IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR. JUSTICE S.S.SATHEESACHANDRAN WEDNESDAY, THE 26TH MAY 2010 / 5TH JYAISHTA 1932 WP(C).No. 17143 of 2007(N) ----------------------- PETITIONER(S): --------------------- 1. THE FACT MSHCC SOCIETY NEW HOUSING COLONY MEMBERS' ASSOCIATION, BUILDING NO.389/WARD II, SANTHINAGAR ANNEXE, RAJAGIRI P.O., SOUTH KALAMASSERY, ERNAKULAM DISTRICT, PIN- 683 104, REPRESENTED BY V.MUHAMMED JAMAL, SECRETARY. 2. R.JAYAMOHANAN, S/O.RAMAKRISHNA PILLAI, A 34, FACT TOWNSHIP, UDYOGAMANDAL P.O., 683 591. BY ADVS. SMT.K.USHA SRI.K.CHANDRACHOODAN (ERNAKULAM) RESPONDENT(S): ------------------------ 1. INDUSTRIAL INVESTMENT BANK OF INDIA LTD, REGISTERED & CORPORATE OFFICE, 19 NETAJI SUBHAS ROAD, KOLKATA- 700 001. 2. THE ASST.GENERAL MANAGER, INDUSTRIAL INVESTMENT BANK OF INDIA LTD., SOUTHERN ZONAL OFFICE, SPENCER PLAZA (7TH FLOOR), 769 ANNASALAI, CHENNAI- 600 002. 3. M/S.SUDARSAN CLAY AND CERAMICS LTD., NORTH PARAMARA ROAD, ERNAKULAM, REP.BY T.P.MURALEEDHARAN, DIRECTOR. 4. M/S.SAFE CARE ASSOCIATES, 3RD FLOOR, NORTH SQUARE, PARAMARA ROD, COCHIN-18. ...2/- WP(C).No. 17143 of 2007(N) -2- 5. BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION, JAWAHAR VYAPAR BHAVAN, I, TOLSTOY MARG, 9TH FLOOR ANNEXE, STC BUILDING, NEW DELHI- 110 001. REP.BY REGISTRAR. 6. THE APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION, 10TH FLOOR, JEEVAN PRAKASH, 25, KASTURBA GANDHI MARG, NEW DELHI- 110 001. REP.BY REGISTRAR. 7. UNION OF INDIA, REPRESENTED BY THE SECRETARY TO GOVERNMENT OF INDIA, MINISTRY OF FINANCE, NEW DELHI. 8. THE FACT MANAGERIAL STAFF HOUSE CONSTRUCTION CO-OPERATIVE SOCIETY LTD.NO.E 243, SANTHINAGAR ANNEXE, RAJAGIRI P.O., SOUTH KALAMASSRY- 683 104, KERALA STATE, REP.BY ITS SECRETARY, PARAMESWARANKUTTY MENON. 9. POORNIMA HOMES PRIVATE LIMITED, 40/7430 C2 DD BAZAR, GOPALA PRABHU ROAD, COLLEGE P.O., KOCHI, ERNAKULAM. R3 BY ADVS. SRI.A.M.SHAFFIQUE, SENIOR ADVOCATE SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR R4 BY ADVS. SRI.P.JACOB VARGHESE, SENIOR ADVOCATE SRI.SHAJI P.CHALY R5 TO R7 BY ADVS. SRI.P.PARAMESWARAN NAIR,ASST.SOLICITOR SRI.T.P.M.IBRAHIM KHAN,ASST.SOLICITOR R8 BY ADVS. SRI.P.SANTHALINGAM, SENIOR ADVOCATE SRI.S.R.DAYANANDA PRABHU THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 27/05/2010, ALONG WITH WP(C) NO. 17155 OF 2007, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Mn ...3/- WP(C).No. 17143 of 2007(N) -3- APPENDIX PETITIONER'S EXHIBITS: EXT. P1 : COPY OF THE PARTNERSHIP DEED OF THE 4TH RESPONDENT FIRM DATED 14/01/2004. EXT. P2 : COPY OF THE MEMORANDUM OF UNDERSTANDING EXECUTED BETWEEN 4 TH RESPONDENT ND 3RD RESPONDENT DATED 15/12/2003. EXT. P3 : COPY OF THE LETTER SENT BY 3RD RESPONDENT GRANTING EXTENTION OF TIME IN SCC/DIR/746/04 DATED 08/04/2004. EXT. P4 : COPY OF THE LETTER NO. STC/WTD.769/04 DATED 08/04/2004 SENT BY THE 3RD RESPONDENT GRANTING EXTENSION OF TIME. EXT. P5 : COPY OF THE CANCELLATION LETTER DATED 7/6/2004 SENT BY THE 3RD RESPONDENT. EXT. P6 : COPY OF THE INJUNCTION ORDER ISSUED IN O.S. NO. 252/2004 BY THE SUB COURT, NORTH PARUR DATED 29/07/2004. EXT. P7 : COPY OF THE STAY ORDER DATED 10/09/2004 ISSUED BY JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES, ERNAKULAM. EXT. P8 : COPY OF THE INTIMATION DATED 13/07/2004 SENT BY THE 3RD RESPONDENT TO BIFR ABOUT THE EXECUTION OF AGREEMENT WITH THE HOUSING SOCIETY. EXT. P9 : COPY OF THE INTIMATION DATED 15/08/2004 SENT BY THE 3RD RESPONDENT TO BIFR ABOUT THE AGREEMENT EXECUTED WITH THE HOUSING SOCIETY. EXT.P10 : COPY OF THE CRIMINAL COMPLAINT 757/2004 FILED BEFORE THE JUDICIAL FIRST CLASS MAGISTRATE COURT, ALUVA BY THE 4TH RESPONDENT. EXT.P11 : COPY OF THE COUNTER AFFIDAVIT FILED BY THE 3RD RESPONDENT IN O.S. NO. 252/2004. EXT.P12 : COPY OF THE LETTER DATED 6/8/2004 SENT BY THE HOUSING SOCIETY EXPRESSING ITS WILLINGNESS TO PAY THE BALANCE AMOUNT. EXT.P13 : COPY OF THE RENEWAL AGREEMENT EXECUTED BETWEEN THE HOUSING SOCIETY AND 3RD RESPONDENT. EXT.P14 : COPY OF THE ORDER DATED 01/03/2006 PASSED BY THE 5TH RESPONDENT. EXT.P15 : COPY OF THE ORDER PASSED BY THE 6TH RESPONDENT DISMISSING THE APPEAL. EXT.P16 : COPY OF THE MODIFIED REHABILITATION SCHEME SUBMITTED BY THE 4TH RESPONDENT BEFORE BIFR. ...4/- WP(C).No. 17143 of 2007(N) -4- EXT.P17: COPY OF THE COVERING LETTER DATED 23/04/2007 SENT BY 1ST RESPONDENT TO THE 2ND RESPONDENT EXT. P18 : COPY OF THE LETTER DATED 09/05/2007 SENT BY THE 2ND PETITIONER TO THE 1ST RESPONDENT. EXT.P19 : COPY OF THE OBJECTION DATED 12/04/2006 FILED BY 2ND PETITIONER BEFORE THE 1ST RESPONDENT. EXT.P20 : COPY OF THE OBJECTION DATED 10/1/2007 FILED BY THE HOUSING SOCIETY BEFORE THE 1ST RESPONDENT. EXT.P21 : COPY OF THE ORDER PASSED BY THE 5TH RESPONDENT APPROVING THE MODIFIED REHABILITATION SCHEME DATED 07/05/2007. RESPONDENT'S EXHIBITS - NIL //TRUE COPY// P.S. TO JUDGE Mn THOTTATHIL B.RADHAKRISHNAN & S.S.SATHEESACHANDRAN, JJ. ------------------------------------------- W.P(C).Nos.17143 & 17155 OF 2007 ------------------------------------------- Dated this the 26th day of May, 2010 JUDGMENT Thottathil B.Radhakrishnan, J. 1.The second among the captioned writ petitions is by a society registered under the Kerala Co-operative Societies Act, 1969, hereinafter referred to as the 'KCS Act”, for short. The other is by an association of the members of the aforesaid society. 2.Sudarsan Clay & Ceramics Ltd., hereinafter, the 'company', for short, was involved in proceedings before the BIFR and AAIFR under the Sick Industrial Companies (Special Provisions) Act, 1985, hereinafter, 'SICA', for short. The BIFR had enquired into the affairs of the company in terms of SICA. It concluded that the company is sick. Proceedings followed and ultimately, at one point of time, BIFR came to WPC.17143/07 & 17155/07 2 the conclusion that different schemes which were sought to be pushed through did not actually effectuate rehabilitation of the company and ultimately the schemes having failed, it proposed to issue winding up notice (WUN). A show cause notice was issued in that regard. The company showed cause. BIFR was not satisfied. It took final decision to make a reference to the competent High Court in terms of the Companies Act. A bunch of appeals were carried before the AAIFR against that decision. 3. In the interregnum, the society entered into an agreement for purchase of some lands of the company. The first among the agreements between the society and the company was on 7.7.2004. When that stood yet to be performed, another agreement for sale was entered into. 4.However, even after impleadment of the society before AAIFR, all parties, including the society, persuaded AAIFR to WPC.17143/07 & 17155/07 3 set aside the decision of BIFR and make an order of remit. That order was issued on Appeal Nos.221/04 and 238/04 on 20.7.2005. We may specifically note that AAIFR had recorded in its order that BIFR proceedings to recommend winding up was set aside by consent of all parties. 5.Thereafter, certain other proceedings were carried before BIFR and ultimately, BIFR issued a detailed order on 1.3.2006. That order was carried in appeals and AAIFR confirmed that decision of BIFR. We may note that it is a matter of record that after those proceedings, BIFR proceeded further, accepted the scheme that was then placed and passed final order, affirming the scheme which, as of now, governs the affairs of the company and which is put into operation through the Industrial Investment Bank of India (IIBI) as the operating agency. WPC.17143/07 & 17155/07 4 6.The society and the members of the association having filed the separate writ petitions in hand before this Court, we may note that the society, which was a party to the AAIFR proceedings, has challenged the AAIFR order dated 24.4.2007 and the BIFR order that had merged in it. We notice this specifically because the writ petition by the society and the writ petition by the association of the members of the society were filed before this Court on the same day and the writ petition by the association of members of the society (W.P(C).17143/07) is filed challenging the subsequent decision of BIFR also. However, the society does not challenge it. 7.With the aforesaid fact scenario, as of now, the company works under the scheme approved by the BIFR. 8.The society filed O.S.No.618/05 before the Sub Court, Ernakulam seeking specific performance of the agreement for WPC.17143/07 & 17155/07 5 sale. The company took the plea that the suit is hit by the provisions in Sections 22 and 26 of SICA and the learned Subordinate Judge, after hearing the parties on that issue, held that the suit is not maintainable in view of section 26 of SICA. Challenging that judgment and decree, the society has filed RFA.194/06. That appeal is also heard and being ordered separately. 9.Heard Senior Adv.Sri.P.Santhalingam for the society, Sri.Dayananda Prabhu for its members and Senior advocates Sri.L.Nageshwara Rao and Sri.A.M.Shafeeque for the company. 10.The fundamental grievance of the society and its members, as projected before the BIFR, AAIFR, as also before us is that as a consequence of the agreement for sale which they had in their favour, they were entitled to relief in terms of that agreement, however, that the company, through malicious WPC.17143/07 & 17155/07 6 manipulations with the help of certain real estate agents and certain companies and investors who are shown as promoters before the BIFR and AAIFR, has essentially crippled the rights of the society under the agreement for sale. This is projected by saying that the company had discharged all its debts, including dues towards government and other public agencies and therefore, there were no debts outstanding and there was no reason for the company to be treated as sick. It is pointed out that with the passage of time, the structures, including buildings which were standing in the site of the company were either fully or partly destroyed and therefore, there is no factory in existence, to treat the establishment as an industrial establishment. It is also the contention of the society that there are no workers for the establishment as of now and there is no business transaction whatsoever and the establishment is not carrying on any activity. It was accordingly projected before the AAIFR and also before us that there was no reason to consider the company as a going WPC.17143/07 & 17155/07 7 concern or as an industrial company, much less, a sick one. 11.We have gone through the appeal memoranda filed by the society as also its members before the AAIFR. There is nothing on record to find that they had projected anything other than the fact that the scheme no more requires to be operational. In fact, the plea projected in the appeal memoranda before the AAIFR was that, the company having cleared off its debts, no situation continues to exist to treat it as a sick company. The challenge was not that the very initiation of proceedings under SICA was unsustainable. 12.In so far as the society is concerned, we may notice that it would become a person interested for the purpose of sustaining action before BIFR in terms of the statutory BIFR regulations, 1987, particularly clause 3(h) thereof, only if we are to treat it as a creditor qua the company. If we were to take the view that the society is not a creditor, having regard WPC.17143/07 & 17155/07 8 to the qualities of rights of a vendee under an agreement for sale, which does not include any right or interest over the land in relation to which the agreement is executed, then, its locus standi before the BIFR and its standing to challenge the order of the BIFR before the AAIFR would fail. However, if we are to treat it as a creditor by virtue of the fact that even if its suit for specific performance fails, the society may be entitled to get an order for return of advance as alternate relief, it may tend to show some shade of a debtor creditor relationship. 13.Learned senior counsel appearing for the society argued that having regard to the fact that the very substratum of the claim that the company is sick having been lost by repayment of debts of the company, there will not be any continuing jurisdictional fact on the basis of which the BIFR or AAIFR could continue to retain the company under proceedings before them by treating it as a sick company. Advertence to WPC.17143/07 & 17155/07 9 Section 3(o) of SICA shows that a 'sick industrial company' is not identified on the basis of the fact whether it had cleared off its debts but on the basis of a comparative evaluation of its accumulated losses and its net worth. Under such circumstances, we note that the society does not have any material to say that the company has alofted off the bench mark fixed by that definition clause and therefore, is not to be treated as a sick industrial company. That contention of the society therefore fails. 14.Not only that, the initiation of proceedings by the BIFR was after it being satisfied of the jurisdictional fact that the industrial company which came to it was sick in terms of the definition clause. It was therefore, that the BIFR initiated proceedings. The society was nowhere in the picture at that point of time. Nor is it pointed out by the society that even the initiation was without foundation and therefore, the BIFR proceedings are bad. Having entertained the reference and WPC.17143/07 & 17155/07 10 having conducted enquiry under Section 16 of SICA, following which BIFR proceeded to exercise authority under the different provisions of SICA commencing from Section 17 thereof, the BIFR was entitled to go ahead with those proceedings and conclude it by taking it to the logical end. A survey of the different provision of SICA, when understood under the backdrop of the objects sought to be achieved by that legislation, would show that once an industrial undertaking is identified as sick, the logical conclusion of proceedings will have to be by resurrecting it from the sick status by operating schemes under the control and regulation of BIFR or AAIFR as the case may be or by ultimately holding that the schemes which have been operational have failed, thereby rendering the company to a status where there is no other go but to finally liquidate it following winding up proceedings. In such cases, BIFR will make reference to the High Court in terms of the Companies Act. There is no question of reversing the initiation of proceedings without WPC.17143/07 & 17155/07 11 jurisdiction, on the ground that the company stands cured of its sick status merely by repaying its debts. 15.With the aforesaid, we notice that the society does not hold even a share in the company. It has no interest other than what could be built on the basis of the agreement for sale. It is true that it expended a fairly good amount as advance. It is pointed out by the company that it has kept in deposit the amounts due to the society and the same can be taken back. The society's locus standi if at all, to go to BIFR or AAIFR is only to the limited extent as a creditor, to participate in those proceedings, to find out ways and means of getting at its rights and remedies under the agreement for sale. The members of the society by themselves, even as an association, do not have sufficient locus standi or right to sue the company on any ground. WPC.17143/07 & 17155/07 12 16.For the aforesaid reasons, we find no ground to interfere with the BIFR or AAIFR decision, at any rate, at the instance of the society or its members' association. The writ petitions fail. In the result, these writ petitions are dismissed. No costs. Sd/- THOTTATHIL B.RADHAKRISHNAN, Judge. Sd/- S.S.SATHEESACHANDRAN, Judge. kkb.