2001 (11) TMI 949 - HC - Companies Law

Issues Involved:
1. Jurisdiction under Article 226 of the Constitution of India.
2. Validity of AAIFR's order reversing BIFR's decision.
3. Determination of a company's status as a "sick industrial company" under SICA.
4. Allegations of dishonest practices and manipulation of accounts by the petitioner company.

Detailed Analysis:

1. Jurisdiction under Article 226 of the Constitution of India:
The petitioner invoked the jurisdiction of the High Court under Article 226 of the Constitution, seeking a writ of mandamus to quash the AAIFR's order that reversed BIFR's decision. The High Court emphasized that its writ jurisdiction is supervisory and not appellate, and it should not interfere unless the lower authority's decision is palpably unsustainable, unsupported by evidence, or perverse.

2. Validity of AAIFR's Order Reversing BIFR's Decision:
The AAIFR reversed BIFR's order, which had declared the petitioner company as a "sick unit" and appointed Bank of Baroda as the Operating Agency. The AAIFR found that the accounts of the petitioner company were fabricated and manipulated, indicating dishonest practices. The High Court upheld AAIFR's decision, noting that AAIFR had the authority to make such determinations and that its findings were based on substantial evidence, including reports from three firms of Chartered Accountants.

3. Determination of a Company's Status as a "Sick Industrial Company" under SICA:
The petitioner company argued that BIFR had correctly declared it as a "sick industrial company" under SICA, based on its financial statements and balance sheets. However, AAIFR found significant discrepancies and manipulations in the accounts, such as the disappearance of goods worth Rs. 37.08 crores and a decline in yield from 42% to 33%, indicating siphoning of funds. The High Court agreed with AAIFR's conclusion that the company's balance sheet was fabricated and did not reflect its true financial position.

4. Allegations of Dishonest Practices and Manipulation of Accounts by the Petitioner Company:
AAIFR found that the petitioner company had engaged in large-scale diversion and siphoning of funds to relatives, individuals, and sister concerns for purposes other than the company's business. The High Court noted AAIFR's detailed findings, including the manipulation of accounts to show negative net worth and the use of fictitious sales with doubtful receivables. The High Court concurred that SICA's provisions are not meant to rescue companies involved in such dishonest practices.

Conclusion:
The High Court dismissed the petition, upholding AAIFR's order that rejected the reference made by the petitioner company under SICA. The Court emphasized that SICA is not intended to protect companies engaging in fraudulent activities and that AAIFR had acted within its jurisdiction and authority in making its determinations. The petition was dismissed with no order as to costs.

← Previous Next →