2000 (8) TMI 997 - HC - Companies Law

Summary

Issues Involved:
1. Determination of whether the petitioner is a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Analysis of factual aspects by AAIFR regarding the petitioner's financial status and alleged destruction of goods.
3. Examination of the appeal's timeliness and the right of an unsecured creditor to file an appeal.
4. Validity of AAIFR's rejection of the application for withdrawal of the appeal.

Detailed Analysis:

1. Determination of whether the petitioner is a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985:
The petitioner challenged the order dated 26-5-2000 by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR), which held that the petitioner is not a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985. The Board for Industrial and Financial Reconstruction (BIFR) initially concluded that the petitioner was a sick company, noting significant losses primarily due to high interest expenses, bad debts, and expired/soiled goods. However, AAIFR found that the petitioner manipulated records to present a bleak financial picture and highlighted several irregularities, including the destruction of goods without proper documentation or notification to creditor banks.

2. Analysis of factual aspects by AAIFR regarding the petitioner's financial status and alleged destruction of goods:
AAIFR identified various discrepancies and manipulations in the petitioner's records. It noted that the petitioner claimed destruction of expired goods without notifying the creditor banks, which was unusual for a prudent person. The certificate provided by the petitioner did not include essential details such as batch numbers, dates of manufacture, and expiry dates. AAIFR also found the destruction of a large quantity of drugs in one day to be improbable. The provision for bad debts was also scrutinized, revealing an unusual increase in bad debts without corresponding sales figures. AAIFR concluded that the petitioner's accounts were falsified and fabricated to claim sickness.

3. Examination of the appeal's timeliness and the right of an unsecured creditor to file an appeal:
The petitioner argued that the appeal was barred by limitation and that an unsecured creditor had no right to file an appeal. However, AAIFR noted that the appeal was filed within the permissible period, considering the date when the certified copy was issued. Section 25 of the Act allows any person aggrieved by an order of the Board to file an appeal within forty-five days, extendable to sixty days for sufficient cause. The court found that the appeal was filed within time and that an unsecured creditor could file an appeal if aggrieved by the order.

4. Validity of AAIFR's rejection of the application for withdrawal of the appeal:
The petitioner contended that AAIFR should have allowed the withdrawal of the appeal, referencing an order by this Court. However, AAIFR rejected the withdrawal application, stating that after exposing fraud and falsification in the petitioner's accounts, it was not open for the appellant to withdraw the appeal. The court found no infirmity in AAIFR's decision, noting that the reasons provided were valid and justified.

Conclusion:
The High Court dismissed the writ petition, finding no merit in the petitioner's arguments. The conclusions by AAIFR were based on a detailed analysis of the factual aspects, and there was no scope for interference under articles 226 and 227 of the Constitution of India. The court upheld AAIFR's findings on the manipulation of records, the improbability of the claimed destruction of goods, and the provision for bad debts. The appeal was filed within the permissible period, and the rejection of the withdrawal application by AAIFR was justified.