from sale of office space toHindustan Petroleum Limited, but it is seen from the records placed before itthat no such office space has been constructed at all. There was a proposalof purchase of land by Hindustan Petroleum Limited from the group company ofpetitioner namely M/s. United Builders and Consultants which was given uplater because of the pending litigation. It is also pointed out by the firstrespondent that though the petitioner has stated that Rs.11.36 crores could bemobilised from the sale of office space to Lord Krishna Bank, RPG Cellular andNew India Assurance Company, but the records produced shows that Lord KrishnaBank has dropped the idea, New India Assurance Company did not finalise it andRPG Cellulars also given up their proposal. The first respondent has alsotaken notice of their own order dated 23-07-1997 in Appeal No. 39 of 1997filed by the petitioner in the case of Srihari Mills Limited wherein it issubmitted that a rehabilitation proposal envisaging a total cost of Rs.6.17crores. In the said case, BIFR has directed all the interested parties todeposit Rs.80 lakhs in a no-lien interest bearing account to show theirfinancial capability. The petitioner herein has sought extension of time formaking deposit on the ground that it had already blocked its funds to theextent of Rs.5 crores in connection with the rehabilitation of other sickcompanies, however, failed to make deposit. The first respondent alsoconcluded in the said order that the proposals of the petitioner in the natureof weak attempts to take over valuable assets of Srihari Mills Limited at athrow away price and were therefore not worthy of consideration.Consolidating all these aspects, the first respondent has concluded that boththe parties are incapable of raising resources for rehabilitation and answeredagainst the petitioner as well as the third respondent.

19. Since the first respondent has arrived at a conclusion that the petitioner as well as the third respondent are incapable of carrying outthe proposal of rehabilitation it suggested for viable, workable andalternative for the rehabilitation hird respondent mill. It found thatadequate resources can be raised from the disposal of land, buildings andmachinery of B mill, closure of which has been approved by the SpecialIndustrial Tribunal and if necessary, a part of the surplus land of A mill canalso be sold in order to discharge all financial obligations in full and alsohave some additional fund for renovation /replacement /modernisation/expansionof spinning operations of A mill so that all the workers of the B mill otherthan those retired/resigned can be employed without retrenchment. This issueis also properly analysed and answered by the first respondent.

20. The preamble Sick Industrial Companies (Special Provisions)

Act, 1985 highlights the object of the Act. It has been made in publicinterest with a view to securing the timely detection of sick and potentiallysick companies owning Industrial undertakings, the speedy determination by aboard of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditiousenforcement of the measures so determined and for matters connected therewithor incidental thereto.

21. Under Section 17 (3) of the Act, the Board decides under

Section (1) that it is not practicable for a sick industrial company to makeits net worth exceed the accumulated losses within a reasonable time and thatit is necessary or expedient in the public interest adopt all or any of themeasures specified in Section 18 in relation to the said company it may atearliest by order in writing direct any operating agency specified in theorder to prepare having regard to such guidelines as may be specified in theorder, a scheme. Under Section 18 (1), where an order is made undersub-section 3 of section 17, the Operating Agency shall prepare asexpeditiously as possible and ordinarily within a period of 90 days from thedate of such order a scheme suggesting for any one or more of the followingmeasures. (a) The financial re-construction of the Sick IndustrialCompany(b) For appropriate management by change in or take over of themanagement (c) Amalgamation of Sick Industry with any other company or anyother company with Sick industrial company etc., (d) The sale orlease of a part or whole of any industrial undertaking of the sick industrialcompany (d)(a) The rationalisation of managerial personnel, supervisory staffand workmen in accordance with law (e) Such other preventive, ameliorativeand remedial measures as may be provided (f) Such incidential, consequentialor supplement measures as may be necessary or expedient in connection with orfor purposes of the measures specified in clause (a) to (e). The firstrespondent has rightly ordered sale of B mill in terms of Section 18 (1) (d)of the Act.

22. An argument was advanced by the counsel for the third respondent that the 2nd respondent ought to have made an order directing theOperating Agency to prepare a scheme and then call for proposals fromoutsiders, but straightaway called for proposal by advertisement contrary tothe provisions of Section 17 (3) of the Act. It is submitted on behalf of thepetitioner that all the controversies prevailed prior to the order dated28-01-1997 in WP No. 12073 of 1995 has come to an end as no appeal has beenfiled against the said order and the scope of litigation revolves on thatorder to an extent that fresh/ updated proposals be called for by OperatingAgency and submit a report. The petitioner would say that once their proposalis accepted as better than the third respondent and DRS dated 13-11-1997 madeby the Operating Agency, the scope of the appeal under Section 25 is notavailable to the third respondent. The said argument, in my considered viewis without any substance. The order passed in the writ petition does notprevent either the 2nd respondent or the first respondent in scrutinising theproposal and pass their own orders.

23. The 2nd respondent directed the Operating Agency to prepare a DRS on the basis of petitioner's proposal and suitably reflect the funding forthe scheme as well as fully tied-up means of finance after verification. Asrightly pointed out by the 1st respondent that 2nd respondent ought to haveverified the resourcefulness prior to the said direction to Operating Agency.The 2nd respondent has passed an erroneous order contrary to the Act. Thefirst respondent has rightly framed the issues based on the pleadings of theparties which were already raised before the 2nd respondent and given its

finding after considering the material evidence in depth. While deciding theold issues by the appellate authority and the parties were also aware of thesame, the question of affording fresh opportunity does not arise.

24. Under Section 25 of the Act as well as under Order XIV Rule 5CPC, the appellate authority namely the first respondent has framed the saidissue as it thought fit for determining the matters in controversy. The 2ndrespondent was fascinated by the escalated figures of the petitioner passedits order without affording opportunity to the financial institutions, Unionsand the third respondent, as rightly pointed out by the first respondent. Theorder passed in W.P. No. 1207 3 of 1995 by this Court does not fetter thehands of the first respondent in exercising its jurisdiction under Section 25of the Act.

25. The petitioner herein has misconstrued the provisions of theAct. It is not the duty of the BIFR or AAIFR to decide the lis between theparties who submitted the proposal. The Act has been enacted on therecommendation of the President under Article 117 (1) r/w. 274 (1 ) of theConstitution of India keeping in mind the ill effects of sickness inIndustrial companies such as loss of production, loss of employment, loss ofrevenue to the Central and State Governments and locking up of investiblefunds of banks and financial institutions are of serious concern to theGovernment and Society at large. This Act has been enacted with the object ofaffording maximum protection of employment, optimise the use of financialresources, salvaging the assets of production, realising the amounts due tothe banks, financial institution to replace the existing time consuming andinadequate machinery by efficient machinery for expeditious determination by abody of experts. The order passed by the first respondent in setting asidethe order of the 2nd respondent is well within its purview. The firstrespondent directed the Operating Agency to prepare a revival scheme on thebasis of sale of assets and sale shall be organised by a committee to be setup by the 2nd respondent and the committee shall consist of representatives ofOperating Agency, Financial Institutions, SBI and the State Government RevenueDepartment.

26. Both BIFR and AAIFR are expert body created by statute andthey have to function within their limitation and within the framework of law,however BIFR and AAIFR shall not act arbitrarily and adopt differentprocedures and different modes or norms other than what is provided in theAct. I am of the view that the order passed by the 1st respondent is wellwithin its jurisdiction and within the frame work of law, besides that thefindings of the 1st respondent are relating to facts, hence the High Courtwill not review the findings of facts when the act does not confer a right ofappeal against the decision. When the first respondent reaches the conclusionwithin its jurisdiction, High Court is not justified in issuing a writ ofcertiorari. Writ of certiorari can be issued only when BIFR or AAIFR actswithout jurisdiction.

27. As I have already held that the order passed by the firstrespondent is within its jurisdiction based on material evidence, nointerference is required. Hence, all the writ petitions are dismissed. No

costs. Since this litigation is prolonging for the past eight years,financial institutions, employees and others are put to great hardship.Hence, in the interest of justice, I direct the BIFR and Operating Agency toimplement the order passed by the first respondent within a period of sixmonths from today.

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Index: YesInternet: Yes

To

1. Appellate Authority for Industrialand Financial Re-construction,10th Floor, Jeevan Prakash,25, Kasturba Gandhi Marg,New Delhi 110 001.

2. Board for Industrial and FinancialRe-construction,22nd Floor, Jawahar Vyapar Bhavan,No.1, Tolstoy Marg,New Delhi 110 001.

3. Employees State Insurance Corporation,ESIC Building, Kotla Road,Behind Foreign Post Office,New Delhi.

4. Central Provident Fund Commissioner,Hudco Vishala,14, Bhikaji Cama Place,New Delhi 110 066.

5. The Secretary to Government,Handloom, HandicraftTextiles & Khadi Department,Fort St. George, Chennai 600 009.

6. The Secretary,Tamil Nadu Electricity Board,800, Anna Salai, Chennai 600 002.

7. The Chairman,Central Board of Direct Taxes,Ministry of Finance,Department of Revenue,North Block,New Delhi 110 001.

8. The Secretary to Government,