IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 20/12/2002 CORAM THE HONOURABLE MR. JUSTICE A. KULASEKARAN W.P. No.10342 of 1998 and W.P.Nos.17235 to 17239 of 1998 W.P.No.10342/98:- --------------- K.C.Palanisamy Chairman, Cheran Group, Cheran Towers, 78-85, Arts College Road, Coimbatore 641 018. ..... Petitioner -Vs- 1. Appellate Authority for Industrial and Financial Re-construction, 10th Floor, Jeevan Prakash, 25, Kasturba Gandhi Marg, New Delhi 110 001. 2. Board for Industrial and Financial Re-construction, 22nd Floor, Jawahar Vyapar Bhavan, No.1, Tolstoy Marg, New Delhi 110 001. 3. Dhanalakshmi Mills Ltd., 130, B.S.Sundaram Road, Tiruppur 641 601. 4. C.R.Sethuramalingam 5. Industrial Investment Bank of India, No.19, NetajiSubhash Road, Calcutta 700 001. 6. State Bank of India, Central Office, Post Box No.12, Madame Gama Road, Bombay 400 021. 7. Industrial Development Bank of India, IDBI Tower, Cuffe Parade, Bombay 400 005. 8. Industrial Credit & Investment Corporation of India, 163, Rackbay Reclamation, Bombay 400 020. 9. Employees State Insurance Corporation, ESIC Building, Kotla Road, Behind Foreign Post Office, New Delhi. 10. Central Provident Fund Commissioner, Hudco Vishala, 14, Bhikaji Cama Place, New Delhi 110 066. 11. Secretary to Government, Handloom, Handicraft, Textiles & Khadi Department, Fort St. George, Chennai 600 009. 12. The Secretary, Tamil Nadu Electricity Board, 800, Anna Salai, Chennai 600 002. 13. The Chairman, Central Board of Direct Taxes, Ministry of Finance, Department of Revenue, North Block, New Delhi 110 001. 14. Secretary to Government, Industries Department, Fort St. George, Chennai 600 009. 15. Coimbatore Paper District Cotton Mills Labour Union, Regn. No.2658, 279, Kumaran Street, Tiruppur-1. 16. Coimbatore District Cotton Mills Employees Union (INTUC), Dhanalakshmi Mills Branch, C/o. Dhanalakshmi Mills Ltd., 130, B.S.Sundaram Road, Tiruppur-1. 17. Deputy General Manager, I.R.B.I. (IIBI), Southern Zonal Office, Spenzer Plaza, 7th Floor, Anna Salai, Chennai 600 002. 18. Dhanalakshmi Mills Workers and Staff Union, 197, B.S.Sundaram Board, Tiruppur 641 601, rep. by the Secretary, Mr.Shanthiraj ..... Respondents For Petitioner in all the :: Mr.T.R.Rajagopalan writ petitions. No appearance for RR 1, 2, 6 to 9, 12, 13, 15 and 16 in W.P.No.10342/98 for RR 1 to 3, 5, 7 to 11, 13, 14, 16 and 17 in W.P.Nos.17235 to 17238 of 1998 for RR 1, 2, 5, 7 to 11, 13, 14, 16 and 17 in W.P.No.17239/98. For Respondents 15 and 16 in :: Mr.K.Chandru S.C. W.P.10342/98 and for Mr.M.Ramamurthy for RR 16 and 17 in W.P. Nos.17235 to 17239 of 1998 Mr.A.L.Somayaji, S.C. for M/s.Gupta Ravi for R3 in W.P.No.10342/98 and for R4 in W.P.Nos.17235 to 17239 of 1998 Mr.M.Mahalingam G.A. for RR 11 and 14 in W.P.10242/98 and for RR 12 and 15 in W.P.Nos.17235 to 17239 of 1998 Mr.S.Murali for Mr.Rangarajan for RR 5 and 17 in W.P.10342/98 and for RR 6 and 18 in W.P. Nos.17235 to 17239 of 1998 Mr.R.Thiagarajan, S.C. for M/s.Gupta Ravi for R4 in W.P.No.10342 of 1998 Mr.K.Gunasekar, C.G.S.C. for R10 in W.P.No.10342/98 and Mr.O.Venkatachalam for R18 in W.P.No.10342/98 and for R3 in W.P.No.17239/98. :ORDER The above writ petitions have been filed for issuance of writ of certiorari calling for the records relating to the common order dated 3.4.1998 passed in Appeal Nos.218, 239 to 243 of 1997 by the first respondent/AAIFR and quash the same. 2. Since the above writ petitions are filed challenging a common order, all the writ petitions are disposed of by this common order. For the purpose of convenience, the parties are arrayed in W.P.No.10342 of 1998. The facts of the case is as follows:- The third respondent mill owned spinning mill which is referred as A mill and weaving unit as B mill. The profitability of the B mill has started deteriorating from the year 1981. On the application made by the third respondent, the Government of Tamil Nadu has referred the matter in July 1992 to the Special Industrial Tribunal. The Special Industrial Tribunal has passed its award dated 28-11-1994 for closure of B mill with the condition that the workers of the said mill should be employed in A mill. The loss sustained by B Mill had an adverse impact on the A mill, hence the third respondent mill has made a Reference under sec.15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, hereinafter referred to as Act which was registered by the second respondent in case number 105/93 on 22.2.1994. The second respondent has declared the third respondent mill as sick industrial company within the meaning of section 3(1)(o) of the Act as its accumulated losses as on 30.1.1993 exceeded its net worth. The second respondent appointed the 5th respondent as operating agency under sec.17(3) of the Act. The proposals of the third respondent was considered by the second respondent, but was unacceptable. The second respondent directed the operating agency to issue an advertisement inviting offers for rehabilitation of the third respondent mill by change in management. Against the order of the second respondent, the third respondent has filed appeal before the first respondent. In the said appeal, the order of the second respondent was set aside and the second respondent was directed to examine the proposal of the third respondent for rehabilitation. A writ petition in W.P.No.12073 of 1 995 was filed by the petitioner against the order of the first respondent and this court by order dated 28.1.1997 set aside the order of the first respondent and directed the second respondent to issue necessary direction to the operating agency to call for fresh proposals after issuing necessary advertisement and submit its report and this court further directed to give opportunity to the parties who had submitted proposals earlier to submit fresh proposals or update those proposals. The offers received were considered in the Joint Meeting on 25.6.1997 by the operating agency and it has submitted its report on 4.7.1997 to the second respondent. The second respondent has posted the case for hearing to 18.8.1997. On 18.8.1997, it was found by the second respondent that the third respondent has wrongly sent the proposal in sealed cover addressed to the Bench instead of Chairman of BIFR and it got opened in that office which was treated as procedural lapse. Hence, the second respondent was directed both the petitioner and the third respondent to re-submit their updated proposals in sealed covers to reach its office on or before 30.9.1997. The third respondent re-submitted the proposal but the petitioner has upgraded the earlier proposal dated 28.7.1997. The second respondent, without any further hearing passed order dated 29.10.1997 stating that the proposal of the petitioner is better than the proposal of the third respondent and forwarded the proposals to the operating agency to prepare a draft rehabilitation scheme (DRS) on that basis. The second respondent in its order further directed the petitioner to deposit a sum of one crore rupees within 45 days of the circulation of the scheme. Aggrieved by the said order dated 29.10.1997 passed by the second respondent, the third respondent and other Labour Unions filed appeals before the first respondent. All the appeals were disposed of by a common order dated 3.4.1998 directing the operating agency to prepare a scheme based on arranging of funds by disposing the assets of B Mill. Against the order of the first respondent, the present writ petitions have been filed by the Cheran Group. 2. Learned Senior Counsel Mr.T.R.Rajagopalan appearing for the petitioner has advanced arguments as under:- The first respondent has exceeded its jurisdiction in framing the issues viz., (a) Is Petitioner's proposal better than that of the third respondent as concluded by the second respondent? (b) Have the petitioner and the third respondent established their resourcefulness for implementing their respective proposals? (c) What is the most viable, workable alternative for the rehabilitation of the third respondent Mills? The petitioner had no occasion to c hallenge the same; that the first respondent has erred in framing those issues only at the time of passing final order; that the second issue raised by the first respondent was certainly not arising out of the impugned order of the second respondent and therefore, the first respondent had no jurisdiction to consider the same; that the second respondent itself has directed the operating agency to verify and ensure that the means of finance in the petitioner's proposal are tied up; that the operating agency has already complied with the directions of the second respondent, examined the means of finance of the petitioner and ensured that the funds are tied up and subsequently formulated the draft rehabilitation scheme on the basis of the proposal made by the petitioner which has been duly approved by the second respondent, published and circulated in terms of the order dated 1.12.1997 which has not been challenged by the respondents as such the same has become final; that the issue that what is the most viable, workable alternative for the rehabilitation of the third respondent Mills is concerned, it is also beyond its jurisdiction and directly in conflict with the order in writ petition passed by this court; that the first respondent erred in ignoring the fact that the memorandum of understanding U/sec. 18 (1) of Industrial Dispuetes Act signed by the petitioner with the majority mill labour unions representing about 85% of the workmen envisages lesser sacrifices of wages/salary to the extent of about 9%; that the petitioner's rehabilitation proposal is much potential when compared with the rehabilitation proposal of the third respondent; that the second respondent has rightly upheld the memorandum of understanding of the petitioner with the labour unions on 2.4.1997 and correctly incorporated the said memorandum of understanding in the draft rehabilitation scheme of the petitioner for its eventual entering into legal settlement under sec.18(1) or 12(3) of the Industrial Disputes Act at the appropriate time. The order of the first respondent setting aside the order of the second respondent is contrary to the directions given by this court in W.P.No.12073/97 dated 28.01.1997; this court, in the said writ petition has directed the operating agency to call for fresh proposals from the parties concerned, assess the same and submit the report before the second respondent; that the first respondent has erred in holding that the source of funds formulated by the petitioner is not dependable without actually assessing the evidence submitted the the petitioner in support of its proposal; that the first respondent, having found that the third respondent's proposal cannot be accepted, ought to have affirmed the order of the second respondent and approved the draft scheme as published as per pursuant to the order of the second respondent dated 1.12.1997; that the first respondent has erred in relying upon the market value as assessed by one Kandaswamy, Chartered Engineer when no material is placed before the Board to show that the price of land is Rs.3,00,00,000/= per acre; that the operating agency considered all aspects relating to rehabilitation of the sick industry and has recommended the petitioner's proposal as the best proposal for revival of the company and having regard to the fact that only other proposal given by the third respondent not being a feasible proposal, the first respondent ought to have approved the report of the operating agency and approved the scheme of the petitioner; that the first respondent has erred in observing that the interested parties were not heard and their views were not sought in regard to the latest proposals of the third respondent and the petitioner is incorrect; that in any event, the first respondent has erred in giving directions to the operating agency to prepare a revised scheme on the basis of sale of assets of B Mill. The learned Senior Counsel appearing for the petitioner relied on the following :- (i) RISHABH AGRO INDUSTRIES LTD. v. P.N.B. CAPITAL SERVICES LTD. ((20 00) 5 SCC 515). In that case, the respondent bank filed a petition for winding up of the appellant company, later the appellant undertook to make some payment in instalments and paid the entire principal amount, but, did not pay the instalment of interest. The respondent bank moved an application for revival of the winding up petition. A learned Single Judge of the High Court passed order for winding up and Liquidator was also appointed. The appellant then moved an application under sec.22 of the Act with the prayer for staying the order arising out of the company petition. Ultimately, a Division Bench has rejected the application on the ground that no such proceedings are pending even on the date of passing of the said order by the Division Bench in the 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 the proceedings pending before the company Judge shall remain in abeyance till the disposal of the application/appeal before the appellate authority under the Sick Industrial Companies Act. The Honourable Supreme Court has held that the said Act has been made in public interest with a view to secure timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined. It is further held that the object of the Act appears to be to afford maximum protection of employment, optimise the use of financial resources, salvaging the assets of production, realising the amounts due to the banks and to replace the existing time-consuming and inadequate machinery by efficient machinery to safeguard the economy of the country and protect viably 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 when enquiry 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 in sec.22(1) to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company. The Honourable Apex Court, while defining the purpose and object of the suspension of proceedings under sec.22(1) held that it is to await the outcome of the reference made to the BIFR for the revivial and rehabilitation of the sick industrial company. The Honourable Supreme Court has also given opportunity to the respondent company to seek the consent of the appellate authority under sec.25 of the Act for taking action under sec.29 of the State Financial Corporation Act, 1951. 3. Learned Senior Counsel Mr.A.L.Somayaji appearing for the third respondent 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 inviting proposals for rehabilitation of the third respondent Mills; the operating agency has received two proposals, one from the third respondent and another from the petitioner; that the proposal submitted by the third respondent envisaged the induction of Mr.Y.Jaganatham who has considerable experience of running two sick textile mills pursuant to rehabilitation scheme sanctioned by the second respondent viz., M/s. Bhavani Mills Limited and M/s.Thiruvepathy Mills Limited as a copromoter; that the second respondent directed the parties to update their proposals and not to submit a revised proposal, but, the petitioner, after became aware of the proposal submitted by the third respondent submitted their revised proposal; that the averment that the petitioner had entered into a memorandum of understanding with majority of workers is incorrect; that the averment that the proposal of the petitioner is superior than the third respondent is also incorrect; that the order passed by the first respondent is not contrary to the order passed in W.P.No.12073 of 1995; that the first respondent has jurisdiction to consider not only legality or otherwise, but also to pass order towards rehabilitation of the third respondent company; that the allegation that issue "b" does not arise out of the impugned order of the second respondent and that the first respondent had no jurisdiction to consider the same is unsustainable, indeed one of the major grievance of the third respondent is that the second respondent without even verifying the feasibility and the resourcefulness of the petitioner directed the operating agency to formulate a draft rehabilitation scheme; that when the petitioner could not establish its resourcefulness for implementing its proposal before the first respondent, it could have no grievance about the first respondent considering the said issue which ought to have been considered by the second respondent at the threshold; that the burden of the parties does not end with merely submitting imaginary proposal to the operating agency, it is the bounden duty of the parties to demonstrate their resourcefulness in implementing the proposal; that the second respondent could not have given such a direction to the operating agency without considering the track record of the petitioner and without verifying their resourcefulness in implementing the proposal; that the allegation of the petitioner that the operating agency having already complied with the directions of the second respondent formulated the draft rehabilitation scheme on the basis of the proposal filed by the petitioner and same has been published and circulated in terms of the order dated 1.12.1 997, the first respondent ought not have rendered any finding on the issue "b" is unsustainable; that the conclusion reached by the first respondent on the issue "b" would clearly show that the operating agency and the second respondent have not approached the issues in the proper perspective and justified the allegation of the existing promoters and the fourth respondent; that when the proceedings are at large before the first respondent, it was always open to the first respondent to independently examine the proposals and come to a conclusion; that the allegation that issue "c" framed by the first respondent is completely beyond its jurisdiction and conflict with the order dated 28.1.1997 passed by this court in the wr it petition is without any basis; that originally the petitioner has envisaged a contribution of Rs.12.14 crores after seeing the third respondent's contribution of Rs.14.14 crores and submitted a fresh proposal raising to Rs.23.75 crores; that the first respondent has correctly gone into the issue as to means or resourcefulness of the parties to generate the equity proposed to be brought in; that in a well reasoned order the proposal of the petitioner was rejected as a weak team to take over the valuable assets of Sri Hari Mills at a throw away price and found not worthy for consideration; that the allegation that the petitioner is capable of inducting the amount of Rs.23.75 crores which was made only in their updated proposal submitted in September 1997 is rightly rejected by the first respondent; that the evidence deposed by the union leaders with the fourth respondent who has successfully rehabilitated/ revived the Bhavani Mills Limited; the track record of the petitioner in implementing the rehabilitating/reviving the Bhavani Mill would speak the total incapacity to run any textile mills; that the third respondent would strictly satisfy and they have better credentials and proven track record to support their claim for satisfying the parameters than the petitioner; that Lord Krishna Bank has a charge over the properties of petitioner for more than ten crores and even full sale is put through, no money will be realised; that the first respondent has rightly concluded that neither the third respondent nor the petitioner has established their capability to raise adequate resources in order to implement their respective rehabilitation proposals and ultimately come to the conclusion that adequate resources can be raised from the disposal of land, buildings and machinery of B mill, closure of which has been upheld by the Special Industrial Tribunal and direction was issued to the operating agency to prepare a rehabilitation scheme for the third respondent Mills on the basis of sale of assets of B mill is perfectly valid and prayed for dismissal of the writ petitions. The learned Senior Counsel appearing for the third respondent has relied on the following judgments:- (i) BOARD OPINION v. RAJPRAKASH SPINNING MILLS LTD.((2000) 102 CC 296 ). In this case both the Board and the appellate authority recommended for winding up of the company as it was unable for the company to pay the dues to the secured creditors and the workers within a reasonable time. It was held that the secured creditors and the workers have a right to make a submission when the court is considering the question whether the opinion of the BIFR and AAIFR should be accepted or not. Following the decision of a Division Bench in the case of GUJARAT TRADE UNION MANCH v. GSTC reported in (2000) 99 CC 461, it was held by the learned Single Judge that BIFR is that of an expert Body. Ordinarily decision of such a Body is not interfered with unless it is palpably wrong or is such that no reasonable man of ordinary prudence would reach such a decision. (ii) GUJARAT TRADE UNION MANCH v. GSTC ((2000) 99 CC 461). In this case, a Division Bench of Gujarat High Court has held that the decision of the Board is that of expert Body and ordinarily a decision of such a Body is not interfered unless it is palpably wrong or is such that no reasonable man of ordinary prudence would reach such a decision and ultimately dismissed the writ 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 the company. The court held that it will not interfere with the said finding. It was held that the statutory functionaries under the Act have to function within limitations and that within the frame work of the law and equity in law is always a consideration even while interpreting any statute, but where equities are in contradiction of the law or force the authority to go beyond the law, no relief in such equity could be granted. Ultimately , the court held that the court will not sit in judgment nor scrutinise the figures just to 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 this case, the Calcutta High Court held that sec.20 sub clause 2 of the Sick Industrial Companies (Special Provisions) Act, 1985 amply confers power on the High Court to go into the correctness of the opinion submitted by the BIFR for considering the winding up of the company and to decide as to whether it should proceed with the winding up of the company or not in accordance with the provisions of the Companies Act, 1956. In this case, the learned Single held that the writ court would not interfere with the concurrent opinion expressed by the Board as well as the appellate authority; the question whether the company could be revived was a finding of fact which could not be interfered with by the writ court until and unless it could be show that such a finding of fact was perverse or that no prudent man could arrive at such a finding 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 remedy and the facts disclosed in that application would not warrant the writ court to exercise such a discretion. (v) J.M.MALHOTRA v. UNION OF INDIA ((1997 89 CC 600). In this case, a Division Bench of this court has elaborately discussed the scope of sec.20 of the Act, considered the objects, reasons and arrangements of the Act and has held that the Board consists of persons who are experts in the field that it is presided over by a person who has been or is qualified to be a judge of the High Court and it has to record its opinion with reasons after considering all the relevant facts and circumstances and after hearing