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2010 (1) TMI 575 - HC - Companies LawPreparation and sanction of schemes - issuance of a fresh advertisement was in the larger interest of transparency - Held that - BIFR appears to have proceeded on an incorrect premise and what was required was that the proposal of the existing management for continued management with the strategic investor infusing funds should have been explored on the merits taking into consideration the stand of the stakeholders. This has not been done by the BIFR. We feel such an exercise needs to be undertaken by the BIFR. We, thus, set aside the impugned order of the BIFR dated October 24, 2008 and of the AAIFR dated September 18, 2009, to the extent they direct an advertisement to be issued for change of management with the direction to the BIFR to examine the proposal of the existing management for infusion of funds through a strategic investor taking into consideration the interest of all the stakeholders and calling upon the stakeholders to take a stand in this behalf.
Issues:
1. Challenge to the orders of the AAIFR and BIFR regarding change of management and infusion of funds by a strategic investor. Analysis: The judgment involves two writ petitions challenging the same order of the AAIFR and BIFR. The first petitioner, a company before the BIFR since 1997, agreed to change management due to unsuccessful revival attempts. The respondent, a strategic investor, submitted proposals for management change and fund infusion. Disputes arose regarding fund infusion and management change, leading to the BIFR declaring the respondent's bid invalid for non-compliance. The BIFR's order was challenged before the AAIFR by the company, arguing that the strategic investor was only infusing funds, not taking over management. The AAIFR dismissed the appeal based on the presumption of a change in management, despite the company's undertaking that no such change was intended. The judgment further delves into the details of the strategic investor's proposal, emphasizing fund infusion against asset security to clear liabilities. The proposal did not entail a transfer of shares or participation in management. The court noted that stakeholders, including creditors and the operating agency, did not oppose the arrangement, indicating satisfaction. While the strategic investor initially agreed to the BIFR's order to refund funds with interest, the AAIFR's decision was based on a flawed presumption of management change, which the court found incorrect. The court highlighted the importance of stakeholder satisfaction and transparency in the process. It emphasized that in the absence of a change in management, the strategic investor's role was limited to fund infusion, aligning with the stakeholders' interests. The judgment differentiated this case from a previous case involving a change in management without BIFR approval and opposition from secured creditors. The court concluded that the BIFR erred in its approach and directed a reevaluation of the existing management's proposal for fund infusion with stakeholder input, setting aside the orders for a change in management advertisement. In conclusion, the court allowed the petitions, directing the BIFR to reassess the proposal for fund infusion without a change in management, considering stakeholder interests. The respondent was entitled only to the refund of funds with interest, emphasizing stakeholder satisfaction and transparency in the process.
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