IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 24/09/2003 CORAM THE HONOURABLE MR. JUSTICE P.D.DINAKARAN W.P.No.14856 of 2003 W.P.M.P.Nos.18599, 18600 of 2003 and W.V.M.P.Nos.1399 to 1402 of 2003 M/s.Binny Limited rep. by N.Ganesh General Manager 106, Armenian Street Chennai-600 001. .. Petitioner -Vs- 1. The Appellate Authority for Industrial and Financial Reconstruction 10th Floor, "Jeevan Prakash" 25, Kasturbai Gandhi Marg New Delhi-110 001. 2. The Board of Industrial and Financial Reconstruction, Sawanar Vyapar Bhawan 1, Tolstoy Marg, New Delhi. 3. The Chairman & Managing Director State Bank of India Central Office Madam Cama Road Mumbai. 4. The Chairman & Managing Director IDBI, IDBI Tower, Cuffe Parade Mumbai. 5. The Chairman & Managing Director IFCI, IFCI Tower 61, Nehru Place, New Delhi-110 019. 6. The Chairman & Managing Director ICICI, ICICI Tower North Tower (East Wing) Bandra-Kurla Complex Mumbai-400 051. 7. The Chairman & Managing Director Bank of Baroda, BIFR Cell 3, Walchand Hirachand Marg Mumbai-400 038. 8. The Chairman & Managing Director Indian Bank 31, Rajaji Salai Chennai-600 001. 9. The Joint Secretary Industries & Commerce Department Government of Andhra Pradesh Hyderabad. 10.The Joint Secretary Commerce & Industries Department Sachivalaya, Bangalore. 11.The Additional Secretary Department of Industries Government of Tamil Nadu Chennai. 12.The Secretary, Ministry of Textiles Udyog Bhawan New Delhi. 13.The Secretary Ministry of Commerce Udyog Bhawan New Delhi. 14.The Secretary Department of Banking Ministry of Finance Jeevan Deep, Parliament Street New Delhi. 15.The General Manager Oriental Bank of Commerce 14-15, Shivam House Connaught Place New Delhi. 16.The President Buckingham & Carnatic Mills Staff Union, No.60, Krishnadas Road Chennai. 17.The President Madras Labour Union 176, Strahans Road Chennai. 18.The President Binny Beach Engineering Workers Union 48, GST Road Meenambakkam Chennai-27. 19.The General Manager ESIC, ESIC Buildings Kotla Road, Behind Foreign Post Office New Delhi. 20.The Secretary Tamil Nadu Electricity board Chennai. 21.The Managing Director National Insurance Company 3, Middleton Street Calcutta-700 071. 22.The President B&C Mills Employees Coop. Society 48, Cooks Road Perambur Barracks Chenai-600 012. 23.The Secretary Ministry of Labour Shram Shakti Bhawan New Delhi. 24.The Secretary Ministry of Railways Rail Bhawan, New Delhi. 25.The Secretary Ministry of Law, Justice & Co. Affairs Department of Company Affairs Shastri Bhawan. 26.The Secretary Department of Revenue Government of Tamil Nadu Chennai. 27.The President Binny Employees Union 177, Thambu Chetty Street Chennai-1. 28.Federal Bank Ltd., Head Office Alwaye-683 101. 29.Mr.I.R.Perumal Textile Commissioner Nrupathunga Road Rashtrothan Building Bangalore-560 001. 30.Municipal Corporation of Chennai C/o.M/s.Binny Ltd., 65, Armenien Street Chennai-1. 31.Bangalore City Corporation Bangalore Mahanagar N.R.Square, Bangalore-2. 32.Bangalore Development Authority T.Choudayya Road Bangalore-560 002. 33.Gas Authority of India 16, Bhikaji Cama Place R.K.Puram New Delhi-110 066. 34.The President Binny Beach Engineering Anna Thozhilalar Sangam P.O.Box No.8677 Chennai-114. 35.Central Board of Excise & Customs North Block, New Delhi. 36.Directorate of Income Tax (Recovery) Mayur Bhawan Behind Super Bazar Connaught Place, New Delhi. 37.Central Board of Direct Taxes North Block, New Delhi. 38.R.Swaminathan 39.Unit Trust of India 13, Sir Vithaldas Thackersay Marg Mumbai-400 020. 40.R.Kannan Special Director to BIFR 576, B.Mahesh Jane Jamshedpur Road Matunga, Mumbai-19. 41.Thyagarajan Assistant General Manager State Bank of India Rehabilitation and Recovery Branch 103-A, 5th Floor, Anna Salai Chennai-2. 42.V.Sadasivam C/o.M/s.Row & Reddy Advocates, No.156 Thambu Chetty Street Chennai-1. 43.G.Arul Xavier (Rep-Chennai Perambur B&C Mill) No.33335/1999, V.O.C.Street Ponniamman Medu, Chennai-110. 44.The Deputy Registrar Cooperative Department Chennai-20. 45.M.Pushparaj President B&C Mills Employees Quarters N.W.G.901, 6/2 Barracks Village P.B.Road, Chennai-12. 46.ETA-Mauritius Ltd (Co-Promoter) 5, Duke Edinburgh Avenue P.O.Box.627 Port Louis, Mauritius. 47.The President Chennai Chengai Podu Thozhilalar Sangam 18, Rotier Street, Choolai Chennai-12. 48.Vicek Mady 49.Employees Provident Fund Organisation Sub-Accounts Office No.3, Rajaji Salai Tambaram, Chennai-45. 50.M.R.Srinivasan 51.M/s.G.A.Electric Co. Old No.36/1, 14 Street V Block (Opp:6th Main Road) Anna Nagar, Chennai-40 52.M/s.DCV Limited "Nirmal" 3rd Floor Nariman Point Mumbai-600 021. 53.Carnatic Real Estate Limited (CREL) 705, Spencer Plaza 769, Anna Salai Chennai-2. 54.Madras Labour Union rep. by its President Mr.R.Kuchelan 176, Strahans Road Chennai-12. (Impleaded by order dated 25/7/2003 in WPMP.No.21239/2003) 55.Binny Mills Labour Association (Regd) rep. by its Secretary, No.13/14, Madhurai Mudaliar Road, Jolly Mohalla Cottonpet, Bangalore-560 053. (Impleaded by order dated 25/7/2003 in WPMP.No.23799/2003) 56.S.Surendran 57.E.Benjamin 58.P.Haribabu 59.C.Dasaratharam 60.R.S.Kasiviswanathan 61.Angel B.Ponniah 62.P.G.Anand 63.R.A.Rawoof 64.C.Kuppusamy 65.J.Mohanraj 66.P.R.Govindan 67.R.S.C.Sukumar 68.M.Karunakaran 69.K.V.Srinivasan 70.Anthony Francis 71.B.Chockalingam 72.K.Sathyarao 73.A.Chellappa 74.Ahmed Ali 75.B.Natarajan 76.V.Ramakrishnan 77.V.Jayathilagan 78.Kalaivani Selvam 79.S.Gunasekaran 80.K.Balakrishnan 81.M.R.Jayaprakash Narayan Lal 82.Md.Inayathullah 83.T.R.Srinivasan 84.N.Subramanyam 85.B.Rodrigues 86.A.Chidambaram Kuttalam Pillai (respondents 56 to 86 impleaded by order dated 25/7/2003 in WPMP.No.25094/2003) 87.K.S.Aghoram & G.Harish Chandra Reddy SSI Buildings, 100 Feet Road Vadapalani, Chennai-26. (impleaded by order dated 29/7/2003 in WPMP.No.26319/2003) .. Respondents PRAYER: Petition under Article 226 of the Constitution of India for issue of a writ of Certiorarified Mandamus as stated therein. !For Petitioner : Mr.R.Krishnamurthy, Senior Counsel ^For Respondents : Mrs.Pushya Sitaraman For respondents 1, 36 and 37 : Mr.M.Balachandar For respondents 3 and 41 : Mr.P.L.Narayanan For respondents 4 and 5 : Mr.Rangarajan For respondent 6 : Mr.Ramalingam For respondents 7 and 8 : Mr.M.S.Palanisamy, AGP For respondents 11, 22, 26 & 44 : Mr.K.Kumar, ACGSC For respondent 12 : Mr.Vasan for respodnent 15 Mr.N.G.R.Prasad For respondents 16 to 18, 27, 34, 42, and 56 to 86 Mr.V.K.Vijayaraghavan For respondent 19 Mr.G.Vasudevan For respondent 20 Mr.V.G.Suresh Kumar For respondent 24 Mr.Murali for respodnent 28 Mr.S.Jegadeeswaran For respodents 43 and 45 Mr.V.Ayyathurai for respondent 46 Mr.G.Purushotaman for respondent 47 Mr.V.Vibhishanan for respondent 49 Mr.Neelakandan for respondent 54 Mr.K.M.Ramesh for respondent 55 Mr.T.K.Bhaskar for respondent 87 :ORDER I - THE SUBSTANTIAL ISSUE Whether the 1st respondent, namely the Appellate Authority for Industrial and Financial Reconstruction (for brevity "the AAIFR") and 2nd respondent, namely the Board of Industrial and Financial Reconstruction (for brevity "the BIFR"), statutory authorities under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 ( for brevity "the SIC Act") have exercised their discretionary powers conferred under the provisions of the SIC Act blended with the duty cast on them under the SIC Act, is the short, but, vital issue that arises for my consideration in the above writ petition, testing the same in the teeth of judicial review conferred under Article 226 of the Constitution of India, to render complete justice in order to achieve the object of the above legislation. 2.1. The petitioner company is having the following divisions: (a) a textile division manufacturing and marketing cotton, silk and man-made fibre blended fabrics and woolen blended fabrics like cotswol and Angola having its mills, namely Buckingham and Carnatic Mills ( B &C Mills) at Perambur (Chennai) and Bangalore; (b) an Engineering Division (manufacturing and marketing of C.I. Castings, Forgings, Sugar Mill Machinery and Equipment, Rice Mills, Granite Cutting Machinery, Electric Smelting Furnaces, Mini-Cement Plants and structural fabrication, ship repair works at Meenambakkam, Chennai; (c) a Services Division (marketing of engineering and miscellaneous products) at Armenian Street, Chennai, Handloom, Power Loom and Woolen products and Hosiery at Armenian Street, Chennai, besides acting as shipping, stevedoring and clearing and forwarding agent at Visakhapatnam, Chennai, Quilon and Mangalore. 2.2. It is rather unfortunate that Buckingham and Carnatic Mills ( for brevity "the B&C Mills"), one of the biggest textile mills in the whole of Asia till recently, owned by the petitioner company was declared by the BIFR, by an order dated 15.10.1993, to be a sick industrial company under the provisions of the SIC Act, where under, the BIFR appointed the Industrial Development Bank of India (for brevity " IDBI"), represented by the fourth respondent herein, as the Operating Agency under Section 17(3) of the SIC Act, and the Company continues to suffer the throttle from the financial institutions for almost all these 10 years, of course landing in coma now and then, but under the care of the BIFR for the approval of a comprehensive techno-economic viable scheme, for its very survival, revival and rehabilitation. 2.3. The present writ petition is thus directed against the order passed by the AAIFR dated 9.5.2003 made in Appeal No.83 of 2003, passed under Section 25(1) of the SIC Act, confirming the orders of the BIFR dated 24.2.2003 in Case No.48 of 1993, refusing to sanction the revised draft rehabilitation scheme submitted by the petitioner on 14.2.2003; declining the request of the petitioner company for sale of 126 0 grounds of land situated at Perambur, Chennai for Rs.60 Crores as provided in the scheme dated 14.2.2003; and directing the sale thereof by advertisement inviting tenders through the Asset Sale Committee (ASC) comprising of the Operating Agency (IDBI), State Bank of India, Indian Bank (Lead Bank) and the petitioner company. II - LAW ON THE ISSUE 3.1. Before referring to the backdrop of the case that led the petitioner to approach this Court in the above writ petition, it would be more appropriate to refer the scope and object of the SIC Act, the powers and obligations conferred on the statutory authorities, viz., the AAIFR and BIFR, in order to achieve the objects of the SIC Act, as well as the decisions of the Apex Court in that regard. 3.2. The SIC Act was enacted intending to make, in the public interest, special provisions with a view to secure the timely detection of sick and potentially sick companies owning industrial undertakings; for 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; for expeditious enforcement of the measures so determined; and for matters connected therewith or incidental thereto. Therefore, it is clear that the SIC Act has been brought in the statute book in the public interest. 3.3. The preventive, ameliorative, remedial and other measures are required to be determined by the body of experts expeditiously or otherwise, the ill effects of the sickness in industrial companies such as, (i) loss of production; (ii) loss of employment; (iii)loss of revenue to the Central and State Governments; and (iv) locking of investable funds of the banks and financial institutions, are serious concerns not only to the company in question and to the Central and State Governments, but also to the society at large. It would, therefore, be imperative to revive such sick industrial companies as quickly as possible and salvage the productive assets and realise the amounts due to the banks and financial institutions, as otherwise the economy of the country itself would be eroded. 3.4. It is needless to point out that the industrialist must also have a vision, real desire and should contribute for the revival of such sick industry, or otherwise, it is not possible to cure or remove the causes of sickness. 3.5. Whenever an industry becomes sick, it also results into a challenge for the very survival or existence of the depending employees, whose continuous suffering, in turn, has got a negative impact on the society. 4.1. It is apt to refer some of the relevant provisions of the SIC Act and the procedure to be followed by the statutory authorities, namely the BIFR and AAIFR, thereunder, to achieve the objects of the legislation under the scheme of the SIC Act. 4.2. While Chapter-I of the SIC Act deals with the preliminary provisions such as definitions, declarations as to the special status of the enactment, Chapter-II of the SIC Act deals with the constitution of the statutory authorities, namely the BIFR and the AAIFR. 4.3.1. Chapter-III, namely Sections 15 to 22A of the SIC Act, deals with references, inquiries and schemes in respect of a sick industrial company. 4.3.2. Section 15 provides that where an industrial company has become a sick industrial company a reference shall be made to the BIFR for the determination of measures which shall be adopted with respect to the company. Under sub-section (1) of Section 15 such reference is required to be made by the Board of Directors of the company within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year at the end of which the company has become a sick industrial company. Sub-section (2) of Section 15 enables a reference to be made by the Central Government or the Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank. 4.3.3. Section 16 empowers the BIFR to make such inquiry as it may deem fit for determining whether an industrial company has become a sick industrial company upon receipt of a reference with respect to such company under Section 15 or upon information received with respect to such company or upon its own knowledge as to the financial condition of the company. 4.3.4. Section 17 provides that if after making an inquiry under Section 16, the BIFR is satisfied that a company has become a sick industrial company, the BIFR shall decide, by an order in writing, whether it is practicable for the company to make its networth exceed the accumulated losses within a reasonable time and in that event the BIFR shall, by order in writing, give such time to the company as it may deem fit to make its networth exceed the accumulated losses. If the BIFR decides that it is not practicable for a sick industrial company to make its networth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in Section 18 in relation to the said company it may, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such measures in relation to such company. 4.3.5. Section 18 makes provision for preparation and sanction by the BIFR of a scheme with respect to a sick industrial company providing for any one or more of the measures, namely, (i) financial reconstruction of the sick industrial company; (ii) the proper management of the sick industrial company by change in, or take over of, management of the sick industrial company; (iii) the amalgamation of the sick industrial company with any other company or of any other company with the sick industrial company; (iv) the sale or lease of a part or whole of any industrial undertaking of the sick industrial company; (v) the rationalisation of managerial personnel, supervisory staff and workmen in accordance with law; (vi) such other preventive, ameliorative and remedial measures as may be appropriate; and (vii) such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures referred to above. 4.3.6. Section 19 makes provision for rehabilitation by giving financial assistance if the scheme provides for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or authority to the sick industrial company. 4.3.7. Section 20 provides that in cases where the BIFR, after making an inquiry under Section 16 and after consideration of all the relevant facts and circumstances, is of the opinion that the sick industrial company is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the High Court concerned. Under subsection (4) of Section 20 the BIFR is empowered to cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of Section 529-A, and other provisions of the Companies Act, 1956. 4.3.8. For proper discharge of its functions under the Act, Section 21 confers on the BIFR the power with respect to matters specified in sub-sections (a) to (d) therein, viz., relating to preparation of inventory of assets and liabilities and books of account; list of shareholders; valuation report in respect of shares and assets; and an estimate of reserve price, lease rent or share exchange ratio. 4.3.9. As per Section 22, where an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 is pending relating to an industrial company, by virtue of Section 22, notwithstanding anything contained in the Companies Act, 1956, or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the BIFR or, as the case may be, the Appellate Authority, namely the AAIFR. 4.3.10. Section 22-A, which was introduced by Act 12 of 1994, provides that the BIFR may, if it is of opinion that any direction is necessary in the interest of the sick industrial company or creditors or shareholders or in the public interest, by order in writing direct the sick industrial company not to dispose of, except with the consent of the BIFR, any of its assets (a) during the period of preparation or consideration of the scheme under Section 18, and (b) during the period beginning with the recording of opinion by the BIFR for winding up of the company under sub-section (1) of Section 20 and up to commencement of the proceedings relating to the winding up before the High Court. 4.4. Chapter-IV, namely Sections 23 to 36, contains provisions relating to proceedings in case of potentially sick industrial companies, misfeasance proceedings, appeals and other miscellaneous matters. 4.5. From the perusal of the aforesaid provisions of the SIC Act, it is clear that the SIC Act makes a distinction between the role assigned to the BIFR in relation to a sick industrial company and in respect of a potentially sick industrial company, for which provisions are contained in Sections 23, 23-A and 23-B in Chapter-IV of the SIC Act. 4.6. It is obvious that the BIFR has been assigned a more active role in respect of sick industrial companies, in the sense that on receipt of reference under Section 15 or upon information received with respect to such a company or upon its knowledge about the condition of the company, the BIFR is required to make such inquiry as it may deem fit for determining whether an industrial company has become a sick industrial company and under Sections 16 and 17 the BIFR makes suitable order after completion of the inquiry and a scheme may be prepared and sanctioned in relation to a sick industrial company under Section 18 of the SIC Act. 4.7. Undoubtedly, the SIC Act provides for rehabilitation by way of financial assistance in Section 19 and express provision has been made in Section 22-A empowering the BIFR to direct a sick industrial company not to dispose of any of its assets except with the consent of the BIFR during the period mentioned therein. Of course, in respect of a potentially sick industrial company, the BIFR has been assigned a more limited role of requiring such a company to furnish periodic information as to the steps taken by the company to make its net worth exceed its accumulated losses. The BIFR is also required to appoint an operating agency, in the instant case, IDBI, to inquire into and make a report with respect to the matters specified in the order and on the basis of such report the BIFR may form its opinion that the company is not likely to become viable in future and that it is just and equitable that it should be wound up. Therefore, it is clear that the winding up of the sick industrial company should be opted as a last resort where the operating agency reports that it is not viable to revive or rehabilitate the sick industrial company. There is no provision even under Section 22-A of the SIC Act to impose a total ban on the power of a sick industrial company to dispose of a part of its assets and the only restriction is that the right of a sick industrial company to dispose of its assets is subject to the specific orders of the BIFR for the same under Section 22A of the SIC Act. In other words, making of a reference under Section 15 of the SIC Act, by itself, does not ipso facto attract any restriction on the right of a sick industrial company to dispose of its assets. A specific order, contemplated by the BIFR under Section 22A for disposing the assets of the Sick Industrial Company, can be passed after considering the matter in accordance with the provisions of Sections 16 and 17 of the SIC Act and framing a scheme under Section 18 of the SIC Act. 4.8. A Division Bench of the Allahabad High Court in U.P.S.S.CORPN. KARAMCHARI ASSOCIATION Vs. U.P.STATE SUGAR CORPN. LTD. (Civil Misc. Writ Petn. No.27998 of 1994, dated 9.12.1994) held as follows: "During the pendency of proceedings either under Section 16 or consideration of any scheme under Section 17, in the examination of the sickness of a sick industrial company, or, for that matter, a potentially sick industrial company within the meaning of Chapter IV, alienation of assets is not envisaged under the Act of 1985. Equity prohibits it. This is a rule of common sense and prudence that the substratum or the equity base of a company must not be reduced while a special statutory authority (the Board) examines the matter of industrial sickness. It is only this examination which permits the Board to come to a conclusion after having gone through the experience which is presented under the Act to either make arrangements for the rehabilitation of a company or to recommend winding up of a company, when the circumstances are such that the erosion of its assets is of no avail, implying thereby that the sickness is terminal and its death is imminent. The power of the Board to revive a company cannot be interfered with by alienation of its assets as that would tantamount to violation of the law, i.e., the Act of 1985." 4.9. However, the above view of the Division Bench of the Allahabad High Court in U.P.S.S.CORPN. KARAMCHARI ASSOCIATION case, referred supra, was rejected by the Apex Court, on appeal, in U.P.STATE SUGAR CORPN. LTD. Vs. U.P.S.S.CORPN. KARAMCHARI ASSOCIATION, reported in AIR 1995 SC 1484, holding as follows:- "We find it difficult to subscribe to this view. It runs counter to the express terms of Section 22-A of the Act which confers a limited power on the Board to pass an order prohibiting a sick industrial company from disposing of its assets only during the period specified in clauses (a) and (b). Except when the Board passes an express order in accordance with the provisions of Section 22-A, it is not possible to infer a limitation from the provisions of the Act on the right of a sick industrial company or a potentially sick industrial company to dispose of its assets. Insofar as a potentially sick industrial company is concerned, there appears to be no reason why such a company, in order to revive itself, should not be able to dispose of its assets. The High Court, in our opinion, was in error in holding that the Corporation was not competent to sell the 8 sugar mills which it was proposing to sell in view of the provisions contained in the Act. The judgment of the High Court cannot, therefore, be upheld