2011 (2) TMI 1264 - HC - Companies Law

Writ petition - sick industrial companies - appeal before the AAIFR was in turn directed against the order dated 4-9-2006 passed by the Board for Industrial and Financial Reconstruction (BIFR) whereby the reference made by the Board of the petitioner company under section 15 of SICA was rejected as non-maintainable on the grounds that the company (petitioner) did not approach the BIFR with clean hands and had failed to avail the opportunities given by the Board to present its case. neither the BIFR nor the AAIFR have returned any finding as to whether the petitioner company is a sick industrial company or not BIFR did not return finding that petitioner Held that - matter is remanded to the BIFR for conducting an inquiry under section 16 of the SICA for the purpose of determining whether the petitioner company has become a sick industrial company or not and to proceed thereafter in accordance with law

Issues Involved:
1. Determination of whether the petitioner company is a sick industrial company.
2. Alleged unfair treatment of the petitioner company by BIFR and AAIFR.
3. Reliance on the Investigative Audit (IA) report by BIFR and AAIFR.
4. Denial of opportunity to the petitioner company to respond to the IA report.
5. Compliance with procedural requirements under SICA.

Issue-wise Detailed Analysis:

1. Determination of whether the petitioner company is a sick industrial company:
The petitioner argued that neither BIFR nor AAIFR returned a finding on whether the petitioner company is a sick industrial company, which is mandated by SICA. The court noted that under Section 16 of SICA, BIFR is required to determine if a company is sick. The court emphasized that BIFR must conduct an inquiry upon receiving a reference under Section 15 and return a finding on the sickness of the company. The court found that BIFR did not conduct such an inquiry and did not return a finding, thus failing in its primary duty.

2. Alleged unfair treatment of the petitioner company by BIFR and AAIFR:
The petitioner contended that BIFR and AAIFR treated the petitioner company unfairly by dealing with it along with three other group companies, despite their different circumstances. The court acknowledged that the other three companies had filed references earlier, and their cases were considered together with the petitioner's case. The court noted that the petitioner's reference was taken up later, and there was no evidence that the petitioner had access to the IA report during the initial hearings.

3. Reliance on the Investigative Audit (IA) report by BIFR and AAIFR:
The petitioner argued that the IA report was not served on them and that it was not based on authenticated evidence. The court observed that the IA report comprised four separate parts for each group company and was not served on the petitioner during the initial hearings. The court also noted that the IA report was based on unconfirmed information. The court held that BIFR and AAIFR should not have solely relied on the IA report without conducting their own inquiry.

4. Denial of opportunity to the petitioner company to respond to the IA report:
The petitioner claimed that they were not given a proper opportunity to respond to the IA report. The court found that the petitioner was not represented during the initial hearings when the IA report was served. The court noted that the petitioner's representative requested an adjournment, which was denied by BIFR. The court held that BIFR should have granted further time for the petitioner to respond to the IA report.

5. Compliance with procedural requirements under SICA:
The court examined the procedural requirements under SICA, including the duty of BIFR to conduct an inquiry under Section 16 and determine whether a company is sick. The court found that BIFR did not comply with these requirements as it did not conduct an inquiry or return a finding on the sickness of the petitioner company. The court also noted that AAIFR did not properly consider the IA report concerning the petitioner company.

Conclusion:
The court set aside the impugned order concerning the petitioner company and remanded the matter to BIFR for conducting an inquiry under Section 16 of SICA to determine whether the petitioner company is a sick industrial company. The court ordered that a copy of the IA report be supplied to the petitioner company and directed BIFR to conduct the inquiry expeditiously. The writ petition was allowed to the extent concerning the petitioner company, with no order as to costs.

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