THE HONOURABLE SRI JUSTICE V.ESWARAIAH WRIT PETITION No. 11173 OF 2007 DATED: 08-02-2008 BETWEEN Dewan Bahadur Ramagopal Mills Ltd., Rep.by its Managing Director S. Krishnam Raju. …PETITIONER. AND The Board for Industrial and Financial Reconstruction, Rep.by its Registrar, New Delhi and others. …RESPONDENTS ORDER: Petitioner - Dewan Bahadur Ramagopal Mills Limited (for short “DBR Mills”) represented by its Managing Director S. Krishnam Raju (for short “S.K.Raju”) questions the order of the Board for Industrial and Financial Reconstruction (for short “BIFR”) in Case No.109/1987, dated 3-5-2007 as illegal, improper and arbitrary as the petitioner company was not given any opportunity to submit its objections, treating it a share holder alone and that the scheme is only between the 4th respondent M/s. Ranga Reddy and Associates (for short “RRA”) and the secured creditors of the company and the company could only raise objections as a share holder and give certain suggestions under the scheme submitted by the RRA, but had no right to submit draft scheme as a creditor or the company or any other person. 2. The second respondent Industrial Finance Corporation of India (for short “IFCI”) is appointed as Operating Agency (for short “OA”) under Section 16(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short “SICA”) for rehabilitation. Respondents 3, 5, 6 and 8 are the creditors and Respondent No.9 is the employees union of DBR Mills. 3. Heard the learned counsel appearing for the petitioner as well as the respective counsels appearing for the respondents. 4. Learned counsel for the petitioner – company submits that DBR Mills was established by Sri Dewan Bahadur Ramagopal in 1920. Due to financial constraints, the operation of DBR Mills was suspended in 1984 and in 1985 S.K.Raju took over the then sick petitioner company and the rehabilitation scheme as formulated and suggested was accepted by S.K.Raju on the assurance from the Government that it will give guarantee for the institutions and Banks towards the loans and defer the collection of purchase tax, sales tax on finished products and exempt the company from power cut. After taking over the company, S.K.Raju reopened it by investing his share and also raised loans from the Industrial Reconstruction Bank of India (IRBI, later renamed as Industrial Investment Bank of India IIBI) to an extent of Rs.60 lakhs as part of rehabilitation scheme and certain labour claims were settled, machinery overhauled and production commenced. Later on, as the Government failed to release the guarantee for the balance credit amount due to the institutions to a tune of Rs.410 lakhs, S.K.Raju failed to implement the rehabilitation scheme. 4(a). As the Government of Andhra Pradesh failed to fulfill its promise in giving guarantee and other reliefs, the company was referred to BIFR as mandated by the provisions of the SICA. The BIFR in its proceedings dated 20.09.1988; 16.08.1989 and 07.03.1990 recorded its displeasure at the State Government for derailing the scheme, saying “The Bench pointed out that the matter has been under active consideration of the State Government for more than two years now. This has meant considerable increase in the cost of rehabilitation estimated by the operating agency in their report submitted in January, 1988, thereby rendering the rehabilitation of unit more and more difficult. It would be in the interest of all concerned that the State Government comes up with the final decision in the matter by 4th April, 1990 as asked by them. If no reply is received from the State Government, notice asking the company to show-cause why it should not be wound up will be issued”. As the Government did not come forward to extend the promised guarantees and reliefs for almost four years, thereby upsetting the revival prospects of the company, S.K.Raju submitted an alternative scheme of revival without depending on the promise made by the Government with regard to the guarantees and other reliefs. 4(b). One of the Employees Unions tried to prevent the revival of the company in the hands of S.K.Raju and desired to submit a scheme, but whereas other three major unions accepted the scheme submitted by S.K.Raju, but the objector union never submitted any scheme and finally new scheme was accepted and sanctioned by BIFR in its proceedings dated 19.02.1991. When the said scheme was being implemented, the Andhra Pradesh State Electricity Board (APSEB) disregarded the Government Order for waiving bills during the closure period before take over and granting instalments for payment of dues and demanded payment of all past dues and withdrew power supply, which resulted the effect of revival scheme and therefore, the management was compelled to stop engaging daily labourers leading to labour unrest instigated by one of the four major unions. 4(c). BIFR, Operating Agency and the Financial Institutions showed no consideration for the revival scheme, which lead to closure of the company. The labour union leaders and members threatened S.K.Raju, preventing him from attending most of the proceedings and also indulged in anti-social activities to defame and discredit S.K.Raju with false allegations of selling away the machinery and absconding from the proceedings etc. In spite of several hurdles created by the union leaders and members, S.K.Raju enabled the company to get the Urban Land Ceiling (ULC) exemption for the land and also clarification from the District Collector that the provisions of Inams Abolition Act applies and the company is entitled to claim ownership. 5. Undisputed facts are that: The petitioner company referred the matter under Section 15(1) of SICA to BIFR and BIFR by order dated 20.10.1987 declared the DBR Mills as sick industrial company within the meaning of Section 17(3) of the SICA. The BIFR by order dated 20.10.1987 appointed IFCI as OA in exercise of its powers conferred under Section 17(3) of the SICA enabling the OA to prepare and submit a report. In the meanwhile, the company also made an attempt to submit a package, but the same has not been materialized and the operating agency was unable to take any concrete steps. 6. Learned counsel for the petitioner submits that the petitioner company has been claiming ownership of the land and the dispute relating to the ownership is still pending. Ultimately the rehabilitation attempts have not been fructified into a viable and acceptable scheme and since the company had been closed from 1991 and as the liabilities were mounting up, the BIFR by proceedings dated 02.12.1994 formed an opinion that the company be wound up in terms of the provisions of Section 20 of SICA and accordingly directed for issuance of public notice for considering the objections/suggestions or alternative proposal, if any, from anyone concerned by 31.03.1995. The company was also directed not to alienate any of the assets of the company in whatever manner. It appears that pursuant to the said public notice, the RRA made a representation before the OA, expressing its interest to take over the company and accordingly, the BIFR vide its orders dated 31.03.1995 considered the proposal of RRA and directed the RRA to deposit Rs.50 lakhs in a ‘Non Lien’ Account with State Bank of Hyderabad within four weeks and simultaneously submit proposals to the OA and on submission of the proposals, the OA was directed to examine the proposals. It appears that the RRA did not deposit Rs.50 lakhs in Non Lien Account and did not submit the proposals relating to taking over the company to the OA within four weeks. The RRA deposited Rs.50 lakhs in a separate Current Account in May 1995, but not in Non-Lien Account and therefore, the BIFR by order dated 16.06.1995 directed the company, its promoters and RRA to submit detailed revival proposals and further directed the RRA to deposit Rs.50 lakhs in a Non-Lien Account immediately. The RRA submitted its proposals on 09.11.1995 and also deposited Rs.50 lakhs in Non Lien Account with State Bank of Hyderabad. The successive attempts made by the company to discharge the company from further proceedings under the SICA have been rejected. 7. Learned counsel for the petitioner company submit that the OA as well as BIFR without satisfying the capabilities of RRA has taken a lenient view towards it by order dated 11.02.1997 directed the RRA to deposit Rs.75 lakhs with the OA, IRBI, APIDC in an interest bearing “No Lien” Account in addition to the deposit of earlier Rs.50 lakhs made in No Lien Account, but the said condition has not been complied with by RRA. Ultimately, the RRA placed draft rehabilitation scheme before the BIFR and the BIFR vide order dated 28.05.1997 directed that the short particulars of the draft scheme shall be published in two daily News Papers for the information of share holders, creditors, employees of the company and other interested parties, who may submit their suggestions/objections, if any, within one month from the date of publication and the BIFR also directed that the scheme shall be circulated to all the concerned for giving their consent in so far as they are concerned within 60 days from the date of publication of the draft scheme. 7(a). Learned counsel for the petitioner submits that the draft scheme dated 28.05.1997 was not at all circulated to the petitioner company. The BIFR by order dated 12.08.1997 without any notice to the petitioner, directed the RRA, APIDC and the Banks to discuss the outstanding issues in the light of the discussions held and to convey their respective stands regarding the guarantor and security aspects to BIFR within a month. In case, there was no response from any party within one month, then their consent to what was provided in the draft scheme would be assumed. Thereafter on 01.06.1998, the BIFR without giving any notice to the petitioner, sanctioned the scheme subject to certain modifications stated in the said order clarifying that the scheme would be implemented only when the stay is vacated by the Delhi High Court as to whether the valuation of the land is taken into account or not and with regard to the ownership of the land. 8. It is the case of the petitioner that though the petitioner company informed the change of address, the OA failed to send any communication and therefore, the company could not present in any of the meetings held on 08.04.1997, 28.05.1997, 12.08.1997 and 01.06.1998. Ultimately, the Delhi High Court vacated the stay orders and dismissed the writ petition on 14.10.1998. By that time, the RRA failed to implement the revival scheme and did not clear any dues to the financial institutions under one time settlement except depositing Rs.50 lakhs in Non Lien Account in their own name with State Bank of Hyderabad. Aggrieved by the order of the Delhi High Court, the petitioner company filed S.L.P.No.17291 of 1998 in Supreme Court of India and the said S.L.P., was dismissed as withdrawn on 18.11.1998. As the suit O.S.No.1201 of 1995 on the file of the IV Senior Civil Judge, City Civil Court, Hyderabad was pending in regard to the land dispute between the erstwhile land lady of the company and the company against the order of the BIFR dated 01.06.1998 in sanctioning the scheme, the petitioner company filed Appeal No.144 of 1998 before the AAIFR and the AAIFR by order dated 07.12.1998 stayed the scheme sanctioned by the BIFR envisaging the transfer of management from the existing promoters to the new promoters under the scheme to RRA., for a period of four weeks on the undertaking given by the petitioner company that the dues of the secured creditors will be settled within four weeks. It is stated that while passing the order on 07.12.1998 staying the scheme sanctioned by the BIFR dated 01.06.1998, hearing of appeal was directed to be fixed when the Bench is constituted. 9. It is stated that without informing the petitioner, the AAIFR passed an order on 20.01.1999, it being a holiday and though it was not schedule for hearing. It is stated that on an application moved by the RRA without giving any notice to the petitioner company, passed an order on a holiday on 20.01.1999 directing to maintain status-quo and posted the appeal for hearing on 03.02.1999 and ultimately, the appeal was dismissed by AAIFR on 13.04.1999, after hearing the petitioner, on the ground of limitation. 10. The petitioner company questioned the order of the AAIFR dated 13.04.1999 in Appeal No.144 of 1998 before this Court in W.P.No.10110 of 1999 and this Court after hearing the concerned parties, allowed the writ petition, directing the AAIFR to hear the appeal on merits and dispose of the same within two weeks from the date of receipt of the said order as the dismissal of the appeal on the ground of limitation was illegal and unsustainable by order dated 03.08.1999. Pursuant to the remand by the High Court, the AAIFR heard the appeal on 06.01.2000 and made the following order:- “The DRS was circulated by BIFR by their order dated 28.05.1997. The appellants (DBR Mills) have received the certified copy of that order on 17.11.1998. They are entitled to any opportunity to make all their submissions before BIFR in response to the DRS. On 12.08.1997 and 01.06.1998, the appellants were not heard by BIFR. In their order dated 01.06.1998 BIFR has erroneously recorded the consent of the counsel for DBR Mills to the one time settlement terms indicated by Punjab National Bank whereas the counsel for DBR Mills was not present at that hearing. There is nothing before this Authority to show that notices of hearing before BIFR on 12.08.1997 and 01.06.1998 were received by the appellants. The learned counsel for the appellants has argued that notices of hearing were not received by the appellants. In fact, even the notice of hearing of this appeal to both the DBR Mills and RRA was received back from the postal department. The appellants are entitled to the hearing before BIFR to protect their interest and submit their suggestions/objections in response to the DRS. Therefore, BIFR’s orders dated 12.08.1997 and 01.06.1998 are set aside. The case is remanded to BIFR for fresh consideration after hearing the appellants and all other concerned parties. Notice of hearing shall be given to BIFR to the counsels for the appellants and the RRA also.” 11. The RRA filed Review W.P.M.P.No.2590 of 2006 in W.P.No.10110 of 1999 to review the order of the High Court dated 03.08.1999 and the said review petition has been dismissed by order dated 28.01.2006. It is stated that during the pendency of the review, there was a stay and therefore, the proceedings were stalled at the instance of the RRA from 2000 to 2006 for a period of six years. It is further stated that the RRA as well as the Employees Unions filed W.P.Nos.7798 and 7670 of 2000 respectively questioning the order of the AAIFR dated 06.01.2000 and both the writ petitions were dismissed by order dated 23.02.2007 by this Court. Thus, it is stated that the orders of the AAIFR dated 06.01.2000 in setting aside the orders of the BIFR dated 12.08.1997 and 01.06.1998 have become final and therefore, it is for the BIFR to hear all the parties and dispose of the matter in accordance with law. 12. After dismissal of the review and writ petitions filed by RRA and the employees unions, hearing was held on 01.03.2007 by BIFR and directed the RRA and OA to submit a certified copy of each of the final orders of the Hon’ble Supreme Court, the High Court and AAIFR, including the High Court’s recent orders dated 21.02.2007 to the Board. They were also directed to furnish a copy of the order, if any, staying BIFR proceedings within two weeks to the Board. The Bench further conveyed its displeasure over the absence of IFCI in the hearing. The Bench directed IFCI (OA) to inspect the position of plant, machinery and land and submit a report to the Board within two weeks. The Bench would pass further orders on the next day of hearing on 02.05.2007. 13. The BIFR on 03.05.1997 heard arguments of the petitioner DBR Mills and the petitioner company contended that the BIFR orders dated 12.08.1997 and 01.06.1998 were set aside by the AAIFR vide its order dated 06.01.2000, which was upheld by the High Court. As per the remand order of the AAIFR, the case has to be heard afresh by the BIFR and the petitioner company is entitled for an opportunity of submitting any objections/suggestions on the draft scheme circulated by the BIFR. The opportunity of hearing includes the opportunity to submit revival scheme also to the Board. The IRBI had approved one time settlement to the company and the company had submitted proposals for settlement of dues of other secured creditors also and accordingly requested to submit a revival scheme to operating agency. 14. The learned counsel for RRA submits that the company failed to implement the scheme sanctioned by the Board in 1991 and the company did not submit any rehabilitation proposal to the Board in response to the show cause notice for winding up of the company. The RRA has submitted rehabilitation proposals for winding up of the company along with Rs.50 lakhs and the RRA has come into picture only when the company had been afforded all opportunities for its revival. The company was not resourceful enough or reliable to submit any fully tied up Draft Revival Scheme (DRS). Further there was no order from any authority to afford the company another opportunity to submit a rehabilitation proposal. The RRA further submitted that it was prepared to bring in the additional money required for renovation of the building, up gradation of plant and machinery etc., and applicable interest on the settled amount with the secured creditors and also further requested to sanction the scheme with changes agreed to by the company. The RRA was prepared to turn the net worth of the company positive within a period of two years. Accordingly, the BIFR passed the order dated 03.05.2007 rejecting the arguments of the company and the scheme circulated by the Board vide its order dated 28.05.1997 on the proposal of RRA was sanctioned with the following changes:- (i) Changes carried out in the DRS from 28-5-1997 to 1-6-1998 i.e., the date the scheme was earlier sanctioned may be incorporated. (ii) The promoter of M/s RRA would provide for additional funds required for renovation of the building, up gradation of plant and machinery and start up expenditure etc. (iii) M/s. RRA would provide for applicable interest to the secured creditors on the settled amounts with them under OTS. The Bench further directed the OA to incorporate the above changes in the DRS circulated vide Board’s order dated 28.05.1997 and submit the same to the Board within 15 days along with two CDs/floppies for issuing the sanctioned scheme. 15. The aforesaid order of the BIFR dated 03.05.2007 has been questioned in this writ petition. Though an appeal lies against the said order passed by the BIFR to the AAIFR under Section 25 of SICA, the contesting respondent RRA consented to hear the writ petition on merits instead of relegating the petitioner to file an appeal before the appellate authority, as it would cause further delay in resolving the disputes among the parties. In view of the aforesaid consent of the contesting respondent RRA, the writ petition has been heard on merits. 16. Learned counsel for the petitioner contends that the impugned order of the BIFR dated 03.05.2007 in not giving reasonable opportunity to protect the interest of the petitioner and to submit suggestions/objections in response to the draft scheme pursuant to the remand order of the AAIFR dated 06.01.2000 in which the earlier orders of the BIFR dated 12.08.1997 and 01.06.1998 are set aside directing fresh consideration after hearing the petitioner and all the other concerned parties, is illegal and arbitrary. It is further submitted that the effect of setting aside the orders of the BIFR dated 12.08.1997 and 01.06.1998 by order dated 06.01.2000 is that the status that was available before passing the order dated 12.08.1997 shall prevail. The status prior to passing order dated 12.08.1997 was that the draft scheme dated 28.05.1997 which had been placed before the BIFR for the purpose of circulating the draft scheme to all the concerned within 60 days from the date of publication of the draft scheme and the short particulars of the draft scheme shall be published in two daily news papers for the information of the shareholders, creditors, employees and other interested parties for submitting their suggestions/objections within one month from the date of the publication. It is stated that the draft scheme dated 28.05.1997 was not at all circulated to the petitioner company and even as per the order dated 12.08.1997, which was set aside, goes to show that the future of the draft scheme on the basis of the position emerging at the end of the month would be decided. The BIFR by order dated 01.06.1998 sanctioned the scheme for its implementation only after the vacation of the stay by the Delhi High Court and the OA was directed to submit a copy of the revised scheme. It is stated that the as the said orders dated 12.08.1997 and 01.06.1998 were set aside, the petitioner is entitled to submit its objections in accordance with Section 18(3)(a) of SICA. 17. To appreciate the legal contentions, it is just and proper to extract the relevant portions of the draft scheme and subsequent orders. Draft Scheme: 1…. 2…. 3…. 4…. 5…. 6…. 7. We direct that short particulars of the Draft Scheme shall be published in two daily newspapers – one in English and the other in the regional language for the information of shareholders, creditors, employees of the company and other interested party (ies), who may submit their suggestions/objections, if any, within one month from the date of publication. 8. The scheme shall also be circulated to all concerned for giving their consent insofar as they are concerned within sixty days from the date of publication of the Draft Scheme. 9. The case will then come up for hearing on 12.08.1997 at 10.30 AM.” Para 12 of Order dated 12.08.1997: 12. After hearing the submissions and having regard to the facts of the case, the Bench directed that RRA, APIDC and the banks should discuss the outstanding issues in the light of the discussions held today. They would convey their respective stands regarding the guarantee and security aspects to BIFR within one month. In case there was no response from any party within this duration, their consent to what was provided in the DRS would be assumed. Further, as per the submission of RRD today within this time the decisions of the High Court in the case should also be available. The status in this regard along with the copies of DHC orders, if any, should also be sent to BIFR by RRA/the OA at the end of one month. The Bench would decide about the future of the DRS on the basis of the position emerging at the end of one month.” Para 9 of order dated 01.06.1998: 9. Considering the facts and circumstances on records and submissions made at today’s hearing the Bench sanctioned the scheme subject to the modifications stated above. The Bench, however, clarified that the scheme would be implemented only when the stay is vacated by the Hon’ble High Court. The OA was directed to submit a copy of the revised scheme along with the annexures taking in view the modifications as discussed in today’s hearing within three days as from today.” 18. The draft scheme dated 28.05.1997 and the orders dated 12.08.1997 and 01.06.1998 were questioned before the AAIFR but the appellate authority by order dated 13.04.1999 dismissed the appeal as time barred. The said order of the AAIFR dated 13.04.1999 was questioned in W.P.No.10110 of 1997 and this Court by order dated 13.08.1999 after extracting Sections 18(3)(a) and Section 25 of SICA allowed the writ petition setting aside the order dated 13.04.1999 of AAIFR