Case: International Finance Corpn & Another Vs. Bihar State Industrial Developmetn Corpn & Others

1. Leave granted. 2. This appeal has been preferred from an interim order passed by the High Court at Patna staying the operation of the order of Board for Industrial and Financial Reconstruction dated 17-2-2003. 3. The case has a chequered history with the Company being declared as a sick industrial undertaking in 1996. Schemes had been propounded from time to time which had not been worked out for various reasons, which are unnecessary to be considered. The secured creditors of the Company include the appellants, namely, International Financial Corporation, Washington and ICICI Company Limited, IFCI, IDBI, LIC, GIC and other nationalised banks. The proceedings before BIFR were stalled to a certain extent when a writ petition was filed in 1998 by the workers of the respondent Company. That writ petition ultimately came to be disposed of by an order dated 9-2-2001 (Industrial Finance Corpn. of India Ltd. v. Bihar Sponge Iron Karamchari Sangh, C.A. No. 1142 of 2001, decided on 9-2-2001) when this Court directed BIFR to consider the draft scheme which was then before it and, if it thought proper to approve it without modification after hearing all the parties. However, it was also made clear that it was open to BIFR, if it thought fit, to call for a fresh scheme. As 7 years had already passed since the Company was declared a sick undertaking BIFR was directed to deal with the matter as expeditiously as possible.4. BIFR unfortunately has not been able to conclude the proceedings till today although more than three years have elapsed since we had directed it to do so. The reason for the delay lies not so much in the consideration of the Scheme and the various steps taken to work out a viable method of securing the interest of the creditors, the business and the workmen but primarily because of writ petitions which were filed from time to time in which orders were passed staying proceedings before BIFR; after the first writ petition of the workers was disposed of as noted earlier, a second writ petition was filed by the State of Jharkhand. An interim order was passed on 17-7-2002 staying the BIFR proceedings. The order dated 17-7-2002 was modified on 31-7-2002 by allowing proceedings before BIFR to go on but it was directed that if BIFR passed any order which might result in any change in the management of the respondent Company, the order would not be implemented or given effect to without the leave of the Court. Why the State Government was interested in seeing that the management of the Company continued is not clear.5. In the meanwhile, IFCI which had been appointed as the operating agency by BIFR had prepared a scheme under which the secured creditors collectively agreed to write off their dues to the extent that the total liability of the Company to the secured creditors would be about Rs 135 crores only (instead of almost double the amount), of which Rs 65 crores were to be paid immediately and the balance was to be paid in instalments over a period of time. The creditors would be entitled to a pro rata amount out of the sale proceeds according to the Scheme.6. BIFR, by an elaborately reasoned order dated 17-2-2003, approved the Scheme with certain modifications. The modifications in fact pertained to the participation of the Government of Jharkhand in the revival of the Company by investing an amount of Rs 50 crores in the Company. In the event the Government of Jharkhand did not agree to extend its support and the private promoters did not put forward an agreed rehabilitation proposal, IFCI as the operating agency was directed to issue advertisements in leading newspapers within two weeks from the date of the order inviting offers for the takeover/leasing/amalgamation/merger for rehabilitation, with or without the OTS settlement as offered by the financial institutions and the banks of the Company. Six weeks time was to be given for submission of the offers. The present promoters of the Company were also given the liberty to submit a fully tied up and comprehensive rehabilitation proposal in response to the advertisement, indicating clearly the means of finance with or without induction of copromoters. In case the proposal was based on settlement of the dues of the secured creditors by way of OTS, the same should have the approval of the secured creditors. The relative merits of the offers received would be examined by the operating agency, which after preparing a comparative statement indicating the details of the proposals received, would hold a joint meeting after circulation of a background note to all concerned and submit a report of the Board, based on the evaluation of the relative merits of the offers received and the consensus arrived at in the joint meeting within a further period of four weeks. The cost of the advertisement would initially be borne by the operating agency and would subsequently be reimbursed by the Company.7. Subsequent to this order it was brought to the notice of BIFR that the High Court had passed the order dated 31-7-2002 injuncting the change of management without the leave of the Court. By reason of the order of the High Court BIFR passed the following directions to the operating agency: "To convene a joint meeting on 24-3-2003 at 2.00 p.m. at IFCA Tower, New Delhi to discuss the response of GOJ (Government of Jharkhand) and/or any alternate/agreeable rehabilitation proposal from the private promoters and if the Government of Jharkhand is not agreeable to extend its support to DRS as circulated by the Bench vide order dated 27-11-2002 or there is no agreed rehabilitation proposal from the private promoters the OA would in the interest of early revival of the Company and in keeping with the Supreme Court directions in its order dated 9-2-2001 bring to the notice of the Honble High Court of Jharkhand all the developments with regard to the revival of the Company and the fact that the secured creditors have been waiting for the last seven years for the recovery of their dues. Further, that the initiative taken to revive the Company with the support of the State Government had not been moving/showing desired results. That sponge iron industry as a whole presently doing well and there would be a good response to the advertisement for change in management and that the existing management would also be allowed to submit its fully tied up rehabilitation proposal in response to the advertisement for change in management and further, that in case their proposal is found at par with the proposals received from other parties, their proposal would get priority over others. The operative agency would seek the approval of the Honble High Court of Jharkhand at Ranchi for permission to issue advertisement for change in management." 8. The operating agency has, pursuant to the order of BIFR dated 17-2-2003, as quoted above, held a meeting at which various proposals and counter proposals were noted. No firm decision has been taken by the operating agency at such meeting. It may be noticed that at this meeting the private promoters who were represented by the Managing Director of the Company stated that they were agreeable to bring in their contribution towards upfront payment but the exact amount would be determined only after the Government of Jharkhand had taken a decision with regard to its contribution. The Managing Director also expressed his inability to make any commitment on the amount which would be inducted by the Modi Group or the private promoters, in the absence of the stand of the Government of Jharkhand. He also expressed his inability to delink the private promoters contribution from the Government of Jharkhands decision.9. The interim order dated 31-7-2002 passed by the High Court of Jharkhand on the second writ petition was vacated on 13-6-2003. On 8-7-2003 the writ petition of the State of Jharkhand was dismissed as withdrawn.10. During this period the Company itself preferred an appeal from the order of BIFR dated 17-2-2003 before AAIFR. That was dismissed on 18-6-2003. The order of dismissal is the subject matter of another writ proceeding before the Ranchi High Court filed by the Company (referred to as the third writ petition).11. A fourth writ petition in connection with the hearing before BIFR was filed by BSIDC before the Patna High Court impugning the order of BIFR dated 17-2-2003 purportedly on the ground of certain observations made in the body of the order relating to the derating of shares held by BSIDC in the Company. The operative portion of the order of BIFR did not in any way affect BSIDC at all. Nevertheless, about four months after the filing of the writ petition the interim order which has been impugned before us was passed by the High Court of Patna for no ostensible reason except that anything done in haste may create more problems and that it would be in the interest of all concerned if the advertisements as directed by BIFR were stayed. 12. We have heard the matter at length. We are of the view that repeated interference in the proceedings of BIFR has benefited nobody except the persons who continue in the management of the Company. The secured creditors have certainly been deprived of their normal rights to recover their dues by reason of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the Act"). While they are hamstrung by the rigors of those provisions, the present management of the Company continued to enjoy the protection of the umbrella provided by S.22 of the Act. In the circumstances it is of utmost importance that the courts do not lengthen the proceedings before BIFR unless such interference is absolutely imperative for well defined reasons in the interest of the creditors as a whole and in the interest of the workers and the sick industry itself, but not in the interest of a particular management. It must be kept in mind that BIFR has been statutorily conferred with special powers to adjudicate upon the question of the revival of a company and it has the necessary expertise at its command for doing so. If the Board has taken steps in accordance with commercially advisable and legally sustainable principles after considering the view of the parties likely to be affected and in a manner which may not be said to be irrational or perverse, the Court should not interfere in the process. That was why this Court had, as far back as in 2001 directed BIFR to dispose of the matter expeditiously before it. Clearly BIFR, despite that mandate by this Court has not been able to comply and the only reason was the repeated litigation.13. The appellants in this appeal have filed petitions for transfer of the third and fourth writ petitions filed by the respondent Company and BSIDC respectively. Since all the parties are before us and since we have to consider the merits of the order dated 17-2-2003 of BIFR, we allow the transfer petitions and transfer both writ petitions to this Court as the same issue appears to be the subject matter of scrutiny before the two High Courts.14. The reasoning of BIFR in the order dated 17-2-2003 cannot be faulted. Sufficient opportunities appear to have been given at every stage to the private promoters and the Government of Jharkhand to invest the amounts as proposed in the Scheme of IFCI. The order for advertisement may give a better deal to the secured creditors and a better chance for survival of the industry. But in order to give a last chance to the private promoters and the Government of Jharkhand to take advantage of the Scheme framed by IFCI instead of allowing the appeal right away, we direct that:(1) The private promoters shall deposit an amount of Rs 32.50 crores with IFCI by 12-7-2004. It is admitted by IFCI that pursuant to an interim order passed by the High Court at Patna an amount of Rs 12.6 crores has already been deposited with IFCI. The requirement to pay the sum of Rs 32.50 crores as indicated by us will, therefore, be less by the amount already deposited.(2) The matter will be listed before the Vacation Bench on 28-5-2004. The State of Jharkhand has affirmed an affidavit to the effect that although an "in-principle" decision had been taken by the State to rehabilitate the Company, and although the assistance of Rs 32.50 crores had been recommended by a committee constituted specially for the purpose, nevertheless, the State Government has not yet taken a decision whether it was willing to put in the necessary finance without imposing any conditions at least before BIFR irrespective of any agreement that may be arrived at between the promoters and the State. The States offer to give Rs 32.50 crores under the IFCI Scheme is also hedged in by several conditions, namely, that the assistance would be given under the provisions of the Jharkhand Industries Rehabilitation Scheme, 2003; the assistance would be considered only when BIFR approves the proposal after taking consent of the financial institutions and the State Government and only if the security would be given to the State in terms of the guidelines prescribed by Reserve Bank of India and nationalised banks.We are not prepared to impose any such conditions as far as the States participation in the Scheme is concerned. The issue of security in respect of the loan must be worked out between the State and the promoters, if it so desires. It is being made clear that the States securities, if any, in the Companys assets can only be subject to the claims of the secured creditors who are already before BIFR. Given the conditional nature of the offer in the affidavit filed by the State Government, we direct the State Government to expressly state to this Court on 28-5-2004 whether it is willing to give a soft loan of Rs 32.50 crores on such conditions which will not impinge on and be subject to the security of the secured creditors of the Company. In such event, the State Government must also put in the necessary funds i.e. Rs 32.50 crores with IFCI by 12-7-2004. (3) In the event, the State Government is not willing to give the financial assistance in terms of the preceding paragraphs, it will be open to the private promoters to arrange for an alternative source and deposit the said amount with IFCI within the aforesaid period.

Decision:
1[ds]We are of the view that repeated interference in the proceedings of BIFR has benefited nobody except the persons who continue in the management of the Company. The secured creditors have certainly been deprived of their normal rights to recover their dues by reason of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the Act"). While they are hamstrung by the rigors of those provisions, the present management of the Company continued to enjoy the protection of the umbrella provided by S.22 of the Act. In the circumstances it is of utmost importance that the courts do not lengthen the proceedings before BIFR unless such interference is absolutely imperative for well defined reasons in the interest of the creditors as a whole and in the interest of the workers and the sick industry itself, but not in the interest of a particular management. It must be kept in mind that BIFR has been statutorily conferred with special powers to adjudicate upon the question of the revival of a company and it has the necessary expertise at its command for doing so. If the Board has taken steps in accordance with commercially advisable and legally sustainable principles after considering the view of the parties likely to be affected and in a manner which may not be said to be irrational or perverse, the Court should not interfere in the process. That was why this Court had, as far back as in 2001 directed BIFR to dispose of the matter expeditiously before it. Clearly BIFR, despite that mandate by this Court has not been able to comply and the only reason was the repeated litigation.13. The appellants in this appeal have filed petitions for transfer of the third and fourth writ petitions filed by the respondent Company and BSIDC respectively. Since all the parties are before us and since we have to consider the merits of the order datedof BIFR, we allow the transfer petitions and transfer both writ petitions to this Court as the same issue appears to be the subject matter of scrutiny before the two High Courts.14. The reasoning of BIFR in the order datedcannot be faulted. Sufficient opportunities appear to have been given at every stage to the private promoters and the Government of Jharkhand to invest the amounts as proposed in the Scheme of IFCI. The order for advertisement may give a better deal to the secured creditors and a better chance for survival of the industry. But in order to give a last chance to the private promoters and the Government of Jharkhand to take advantage of the Scheme framed by IFCI instead of allowing the appeal right away, we direct that:(1) The private promoters shall deposit an amount of Rs 32.50 crores with IFCI byIt is admitted by IFCI that pursuant to an interim order passed by the High Court at Patna an amount of Rs 12.6 crores has already been deposited with IFCI. The requirement to pay the sum of Rs 32.50 crores as indicated by us will, therefore, be less by the amount already deposited.(2) The matter will be listed before the Vacation Bench onThe State of Jharkhand has affirmed an affidavit to the effect that although andecision had been taken by the State to rehabilitate the Company, and although the assistance of Rs 32.50 crores had been recommended by a committee constituted specially for the purpose, nevertheless, the State Government has not yet taken a decision whether it was willing to put in the necessary finance without imposing any conditions at least before BIFR irrespective of any agreement that may be arrived at between the promoters and the State. The States offer to give Rs 32.50 crores under the IFCI Scheme is also hedged in by several conditions, namely, that the assistance would be given under the provisions of the Jharkhand Industries Rehabilitation Scheme, 2003; the assistance would be considered only when BIFR approves the proposal after taking consent of the financial institutions and the State Government and only if the security would be given to the State in terms of the guidelines prescribed by Reserve Bank of India and nationalised banks.We are not prepared to impose any such conditions as far as the States participation in the Scheme is concerned. The issue of security in respect of the loan must be worked out between the State and the promoters, if it so desires. It is being made clear that the States securities, if any, in the Companys assets can only be subject to the claims of the secured creditors who are already before BIFR. Given the conditional nature of the offer in the affidavit filed by the State Government, we direct the State Government to expressly state to this Court onwhether it is willing to give a soft loan of Rs 32.50 crores on such conditions which will not impinge on and be subject to the security of the secured creditors of the Company.