2008 (12) TMI 407 - HC - Companies Law

Winding up challenged - rehabilitation proposal denied - Held that - The learned single judge should not have formed the opinion that the finding recorded by the BIFR has been confirmed by the Appellate Authority, has become conclusive and thus this court does not require any interference , cannot be said to be justified. As we have discussed above, that several documents have been filed by the appellant-company in order to show that the numerous creditors of the appellant-company have been settled with and their dues liquidated in full, hence it would be just and proper to direct the Board to reconsider the matter afresh and if the financial position of the company has improved then this factor should be taken note of by the Board. The Board would accordingly reconsider the matter. If the Board comes to the conclusion that the company still requires to be subjected to winding up proceeding, then the Board shall also consider that the dues pertaining to the employees/workmen of the company are settled in full. The Board shall also reconsider the matter with regard to this fact as to whether the financial position of the company has improved. However, possession with regard to the property of the company will remain with the official liquidator till the matter is finally disposed of by the Board. After the matter is finally decided by the Board, if the Board comes to the conclusion that pos session should be delivered to the company in the interest of the parties, then it will be open for the Board to decide this question without seeking further direction from this court in this regard.

Issues Involved:
1. Viability of the company for rehabilitation.
2. Compliance with the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
3. Settlement with creditors and financial institutions.
4. Proper consideration of rehabilitation efforts and proposals by the company court.
5. Role and decision-making authority of the Board for Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR).
6. Legal principles regarding winding up of a company based on BIFR's recommendation.

Detailed Analysis:

1. Viability of the Company for Rehabilitation:
The learned company judge concluded that the viability of the company for rehabilitation could not be looked into by the court, as it was already covered by the BIFR and affirmed by the appellate court. However, this finding was challenged based on the Supreme Court's decision in V. R. Ramaraju v. Union of India, which held that the High Court must consider the opinion of BIFR but not abdicate its own function of determining the question of winding up. The judgment emphasized that the High Court is not precluded from examining the correctness of BIFR's opinion.

2. Compliance with SICA:
The appellant company, Amitabh Textile Mills Ltd. (ATML), became a sick industrial company and made a reference under section 15(1) of SICA for revival. The BIFR recommended winding up under section 20 of SICA due to the promoters' inability to bring in the necessary funds. The AAIFR dismissed the appeal and recommended winding up, which was referred to the High Court.

3. Settlement with Creditors and Financial Institutions:
The appellant made several efforts to settle dues with creditors. Notably, the Punjab National Bank (PNB) and IDBI issued "no dues certificates" after receiving full and final settlement amounts. The company also approached UPFC, the State Government of Uttaranchal, and other creditors for one-time settlements and received positive responses, including approvals for instalment payments and waivers of penalties.

4. Proper Consideration of Rehabilitation Efforts and Proposals by the Company Court:
The company court was informed of the rehabilitation proposals and settlements with creditors. However, the company judge proceeded with winding up without apparent consideration of these efforts. The appellant argued that the order was ex-facie violative of natural justice principles, as the court did not adequately consider the latest developments and compromises effected.

5. Role and Decision-Making Authority of BIFR and AAIFR:
The judgment highlighted that while the BIFR and AAIFR's opinions carry significant weight, the High Court must independently assess the viability of the company for rehabilitation. The Madras High Court in J.M. Malhotra v. Union of India and the Calcutta High Court in Eastern Paper Mills Ltd. v. BIFR supported this view, emphasizing that the High Court is not bound to order winding up solely based on BIFR's recommendation without examining its correctness.

6. Legal Principles Regarding Winding Up of a Company Based on BIFR's Recommendation:
The judgment reiterated that the High Court must consider the BIFR's opinion but has the authority to make its own determination regarding winding up. The court must ensure that the financial position and rehabilitation efforts of the company are thoroughly examined before deciding on winding up.

Conclusion:
The High Court set aside the impugned order dated July 29, 2005, and directed the BIFR to reconsider the matter afresh, taking into account the improved financial position of the company and the settlements with creditors. The Board was instructed to reassess the need for winding up, ensuring that employees' dues are settled. The official liquidator was to retain possession of the company's property until the Board's final decision. The appeal was disposed of accordingly.

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