2001 (1) TMI 863 - HC - Companies Law

Summary

Issues Involved:
1. Challenge to BIFR and AAIFR orders recommending winding up.
2. Consideration of rehabilitation schemes under Section 391 of the Companies Act.
3. Adequacy of opportunities provided to petitioners for rehabilitation.
4. Jurisdiction and powers of the High Court in reviewing decisions of expert bodies like BIFR and AAIFR.
5. Impact of financial institutions' objections to rehabilitation schemes.
6. Interests of workers in the context of winding up.

Detailed Analysis:

1. Challenge to BIFR and AAIFR Orders:
The petitioners, Madhu Fabrics Ltd. and Madhu Textiles Ahmedabad Limited, challenged the orders dated 14-2-2000 by BIFR and 4-5-2000 by AAIFR, which recommended winding up under Section 20(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). BIFR opined that the petitioner companies were not likely to become viable and thus, winding up was just, equitable, and in public interest. AAIFR confirmed this order.

2. Consideration of Rehabilitation Schemes:
Both petitioners filed applications seeking directions to convene meetings under Section 391 of the Companies Act, 1956, to present rehabilitation schemes. Despite efforts, the schemes proposed were not accepted due to various hurdles, including financial difficulties and lack of sufficient job work. The petitioners argued that the publication of winding-up notices adversely impacted their ability to mobilize funds for rehabilitation.

3. Adequacy of Opportunities Provided:
The court noted that ample opportunities were given to the petitioners to submit workable rehabilitation proposals. Despite these opportunities, the petitioners failed to present a fully tied-up proposal or deposit the required funds. The BIFR's conclusion that the petitioners were not serious or resourceful enough to rehabilitate the companies was supported by the history of failed commitments and unmet obligations.

4. Jurisdiction and Powers of the High Court:
The court emphasized that it cannot sit as a Court of Appeal over the decisions of expert bodies like BIFR and AAIFR. The High Court's role is limited to judicial review, focusing on whether the decision-making authority exceeded its powers, committed an error of law, breached rules of natural justice, reached an unreasonable decision, or abused its powers. The court found no illegality or mala fide actions by BIFR or AAIFR warranting interference.

5. Impact of Financial Institutions' Objections:
Financial institutions, including IDBI, ICICI, and several banks, opposed the rehabilitation schemes, arguing that the petitioners failed to honor previous commitments and lacked a concrete, fully funded proposal. The court noted that the opposition of secured creditors, who are a distinct class, made it futile to direct the convening of meetings to consider the schemes.

6. Interests of Workers:
While acknowledging the importance of workers' interests, the court observed that the number of re-employed workers was significantly lower than the original workforce. The court suggested that new management could re-employ the workers if the companies were taken over and revived. The court concluded that the interests of a few workers could not justify continuing the companies' operations in light of substantial outstanding dues to creditors.

Conclusion:
The court rejected the Special Civil Applications No. 5124 and 5125 of 2000, admitting Company Petitions No. 31 and 32 of 2000 for hearing. The Official Liquidator was appointed provisionally to take charge of the companies' properties, with specific directions for managing the companies' operations and finances until the hearing. The court also ordered the advertisement of the hearing in specified newspapers, with expenses borne by the Operating Agency. Company Applications No. 288 and 446 of 2000 were rejected.