COMP/190/2003 1/50 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD COMPANY PETITION No. 190 of 2003 With SPECIAL CIVIL APPLICATION No. 11078 of 2003 With COMPANY PETITION No. 73 of 1996 With COMPANY PETITION No. 74 of 1996 With COMPANY PETITION No. 124 of 1996 With COMPANY PETITION No. 23 of 1997 With COMPANY PETITION No. 50 of 1998 With COMPANY PETITION No. 161 of 2000 With COMPANY APPLICATION No. 57 of 2005 In COMPANY PETITION No. 190 of 2003 For Approval and Signature: HONOURABLE MR.JUSTICE K.A.PUJ ================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? COMP/190/2003 2/50 JUDGMENT 5 Whether it is to be circulated to the civil judge ? ================================================= B.I.F.R. - Petitioner Versus CMD, APS STAR INDUSTRIES LTD. & 27 - Respondents ================================================= Appearance : 1. Company Petition No. 190 of 2003 BOARD OPINION for Petitioner. MR RD DAVE for Respondent No. 1. None for Respondent Nos. 2-5,7-18,21 - 26, 28, MR BHARAT JANI for Respondent No. 6. MR SUBRAMANIAM IYER for Respondent Nos. 19-20. MR RAJESH P MANKAD for Respondent No. 27. MR G.M. JOSHI for Respondent No. 28. 2. Special Civil Application No. 11078 of 2003 MR AK CLERK for Petitioners. 3. Company Petition No. 73 of 1996 MR H.M. BHAGAT for Petitioner. MR AC GANDHI for the Respondent. 4. Company Petition No. 74 of 1996 MR AR MAJMUDAR for the Petitioner. MR K.M. PAUL for the Respondent. 5. Company Application No. 126 of 1996 MR R.S. SANJANWALA for the Applicant. MR A.C. GANDHI for respondent No. 1. 6. Company Petition No. 23 of 1997 MR S.N. SOPARKAR, Senior Advocate for the COMP/190/2003 3/50 JUDGMENT applicant. MR A.C. GANDHI for the Respondent. 7. Company Petition No. 50 of 1998 MR A.P. FANIBARDA for the Petitioner. MR K.M. PATEL for the Respondent. 8. Company Petition No. 161 of 2000 MR P.P. BANAJI for the petitioner. 9. Company Application No. 57 of 2005 MR S.H. IYER for the Applicant. ================================================= CORAM : HONOURABLE MR.JUSTICE K.A.PUJ Date : 09/01/2006 COMMON ORAL JUDGMENT 1.Since all these Company Petitions, Company Application and Special Civil Application are in respect of the properties of the Company and in respect of the claims made by the petitioning Creditors against the Company, namely, APS Star Industries Limited, they are heard together and are being disposed of by this common judgment and order. COMP/190/2003 4/50 JUDGMENT 2.Company Petition No. 190 of 2003 is registered on the basis of the opinion forwarded by the Board for Industrial and Financial Reconstruction (BIFR) on 16.07.2003 to the Registrar of this Court under Section 20 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) stating that despite having allowed enough time and opportunity, it had not been possible to formulate any acceptable revival scheme for the Company enabling it to make its net worth exceed the 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 that it was just, equitable and in public interest that the Company should be wound up under Section 20 (1) of the Act. The Board has further directed the Company in terms of clause (b) of Section 22A of the Act not to dispose of or alienate in any other way any of COMP/190/2003 5/50 JUDGMENT its fixed or current assets without specific prior approval of BIFR and chargeholders, till an Official Liquidator to be appointed by the concerned High Court to take charge of these assets. 3.During the pendency of the aforesaid petition, Engineering Mazdoor Sangh through its President Shri Harshadbhai D. Thakkar has filed petition being Special Civil Application No. 11078 of 2003 praying for quashing and setting aside the order and/or direction issued by BIFR on 26.06.2003 in Case No. 28 of 1998. The petitioners have also prayed for the mandatory direction to the respondents to permit the petitioner to continue manufacturing operation of the Vadodara Unit by engaging the members of the petitioner Union. The petitioner has further prayed for the direction to the respondent No. 5 i.e. IDBI to evolve a Scheme for running Vadodara unit of the respondent COMP/190/2003 6/50 JUDGMENT Company by protecting employment of the employees who are members of the petitioner union, in consultation with management of the respondent Company. 4.Company Petition No. 73 of 1996 is filed by The Instalment Supply Limited for winding up of the respondent Company on the ground that the respondent Company has failed to pay an amount of Rs. 7,47,160/- being the lease rentals and compensation for delayed payment of lease rentals, as per the statutory notice dated 11.10.1995 and after issuance of the said notice and till the filing of the winding up petition, a further sum of Rs. 1,65,154/- towards overdue lease rentals and Rs. 43,755/- towards interest on delayed payments. 5.Company Petition No. 74 of 1996 is filed by Transpek Industry Limited for winding up of the respondent Company on the ground that the COMP/190/2003 7/50 JUDGMENT respondent Company has failed to pay an amount of Rs. 25 Lacs being the Inter-Corporate Deposit along with interest accrued and payable thereon. 6.Company Petition No. 124 of 1996 is filed by Shri S.C. Roongta for winding up of the respondent Company on the ground that the respondent Company has failed to pay an amount of Rs. 46,411.40 ps. 7.Company Petition No. 23 of 1997 is filed by M/s. J.C. Steel Sales for winding up of the respondent Company on the ground that the respondent Company has failed to make the payment of Rs. 42,18,778/- as per the particulars of claim filed by the petitioner along with the petition at Annexure A. 8.Company Petition No. 50 of 1998 is filed by M/s. Pennzoil India Limited for winding up of COMP/190/2003 8/50 JUDGMENT the respondent Company on the ground that the respondent Company has failed to make payment of Rs. 8,31,590.82 ps. 9.Company Petition No. 161 of 2000 is filed by M/s. Steel Corporation for winding up of the respondent Company on the ground that the respondent Company has failed to make the payment of Rs. 64,484.14 ps. along with the interest accrued and payable thereon. 10.Company Application No. 57 of 2005 is filed by Star Textiles Employees Staff Union for constitution of sale committee for disposal of the assets of the Dombiwali unit as well as corporate office of the Company at Dhanraj Mahal at Bombay and two representatives of applicant No. 1 – Union, namely, Mr. V.R. Patil and Mr. P.B. Tare and two representatives of applicant No. 2 - Union i.e. Mr. R.B. Rumde and Mr. L.V. Gandhi may be included in the Sale COMP/190/2003 9/50 JUDGMENT Committee as representatives of the workmen and staff of Dombiwali unit and they have also sought for the directions to disburse the amount of Rs. 7.36 Crores to the 416 workmen of Dombiwali unit of the Company. 11.Since the respondent Company was before BIFR, Company Petition Nos. 73, 74, 124 of 1996, 23 of 1997, 50 of 1998 and 161 of 2000 were kept in abeyance by virtue of the provisions contained in Section 22 of SICA. All these petitions are now taken up for hearing in view of the order passed by BIFR which is the subject matter of challenge in Company Petition No. 190 of 2003 as well as Special Civil Application No. 11078 of 2003. 12.During the pendency of Company Petition No. 190 of 2003, two more Company Applications were filed, namely, Company Application No. 18 of 2004 by Gujarat Engineering General Kamdar COMP/190/2003 10/50 JUDGMENT Union and Company Application No. 94 of 2004 by M/s. Star Industrial and Textile Enterprise Employees Union, Nasik for impleading them as party – respondents in Company Petition No. 190 of 2003. This Court has passed an order on 08.07.2004 impleading them as party – respondents in Company Petition No. 190 of 2003. 13.So far as Company Petition No. 190 of 2003 is concerned, this Court has issued notice on 28.07.2003. Immediately thereafter, Special Civil Application No. 11078 of 2003 was filed. Thereafter, both these matters were listed together and several orders were passed from time to time. 14.Mr. R.D. Dave, learned advocate appeared on behalf of the respondent Company in both these matters. An affidavit-in-reply is filed by Shri Rohit Manharlal Mehta, one of the COMP/190/2003 11/50 JUDGMENT Directors of the respondent Company on 28.07.2004. It is the case of the respondent Company that the order of BIFR forming opinion about winding up was illegal, improper and bad in law and the Company is not required to be wound up based upon the said opinion of BIFR. Mr. Dave has submitted that BIFR has committed serious error in giving opinion for winding up without considering and appreciating the proposal submitted by one Mr. B.K. Patel in response to the advertisement issued by IDBI as per the order of BIFR dated 14.02.2002. He has further submitted that pursuant to the order of BIFR, IDBI which was appointed as Operating Agency, issued an advertisement in 'Economic Times' – Ahmedabad edition dated 13.03.2002 inviting offer for take over, leasing, merger, change in management of the Company. Pursuant to the said advertisement of IDBI, Shri B.K. Patel has submitted comprehensive proposal for taking over the said company by effecting COMP/190/2003 12/50 JUDGMENT change in management, supported by the resolution of the Board of Directors of the Company dated 30.08.2002. The said Mr. B.K. Patel had agreed to invest Rs. 8 Crores as suggested in the Scheme itself. The proposal was considered in the consortium meeting held on 02.09.2002 and it was supported by majority of the Banks and institutions with suggestion of some modification. The said Mr. B.K. Patel had already spent and contributed Rs. 60 Lacs towards part of wages to the workers and for restarting Baroda unit of the Company, thereby 130 employees have been given employment immediately and achieved turn over of Rs. 3 Crores in Baroda unit. He has further submitted that Dombivali workers have received Rs. 67 Lacs. This important aspect was lost sight of by BIFR while passing the impugned order forming the opinion of winding up of the Company. He has, therefore, submitted that the board opinion is not required to be accepted by COMP/190/2003 13/50 JUDGMENT this Court. 15.Mr. Dave has further submitted that the impugned order forming final opinion of winding up dated 26.06.2003 is contrary to its earlier orders in as much as the fact that by an order dated 14.02.2002, the Board came to a definite conclusion that the Board would not like to come to the conclusion about non-viability on the basis of simple submissions. While passing the final order dated 26.06.2003, the Board accepted the simple submission of some of the financial institutions without any cogent material and evidence in support of the submissions and thereby recommended winding up of the Company. Mr. Dave has further submitted that the Board has not taken into consideration various objections and submissions made by various parties including the Company and erroneously passed the impugned order dated 26.06.2003 forming opinion for winding up of COMP/190/2003 14/50 JUDGMENT the respondent Company. The Board has also not appreciated the fact that as per the proposal of Shri B.K. Patel, the workers of the four units were to receive Rs. 9.50 Crores in the very first year and Rs. 9.92 Crores in the second year, apart from providing employment to 130 employees at Vadodara. The said amounts were to be given as per the scheme submitted by Mr. B.K. Patel. However, none of the said aspects have been considered and discussed in the board opinion for winding up and suggested for winding up of the Company which is not in the larger interest of the shareholders, workers and also secured creditors. He has further submitted that the Board has also failed to consider the fact that the proposal of Shri B.K. Patel provides for sale of the properties comprising land, building and machineries of the units situated at three places i.e. at Dombivali, Nasik and Dharwad and also to sell surplus machineries at Vadodara. COMP/190/2003 15/50 JUDGMENT Apart from this, it was also suggested to sale corporate office at Bombay. Sale proceeds thereof were suggested to be distributed amongst workers and secured creditors as per Section 529-A of the Act. The entire assets of the Company are insufficient to meet with larger interest of secured creditors and workers and at the same time, the Baroda unit which is a going concern can be protected if the scheme is accepted and thereby the secured creditors also will get sizable amount as per the scheme. 16.Mr. Dave has further submitted that if the Company is ordered to be wound up and assets are ordered to be sold, sale proceeds would be substantially less than what is offered in the scheme of Mr. B.K. Patel. In winding up proceedings, the sale proceeds would be absolutely insufficient to meet with liability of workers and secured creditors. Moreover, COMP/190/2003 16/50 JUDGMENT all the workers will be deprived of getting employment which will result into loss to the State Government by way of revenue as well as to the shareholders. He has, therefore, submitted that it is not in the interest of all the workers, secured creditors or the shareholders to wind up the Company pursuant to the Board opinion. 17.Mr. Dave has further submitted that the Board has failed to consider that Mr. B.K. Patel in his scheme has not asked for any financial assistance in the form of any fresh loan. He has, therefore, submitted that this question was required to be considered as to whether Section 19 (2) of SICA has any application in the facts and circumstances of the present case. The secured creditors have made improvement in their stand from time to time and changed their stand. The Board, however, did not accept the said variance and decided to COMP/190/2003 17/50 JUDGMENT go for alternatives in terms of Section 18 of SICA. The Board should have given separate treatment and consideration to Baroda unit as the Baroda unit is the only unit which is a going concern. However, the said possibility has not been examined by the Board and thereby committed serious error. Mr. Dave has further submitted that the respondent Company cannot have any objection for disposal of defunct and non-operative units which are closed since long. The Company is also having no objection for sale and disposal of corporate office situated at Dhanraj Mahal Office at Bombay. By sale of the said assets, sizable amount can be recovered and the substantial amount can be paid to the secured creditors and workers of the respective Units, thereby the Baroda unit can be saved which is a going concern and large number of workers can be given employment and the secured creditors, namely, Bank of India and United Bank of India can be paid dues if COMP/190/2003 18/50 JUDGMENT the Company is allowed to continue. The workers of Baroda unit have agreed to sacrifice substantially by not enforcing their outstanding dues and agreed to co-operate the management of the Company to run Vadodara unit so as to make it profitable. 18.Based on the aforesaid submissions, Mr. Dave has submitted that this Court should not accept the opinion forwarded by BIFR for winding up of the respondent Company and dismiss this petition. 19.Mr. A.K. Clerk, learned advocate appeared on behalf of Engineering Mazdoor Sangh, a majority Union. An affidavit-in-reply is filed by Mr. Harshadbhai D. Thakkar, the President of the said Union. This union has also filed Special Civil Application No. 11078 of 2003 challenging the order passed by BIFR. Mr. A.K. Clerk, learned advocate also appeared on behalf of the COMP/190/2003 19/50 JUDGMENT petitioner in Special Civil Application No. 11078 of 2003. It is his common submission in both these matters that except Vadodara unit, none of the other three Units were viable and in a position to continue its activities. In Vadodara unit, about 625 workers have been engaged. However, on account of sudden disruption of production activities on 13.06.1999, the workers were rendered jobless and the industrial peace was jeopardized. Ultimately, the petitioner Union intervened and negotiated with the management, as a result thereof, an amicable settlement was arrived at between the petitioner Union and the management on 19.09.2001 containing various terms and conditions by extending full co-operation. The settlement provides for restarting Vadodara unit with total cooperation and coordination between the management and the workers. The idea behind the settlement was to see that the Vadodara unit survives which may gradually give COMP/190/2003 20/50 JUDGMENT employment to 625 employees. The resultant effect was that the Vadodara unit started its production activities from December, 2001 when on behalf of the management Shri B.K. Patel as president of the Company under legal authority on behalf of the Board of Directors intervened and invested huge funds for revival of the Vadodara unit. He has further submitted that during short span, about 125 employees have been re-employed, who have been paid wages of approximately Rs. 96 Lacs by the Company. Over and above, the Company has also paid contribution towards P.F. ESIC etc. The management has also paid Central Excise Duty of Rs. 44,80,945/- which is revenue income to the Union of India. GEB has also received energy bill of Rs. 15,10,000/- from the management. The management has also paid sizable amount to the employees who have not been given employment. He has, therefore, submitted that the Company has taken good start and has been COMP/190/2003 21/50 JUDGMENT able to pay sizable amount of the workers towards their regular salary, bonus, arrears etc. The employees who died during that period have been paid their full gratuity. The employees who have retired during service have also been paid their full gratuity. Considering all these aspects, he has submitted that Vadodara unit is a viable and it is the only running unit where about 600 employees can be employed gradually. The Vadodara unit is also engaged in exporting its production to Turkey and Middle east countries. Therefore, there are all chances to make the Vadodara unit profitable. If the Company is unable to run other units, the Union has no objection for disposal of the other units by secured creditors or by order of this Court. However, it is not fit case where the Company is allowed to work till date, to go into liquidation, as a result the Vadodara unit which is a running concern also be closed down which may result COMP/190/2003 22/50 JUDGMENT into unemployment to 625 employees. 20.Mr. Clerk has further submitted that the Board has totally neglected the say of the petitioner Union in as much as the fact that the workers at Vadodara unit having outstanding dues of approximately Rs. 10 Crores have been ignored and BIFR was mainly concerned with outstanding dues of financial institutions and banks which is highly unreasonable. This is the only source of livelihood for the workers and in this stringent financial condition, if the Vadodara unit is wound up by drastic action of winding up proceedings pursuant to the Board opinion, then 625 employees and their families will be stranded on street and they will be put to starvation. The dues of the financial institutions and banks only cannot have priority and precedence and cannot be the only consideration for deciding validity of the Company. BIFR ought to have appreciated that COMP/190/2003 23/50 JUDGMENT Vadodara unit is a viable unit which is smoothly running and making sale of about Rs. 3 Crores p.a. and should have saved from winding up. IDBI, being the Operating Agency, is under an obligation to protect and safeguard the interest of Vadodara unit which is a running Unit. There is total failure on the part of the Board as well as the Operating Agency not to consider the other possibilities of revival of Baroda unit and protect it under the scheme by disposing of other assets of other Units. He has, therefore, submitted that the order passed by BIFR and opinion formed therein for winding up of the respondent Company is required to be quashed and set aside. 21.An affidavit-in-reply is filed on behalf of respondent Nos. 19 & 20 i.e. General Secretary of the Star Textile Employees Staff Union and Star Textile Engineering Employees Union. Mr. Subramaniam Iyer, learned advocate appeared for COMP/190/2003 24/50 JUDGMENT respondent Nos. 19 & 20 and has submitted that Dombivali unit of the Company has been illegally closed since 01.03.1996. More than 400 workers have not been paid wages and other legal dues by the Company since 01.03.1996. A complaint was lodged by the respondent Nos. 19 & 20 before the Industrial Court at Thane for effecting illegal closure in contravention of the provisions of Section 25-N of the I.D. Act. The Industrial Court directed the Company to pay the workers their monthly wages after adjustment of certain amount of terminal dues. The said order was challenged by the Company before the Bombay High Court by way of Writ Petition No. 6312 of 1996 wherein motion was made for stay against order of the Industrial Court. The interim relief was refused by the Bombay High Court vide its order dated 16.01.1997. Since the order of the Industrial Court was not complied with, the respondent Nos. 19 & 20 moved a petition under the COMP/190/2003 25/50 JUDGMENT Contempt of Court Act being Contempt Petition No. 188 of 1997. By interim order dated 23.04.1998, the Bombay High Court has issued directions to BIFR to consider interim payments to be made to the workers as would be admissible under the law. By another interim order dated 15.12.1998, the Bombay High Court has directed the Company to pay Rs. 7 Crores by selling the assets of the Company including the Dombivali plant, machinery and land and that workers shall have no objection to the closure or winding up of the Dombivali establishment and all claims of the workers would be put an end to. Mr. Iyer has further submitted that on 22.07.1999, an agreement was arrived at between the parties whereby the Company had agreed to pay Rs. 7.36 Crores to the workers towards full and final settlement. 22.Subsequent to the aforesaid development, Civil Application No. 7708 of 1999 was filed by COMP/190/2003 26/50 JUDGMENT Industrial Development Bank of India in Contempt Petition No. 188 of 1997 pending before the Bombay High Court. In the said application, an order dated 07.03.2000 was passed by the Bombay High Court and directed the Asset Sale Committee to sell the Dombivali unit of the Company subject to sanction from BIFR and the charge of I.D.B.I. Despite the order of the Industrial Court and the Bombay High Court, the Company has not paid wages to the workers and employees. After taking into consideration all the aspects, the BIFR has come to the conclusion that the Company could not be revived and, therefore, it was ordered to be wound up. The respondent Nos. 19 & 20 supported the order passed by BIFR for winding up of the Company since the Company has not paid wages to the workers since 1996 and that it was not possible to revive the Company, more particularly, the unit of Bombay at Dombivali. It is, therefore, prayed before this Court that COMP/190/2003 27/50 JUDGMENT the Court should pass an appropriate order directing the Company to pay wages and other dues of the workers of Dombivali unit immediately and/or deposit the same before this Court. 23.An affidavit-in-reply was filed on behalf of respondent No. 27 i.e. Gujarat Engineering and General Kamdar Union. Mr. R.P. Mankad,