WP(C) 4286/2011 BEFORE HON’BLE MR. JUSTICE AMITAVA ROY HON’BLE MRS. JUSTICE ANIMA HAZARIKA ( Amitava Roy,J) The instant petition initially filed under Article 227 of the Constituti on of India seeking interference with the judgment and order dated 10.6.2011 pas sed by the Appellate Authority for Industrial & Financial Reconstruction , New D elhi ( for short, hereafter referred to as ’AA’) in Appeal No.70/2010 had been c onverted into one under Article 226 of the Constitution of India in compliance of the order dated 17.8.2001 of this Court. 2. We have heard Mr U.Bhuyan, Senior Advocate assisted by Mr AD Choudhury, Advocate, for the petitioner and Mr KN Choudhury, Senior Advocate assisted by M r R.Dubey, Advocate for the Respondent Nos 1 and 2. 3. The parties represented as above have been heard at length at the motion stage and for the order proposed to be passed, it is considered inessential to issue formal notice to the rest. The pleaded versions of the petitioner as well as Respondent Nos 1 and 2 would provide the factual foundation of the rival subm issions made. 4. The petitioner has introduced itself to be a company registered under the Companies Act, 1956 owning a cement plant located at Umrongso in the Distri ct of North Cachar Hills, Assam. According to it, the cement plant had been set up with the financial assistance from different financial institutions such as IDBI, ICICI Bank, IFCI and had started its commercial production in the year 1993. Due to delayed implementation of the project for reasons beyond its contro l and the incurring heavy cost over run, it was compelled to approach the ins titutional creditors for re-scheduling the liquidation of the principal amount o f loan and deferment of the realization of the interest thereon. It, however, co ntinued to incur cash loss. According to it, inspite of the above impediments it continued to repay the loan amount to the IDBI, ICICI Bank and eventually cou ld clear its dues finally vis a vis all the institutional creditors. The petiti oner has averred that the Respondent No.4, State Bank of India, Dispur Branch, D ispur has since provided the working capital to it and that efforts are on to se ttle its dues as well. Meanwhile, it being not able to stabilize its operation due to factors like insurgency, frequent power cuts, communication let ups and heavy accumulated/incurred losses, it made a reference to the Board for Industr ial & Financial Reconstruction ( for short, hereafter referred to as the ’Board ’) under section 15(1) of the Sick Industrial Companies (Special Provision) Act, 1985 ( for short, hereafter referred to as the ’Act’) and on 18.4.2000 the Boa rd declared it be a Sick Industrial Company under section 3(1) (o) of the enac tment and appointed the Respondent No.5, IFCI as the Monitoring Agency (for shor t, hereafter referred to as ’MA’) to prepare a Rehabilitation Scheme based on t he proposal to be submitted by the petitioner company. This proceeding was regi stered as BIFR Case No.352/1999. 5. Accordingly, a Draft Rehabilitation Scheme (for short, hereafter referred to as ’DRS’) SS-03 was framed and was sanctioned by the Board on 15.7. 2003. The IFCI as the Monitoring Agent was entrusted with the duty of monitoring the progress of implementation of the said scheme. This scheme, however ended i n failure and consequently the Board by its order dated 6.8.2007 directed issuan ce of notice for Change of Management of the company as an alternative attempt f or its revival by way of inviting offers for taking over/lease/amalgamation/merg er. It was however, provided by the Board that the present promoters would be p ermitted to submit fully tie up comprehensive re-habilitation proposal with or w ithout induction of resourceful co-promoters in response to the said advertiseme nt, if desired, indicating clearly the cost of such scheme vis-à-vis means of finance for implementation of the scheme. The Board further provided that the company/existing promoters would not dispose of any of the fixed assets as per the provision of Section 22A of the Act. IFCI was appointed by the Board to b e the Operating Agency ( for short, hereafter referred to as the ’OA’) . 6. The company being aggrieved by the order dated 6.8.2007 preferred a n appeal before AA which remanded the matter to the Board. As meanwhile notices issued in the major National and Regional newspapers for Change of Management o f the company in compliance of the order dated 6.8.2007 did not meet any respons e from any quarter, the Board permitted the petitioner company to submit a Draft Modified Rehabilitation Scheme ( DMRS) which it did on 19.10.2007 and is accord ing to it still pending for consideration of the Board. The petitioner has empha tically asserted that its DMRS accordingly is the only scheme pending considerat ion of the Board. 7. The petitioner has pleaded that while the matter rested at that, the Respondent Nos 1 and 2 entered into an unregistered Memorandum of Understan ding( for short, hereafter referred to as ’MOU’) on 27.3.2008 with the Responde nt No.3, Sri D.K.Chetia, inter alia for transfer of share holding in the company already declared to be sick unit by the Board. The petitioner has maintained t hat the MOU had been neither authorized by the share holders of the company or its Board of Directors nor was it executed with the prior approval of the Board and was obviously a private arrangement between the Respondent Nos 1 and 2 as we ll as the Respondent No.3 without involving the petitioner company. According to it, this initiative in any view of the matter could not have been taken in the face of the restraint contained in the order of the Board under section 22A of t he Act. As at the time of execution of the MOU the petitioner’s DMRS was pendin g before the Board, the Respondent No.1 by his letter dated 17.5.2008 being awa re thereof sought for its( Board) approval for making investments in the company . The petitioner has insisted that no approval as such was granted by the Board. 8. In this factual premise, the Respondent Nos. 1 and 2 approached the lear ned District Judge, Kamrup, Guwahati with an application under Section 9 of the Arbitration and Conciliation Act, 1996 seeking to enforce the MOU dated 27.3.200 8 referring to clause 20 thereof. The application which was registered as Misc. Arb. Application No.289/2009 was eventually dismissed by order dated 12.4.2009 after hearing the Respondent Nos 1,2 and 3. In the Arbitration Appeal No.3/2010 preferred by the Respondent Nos. 1 and 2 before this Court claiming to be in po ssession of the factory of the company on the strength of the MOU by order dated 10.5.2010, this Court, in the interim, directed maintenance of status quo with regard to the possession of the factory. The petitioner has asserted that it is the absolute owner of the factory and is in exclusive possession of all assets a nd properties thereof. The petitioner has contended that in none of these two pr oceedings it had been impleaded as a party. 9. In these circumstances, perceiving that the Respondent Nos 1 and 2 in its absence were endeavouring to obtain orders affecting its right and interest as well as of its share holders, the petitioner preferred a Special Leave Peti tion before the Apex Court registered as SLP( Civil) CC 12115/2010 against the order dated 10.5.2010. By order dated 20.8.2010 the Hon’ble Apex Court issued n otices and directed that the order of status quo passed by this Court in Arbitra tion Appeal No.3/2010 would not in any way affect the scheme under section 17 of the Act which was already in operation. 10. Prior thereto, the Respondent Nos 1 and 2 had submitted another application before the Board registered as Misc. Application No.302/BC/2010 date d 11.2.2010 seeking reliefs identical to those made in the application under Sec tion 9 of the Arbitration and Conciliation Act, 1996. This application, as the p etitioner has represented, had been filed when the Misc. Arbitration Application No.298/2009 was pending before the learned District Judge, Kamrup. 11. The Board on 19.2.2010 issued notices on this application to the conce rned parties with a direction to the petitioner company to file its response. Th e petitioner has averred that though the Board in its order dated 19.2.2010 did not finally decide the issues raised in the application, the Respondent Nos. 1 a nd 2 preferred an appeal against the same before AA which was registered as Appe al No.70/2010 which by its order dated 26.3.2010 admitted the same for final hea ring and in the interim, stayed further proceedings before the Board. The petiti oner company arrayed as respondent No.2 in that appeal duly entered appearance and submitted its objection, whereafter, by the impugned judgment and order date d 10.6.2011, the AA allowed the appeal and amongst others granted the Respondent Nos. 1 and 2 the liberty to submit a Scheme before the Board for its(petitioner company) revival. The present impugnment before this Court is in this backdrop . 12. The Respondent Nos 1 and 2 have entered appearance in the present proce eding through a caveat. In their affidavit-in-opposition, they at the threshold have questioned the maintainability of the instant petition principally on the g round of suppression of material facts and documents and its failure to candidly disclose the actual state of affairs. While contending that the impugned judgme nt and order is wholly within the jurisdiction of AA and is legal and valid in all respects, the answering respondents have sought for dismissal of the instan t petition in limine on the ground of non impleadment of Kotak Mahindra Bank, a secured creditor of the petitioner company and having Ist charge on its asse ts. The respondents have referred qua, the reason cited by the petitioner for it s purported failure to administer its enterprise to a letter dated 19.1.2009 of the State Bank of India addressed to the Board indicating that two other factor ies in Umrongsu enjoying financial assistance from it are doing well . 13. They have claimed that the dues of IDBI, IFCI and ASEB sought t o be cleared by the petitioner have in fact being liquidated by them through the ir group companies/firms by cheques as would be evident by the official communi cations to that effect. While contending that the ICICI has assigned the debt v is-à-vis , the petitioner company to Kotak Mahindra Bank, the answering responde nts have insisted that their investments in the petitioner company having been u tilized to clear off the outstanding dues of the financial institutions and tha t ASEB, it( petitioner company) was estopped from denying its dealings with the m. They have denied that the DMRS submitted by the petitioner company on 19.10.2 007 is pending before the Board. According to the respondents, this scheme was n ot found to be in order by the Board in its meeting held on 22.5.2008 and the p etitioner company was asked to submit the updated DMRP which it did on 15.7.2008 . In the joint meeting that followed, two secured creditors i.e. Kotak Mahindra Bank and the State Bank of India objected to the proposal and subsequent thereto , they on 13.10. 2008 and 19.1.2009 respectively conveyed their non acceptance of the proposal. The respondents have, therefore, asserted that no scheme as ref erred to by the petitioner company exists and/or is pending before the Board f or further consideration. It has been stated further that the Board vide order dated 6.8.2007 permitted a change in the management of the petitioner company b y permitting induction of strategic co-promoters and, thus, the Memorandum of U nderstanding between the Respondent Nos 1 and 2 and the Respondent No.3 represe nting the petitioner company as its Managing Director in connection therewith i s valid and binding. The answering respondents have reiterated utilization of fu nds invested by them for liquidating the petitioner Company’s liabilities with t he financial institutions and thus, its plea of not being a privy to this MOU is untenable. Apart from pleading that the MOU is enforceable as on date not havin g been assailed in any court of law, the answering respondents have pleaded that the Respondent No.3 being the Managing Director of the petitioner company, the same is binding on it( petitioner company) as well. They have indicted the Resp ondent No.3 for making an attempt to wriggle out from the MOU seeing the petitio ner company on the cusp of revival riding on their investments. They have asser ted further that though meanwhile from time to time the petitioner company made payments against the arrear dues to the ASEB and its secured creditors IDBI and IFCI as well as for renovation/repairs/replacement of its machineries et al an amount of Rs.65.23 lakhs has been deliberately kept pending in its (petition er company) Books of accounts though No Dues Certificate has been issued by the secured creditors to it (petitioner company). This recording in the audited Books of accounts of the petitioner company for 2008-2009 and 2009-2010 have b een imputed by the respondents to be violative of the accounting principles and accounting standards stipulated under the Companies Act, 1956. That the Respon dent No.3 is the founder promoter and the Managing Director of the petitioner c ompany and continues to be so as on date in its record has been underlined by th e answering respondents as well. 14. The affidavit in reply filed by the petitioner company being chiefly in reiteration of its affirmations in the writ petition, no dilation of the facts narrated therein is called for. 15. Mr Bhuyan at the out set has dismissed the cavil of suppression of ma terial facts and documents contending that all relevant averments and the suppor ting records are available in the relevant proceeding. While admitting that the initial Scheme laid with the Board on 15.7.2003 by the petitioner company had fa iled and that by order dated 6.8.2007 it (Board) had directed a change in the ma nagement of the petitioner company, the learned senior counsel has urged that th e Respondent Nos 1and 2 are still not a part of the Board of Directors of the p etitioner company and cannot thus claim to be a part of its management. Accordi ng to Mr Bhuyan, the MDRS submitted by the petitioner company on 19.10.2007 tho ugh objected to by two secured creditors i.e. State Bank of India and Kotak Mahi ndra Bank, can by no means be construed to have been rejected by the Board and thus is still pending its consideration as on date. The learned senior counsel has therefore urged that the permission granted by AA vide the impugned judgm ent and order to the Respondent Nos 1 and 2 to submit a fresh scheme is wholly impermissible in the facts and circumstances as well as under the scheme theref or outlined by sections 15,16,17 and 18 of the Act as well as the order dated 20.8.2010 of the Hon’b le Apex Court . As no change in the management of the pet itioner company in the manner as allowable under the Act has yet been effected , the Respondent Nos 1 and 2 can by no means be permitted entry into its affai rs on the basis of the Memorandum of Understanding between them and the Responde nt No.3 without its (petitioner company) approval or knowledge, he urged. With out prejudice to this, Mr Bhuyan maintained that the reliefs granted by AA in th e impugned judgment and order are beyond those prayed for in the original appli cation on which the Board had passed its order dated 19.2.2010 and on that count as well, interference of this Court as sought for is urgently warranted. 16. Mr Choudhury in response has emphasized that having regard to the na ture of the instant proceeding and the equitable intervention sought for, the pe titioner company as demonstrable on the face of the records, has clearly disenti tled itself therefor. Affirming that the petitioner company had been declared to be a sick industrial unit by the Board under the Act on 18.4.2000, the learned senior counsel while reciting the sequence of events thereafter reiterated that on the rejection of the first Scheme on 15.7.2003, the Respondent Nos 1 and 2 in consonance with the letter and spirit of the Board’s order dated 6.8.07 were inducted as fresh promoters vide MOU dated 27.3.2008 executed by the Respondent No.3 representing the petitioner company as its Managing Director. Underlining that thereafter the Respondent Nos. 1 and 2 in the capacity of co-promoters hav e invested Rs. 3.10 crores wherefrom all the subsisting liabilities of he peti tioner company have been liquidated, Mr Choudhury with reference to the Board’s proceedings dated 6.8.2007 and 22.5.08 has maintained that DMRS submitted by the petitioner company on 19.10.07 was required to be updated and the DMRP laid thereafter on 15.7.2008 as a consequence had been rejected by the two secured c reditors namely, SBI and Kotak Mahindra Bank. As significantly no Scheme is pend ing consideration of the Board at the present, the permission granted by AA , t he Respondent Nos 1 and 2 to submit one before it ( Board) cannot be faulted w ith, he argued. 17. Mr Choudhury in extenso has drawn our attention to the relief po rtion of the writ petition as well as the Special Leave Petition before the Hon’ ble Apex Court to underline the suppression/distortion of facts. According to Mr Choudhury the petitioner’s plea that the Respondent No.3 had privately entered into the MOU without the knowledge of the company and that the Respondent Nos 1 and 2 were strangers to its affairs is not only belied by the contemporaneous re cords but also is a clever manoeuvre to disown the Respondent Nos 1 and 2 after advantageously utilizing their investments to repay its outstanding dues and con solidate its position. While pleading that the reliefs prayed for by the Respon dent Nos. 1 and 2 in their application before the Board (Misc. application No.30 2/BC/2010) well encompassed those prayed for in their appeal (Appeal No.70/2010) and that therefore, the contention to the contrary is misconceived. Mr Choudhur y argued that the issues raised are beyond the purview of section 22 of the Act and, therefore, the embargo contemplated thereby is not attracted to the facts o f the present case. Referring to Section 2 (26) of the Companies Act, 1956, the learned senior counsel has insisted that the Respondent No.3 having executed the MOU on 27.3.2008, he being the Managing Director of the petitioner company at a ll relevant times besides being the founder promoter thereof, the terms and cond itions of the MOU are binding on it (petitioner company) and that its attempt to squirm out therefrom by projecting one Welborne Kro as one of its Director s lacks bonafide. Moreover, this deponent Director having been inducted in that capacity only on 27.2.09, his affirmation of the relevant facts occurring prior thereof as true to his knowledge is sheer travesty of truth, he urged. 18. We have lent our anxious consideration to the pleadings availabl e and the arguments based thereon. That the petitioner Company had been declared to be a Sick Industrial Unit under the Act by the Board on 18.4.2000 and that t he rehabilitation Scheme nomenclatured as SS-03 sanctioned by it (Board) on 15.7 .2003 had eventually failed are matters of records. The Board in its proceedings held on 6.8.2007 after noting that the Scheme-SS-03 had failed, directed that a s an alternative attempt for revival of the petitioner Company a notice for cha nge of management (COM) be issued. In the consequential directions issued by it , the Board inter alia re-appointed IFCI as the Operating Agency (for short, her einafter referred to as ’the O.A.’) and entrusted it with the responsibility of issuing the advertisement in two leading newspapers (one in a national daily and another in a regional paper of the area/ State) inviting offers for taking over / leas/amalgamation/ merger or even for the worker’s Industrial Cooperative Soci ety (WICS) for rehabilitation of the petitioner Company. The existing promoter(s ) were also left at liberty to submit a fully tie-up comprehensive rehabilitatio n proposal with or without induction of resourceful co-promoter(s) in response t o the said advertisement indicating clearly ’cost of such scheme’ vis-à-vis the ’means of finance’ for implementation thereof. The Board directed the petitioner Company/ existing promoter(s) not to dispose of any of the fixed assets of the Company under Section 22A of the Act without obtaining its prior consent. The re cords reveal that thereafter though notices were issued in compliance of the dir ections of the Board as above, there was no response to the advertisement and, t hus, it (Board) permitted the petitioner Company to submit a Draft Modified Reha bilitation Scheme (for short, hereinafter referred to as ’DMRS’) which was laid by it on 19.10.2007. The records of the proceedings of the Board held on 22.5.20 08 suggest that the Scheme dated 19.10.2007 as submitted by the petitioner Compa ny was directed to be updated and submitted to the Monitoring Agency (IFCI) with in a period of two weeks for its consideration and for re-submission of the Draf t Modified Rehabilitation Proposal (for short, hereinafter referred to as ’DMRP’ ). The M.A. (Monitoring Agency) i.e. IFCI was required to inform the Board if th e petitioner Company’s DMRP was not found to be feasible/ viable so as to enable it(Board) to pass appropriate directions in accordance with law. 19. In its proceedings dated 5.8.2008 thereafter the Board, amongst others, noticed the lack of consensus of the lenders vis-à-vis the DMRS of the p etitioner Company and issued a direction to it (Petitioner Company / IFCI) to ex pedite the finalization thereof within a period of two months. The representativ es of the IFCI and the Kotak Mahindra Bank to whom its (IFCI) debt had been assi gned were required to be present in the next review hearing scheduled to be held on 15.10.2008. 20. There is no wrangle at the Bar that even thereafter the two secu red creditors of the petitioner Company namely, State Bank of India and the Kota k Mahindra Bank could not arrive at a consensus vis-à-vis the DMRS and for that matter, the Kotak Mahindra Bank rejected the proposal contained therein (DMRP) v ide its letter dated 13.10.2008 (Annexure-6 to the affidavit-in-opposition of th e respondent Nos. 1 and 2). No material has been laid before us to indicate the decision of the Board thereafter on the DMRS of the petitioner Company. 21. Meanwhile, the respondent Nos. 1 and 2 and Mr D.K. Chetia (respo ndent No.3), the Managing Director of the petitioner Company and its founder pro moter had executed a Memorandum of Understanding on 27.3.2008 whereunder the par ties thereto had agreed for transfer of the entire existing share capital of the petitioner Company to the respondent Nos. 1 and 2 and/or their nominees. It was further agreed that the Company’s management would be handed over to the respon dent Nos. 1 and 2 and all shares of the existing shareholders would also be tran sferred to them or their nominees against a lumpsum amount of Rs. 4.25 Lakhs red uced by the liabilities against the Company known or unknown. The recital of thi s document, amongst others, recorded that Mr D.K. Chetia and other Directors had decided to resign from the Directorship of the petitioner Company and also to t ransfer their shareholdings as well as shares of all existing shareholders in th e Company to the new management represented by the respondent Nos. 1 and