2008 (3) TMI 490 - HC - Companies Law

Whether the Board for Industrial and Financial Reconstruction (BIFR for Short) was legally justified in declining to recognize a change in the management of respondent No. 3 on the ground that the said change was contrary to the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 having been introduced by the sick company without the permission of the Board? Held that - BIFR was justified in ignoring the arrangement sought to be introduced without its approval which arrangement has, at any rate, proved more problematic than useful to the parties. If the ultimate object of the proceedings before the BIFR was to revive the company and draw it out of the financial difficulties that it had landed in, the said object could not be achieved by thrusting upon it an arrangement which has, from the very inception, landed in rough waters. There is in that view, therefore, no room for interference with the order made by the BIFR. The incidental question, whether an appeal was maintainable before the AAIFR, need not detain us for long. We say so, because even if the appeal filed by the petitioners was held to be maintainable, the same would be inconsequential having regard to the fact that the order passed by the BIFR was in the facts and circumstances justified. Writ petition dismissed.

Summary

Issues:
Recognition of change in management by BIFR without permission and maintainability of appeal before AAIFR.

Recognition of Change in Management by BIFR:
The case involved the recognition of a change in management by the Board for Industrial and Financial Reconstruction (BIFR) without permission under the Sick Industrial Companies (Special Provisions) Act, 1985. The company in question was declared a sick industrial company, and the operating agency was appointed to prepare a draft rehabilitation scheme. However, a change in management was proposed without BIFR's approval, leading to disputes and litigation between the involved parties. The BIFR rejected the application for change in management, citing it as a backdoor arrangement contrary to the Act. The High Court upheld BIFR's decision, emphasizing that any scheme or arrangement for a sick company must comply with the Act's provisions and be supervised by the Board. The Court highlighted the binding nature of sanctioned schemes under the Act and the necessity for BIFR's oversight in such matters.

Maintainability of Appeal Before AAIFR:
The petitioners appealed before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) against BIFR's decision, which was dismissed on the grounds of lack of locus standi as the petitioners were not parties in the original proceedings before BIFR. The High Court, after careful consideration, deemed the appeal's maintainability inconsequential due to the justified nature of BIFR's decision in the given circumstances. The Court emphasized that the primary objective of proceedings before BIFR was to revive the company from financial difficulties, which could not be achieved through unauthorized arrangements causing further complications. The Court, therefore, dismissed the writ petition challenging the decisions of BIFR and AAIFR, with costs assessed at Rs. 5,000.

In conclusion, the High Court upheld BIFR's decision to reject the change in management application and dismissed the appeal before AAIFR, emphasizing the importance of complying with legal provisions and the supervisory role of regulatory bodies in matters concerning sick industrial companies.