2002 (2) TMI 1221 - HC - Companies Law

Issues Involved:
1. Declaration of UPSCCL as a Sick Industrial Company.
2. Rehabilitation and revival attempts.
3. State Government's role and response.
4. Workers' and unions' involvement.
5. Financial institutions and banks' claims.
6. Legal proceedings and objections.
7. Sale of assets and liquidation process.

Detailed Analysis:

1. Declaration of UPSCCL as a Sick Industrial Company:
The U.P. State Cement Corporation Ltd. (UPSCCL) was declared a Sick Industrial Company by the Board for Industrial and Financial Reconstruction (BIFR) on October 7, 1992. The Industrial Development Bank of India (IDBI) was appointed as the Operating Agency. Cemtech India was appointed to prepare a techno-viability report, which was submitted in July 1994. As of March 31, 1994, the accumulated losses of UPSCCL were Rs. 319.81 crores against the share capital and reserves of Rs. 68.29 crores.

2. Rehabilitation and Revival Attempts:
The company did not submit any rehabilitation proposal or comments on the report submitted by Cemtech. Consequently, BIFR directed the company to submit an alternative revival plan. Despite several opportunities, no comprehensive proposal was received from the State Government or the workers. Various attempts, including advertisements for change in management and fresh advertisements, were made to locate resourceful parties, but no viable proposals were received. Eventually, BIFR formed a prima facie opinion that the company was not likely to make its net worth positive within a reasonable time and issued a show-cause notice for winding up on November 18, 1996.

3. State Government's Role and Response:
The State Government requested further time to constitute a Committee, but no comprehensive rehabilitation proposal was received. The accumulated loss increased to Rs. 380 crores. The State Government's efforts to privatize the corporation in 1991 also failed. The State Government's affidavit detailed the reasons for the company's financial losses and emphasized that it was not in a position to invest further funds. Despite this, the State Government published advertisements inviting tenders for the takeover of the cement plants, resulting in a single valid offer from Grasim Industries Ltd.

4. Workers' and Unions' Involvement:
The Cement Workers Union and other trade unions challenged the orders of BIFR and AAIFR. They filed objections to the winding-up of the company, which were considered by the Court. The Court concluded that the opinion of BIFR did not suffer from any illegality and directed the winding up of the corporation. The workers' union emphasized the need for payment of dues and prioritized the payment to workers in case of asset sales.

5. Financial Institutions and Banks' Claims:
Allahabad Bank and State Bank of India, as secured creditors, filed claims against UPSCCL. The banks objected to the State Government's application for the sale of assets to Grasim Industries Ltd., emphasizing their secured status and the need for their claims to be settled. The court considered the banks' objections and the legal provisions under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the Companies Act, 1956.

6. Legal Proceedings and Objections:
The court examined the objections raised by the banks and other parties. It was noted that the claims of the banks had not been adjudicated, and the sale of assets by the official liquidator would not affect the banks' rights. The court emphasized the need for transparency and wider publicity for the sale of assets, including global tenders.

7. Sale of Assets and Liquidation Process:
The court directed the official liquidator to take steps for the sale of assets, forming a committee for the sale process. The sale was to be conducted through public offers and sealed tenders, with a reserve price set at Rs. 271 crores. The court outlined the procedure for the sale, including the requirement for earnest money deposits and the terms for payment of the sale consideration. The official liquidator was instructed to explore the possibility of selling the assets as a whole or in parcels, with the approval of the court.

Conclusion:
The judgment comprehensively addressed the issues related to the declaration of UPSCCL as a Sick Industrial Company, the rehabilitation attempts, the role of the State Government, the involvement of workers and unions, the claims of financial institutions and banks, and the legal proceedings and objections. The court provided detailed directions for the sale of assets and the liquidation process, ensuring transparency and fairness in the proceedings.

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