IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 5124 of 2000 with SPECIAL CIVIL APPLICATION No 5125 of 2000 with COMPANY PETITIONS NO. 31 and 32 of 2000 with COMPANY APPLICATION No.446 of 2000 in Co.Petn.31/2000 with COMPANY APPLICATION No. 288 of 2000 in Co.Petn.32/2000 For Approval and Signature: Hon'ble MR.JUSTICE K.R.VYAS ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- MADHU FABRICS LTD Versus STATE BANK OF INDIA -------------------------------------------------------------- Appearance: 1. Special Civil Application No. 5124 of 2000 MR KG VAKHARIA,Sr.Counsel with MS AVANI S MEHTA for Petitioner. DR SONIA HURRA for Respondent No. 1 MR RM DESAI for Respondent No. 2 SINGHI & BUCH ASSO. for Respondent No. 3 MR RM DESAI for Respondent no.4. MR PK SHUKLA,AGP for Respondent No. 6, 7 2. Special Civil ApplicationNo 5125 of 2000 MR KG VAKHARIA,Sr.Counsel with MR TUSHAR MEHTA for Petitioner DR SONIA HURRA for Respondent No. 1 MR AS VAKIL for Respondent No. 2 MR RM DESAI for Respondent No. 3 SINGHI & BUCH ASSO. for Respondent No. 5 MR PK SHUKLA,AGP for Respondent No. 7 -------------------------------------------------------------- CORAM : MR.JUSTICE K.R.VYAS Date of decision: / /2001 CAV JUDGEMENT 1. The petitioners M/s Madhu Fabrics Ltd. and M/s Madhu Textiles Ahmedabad Limited, by filing Special Civil Application No.5124 and 5125 of 2000 respectively, have challenged the orders dated 14.2.2000 passed by the Board for Industrial and Financial Reconstruction (In short, 'BIFR') annexure A and order dated 4.5.2000 passed by the Appellate Authority for Industrial and Finance Reconstruction (In short, 'AAIFR') annexure B. The BIFR, after considering the facts, opined that the petitioner company is not likely to become viable in future and, therefore, it is just, equitable and in public interest that it should be wound up under section 20(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (In short, 'SICA'). AAIFR, in appeal, confirmed the said order. 2. Company Petition No. 31 of 2000 is for consideration of Board opinion in the matter of M/s Madhu Fabrics Limited while Company Petition No. 32 of 2000 is for consideration of Board opinion with respect to M/s Madhu Textiles Ahmedabad Limited. The petitioner M/s Madhu Textiles Ahmedabad Limited has also filed Company Application No. 288 of 2000 in Company Petition No. 32 of 2000 seeking directions to convene a meeting under section 391 of the Companies Act, 1956 (In short, 'the Act'). In the affidavit in support of judge's summons, the petitioner M/s Madhu Textiles presented a scheme to rehabilitate. Similarly,M/s Madhu Fabrics also presented a scheme to rehabilitate by filing Company Application No. 446 of 2000 in Company Petition No. 31 of 2000. Both the petitioners also produced the very scheme for rehabilitation by way of draft amendment in their respective petitions. 3. Since the order of BIFR as well as AAIFR is under challenge in the petitions and this Court is required to consider the opinion of BIFR for passing the order of winding up, Special Civil Applications as well as Company Petitions and Company Applications were heard together and are disposed of by this common judgment and order. 4. The petitioner M/s Madhu Fabrics Limited is engaged in the business of process of grey cloth, printing, dyeing and bleaching of fabrics; faced financial difficulties because of the circumstances beyond control in the year 1991-92. The petitioner made reference under section 15 of SICA to the BIFR which was registered as Case No. 74 of 1992. In the said reference, the scheme was approved by an order dated 22nd August 1995 by the Board. It appears that the said scheme was approved on the basis that the petitioner Company would be getting sufficient job work from different exporters. Even though the petitioner Company made efforts to restart the unit, however,it could not succeed. It appears that in view of many hurdles in the implementation of the scheme, the Board directed the petitioner Company to submit a workable rehabilitation proposal within four weeks from 25.11.1999 on which day, a joint meeting was held at BIFR, New Delhi. The Board further directed the petitioner Company to deposit 25% of the cost of the proposal in an interest bearing No Lien Account within a month from 25.11.1999. It is the case of the petitioner that the promoters had agreed to pay a sum of Rs. 80 lakhs against OTS (One Time Settlement) of the dues of secured creditors, financial institutions and banks. However, before the expiry of the aforesaid period and without the consent or even the knowledge of the petitioner, an advertisement dated 11.12.1999 was published by the Board in daily Jansatta published from Ahmedabad giving a notice for winding up of the Company and the said advertisement seriously affected the petitioner Company's reputation and all sources of collection of money by the promoters of the Company. 5. The petitioner M/s Madhu Textiles Ahmedabad Limited is engaged in the business of blended yarn; faced financial difficulties because of the circumstances beyond control in the year 1991-92. Therefore, it made a reference under section 15 of SICA to the BIFR which was registered as Case No. 76 of 1992. Thereafter, the scheme was approved by an order dated 22nd August 1995 by the Board. It is the case of the petitioner that after the scheme was approved, the petitioner Company had paid Rs. 248 lakhs out of the total amount of Rs. 896.26 lakhs of the sanctioned scheme. The petitioner Company also faced major hurdles on account of workers strike, unforeseen fall in the value of the stock comprising of raw material viz. Polyester staple fibre from Rs.110/- to Rs.40/- per kg., general recession and failure on the part of the Government of Gujarat to grant relief and concessions as per the scheme dated 22nd August 1995 within stipulated time limit etc. It is the further case of the petitioner that since the scheme was sanctioned, the petitioner had also brought capital to the extent of Rs. 355 lakhs for smooth running of the unit. In view of the above hurdles in the implementation of the scheme, another scheme was proposed which was agreed by the creditors in a joint meeting held on 17.11.1999. After the said meeting, the Board had convened a meeting on 22.11.1999 for discussion of the aforesaid proposal. In the said meeting, there was consensus of agreement regarding the scheme proposed by the petitioner. As per the scheme, the petitioner Company was required to deposit Rs. 1 crore in No Lien Account with operating agency viz. IDBI on or before 25th December 1999. It is the case of the petitioner that before the expiry of the aforesaid period and without the consent or even the knowledge of the petitioner, an advertisement dated 10.12.1999 was published by the Board in daily Jansatta, Ahmedabad Edition, giving notice for winding up of the Company which has seriously affected the Company's reputation and affected all the sources of collection of money by the promoters of the Company. It is the case of the petitioner that even though the consensus scheme which was approved in the meeting dated 17th and 25th November 1999 was pending for consideration, the Board passed an order dated 14.2.2000 at annexure A observing that the promoters were not serious in rehabilitating the company nor were they resourceful enough to mobilise the funds and ultimately recommended winding up under section 20(1) of SICA. The appeal preferred by the petitioner was rejected. Hence, the petition. 6. Mr.K.G.Vakharia, learned Senior Counsel appearing for the petitioners challenged the impugned orders at Annexures A and B recommending winding up of the Company by contending that drastic recommendations for winding up are not justified in the facts and circumstances of the case. He submitted that in pursuance of the scheme which was sanctioned on 22nd August 1995, the promoters of the petitioner Company brought the capital of Rs. 355 lakhs to keep the business running; paid Rs. 248.42 lakhs to the financial institutions and paid Rs. 80 lakhs towards the workers dues. In the submission of Mr. Vakharia, the total amount paid during the pendency of the scheme is Rs. 683.42 lakhs. Therefore, in the submission of Mr. Vakharia, the observations of the Board that the scheme has remained un-implemented for a period of five years are not correct. Mr. Vakharia pointed out the circumstances which were beyond the control of the petitioners and, therefore, the remaining part of the scheme could not be implemented. According to him, because of the strike of the workers in September 1995 which continued for a period of five months, the unforeseen reduction in the price of stock comprising of raw material viz. Polyester staple fibre and the failure on the part of the Government of Gujarat to grant reliefs and concessions as per the scheme which come to about Rs. 1.13 crores within the stipulated time and the general recession were the circumstances beyond the control of the petitioners. Mr.Vakharia further submitted that even though the consensus was arrived at regarding the proposed scheme in the meeting dated 17.11.1999 and 25.11.1999 whereby the promoters of the Company had agreed to pay 20% of Rs. 4 crores which would have come to Rs. 80 lakhs by inviting resourceful promoters, before that could be done, notice to show cause as to why the Company should not be wound up was published in the newspaper under the directions of the Board on 10.12.1999 which prevented the implementation of the consensus arrived at. By inviting my attention to the scheme for rehabilitation by way of draft amendment, Mr. Vakharia submitted that the Company being a running concern and is likely to come out from all difficulties, order to wind up the Company is not called for. Alternatively, it was submitted that the case may be remanded to BIFR for considering the scheme for rehabilitation. 7. Mr.Roshan Desai and Mr. Singhi, learned Counsel appearing for IDBI and ICICI respectively, the financial institutions, submitted that ample opportunity was given to the petitioners and they failed to avail of the same and, therefore, no interference is called for. In the submission of the learned Counsels, this Court cannot sit as a Court of Appeal over the decision of the expert body and scrutinise the facts to reach to the conclusion whether the orders passed by the expert body are right or not. As far as the scheme for rehabilitation submitted by the petitioners is concerned, while strongly objecting to the same, it was contended that if a particular class (secured creditors) which is present before the Court objects per se for sanctioning the scheme, then it would be an empty formality to direct to hold the meeting as the scheme, under any circumstances, cannot be sanctioned. It was further contended by the learned Counsel appearing for the financial institutions that by filing section 391 scheme, the petitioners have waived their right to challenge the orders of BIFR and AAIFR. 8. Mrs.Sonia Hurrah, learned Counsel appearing for the State Bank of Travancore and State Bank of India and Mr. A.S.Vakil, learned Counsel appearing for the State Bank of Saurashtra, while adopting the submissions of the learned Counsel for financial institutions, opposed the scheme for rehabilitation by contending that nothing is offered to banks. 9. Mr.D.S.Vasavda, learned Counsel appearing for Majoor Mahajan Sangh supported the petitioners by contending that the winding up of the companies will be against the interests of the workers. 10. In the instant case, the bench of BIFR, after considering the facts and circumstances of the case and particularly the scheme for rehabilitation, observed that: "xxx the promoters were not serious in rehabilitating the company nor were they resourceful enough to mobilise the funds required for this purpose. As such, there was no rehabilitation proposal with means of finance fully tied up, for consideration of the Board despite ample opportunities having been given to all concerned. Under the circumstances, the Bench confirmed its prima facie opinion that the Sick Industrial Company- M/s Madhu Textiles Ahmedabad Ltd.(MTAL) was not likely to make its net worth exceed its accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof, was not likely to become viable in future and hence it was just, equitable and in public interest that it should be wound up under section 20(1) of the Act." The plain reading of the conclusion reached by BIFR makes it clear that ample opportunities have been given to rehabilitate the companies and the petitioners were not resourceful enough to mobilise funds required for rehabilitation purpose. The respondent no.5 ICICI, in its affidavit-in-reply, has given details of opportunities given to both the petitioners. It is stated that in the year 1989, as the petitioners had failed to repay the loans of financial institutions and the banks including the respondent no.5, the respondent no.5 granted relief by way of re-schedulement of loans, funding of unpaid interest and waiver of penal interest and liquidated damages. However, the petitioners failed to honour their commitments even as per the said reliefs granted by respondent no.5. It is further stated that the petitioners thereafter were declared sick industrial companies and BIFR had sanctioned rehabilitation scheme in the year 1995. However, the petitioners failed to honour commitments and also failed to repay the dues of financial institutions including the respondent no.5. On 2.4.1997, status report with regard to the implementation of the sanctioned rehabilitation scheme was reconsidered by BIFR. Once again, opportunity was given to the petitioners to negotiate with the financial institutions including the respondent no.5 for revised OTS scheme. The petitioners miserably failed to come with an acceptable and fully tied up revised OTS proposal and the scheme formulated by the petitioners was rejected by the financial institutions. Even thereafter the rehabilitation scheme was further considered by BIFR at the hearing which took place on 4.9.1998. BIFR once again granted time to the promoters of the petitioners to come out with a concrete offer with regard to the repayment of dues of the financial institutions and it was made clear to the petitioners that if the proposals made by the petitioners are not acceptable to the financial institutions including respondent no.5, BIFR would issue notice for winding up of the companies without any further hearing being given to them. The petitioners submitted their revised OTS which was not acceptable to the financial institutions. As there was no concrete proposal coming forth from the promoters of the petitioners, the Operating Agency, viz. IDBI informed BIFR that the rehabilitation scheme had failed and the financial institutions may be permitted to recover the liabilities due and payable by the petitioners by initiating legal action against the petitioners and their promoters. Thereafter on 21.6.1999, the promoters of the petitioners gave two alternative proposals to the financial institutions which were considered by the financial institutions in their joint meeting held on 17.11.1999. It appears that the promoters of the petitioners failed to indicate the source of funds for repayment of the dues of the financial institutions and banks and also failed to identify clearly the copromoter who was to induct funds for repayment of the said dues. When the aforesaid facts were placed before BIFR at the hearing that took place on 25.11.1999,BIFR noted that the promoters of the petitioners failed to identify specifically the copromoter who was to induct funds and to disclose the source from which funds were to be brought for repayment of dues of the financial institutions. Even in the joint meeting held on 17.11.1999, the promoters of the petitioners had stated that funds would be brought through the sale of the promoters' personal properties. However,no details were given either at the said joint meeting or at the hearing before BIFR on 25.11.1999. 11. In view of the aforesaid background, the BIFR issued aforesaid show cause notice as indicated to the petitioners and their promoters in the meeting held on 4.9.1998 to the effect that if a fully tied-up proposal is not put forward by the promoters of the petitioners, BIFR would issue show cause notice for winding up of the petitioners without any further hearing. It is to be stated that despite the issuance of the show cause notice on 25.11.1999, BIFR once again gave time to the promoters of the petitioners to come with a concrete rehabilitation proposal and in order to show the bonafide of the promoters in the rehabilitation of the petitioners, the petitioners were asked to deposit 25% of the cost of the proposal in the interest bearing No Lien Account. Even after the show cause notice was issued by the BIFR vide its order dated 25.11.1999,the promoters of the petitioners failed to bring in any fully tied-up comprehensive workable rehabilitation proposal and also failed to deposit 25% of the cost of the proposal in an interest bearing No Lien Account. 12. It is the contention of the petitioners that in view of the publication of show cause notice, the third parties resiled from bringing any money for the petitioners. In my opinion, the said submission is nothing but an afterthought. As stated above, the petitioners having failed to clearly identify the copromoter both at the time of joint meeting and before the BIFR, the BIFR was justified in issuing the show cause notice, in view of the fact that at the time of hearing before the BIFR on 14.2.2000, the petitioners failed to bring in any fully tied-up comprehensive workable rehabilitation proposal and also failed to deposit 25% of the amount of proposal in interest bearing No Lien Account. Thus, sufficient opportunities from time to time were given to the petitioners to come out with the concrete rehabilitation scheme including revised schedule for repayment of the dues of the financial institutions, but the petitioners failed either in payment of OTS amount payable to the financial institutions or in coming forward with concrete scheme for rehabilitation of the petitioners. 13. Surprisingly, in the appeal preferred before AAIFR, no scheme for rehabilitation was presented. Reading the judgment of the AAIFR, it appears that the petitioners offered to deposit through promoters Rs. 50 lakhs in No Lien Account within reasonable time so that the petitioners can come out with a proposal. AAIFR rightly observed that the debt of the petitioners to the financial institutions/ banks is so large that the deposit of Rs. 50 lakhs in interest bearing No Lien Account would be of no avail. It is further observed that: "Repeated opportunities have been given to the appellants by BIFR over a period of more than seven years. A scheme based on substantial sacrifices by creditors was also sanctioned, but it failed because the appellants could not fulfil their obligations. Now, the appellants have not even placed any proposal with the Memorandum of Appeal. There is no possibility of rehabilitating MIAL." Thus, when the expert body like BIFR, after scrutinising the facts, reaching a definite conclusion, the question that arises for my consideration is whether this Court can sit as a Court of Appeal over the decision of the said expert body ? 14. Mr.Vakharia, learned Counsel for the petitioners invited my attention to the decisions of the Apex Court rendered in the case of Election Commission of India Vs. Ashok Kumar and ors., JT 2000 (9) SC 529. That was a case where the notification of election was issued and published in the official gazette and validity of the same was challenged. In the said petition, instructions issued by the Election Commission for counting by distributing ballot boxes of one polling station at one table was challenged and the High Court granted interim relief suspending the notification and gave direction for counting boothwise. The question before the Apex Court was whether the High Court had jurisdiction to entertain the petitions and to issue interim directions after commencement of electoral process. It was held that the petitioners had not made out any case for intervention of High Court and, therefore, the orders passed by the High Court were set aside. My attention has been invited to the observations made by the Apex Court regarding the constitutional status of the High Court and the nature of jurisdiction exercised by the High Courts. The Apex Court observed that: "High Courts in India are superior courts of record. They have original and appellate jurisdiction. They have inherent and supplementary powers.Unless expressly or impliedly barred and subject to the appellate or discretionary jurisdiction of the Supreme Court,the High Courts have unlimited jurisdiction including the jurisdiction to determine their own powers. " There cannot be any dispute with regard to the principle laid down by the Apex Court. In my view, the High Court, by exercising its inherent powers, cannot sit as a Court of Appeal over the decision of an expert body. 15. Even though High Court exercises judicial review over administrative and quasi judicial authorities, its powers are limited and the High Court shall confine its powers to see: (1) Whether a decision making authority exceeded its powers? (2) committed an error of law; (3) committed a breach of the rules of natural justice; (4) reached a decision which no reasonable Tribunal would have reached, or (5) abused its powers. 16. I am supported by the decision of the Delhi High Court rendered in the case of KMA Ltd. Vs. Union of India and ors., (1997) 1 Comp.LJ 343 (Del). In the said decision, Delhi High Court observed that the jurisdiction of the Court exercising powers under Article 226 of the Constitution of India is limited and the Court has no power and jurisdiction to sit over and scrutinise the powers of the appellate authority as a Court of Appeal. This Court has only to find out whether the order of the appellate authority is within the frame work and ambit of SICA. 17. Delhi High Court, in the case of ARC Cement Ltd. Vs. AAIFR, AIR 1998 Delhi 359 also reiterated the same view. There also, it was held that the expert body such as operating agency, after scrutinising the matter and recommending the company for being wound up and not for revival, no interference by the High Court was called for. 18. Supreme Court,in the case of U.P.Financial Corporation Vs. Maine Oxygen and Acetylene Gas Ltd., (1995) 2 SCC 754 held as under: "However,we cannot lose sight of the fact that the Corporation is an independent autonomous statutory body having its own constitution and rules to abide by, and functions and obligations to discharge. As such, in the discharge of its functions, it is free to act according to its own light. The views it forms and the decision it takes are on the basis of information in its possession and the advice it receives and according to its own perspective and calculations. Unless its action is malafide, even a wrong decision taken by it is not open to challenge. It is not for the Courts or a third party to substitute its decision, however, more prudent, commercial or business like it may be, for the decision of the Corporation. Hence, whatever the wisdom (or lack of it) of the conduct of the Corporation, the same cannot be assailed for making the Corporation liable. " In view of this, it is not possible for me to take a different view in the matter. Suffice it to say that no illegality has been committed by BIFR or AAIFR nor is it shown that the orders are malafide, warranting interference in the matter. 19. Frankly speaking, learned Counsel for the petitioners