Reportable IN THE HIGH COURT OF DELHI AT NEW DELHI WP (C) No. 7272 of 2007 Reserved on : November 12, 2007 Pronounced on : January 18, 2008 # M/s. Hargreaves Investments Ltd .....Petitioner ! through : Mr. K.G. Raghavan, Sr. Advocate with Ms. Joshna Samual, Mr. Christopher and Mr. Rahul Sharma, Advocates VERSUS $ The Appellate Authority for Industrial & ..... Respondents Financial Reconstruction & Ors. ^ through : Mr. Rajiv Nayyar, Sr. Advocate with Ms.Manisha Dhir, Advocate for the respondent No.3. Mr. Parag Tripathi, Sr. Advocate with Ms. Vismai Rao, Advocate for the respondent No. 5. Mr. Arvind Nigam with Ms. Priya Kumar, Advocates for respondent No. 6. CORAM :- * THE HON'BLE MR.JUSTICE A.K.SIKRI THE HON'BLE MR. JUSTICE VIPIN SANGHI 1. Whether Reporters of Local papers may be allowed to see the Judgment? 2. To be referred to the Reporter or not? 3. Whether the judgment should be reported in the Digest? A.K. SIKRI, J. 1. The Petitioner has filed this Writ Petition under Article 226 of the Constitution of India seeking a writ of certiorari for quashing the order dated 24th September 2007 passed by Appellate Authority for Industrial and Financial Reconstruction, New Delhi (AAIFR) in Appeal No.194 of 2002 along with MA No. 116/2007 dated 24th September 2007 and the order dated 10th October WP (C) No. 7272/2007 nsk Page 1 of 24 2006 passed in MA No.210/2006. The effect of these orders is that the land of the Respondent No.3 Sick Company admeasuring about 205 Acres in Khapoli, Maharashtra as been permitted to be sold to Respondent No.5 for an amount of Rs.18 crores, and the application of the petitioner for recall of the said permission has been dismissed. The Petitioner also seeks direction to the AAIFR to accept the bid of Rs.28 crore or in the alternative direct the sale of the said land at Khapoli in District Raigarh, Maharashtra to be carried out in transparent manner by following the procedure prescribed by law. 2. To appreciate the controversy raised in this petition the necessary facts may first be stated. Respondent No. 3, Reliance Silicones (I) Pvt. Ltd. (hereinafter referred to as 'the company') is an industrial company engaged in the business of, inter alia, manufacture and sale in India and abroad of various chemicals, generally called 'silicones'. Respondent No. 3 became a sick company. Its case was referred to Board for Industrial Financial Reconstruction and was registered as Case No.30/1996. The AAIFR sanctioned a revival scheme of the company on 29th August 2000 stipulating the settlement of dues of secured creditors, i.e. IDBI, UTI and Central Bank of India (CBI) in the following manner under a one time settlement (OTS) :- IDBI : 10.52 crore UTI : 1 crore CBI : 19.33 crore 3. The aforesaid three financial institutions had a charge over one of the assets of the company situated at Vashi, Maharashtra. The company settled the dues of IDBI and UTI in full and also paid an amount of Rs.15.72 crore to CBI. However, since the WP (C) No. 7272/2007 nsk Page 2 of 24 entire amount under the settlement was not paid to CBI, disputes emerged regarding the payment terms and settlement. The CBI proceeded to walk out of the settlement, which was objected to by the company. The BIFR vide its order dated 5th April 2002 restrained CBI from canceling the OTS unilaterally since the company had already made substantial payments. Aggrieved by the aforesaid order of BIFR dated 5th April 2002, CBI preferred appeal No.194/2002 before the AAIFR claiming the entire principal alongwith the interest and damages. 4. During the pendency of the aforesaid appeal, the company entered into negotiations with CBI. CBI agreed to accept an amount of Rs.4.75 crore in full and final settlement of its dues (apart from the amount of Rs.15.72 crore already received by it). The company was the owner of vast tracks of land ad-measuring about 205 acres situated at Khapoli in the State of Maharashtra. It appears that this land was also given a security to other secured creditors namely, Bombay Mercantile Cooperative Bank Ltd., PEN Cooperative Urban Bank Ltd. and UTI Bank Ltd. While the appeal was pending, the company, while negotiating with the CBI, as aforesaid, identified a buyer namely M/s. Karma Infrastructure & Development Company (KIDC), who are Respondent No. 5 herein, for a sale of its aforesaid asset at Khapoli for a total sale consideration of Rs.18.45 crore. The manner of distribution of aforesaid amount of Rs.18.45 crores was mutually agreed between the company and the respondent No. 5 was as follows: CBI, Respondent No. 4 Rs.4.75 crore Bombay Mercantile Cooperative Bank Ltd., Respondent No. 8 Rs.5.60 crore WP (C) No. 7272/2007 nsk Page 3 of 24 PEN Cooperative Urban Bank Ltd., Respondent No. 9 Rs.2.75 crore UTI Bank Ltd, Respondent No. 7 Rs.4.00 crore 5. The aforesaid amounts were to be paid to CBI, (Respondent No. 4), Bombay Mercantile Cooperative Bank Ltd., (Respondent No. 8) and PEN Cooperative Urban Bank Ltd., (Respondent No. 9) in full and final settlement of their dues, whereas the amount to be paid to the UTI Bank Ltd. of Rs.4 crore was in settlement of the dues of UTI Bank Ltd. from out of the said property at Khapoli. Apart from the aforesaid amounts, Respondent No. 5 had also advanced a sum of Rs.15 lakhs to the company. The company and the respondent No.5 entered into a Memorandum of Understanding (MOU) dated 7th September 2006, wherein, inter alia, the aforesaid terms were recorded. This Memorandum of Understanding was subject to, inter alia, the consent and permission being granted by AAIFR/BIFR for the sale and transfer of the said property. 6. After entering into the aforesaid MOU, the company moved to AAIFR by filing M.A.No. 210/2006 in the aforesaid appeal of the CBI, whereby it sought permission from AAIFR to sell its land situated at Khapoli for making payment of dues to CBI, Bombay Mercantile Cooperative Bank Ltd. and PEN Cooperative Urban Bank Ltd. It appears that the aforesaid MOU was not placed before the AAIFR when the aforesaid application being MA No.210/2006 was filed by the company. It also appears that before the AAIFR Respondent No. 3/company represented that the land at Khapoli was proposed to be sold to Respondent No. 5 for an amount of Rs.18 crore (as opposed to Rs.18.45 crores as agreed under the Memo of Understanding). In its order dated WP (C) No. 7272/2007 nsk Page 4 of 24 10th October 2006, the AAIFR while allowing the said application of the company recorded the arrangement proposed by it and the secured creditors as follows: “At a result of these simultaneous efforts launched by the applicant company the following results have taken place: i) under its letter dated 25.8.2006 CBI has arrived at afresh OTS of Rs.475 cr with interest @ BPLR to be paid within a period of one month from the date of sanction. ii) BMCBL under its letter dated 7.8.2006 have agreed to: a) the sale of Khapoli land; b) and settlement of their dues of Rs.560 crores. iii) PCBL have agreed to the same and has agreed for the settlement of its dues of Rs.275 crores. iv) UTI Bank under its letter dated 4.9.2006 has: a) given its no objection to the sale; b) agreed to accept an mount of Rs.4 crores out of the sale of the land and the creation of a charge on the Vashi Plant. This new charge will be created once the charge thereon is released by CBI which will take place once the above stated payment is effected. v) A company called M/s. Karma Infrastructure and Development Company has been identified which will buy the land for an amount of Rs.18 crores. This 18 crore therefore shall be distributed as follows: Details of payments Amounts (Rs. In crores) Central Bank of India 4.75 Bombay Mercantile Cooperative Bank Ltd. (BML) 5.60 PEN Cooperative Urban Bank Ltd. 2.75 UTI Bank Ltd. 4.00 To vendors for claim of land (farmers) 0.90 Total 18 crores” 7. Respondent No. 5 thereafter proceeded to pay the amounts due WP (C) No. 7272/2007 nsk Page 5 of 24 under the settlement to CBI, Bombay Mercantile Cooperative Bank Ltd., PEN Cooperative Urban Bank Ltd. in full and final settlement of their respective claims and an amount of Rs.4 crores to UTI in terms of the settlement reflected in the memorandum of understanding. Respondent No. 5 also paid further amounts in discharge of liabilities of Sales Tax and dues of the workman of the company. According to Respondent No. 5, as opposed to an amount of Rs.18 crores payable by it (as represented before the AAIFR), it had paid the following further amounts, thereby making a total amount of Rs.21,80,42,180/- :- 5. Sales Tax Dues 2,00,00,000 6. Labour dues to Maharashtra Rajya Rashtriya Kamgar Sangh 85,00,000 7. Respondent No. 3 15,00,000 8. Legal expenses of Respondent No. 3 23,00,000 9. Miscellaneous Expenses 22,50,000 8. We may at this stage itself note that as per the impugned order of the AAIFR, the total amount claimed to have been paid by Respondent No. 5 for the land came to Rs.23.36 crores, which is now computed as Rs.21,80,452,180. 9. While the aforesaid transaction was in the process of being completed, the Petitioner, it appears, came as a bolt from the blue and moved the AAIFR by filing M.A.No.116/2007 claiming itself to be a shareholder of the company to the extent of over 49% shares and seeking recall of the order of the AAIFR dated 10th October 2006 whereby the AAIFR had permitted the sale of the property of the company at Khapoli to Respondent No. 5. The Petitioner stated that it had procured an offer for purchase of the said land at much higher price. While entertaining the WP (C) No. 7272/2007 nsk Page 6 of 24 Petitioner's application which was moved on or about 22nd March 2007, the AAIFR did not stay its earlier order dated 10th October 2006 as aforesaid. The Petitioner aggrieved by the refusal to stay its order dated 10th October 2006 by the AAIFR filed W.P. (C) No. 2594/2007 seeking quashing of the said order dated 10th October 2006 with further directions to AAIFR to consider the offers made by third parties for the property at Khapoli and for a hearing before the AAIFR as a shareholder. 10. The aforesaid Writ Petition came up for hearing on 4th April 2007 and was disposed of on that day. The relevant extract of the order reads as follows :- “The main plank of the submissions of Mr. P.V. Kapur, learned senior counsel is that the said sale is sought to be completed without proper valuation of the land in auction being held and is, therefore, detrimental and prejudicial to the interests of the company as it does not secure for the company the realizable value of the assets. He also questions the jurisdiction of AAIFR to have passed the impugned order. Mr. Kapur states that the petitioners have buyers, who are willing to purchase the said lands for a sum of Rs.28 crores and are willing to make good this offer. Learned counsel for respondent No.3 Ms.Manisha Dhir raised a number of objections to this submission and submitted that it was a malafide attempt to subvert the transaction, which already stood completed inasmuch that after the agreement, the entire amount of Rs.18 crores had been received and paid to the various creditors including the Central Bank of India (CBI)(Rs.4.77 crores), Bombay Mercantile Cooperative Bank (BML) (Rs.5.60 crores), Pen cooperative Bank Ltd. (Rs.2.75 crores), UTI Bank Ltd. (Rs.4.00 crores) and an additional sum of Rs.4.17 crores had also been paid to the Sale Tax Authority for obtaining the 'No Objection Certificate” for the sale. Another sum of Rs.85-90 lacs has been paid to the workers. Therefore, she submits, that the entire sale consideration has been received and directly paid to the creditors bank. In these circumstances, the proposal is a belated one and being made malafide only to subvert the completion of transaction and the plans of the respondent No.3 company to come back on rails. As regards the completion of transaction, counsel for the petitioner has stated that only possession of about 40 acres appears to have been handed over while possession of remaining land has not been handed over. WP (C) No. 7272/2007 nsk Page 7 of 24 Besides, no Conveyance Deed has been executed till date. Counsel for the petitioner also places reliance on “Divya Manufacturing Company (Pvt.) Ltd. Vs. Union Bank of India & Ors.” reported at (2000) 6 SCC 69 in support of the contention that intervention by the Court could be made even at the stage of confirmation of sale or beyond that when required in the public interest or in the interests of company. Learned counsel for respondent No.3 submits that the said authority would not be applicable and she fully supports the order passed by the AIIFR. Petitioner, it was contended had deliberately not impleaded the purchaser M/s Karma Infrastructure Development Co. The appeal is stated to be pending before the AAIFR and is listed on 17th April, 2007 including the application for impleadment. We do not, at this stage, wish to express any opinion on the rival contentions urged before us. The question which the Court is presently considering is the prayer made by the petitioner for preserving and utilization of the assets, to the advantage of the company in the meanwhile. Learned counsel for the petitioner has urged that the offer made by the petitioner is a bona fide one and there should really be no objection to a higher offer being accepted in the interests of the company and which was for the benefit of all. Petitioner states that within one week from today, they would deposit a sum of Rs.28 crores vide a bank draft with the AAIFR to demonstrate the bona fide nature of their offer. In view of the foregoing and having considered the facts and circumstances as noted above, we are of the view that status quo be retained with regard to the sale of the said lands and assets till 11th April, 2007 when the petitioner has undertaken to make the deposit of Rs.28 crores with the AAIFR. We make it clear that in case Rs.28 crores are deposited on or before 4.00 p.m on 11th April 2007, the present order of status quo shall automatically stand vacated, without reference to the Court. The order passed today would not come in the way of the AAIFR dealing with the matter on merits and passing appropriate orders after hearing the parties. The writ petition stands disposed of with the above directions.” 11. Consequently, the petitioner was permitted to deposit an amount of Rs.28 crore with the AAIFR within one week, i.e. by the 11th of April 2007. On 11th April 2007, the Petitioner tendered before the AAIFR a Bankers' Draft bearing No.604052 drawn on HDFC Bank for Rs.28 crores, drawn in favour of AAIFR. The Petitioner in its forwarding letter, inter alia, stated as follows :- WP (C) No. 7272/2007 nsk Page 8 of 24 “It is respectfully submitted that the enclosed Bankers Draft may be encashed simultaneously with the handing over of the possession of land and execution and registration of Conveyance Deed in respect of the total extent of land (ad measuring approx. 205 acres) owned by M/s. Reliance Silicones (I) Pvt. Ltd. and situated at Khapoli in Maharashtra. We would request that the aforesaid process may be kindly expedited.” 12. The matter was taken up by the AAIFR on 25th June 2007 when the following order was passed by it: “Heard the parties. In pursuance of Hon'ble Delhi High Court's order dated 4.4.2007 in writ petition 2594 of 2007 filed by M/s.Hargreaves Investment Ltd., a deposit of Rs.28 crore by a Banker's Draft No.604052 dated 11.4.2007 was received on behalf of the prospective buyer identified by M/s. Hargreaves Investment Ltd for the purchase of the Khapoli land (205 acres) owned by M/s. Reliance Silicones (I) Pvt. Ltd. 2. AAIFR does not have a Bank Account. Keeping in view the need to prevent loss of interest by consent of the parties we return the Bankers Draft dated 11.4.2007 for Rs.28 crore received from Law Consult Advocates of M/s.Hargreaves Investment Ltd. and direct that the said amount be kept in HDFC Bank Kailash Building, Delhi in a separate interest bearing Escrow Account within one week from the date of this order in the name of M/s. Hargreaves investment Ltd.: - AAIFR – M/s. Reliance Silicones (I) Pvt. Ltd. without prejudice to the parties. We further direct M/s. Hargreaves investment to give an undertaking while opening the Escrow Account that the said amount shall not be withdrawn till a final decision is taken in Appeal 194/02 and MA 116/2007. 3. M.A. No.20/07 is filed by M/s. Vinod Trading Corporation, M.A. No. 116/07 is filed by M/s. Hargreaves investment Ltd. Both these M.A.s were admitted on 20.4.2007. 4. M.A. No. 163/07 and M.A. No. 169/07 filed by Karma Infrastructure and Development Company for direction/impleadment and M.A. No. 233/07 filed by M/s. Achintya Exports (P) Ltd. the prospective buyer of Khapoli Asset are admitted, without prejudice to the rights and contentions of any of the parties. 5. The main appeal No.194/02 alongwith M.A. No. 20/07, 116/07, 163/07, M.A. No. 169/07 and M.A. 233/07 will be heard on 24.7.07.” 13. The Petitioner moved M.A. No.299 of 2007 before the AAIFR to seek extension of time frame for compliance of AAIFR order dated 25th June 2007 by further period of two weeks effective WP (C) No. 7272/2007 nsk Page 9 of 24 from 2nd July 2007. The Petitioner had sought extension of time on the ground that on account of the heavy rains in Mumbai, it had not been possible for the Petitioner to open the Escrow account as earlier directed by AAIFR. This application was taken up by AAIFR on 6th July 2007. In the course of the hearing, it was informed to AAIFR that the amount of Rs.28 crores was now lying deposited in the account of the proposed buyers and that there was no loss of interest. The AAIFR consequently, disposed of M.A.No.299/2007 which, inter alia, read as under :- “The Ld. Counsel for the applicant confirmed that the money is now in the account of the proposed buyer and that there is no loss of interest. Since the main appeal 194/02 filed by Central Bank of India is listed for 24.7.2007, we do not consider it necessary to pass any order in the M.A. The M.A.No.299/2007 thus stands disposed of.” 14. Thereafter, the appeal was heard by the AAIFR on different dates and parties also filed written synopsis of their arguments. The AAIFR has vide impugned orders dated 24.9.2007 dismissed the MA No. 116/2007 and disposed of the appeal holding that sine the High Court in its order dated 4.4.2007 had not set aside the earlier order dated 10.10.2006 passed by the AAIFR, there was no question to reconsider the same as AAIFR does not have the power under SICA to review its own orders. The perusal of the impugned judgment would further indicate that the AAIFR has, inter alia, taken the view that – (i) it did not have the power to review its own orders; (ii) that the applicant/petitioner has failed to show that the price offered by M/s. Karma Infrastructure & Development Company was unreasonable; (iii) that the petitioner, as a shareholder, had no locus to challenge the order permitting the sale; and (iv) that there was no infirmity in the WP (C) No. 7272/2007 nsk Page 10 of 24 order and that the applicant/ petitioner had not deposited the sum of Rs.28 crores in terms of the orders dated 4.4.2007 passed by this Hon'ble Court. The AAIFR, accordingly, dismissed MA No. 116/2007 as devoid of merits. Further, appeal No. 194/2002 was disposed of in terms of the settlement arrived at between the company and the Central Bank of India. 15. Assailing this order the present writ petition is preferred by the petitioner. The main thrust is that the order dated 10.10.2006 was obtained by fraud, suppression of facts and that there was no transparency as required under SICA for sale of the properties of the Sick Company. No valuation was carried out; public auction was not conducted and the offer of M/s. Karma Infrastructure and Development Company was not the market value of the property. It was also contended that the order dated 10.10.2006 should be reviewed in view of the orders passed by this Court and in order to secure the highest offer for the company in order to benefit the revival scheme of the Sick Company and its creditors. Further, the petitioner's offer being Rs.10 crores above the offer of the prospective buyer, the same should have been accepted. It is also stressed that if the sale, as permitted under the order dated 10.10.2006, is allowed to take place, the Sick Company would be bound to sell its valuable assets by way of distress sale which would be detrimental to the interest of the Sick Company, its creditors and shareholders thereby affecting the implementation of the Sanctioned Scheme and causing losses to the Sick Company to the tune of almost Rs.10 crores, notwithstanding the fact that the petitioner, being the largest shareholder, would be deprived from participating in WP (C) No. 7272/2007 nsk Page 11 of 24 the decision-making of the Sick Company, more particularly with regard to proper implementation of the rehabilitation scheme, keeping in mind the interest of the company, its creditors, shareholders, labour etc. 16. The respondent Nos. 3 & 5 have contested this writ petition, whereas respondent No.6, namely, M/s. Achantya Exports Pvt. Ltd., has supported the case of the petitioner by joining the prayer for setting aside of the sale in question. 17. Before addressing the core issue, we may take note of some of the preliminary submissions raised by the respondent Nos. 3 & 5 to the maintainability of this petition. In the first instance, it is stated that there was inordinate delay on the part of the petitioner in approaching the AAIFR for relief, which would show that the petitioner is not interested in the revival of the respondent No.3 company and this petition lacks bona fide and is opportunistic. In this behalf, it is contended that the company was declared a sick industrial unit on 27.8.1996. The petitioner who claims to have become a shareholder of the company in or around the year 2003 did not take any steps for the revival or the rehabilitation of the company though it had been going through severe financial crisis and was under liabilities of several secured creditors, sales-tax authorities and its employees. It is also pointed out that the respondent No.5 had issued public notices in Economic Times and Free Press Journal on 3.1.2007 and in a Marathi newspaper, Ratnagiri Times (Taigad) on 5.1.2007, but no objections whatsoever were received from the petitioner in response to those notices. According to the respondent No.5, this shows that the petitioner WP (C) No. 7272/2007 nsk Page 12 of 24 had been waiting behind the scene as a masked phantom for the respondent no. 5 to work the sanctioned scheme, settle and clear the dues and the encumbrances affecting the larger land by holding several rounds of meetings, negotiations and discussions with banks and financial institutions and expending considerable time, effort, money and energy. After that is achieved with considerable efforts, the petitioner is now trying to piggy back on the efforts made by the respondent No.5 in making the title of the larger land clear and marketable and free from encumbrances. It is also submitted that the respondent No.5 is the bona fide purchaser of the land and in the aforesaid backdrop this Court should not interfere with the order passed by