1 IN THE HIGH COURT OF JUDICATURE OF BOMBAY IN THE HIGH COURT OF JUDICATURE OF BOMBAY IN THE HIGH COURT OF JUDICATURE OF BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.365 OF 2003 B.I.F.R. ..Petitioner. V/s Sajjan Textile Mills Ltd. ..Respondent. WITH COMPANY APPLICATION NO.337 OF 2008 Sajjan Textile Mills Ltd. ..Applicants. V/s. B.I.F.R. ..Respondent. Mr.Janak Dwarkadas, Ankit Lohia i/b. Mr.M.L. Chaturvedi for Petitioner. Mr.S.Ramakantha, Dy. O.L. CORAM: A.M.KHANWILKAR,J CORAM: A.M.KHANWILKAR,J CORAM: A.M.KHANWILKAR,J DATE : MARCH 28, 2008. DATE : MARCH 28, 2008. DATE : MARCH 28, 2008. P.C. : P.C. : P.C. : 1. Heard Counsel for the parties. Perused the relevant pleadings and documents. 2. Counsel appearing for the Respondent company submits that this matter cannot proceed further in absence of issuance of notice under Rule 28, which is a mandatory requirement. This submission is advanced by relying on the noting made on the daily board 2 issued by the Office, which indicates that position. However, on scrutiny of papers and going through the office report prepared by the Section Officer, it is noticed that notice under Rule 28 has in fact been issued and the Notice has been served on the Respondent company, as is disclosed in column Nos. 6 and 7 of the said report. On this finding, preliminary objection raised on behalf of the Respondent will have to be rejected. There is yet another reason to overturn this objection, inasmuch as Civil Application filed in the present Company Petition by the Company was listed on 26th March, 2008, when direction was issued that the main Company Petition pending in this Court, be listed for hearing. However, no such grievance was made on behalf of the Respondent company that hearing of the Petition should not proceed on the assigned date on this count. Besides, it is not unknown that when the Advocate appears in the matter, service of such notice is waived by the Advocate on behalf of his client. To get over this difficulty, my attention is invited to the assertion about non-service of notice made in paragraph-5 and paragraph-36 of affidavit dated 7th March, 2008 filed in support of the Company Application. Even on liberal reading of the averments of the said paragraphs of the affidavit, 3 all that has been mentioned is that the issuance of notice under rule 28 is mandatory. No statement of fact is made on affidavit that such notice has not been served on the Respondent company at any point of time so far. As aforesaid, the Section Officer has already noted that notice under Rule 28 has already been issued and duly served on the Respondent company. Accordingly, there is no substance in the preliminary objection taken on behalf of the Respondent. 3. The former Petition is registered on the basis of the recommendation made by the BIFR in terms of the Order dated 5th October, 2001 recommending winding up of the Respondent Company. The BIFR on the basis of materials before it, recorded following conclusion on the factual position, in paragraph-15, regarding financial status of the Respondent company at the relevant time, in the following words: "15. The company even at this late stage could not get the in principle clearance from any of the secured creditors and could not submit fully tied up and acceptable proposal to the Board. The Board also noted that the company had a sizeable debt burden of approximately Rs.23 crores as per the balance sheet of 31.3.2001 and debt restructuring although being an important and vital aspect to be considered for the proposal, but such a proposal should have been submitted with the 4 or in principle clearance from the secured creditors and banks. The company came to the Board as early as in 1998 based on their audited annual accounts of 31.3.98 which indicated that their accumulated losses were for Rs.10.38 crores against their net worth of Rs.7 crores. The balance sheet of the company as on 31.3.2001 also indicated that their accumulated losses had gone upto Rs.25.62 crores and the net worth remained the same at 7 crores without any substantial variation with regard to the promoters bringing any unsecured loans during this period. In this regard, the Board took note of the observations made by AAIFR in their order dated 30.1.2001 which indicated that "the company is heavily indebted. The total liability of consortium banks is over Rs.22 crores. The factory is lying closed from 1995." On the basis of the above position, coupled with the fact that there was nothing on record to suggest that the Company or the Promoters were making any serious attempt to negotiate with the consortium banks and the financial institution for getting their in principle approval and regarding the sacrifices, which they had to make for rehabilitation of the company, for which reason the BIFR proceeded prima facie to observe that the inevitable conclusion is that the Company was not likely to make its net worth exceed the accumulated losses within the reasonable time while meeting all its financial obligations and the Company was not likely to become viable in future. It is on this premiss, the BIFR recommended 5 winding up of the Respondent company under section 20(1) of the Act. It is not in dispute that the decision of the BIFR has been allowed to become final. No appeal was filed against the Order dated 5th October, 2001. 4. Counsel for the Respondent Company in all fairness accepts that the factual matrix recorded by the BIFR, in particular paragraph-15 of its order, as reproduced earlier. The fact that Company had outstanding dues of approximately 23 crores as per the balance sheet as on 31st March, 2001 and the accumulated losses as on 31st March, 2001 in the sum of Rs.25.62 crores against the net worth of Rs.7 crores, is not in dispute at all. No material has been produced to counter the said factual opinion recorded by the BIFR. Assuming that the Respondent company could be permitted to assail the said finding of fact in the present proceedings, as the Respondent company has not produced any material to contradict that position, this Court will have to proceed on the basis that the finding of fact so recorded by the BIFR will be binding on this Court. On the said finding, the inevitable conclusion is that the company is not likely to make its net worth exceed the accumulated losses and it is not likely to become 6 viable in future. If it is so, this Court will have no option, but to accept the recommendation of the BIFR to wind up the Respondent company. I have no hesitation in taking that view having regard to the fact situation of the present case. 5. Besides the recommendation of the BIFR, it now transpires that ICICI, who is one of the secured creditor proceeded to sell the movable assets of the Respondent company, including plant and machinery on the basis of the Order passed by the DRT in its favour. Auction of movable assets including plant and machinery has been approved by the DRT for sum of Rs.2,50,99,999/-. Suffice it to observe that it is an admitted position that the Company has completely stopped its manufacturing activities and operations much prior to 2001. In other words, the Company is not doing any business at all since 2001. I am conscious of the fact that the Company has challenged the decision of the DRT confirming the Court auction in favour of the third party M/s. Sri Vairalakshmi & Co. The said proceedings have now reached upto the Supreme Court by way of Civil Appeal No. 573 of 2005. The Apex Court has already directed the parties to the said Appeal to maintain status quo in respect of the said movable assets of the Company and 7 which direction is still operating against the Respondents in the said Appeal filed by the Company. The Apex Court also directed the Respondent No.3 (purchaser) to bring back all the machinery in terms of the Order dated 17th January,2005. Later on, the Apex Court in terms of the Order dated 18th October, 2005, has permitted the ICICI Bank to withdraw the sum of Rs.1,24,27,329/- subject to certain conditions. It is not necessary to burden this order with the nature of dispute raised in the said Appeal, except to observe that the grounds asserted in the said Appeal on behalf of the Company are about the several irregularities committed in the conduct of court auction of the movable assets and the plant and machinery by the DRT. That is of no avail to the Respondent Company to defend the present action. 6. Counsel appearing for the Respondent company was at pains to persuade me that formal order on the present Company Petition be deferred till the conclusion of the proceedings pending before the Apex Court. I find no substance in the said submission for the simple reason that even if the Company was to succeed before the Apex Court in its entirety, that would not absolve the Company from the liability to pay approximately over Rs. 23 crores to all its 8 creditors, which were due as on 31st March, 2001. In addition to the said outstanding dues, the Company would be liable to pay accumulated interest thereon, since the ICICI Bank in respect of whom the proceedings are pending before the Apex Court is only one of the creditors. According to the Respondent company, ICICI Bank has agreed to settle all its claim in the sum of Rs.1.5 crores. As aforesaid, even if the claim of ICICI Bank was to be satisfied in its entirety and on account of the arrangement to be arrived at, that does not address the other pending claims of the creditors of the Company, which would far exceed the sum of Rs.21.5 crores alongwith interest accrued thereon from 21st March, 2001. Besides the accumulated losses shown in the balance sheet as on 31st March, 2001 has gone up to Rs.25.60 crores. For the time being, even if that figure is to be ignored, the fact remains that the Company would be still liable to pay the Bank and other creditors amount, which will be far in excess of Rs.21.5 crores, after considering liability to pay accrued interest thereon. 7. Counsel appearing for the Respondent company was called upon to take instructions, as to whether the promoters of the company were in a position to 9 make arrangement to pay the outstanding dues of other creditors. The advocate for the Company on instructions of the officer of the company who is present in Court, has categorically stated that it is not possible to give such assurance by the promoters as presently advised. Having regard to this position, it would necessarily follow that even if the Company were to succeed in the proceeding before the Apex Court, all that would happen is that status quo ante, which was prior to the sale of movable assets, will have to be restored in so far as the movable assets of the Company is concerned. That would make no difference in so far as outstanding dues payable by the Company is concerned. That would still remain outstanding and the company will be obliged to discharge that liability. There is nothing on record, nor the promoters are willing to come forward to make positive statement that they would make any attempt so as to ensure payment to the consortium banks and other creditors or arrive at some workable arrangement with all the creditors of the Company, so as to make an attempt to revive the Company. If it is so, this Court will have no option, but to accept the recommendation of the BIFR to wind up the Respondent company. 10 8. Counsel for the Respondent company then submits that if the Court was inclined to accept the recommendation of the BIFR to wind up the Respondent company, may atleast show limited indulgence to the promoters of the company to pursue the proceedings before the Apex Court and/or proposed action for recovery of damages from the ICICI Bank and/or purchaser, to be filed by them, as the promoters apprehend that once the Official Liquidator is appointed, the proceedings before the Apex Court filed on behalf of the Company will not be effectively pursued and there is possibility that the Official Liquidator may not take keen interest including to institute suit for damages against the ICICI Bank Ltd. 9. It was also submitted that in the event, the Company was to succeed in the proposed Civil Action for recovery of damages from ICICI Bank Ltd. and/or purchaser of the assets(Respondent No.3 in the pending Appeal before the Supreme Court), which will be to the extent of Rs.200 crores, in which case all the outstanding dues of the Company can be settled. This, in my opinion, is a presumptuous submission canvassed on behalf of the Company. In the first place, even if the Company decides to file any civil 11 action against the ICICI Bank and/or the purchaser of the movable assets, for recovery of damages, that claim will have to be adjudicated in the first instance and it is only upon Court’s verdict in favour of the Company that the Company would become entitled for recovery of any amount from them Suffice it to observe that submission founded on such claim cannot be countenanced, while considering the present action of winding up of the Respondent company. 10. Taking over all view of the matter, I have no hesitation in concluding that there are tangible grounds for winding up of the Respondent company, as the Respondent company is not in a position to produce any material on record to persuade the Court that there is possibility of revival of the Company. Instead, it is common ground that the Company has already completely stopped its operations prior to 2001 and that there is sizeable debt burden of approximately over Rs.23 crores as on 31st March, 2001. For all these reasons, recommendation of BIFR in terms of its Order dated 5th October, 2001 will have to be accepted. 11. In so far as apprehension of the Promoters of the company that the proceedings before the Apex 12 Court will not be pursued in right earnest by the Official Liquidator, that can be addressed by accepting the assurance given by the Promoters that they will provide all logistical support to the Official Liquidator in pursuing the said remedy hereafter including of engaging the Counsel for and on behalf of the Company in liquidation, which cost will be borne by them and the Official Liquidator will not be burdened with the same. It is however, made clear that if the promoters intend to engage services of advocate(s) of their choice or to institute proposed civil action for recovery of damages, they shall inform in writing to the concerned advocate that the responsibility of payment of legal fees and charges for pursuing the said proceedings will be borne entirely by the promoters, under due intimation to the Official Liquidator. In the event, such assurance is not given by the promoters in writing within four weeks from today, it will be open to the Official Liquidator to engage appropriate Advocate(s) to pursue the proceedings before the Apex Court filed by the Respondent Company on such terms and conditions, which may be approved by the Court. 12. Accordingly, it is ordered that the 13 Respondent Company is directed to be wound up with immediate effect and the provisional liquidator shall now take over the affairs of the Company in liquidation as Official Liquidator and discharge all such duties, as may be necessary to effectuate the Order of winding up in exercise of powers under the provisions of the Companies Act. Ordered accordingly. 13. At this stage, Counsel for the Respondent company submits that the Respondent company may consider of taking the matter in appeal for which reason the operation of this order be suspended for a reasonable time. By way of indulgence, it is ordered that no effect be given to this order till 24th April, 2008. 14. In view of the order passed in Company Petition, nothing survives for consideration in Company Application. The same is disposed off accordingly. (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J)