IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 1527 of 2001 WITH CIVIL APPLICATION No 5466 of 2004 WITH COMPANY PETITION No 131 of 1990 WITH COMPANY PETITION No 132 of 1990 For Approval and Signature: HON'BLE MR.JUSTICE K.A.PUJ ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? -------------------------------------------------------------- NARMADA ALUMINIUM INDUSTRIES LTD Versus APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECO. -------------------------------------------------------------- Appearance: 1. Special Civil Application No. 1527 of 2001 MR ASHOK L SHAH WITH MR PAVAN S GODIAWALA for Petitioner No. 1 SERVED BY RPAD - (R) for Respondent No. 1-2,6 NOTICE SERVED for Respondent No. 2,5,8 GOVERNMENT PLEADER for Respondent No. 3 MR BHARAT JANI for Respondent No. 4 DR SONIA HURRA for Respondent No. 7 -------------------------------------------------------------- CORAM : HON'BLE MR.JUSTICE K.A.PUJ Date of decision: 25/04/2005 COMMON ORAL JUDGEMENT Special Civil Application No. 1527 of 2001 is filed by the Company, namely, Narmada Aluminium Industries Limited challenging the order passed by the Board for Industrial and Financial Reconstruction (for short 'BIFR') on 01.09.2000 in Reference Case No. 15 of 1991 and the order passed by the Appellate Authority for Industrial and Financial Reconstruction (for short 'AAIFR') on 02.01.2001 in Appeal No. 327 of 2000. 2. This Court has passed an order on 02.11.2001 admitting the said petition and interim relief in terms of para 21 (c) was granted till the final disposal of the petition. By virtue of the said interim relief, the operation and implementation of the order passed by BIFR dated 01.09.2000 was stayed. 3. Civil Application No. 5466 of 2004 is filed by the applicant, namely, Industrial Development Bank of India, the original respondent No.4 in S.C.A. No. 1527 of 2001 for vacating the interim relief granted by this Court by an order dated 02.11.2001 in S.C.A. No. 1527 of 2001. 4. This Court has passed an order on 30.07.2004 and observed that it is better to hear S.C.A. No. 1527 of 2001 itself instead of proceeding further with the C.A. No. 5466 of 2004. At the joint request of the parties, all the aforesaid matters were fixed for final hearing and this is how all these matters are taken up for final hearing. 5. Company Petition No. 131 of 1990 is filed by the petitioning Creditor, namely, Pankaj Aluminium Industries under Section 433 and 434 of the Companies Act, 1956 for winding up of the respondent Company on the ground that the respondent Company has failed and neglected to pay a sum of Rs.32,86,191/-. 6. Similarly, Company Petition No. 132 of 1990 is filed by the petitioning Creditor, namely, Aluminium Extrusion Centre under Section 433 and 434 of the Companies Act, 1956 for winding up of the respondent Company on the ground that the respondent Company has failed and neglected to pay a sum of Rs.3,71,895.62 ps. 7. Company Petition Nos. 131 and 132 of 1990 are pending before this Court since 1990 as the reference filed by the respondent Company was pending before BIFR. This Court has passed an order on 12.12.2003 in Company Petition Nos. 131 & 132 of 1990 wherein it is recorded that the respondent Company made an application to BIFR under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 (for short 'SICA') and the BIFR registered the case as Reference Case No. 15 of 1991 vide its order dated 05.02.1991. The BIFR vide its order dated 01.09.2000 came to the conclusion that it is just and equitable and in public interest that the respondent Company be wound up under Section 20 (1) of the SICA and forwarded the said opinion to this Court. Being aggrieved by the said order dated 01.09.2000, the respondent Company preferred appeal being Appeal No. 327 of 2000 before AAIFR which was dismissed by AAIFR on 02.01.2001. Being aggrieved by the said order, the respondent Company has preferred S.C.A. No. 1527 of 2001 before this Court and since the said petition is pending before this Court, both these Company Petitions were adjourned from time to time. 8. In view of the above facts and circumstances of the case, it is necessary to decide S.C.A. No. 1527 of 2001. 9. Mr. A.L. Shah, learned advocate appearing with Mr. Pavan S. Godiawala for the petitioner in S.C.A. No. 1527 of 2001 has submitted that the petitioner Company was incorporated on 15.04.1981 to manufacture aluminium extrusion. The petitioner Company was having its plant at Bholav village in Bharuch District and the capacity of the plant was 3,000/- MT p.a. which was enhanced to 5,000/- MT. On account of various reasons beyond the control of the Company, it became a Sick Industrial Company within the meaning of the SICA and filed its reference under Section 15 of SICA before the BIFR. The said reference was registered as Reference Case No. 15 of 1991. The BIFR after hearing the parties, by its order dated 30.05.1991 declared the petitioner to be a Sick Industrial Company within the meaning of SICA and appointed IDBI as the Operating Agency under Section 17 (3) of SICA and directed it to examine the technical and economic viability of the petitioner Company and submit its report. The IDBI submitted his report before the BIFR and after hearing all the parties, prepared a draft resolution Scheme and ultimately, the BIFR had sanctioned the Scheme on 07.04.1992. However, on account of various reasons beyond the control of the petitioner, the rehabilitation Scheme could not work successfully and the Scheme was declared as failed in 1995. 10. Mr. Shah has further submitted that the BIFR reappointed the IDBI as the Operating Agency under Section 18 (5) of the Act and directed it to prepare a Rehabilitation proposal for the petitioner. The Operating Agency submitted its report and after detailed considerations and after taking into consideration suggestions of all parties concerned, the BIFR sanctioned the revised Scheme on 31.10.1996. The said Scheme also could not be fully implemented on account of reasons beyond the control of the petitioner. The said revised scheme envisaged one time settlement of the dues of the Secured Creditors by bringing certain funds for the purpose by the petitioner / promoters. The petitioner / promoters brought in very substantial funds and paid up the same to the Secured Creditors. However, on account of severe recession in the property market, they could not sell of some of their immovable properties which they were trying to liquidate and pay up the balance amount of the one time settlement proposal from the sales realisation thereof. Those facts were pointed out to BIFR vide petitioner's letter dated 07.10.1998. A joint meeting was convened by the Operating Agency on 15.04.1999 to review the status of the rehabilitation process and decide the future course of action. The Operating Agency by its letter dated 25.05.1999 addressed to BIFR that the petitioner Company was yet to submit its fresh proposal. Thereafter, hearing was taken place on 29.10.1999 wherein the BIFR reviewed the progress of the scheme sanctioned on 31.10.1996. The BIFR took note of the fact that although the petitioner Company had achieved higher production on account of reduction in unit sales realisation, increase in input costs, depressed market conditions, etc, the petitioner Company incurred cash losses. The BIFR also observed that the petitioner Company had made down payment of Rs.158 Lacs in December 1996 and allotted shares for Rs.20 Lacs in February 1997. The Company had also paid Rs.40 Lacs by December 1997 towards current interest. However, there was default in payment of accrued interest and balance amount of One Time Settlement installments. The Company, however, informed BIFR that the promoters were in the process of liquidating their assets to generate sufficient funds for payment of the balance amount of the One Time Settlement Proposal to the financial institutions and Banks and that some time may be given for that purpose. However, BIFR questioned the promoters whether they would be able to bring the amount within 15 days, knowing fully well that such a huge amount could not be collected within such a short time nor the immovable properties could be sold of within such a short time. As the promoters expressed their inability to bring such huge amount within such short time, the BIFR declared the scheme sanctioned on 31.10.1996 as failed and directed the Operating Agency to issue advertisement for change of management. 11. Pursuant to the advertisement issued, the promoters of the petitioner Company had also submitted proposal and deposited with the Operating Agency an amount of Rs. 1 Lacs towards the cost of advertisement. The revised rehabilitation proposal assumed the cut-off date as June 30, 2000. The dues of financial institutions and Banks were taken as Rs. 533 Lacs and after taking into consideration the amount of Rs.222.36 Lacs, the balance outstanding principal amount remained to be paid. The said proposal laid down the mode and schedule of payment of the said balance amount. Thereafter, the BIFR ex-parte issued an order on 26.06.2000 observing that only one proposal from the existing management was received in response to the advertisement issued by the Operating Agency for change of management. The BIFR hence concluded that the Company / promoters did not appear to be serious or resourceful enough to revive the Company and the BIFR came to a prima facie opinion that it is just, equitable and in public interest that the petitioner Company be wound up under Section 20 (1) of SICA. The BIFR had also directed to issue show-cause notice as to why the prima facie opinion should not be confirmed that the Company be wound up. It is alleged that the said order dated 26.06.2000 was passed by BIFR without giving an opportunity to the petitioner of being heard and thus the said order was in violation of the principles of natural justice. 12. After issuance of the aforesaid notice for winding up of the Company, the petitioner continued with its effort to revive the Company and held discussions with financial institutions to somehow revive the Company. In this direction, the promoters / Company submitted their revised proposal vide their letter dated 22.08.2000. The revised proposal assumed the cut-off date as 31.12.2000 with one time settlement of the principal amount of Rs. 576 Lacs after reducing the amount of earlier payments / conversion into equity of Rs. 222.36 Lacs i.e. balance of Rs. 354.64 Lacs. In the revised proposal, the each component had been increased to 75% from 50% in the earlier proposal. However, the payment of Rs. 265.23 Lacs being 75% was proposed to be paid in six equal quarterly installments, the first installment to be paid within 30 days after sanction of the Scheme. The remaining 25% i.e. Rs.88.41 Lacs was proposed to be converted into equity shares at face value of Rs. 10 per share with buy back arrangement with promoters at face value of Rs. 10 per share or market price whichever is higher at the end of 3rd and 4th years in two equal installments. 13. The petitioner had followed the above proposal very vigorously with the Operating Agency and after many meetings, the petitioner was given to understand by the Operating Agency that the financial institutions and Banks were agreeable in principal to the said one time settlement proposal dated 22.08.2000 and the petitioner was advised to show its bonafide and for that purpose, it should make an upfront deposit of Rs. 50 Lacs in a no lien account before the next date of BIFR hearing which was fixed on 01.09.2000. The time available with the Company / Promoters was very short, hardly about one week, to make the payment of the huge amount of Rs. 50 Lacs. However, the Company / Promoters immediately deposited Rs. 28 Lacs with IDBI, the Operating Agency in a no lien account and assured that the balance amount of Rs. 22 Lacs would be paid within four days after hearing of the BIFR on 09.01.2000. However, the BIFR pressurising the financial institutions and questioned them as to how they have accepted such a proposal and thereafter recorded the observations that as per the proposal, the company had afforded to pay 75% of the principal amount in six quarterly installments and the balance 25% by conversion in equity and inspite of the financial institutions and Banks having agreed to the proposal envisaging one time settlement of the dues, has confirmed its prima facie opinion that the Company be wound up under Section 20 (1) of the Act by its order dated 01.09.2000. 14. Being aggrieved by the said order of the BIFR dated 01.09.2000, the Company preferred an appeal being Appeal No. 327 of 2000 to the AAIFR and before the Appellate Authority, the petitioner has again pointed out that though financial institutions and Banks were agreeable in principle to accept the petitioner's one time settlement proposal, BIFR had not granted sufficient time and opportunity to finalise the rehabilitation scheme on the basis of the said one time settlement. The AAIFR, however, proceeded on the basis that at the time of hearing before BIFR, no agreement could be reached between the Company and the Financial Institutions / Banks. The Financial Institutions / Banks were prepared to accept 100% of the principal dues in cash which the Company/promoters were not prepared to ensure. Mr. Shah has further submitted that AAIFR has failed to appreciate that the Financial Institutions / Banks had already agreed in principle to accept the One Time Settlement Scheme offered by the Company and even if there was some differences as to payment of 100% of principal amount in cash as allegedly demanded by the Financial Institutions / Banks and 75% payment in cash and balance 25% payment in the form of equity as suggested by the Company, the difference was not such that it could not be bridged by negotiations. Mr. Shah has further submitted that AAIFR has also failed to appreciate that even the Operating Agency had indicated to the Company that the Company's One Time Settlement proposal was agreeable to the Financial Institutions / Banks and that, to show their bonafides, the promoters should deposit with it an amount of Rs. 50 Lacs. The AAIFR should have appreciated that pursuant to this suggestion and indication from the Operating Agency that the promoters had immediately deposited with the Operating Agency an amount of Rs. 28 Lacs in a "No Lien" account and the balance amount of Rs. 22 Lacs was assured to be deposited with about four days. The AAIFR took a very narrow and unjust approach and rejected the appeal of the petitioner by its order dated 02.01.2001. 15. Mr. Shah has further submitted that the petitioner Company has one of the most upto date plants for aluminium extrusion etc. in India. The petitioner commenced commercial production in January 1988 and during the period of list twelve years, the petitioner earned a very good name, both in the domestic as well as in the international markets. The petitioner has developed many import substitutes thereby saving for the nation substantial foreign exchange. The petitioner has been supplying precision products to many reputed concerns such as Modi Xerox, Electronic Racks for President System, Heat Sinks for M/s. Bharat Electronics / Ms ITI / Ahuja Radios, Surveyor Scales for CST Ltd. etc. The petitioner also caters to defence requirements; it also supplies aluminium sections for manufacturing ships, railways, etc. The petitioner also earned very good name for supplying irrigation tubes confirming to IS 7092 ( Part II ). The petitioner also supplied its aluminium sections for the purpose of bus-body building companies of great repute. The petitioner's products are also well accepted in international markets. 16. Mr. Shah has further submitted that BIFR and AAIFR have totally failed to take into consideration that the petitioner is a going concern and employs very large number of persons. The petitioner directly employs about 200 persons and several hundreds more are employed by ancillary industries and establishments set up to supply materials and services to the petitioner. The petitioner pays a very large amount by way of wages and salaries. The relations between the petitioner and its workers have been very cordial and no dues of the workers are outstanding as on date. The petitioner has been paying the dues of the workers very regularly. 17. Mr. Shah has further submitted that the approach of the BIFR should have been to review a sick but viable industrial unit and not to kill a viable unit, particularly when the financial Institutions and Banks were ready and willing to accept the Company's proposal for settlement. By ordering winding up of a viable unit like that of the petitioner, it would be rendering hundreds of persons unemployed, the national exchequer would also lose huge amount. There would be loss of production and loss to national wealth. If the new unit such as that of the petitioner is to be set up, it would require a very huge amount and directing such a unit to be close down particularly when the Financial Institutions and Banks were ready to accept the rehabilitation scheme would be national waste and loss. 18. Mr. Shah has further submitted that even after the order passed by the AAIFR, the petitioner continued its efforts to revive the unit and has carried on negotiations with IDBI. The petitioner, therefore, submitted a latest revised One Time Settlement proposal on 26.02.2001 which was under active consideration of IDBI. The orders passed by BIFR and AAIFR rejecting the petitioner's appeal and confirming the BIFR's order are null and void and are required to be quashed and set aside. 19. Mr. Shah has further submitted that based on the Company's revised proposal even after the order of AAIFR, this Court has passed an order on 02.11.2001 wherein the fact regarding deposit of Rs.88.50 Lacs being 25% of the 354 Lacs was recorded. The Court has also recorded the statement of the learned advocate Mr. B.G. Jani appearing for IDBI, the Operating Agency that he has not received any contrary instructions and that the IDBI had agreed in principle to consider the One Time Settlement proposal. Mr. Shah has, therefore, submitted that once having accepted the One Time Settlement proposal and the petitioner having acted on the basis of the said proposal and made the payment of 25% of the agreed amount for settlement, it is not open for the respondents to change their stand and insist for winding up of the petitioner Company. One Time Settlement envisaged payment of 354 Lacs with 25% down payment and balance 75% in six quarterly installments. There was no question of payment of any interest and the payment of balance 75% would be made only after sanctioning the Scheme and not before that. If the Operating Agency and other Secured Creditors did not fully accept the One Time Settlement, the petitioner would stand to lose a huge amount and would be at a great disadvantage. The amount which was deposited by the petitioner to show its bonafide and resourcefulness was to be kept in "No Lien" account. The IDBI has, pending the petition, illegally appropriated the said amount lying with it in a "No Lien" account. The IDBI is, therefore, required to put the said amount in "No Lien" account and if the One Time Settlement is not accepted either by IDBI or by any other Financial Institutions, the amount deposited in the "No Lien" account should be refunded to the petitioner so that the petitioner can in turn return the said amount to its associates and financers from whom the said amount was received with an assurance that the same be kept in a "No Lien" account. The IDBI in its letter dated 04.05.2001 has clearly stated that the Company has submitted a revised One Time Settlement proposal envisaging payment of Rs.353.64 Lacs towards principal with 25% down payment and the balance 75% in six quarterly installments without interest. Hence, there is no question of demanding any interest under that One Time Settlement proposal. Unless and until the Secured Creditors agree their acceptance to the One Time Settlement, the question of making payment to the installments as per the One Time Settlement does not arise. 20. Mr. Shah has lastly submitted that recovery applications filed by ICICI and Dena Bank before the D.R.T. are not maintainable. The said applications are filed on the basis of the old debt. No suit or recovery application can be filed on the basis of claims prior to the One Time Settlement. Even the contention of the IFCI is not correct. The petitioner was not required to pay any interest under the One Time Settlement. Even the installments for the balance amount of 75% of the balance amount of the One Time Settlement was to be paid in six quarterly installments without interest commencing after the Secured Creditors conveyed their acceptance of the One Time Settlement and the BIFR approve the same. The proceedings before the BIFR cannot be said to have been concluded. This Court has by its order dated 02.11.2001 stayed the operation of the order of the BIFR and AAIFR forming an opinion that the petitioner Company should be wound up. Even at present, there is no order of the BIFR recommending winding up of the petitioner Company and the matter can be said to be still pending before BIFR. He has, therefore, submitted that the petition be allowed and the matter may be sent back to BIFR to consider the revised proposal of the petitioner and pass appropriate order thereon. 21. Mr. B.G. Jani, learned advocate appearing for I.D.B.I. has submitted that the petitioner Company has failed to act as per the Scheme sanctioned by BIFR. On earlier two occasions, the Scheme was sanctioned and the same have failed because of non-fulfillment of the commitments by the petitioner. Even with regard to the third Scheme, the petitioner could not make the payment within the stipulated period and hence, BIFR has confirmed its prima facie opinion and forwarded the same to this Court for winding up of the Company and appeal filed against the order was also dismissed by AAIFR. However, by virtue of the stay granted by this Court, the winding up petition which was registered on the basis of BIFR's opinion being Company Petition No. 256 of 2000 could not be proceeded further. He has further submitted that after having considered the proposal for negotiated settlement of the dues of the petitioner Company, the IDBI wrote a letter dated 20.11.2001 informing that the IDBI is agreeable in principle to accept the proposed compromise of settlement i.e. payment of total amount of Rs. 98 Lacs being 25% of the settled amount be paid as down payment after acceptance of the proposal by the Financial Institutions / Banks and balance amount of 75% in six quarterly installments commencing from 01.07.2001 carrying interest at the rate of 12% p.a. with quarterly rests (2) waiver of entire simple interest, compound interest and liquidated damages till cut-off date i.e. 30.06.2001. 22. Mr. Jani has further submitted that the petitioner Company did not honour its commitment as per the negotiated settlement of the dues on the terms and conditions stated in the aforesaid letter. The IDBI has informed the petitioner Company that a settlement arrived at on the basis of the negotiated settlement proposal stood withdrawn and accordingly the reliefs and concessions granted to the petitioner were also revoked and status-quo ante was restored. The petitioner was further informed that the amount of the due payment made by it and kept with