2001 (3) TMI 917 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the orders passed by AAIFR and BIFR.
2. Applicability and interpretation of sections 15, 16, 17, and 18 of the Sick Industrial Companies (Special Provisions) Act, 1985.
3. Requirement for the Operating Agency to frame a rehabilitation scheme.
4. Jurisdiction and scope of judicial review under articles 226 and 227 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Legality of the Orders Passed by AAIFR and BIFR:
The petitioner challenged the orders dated 14-3-2000, 21-5-1998, and 5-8-1999, passed by AAIFR and BIFR, respectively. The BIFR declared the petitioner a sick company and appointed IDBI as the Operating Agency (O.A.) to formulate a rehabilitation scheme. However, BIFR later observed that the company was no longer viable and recommended winding up, which was confirmed by AAIFR. The petitioner argued that the course adopted by BIFR and AAIFR was not legal and proper, as winding up should be the last resort.

2. Applicability and Interpretation of Sections 15, 16, 17, and 18 of the Sick Industrial Companies (Special Provisions) Act, 1985:
The court examined the provisions of sections 15, 16, 17, and 18 of the Act. Section 15 mandates the Board of Directors of a sick industrial company to make a reference to BIFR. Section 16 allows BIFR to inquire into the working of sick industrial companies. Section 17 empowers BIFR to make suitable orders on the completion of the inquiry, including directing the O.A. to prepare a rehabilitation scheme. Section 18 deals with the preparation and sanction of schemes by the O.A.

3. Requirement for the Operating Agency to Frame a Rehabilitation Scheme:
The petitioner contended that once an order under section 17(3) was passed, the O.A. had no option but to frame a scheme. The court referred to the case of Upper India Couper Paper Mills Co. Ltd. v. AAIFR, which suggested that the O.A. must prepare a scheme or file an application for review if it was not feasible. However, the court clarified that it is not an absolute requirement for the O.A. to frame a scheme if it is not viable or feasible. The BIFR can consider the matter and pass necessary orders based on the overall financial condition of the company.

4. Jurisdiction and Scope of Judicial Review under Articles 226 and 227 of the Constitution of India:
The court emphasized that the jurisdiction under articles 226 and 227 must be sparingly exercised and is primarily to correct errors of jurisdiction and the like, not to upset pure findings of fact. The court outlined the conditions under which judicial review can be exercised, such as erroneous assumption or excess of jurisdiction, refusal to exercise jurisdiction, error of law apparent on the face of the record, violation of principles of natural justice, arbitrary or capricious exercise of authority, and arriving at a finding which is perverse or based on no material.

Conclusion:
The court concluded that the authorities had dealt with the matter in great detail and analyzed the background materials on record. The conclusions of BIFR and AAIFR did not suffer from any infirmity, and there was no scope for interference under articles 226 and 227. The writ petition was dismissed as it did not meet any of the conditions warranting judicial review.