2010 (2) TMI 598 - HC - Companies Law

Writ of mandamus to direct the respondents to implement the order of the BIFR dated January 22, 2007, in paragraphs 10(i), (ii), (iii ) of the sanctioned scheme as well as the proceedings dated February 16, 2009, in paragraph 12(c) and the clarification dated April 2, 2009 Held that - Compliance with the procedural formalities has been held to be mandatory. In that view of the matter without rendering any finding on the contentions raised by the respondents as regards the scope of the directions issued by the BIFR in clause 10 of the sanctioned scheme dated January 22, 2007, there will be a direction to the BIFR to take on file the letter submitted by the first respondent dated February 27, 2009 and issue notice to the petitioner as well as respondents Nos. 1 and 2 and afford them an opportunity of hearing and thereafter, pass appropriate orders on the merits in accordance with law with regard to the directives which was issued in clause No. 10 of the scheme dated January 22, 2007. Considering the fact that the petitioner-company is in the path of revival and the conditions of the scheme have to be kept in force till June 2011, it is appropriate for the BIFR to decide the matter at the earliest preferably within a period of three months from the date of receipt of the copy of this order. It is needless to state that when the BIFR decides the issue, the question of limitation need not be insisted. Further, in order to expedite matters, the petitioner as well as the respondents are directed to forward one copy of the petition filed by the first respondent dated February 27, 2009, along with the copy of this order to the BIFR.

Summary

Issues Involved:
1. Implementation of BIFR's order regarding reduction of equity capital.
2. Compliance with statutory provisions and SEBI guidelines.
3. Jurisdiction and authority of BIFR to grant exemptions.
4. Procedural formalities and the necessity of hearing respondents.

Detailed Analysis:

1. Implementation of BIFR's Order Regarding Reduction of Equity Capital:
The petitioner, declared a sick industrial company by the BIFR, sought the implementation of the BIFR's order dated January 22, 2007, which included directives to reduce the company's equity capital by 50% without following sections 100 to 103 of the Companies Act, and without adhering to SEBI guidelines. The petitioner contended that the respondents failed to implement these directives despite clear instructions from the BIFR.

2. Compliance with Statutory Provisions and SEBI Guidelines:
The BIFR's order also included exemptions from various statutory provisions, including sections 81(1A), 295, 372A of the Companies Act, and SEBI regulations. The respondents argued that the BIFR's directives could not override the statutory requirements and SEBI guidelines, emphasizing that compliance with these regulations is mandatory to protect public interest.

3. Jurisdiction and Authority of BIFR to Grant Exemptions:
The respondents contended that the BIFR lacked the authority to exempt the petitioner from statutory provisions and SEBI regulations without due process. They argued that such exemptions could not be granted without issuing notice and providing an opportunity for a hearing. The court noted that the BIFR's positive directives should have considered the respondents' statutory powers and public interest.

4. Procedural Formalities and the Necessity of Hearing Respondents:
The court highlighted the importance of procedural formalities and the necessity of hearing the respondents before issuing directives. It was noted that the BIFR's rehabilitation scheme aimed to make the sick company viable, and the respondents should have been heard to ensure compliance with statutory and regulatory requirements. The court referred to the Pentamedia Graphics Ltd. case, emphasizing that compliance with procedural formalities is mandatory for listing shares and protecting public interest.

Conclusion:
The court directed the BIFR to consider the letter from the first respondent dated February 27, 2009, issue notices to all parties, and provide an opportunity for a hearing before passing appropriate orders regarding the directives in clause 10 of the sanctioned scheme. The BIFR was instructed to decide the matter within three months, ensuring that procedural formalities are followed and public interest is protected. The writ petition was disposed of with these directions, without any order as to costs.