2000 (7) TMI 847 - HC - Companies Law

Summary

Issues:
1. Compliance with mandatory requirements of Regulations 21 and 40 of the BIFR Regulations, 1987.
2. Observance of principles of natural justice.
3. Effect of subsequent reference on earlier decision by BIFR and AAIFR.

Compliance with Regulations 21 and 40:
The petitioner filed an application before the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985. BIFR appointed IFCI as the Coordinating Agency, which was required to appoint a Chartered Accountant for conducting SIA and submit a report. The reports were received, and a final order was passed by BIFR stating that the petitioner was not a sick company. The matter was appealed before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR), where the petitioner argued non-compliance with Regulations 21 and 40. The AAIFR did not consider this aspect and upheld BIFR's decision on merits. The petitioner contended that legal deficiencies due to non-compliance with Regulations 21 and 40 could not be cured by considering the matter on merits. The court held that the BIFR failed to grant an opportunity to the affected party as required by the Regulations, thereby violating the principles of natural justice.

Observance of Principles of Natural Justice:
The court emphasized that natural justice is essential for fairness and reasonableness in legal proceedings. The Regulations mandate granting a reasonable opportunity for making submissions before using any information or report. The court noted that BIFR did not provide such an opportunity in this case, which is against the principles of natural justice. Non-observance of these principles can invalidate the exercise of power. The court highlighted that the purpose of following natural justice is to prevent miscarriage of justice and ensure fair play in action.

Effect of Subsequent Reference:
Regarding the effect of a subsequent reference on an earlier decision, the court referred to Section 22 of the Act, which suspends legal proceedings when an inquiry is pending. The court clarified that filing a reference for a subsequent period does not render an earlier reference invalid if it was improperly decided. The court emphasized that the earlier decision can still be challenged and quashed if it was made illegally. Therefore, the court allowed the writ petition, quashed the orders of BIFR and AAIFR, and directed BIFR to grant an opportunity to the petitioner in compliance with Regulations 21 and 40. The parties were required to appear before the BIFR for further proceedings to avoid unnecessary delays, with the court refraining from expressing any opinion on the merits of the case.