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TMI Blog1995 (7) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Appellate Authority, have been constituted under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 ("SICA" or "Act", for short), under which proceedings had been held and the impugned orders made. The sick industrial company, as defined under clause (o) of section 3 of the SICA, in the present case, is Andhra Cement Limited (ACL). The petition bearing No. 5184 of 1994 has been filed by Bennett, Coleman and Co. Ltd. and five other petitioners constituting one group (collectively referred to as "the BCCL"), having substantial shareholding in ACL. Bennett, Coleman and Co. Ltd. claims to be a promoter of ACL and is staking its claim of preferential right to the revival of ACL in preference to others. In this petition, there are as many as 19 respondents, all of whom are, however, not represented before us. The petition bearing No. 32 of 1995 has been filed by Dr. M.P. Jain who states that he was the managing director of ACL. In this petition there are 23 respondents and again all of them did not appear before us. Dr. Jain also claims his right as promoter of ACL. Bennett, Coleman and Co. Ltd. acquired controlling interest in ACL in 1973 by acquiring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jain having agreed to transfer the shares and having accepted part payment had in fact handed over the company to Dr. Jain and de facto abandoned it. The Appellate Authority, however, was of the view that it was BCCL which was the promoter of ACL. A person having controlling shares in a company would be able to control the affairs of the company and regulate the same. He can exercise complete superintendence and manage the company through the board of directors and the managing director which would in turn be his nominee. Bennett, Coleman and Co. Ltd. had substantial shareholding in ACL which would also mean that it had controlling interest in the company. Bennett, Coleman and Co. Ltd., however, could not be said to be a promoter of ACL inasmuch as it had not taken any steps preceding the incorporation of ACL which was in 1936. Admittedly, the promoters were Mr. D.L.N. Raju and Associates and the KCP group acquired the shareholding interest in the company in the year 1970. It was in 1973 that BCCL acquired shares in ACL which had earlier been held by the KCP group. No doubt, BCCL had substantial shareholding in ACL and, thus, had enough shares to control the affairs of ACL. It cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able scheme given by any other party containing measures for revival, etc., of the company is similar to that given by the promoter. Even then the BIFR may take into consideration the facts and circumstances which led to the company becoming sick, and determine whether these causes were entirely due to the fault of the promoter or were due to force majeure or causes for which the promoters could not be blamed. It may take into consideration whether the promoters have a sound managerial team and can provide finances for the revival of the company. Also whether the banks, the financial institutions, the Governments and the other authorities have confidence in the promoter. That is not the case before us. It had been conceded before the BIFR that it was not practicable for the company to make its net worth exceed the accumulated losses of its own within a reasonable period and the banks and financial institutions as well as the State of Andhra Pradesh were not agreeable to any sacrifices or concessions if the management was to be given either to the BCCL or Dr. Jain, The Appellate Authority found that the dispute between BCCL and Dr. Jain appeared to have played a substantial role in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adesh, it was not possible to revive the company. The Appellate Authority thus, after considering the various contentions raised by Dr. Jain and BCCL, negatived the same. The Appellate Authority held that the order of the BIFR sanctioning the scheme of DAIL was in accordance with the provisions of the Act except on the question of share valuation. It was, thus, of the view that the scheme sanctioned in favour of DAIL should be implemented expeditiously and the matter should be remanded to the BIFR for reconsideration of the question of valuation of the shares after getting an expert opinion in that regard. It may be noticed that as per the scheme, BCCL was required to transfer its shareholding to DAIL and the value of the shares of face value of Rs. 10 was fixed at Rs. 2.50. We are not sitting in appeal against the order of the Appellate Authority and our jurisdiction is limited. We have only to see if the order of the Appellate Authority is within the four corners of the SICA. We no doubt exercise judicial review over administrative and quasi-judicial authorities. The Supreme Court in Tata Cellular v. Union of India, [1994] 4JT SC 532, while dealing with the scope of judicial rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugust 31, 1990 ([1990] 185 ITR (St.) 48)) in connection with the procedure to be followed in respect of grant of "consent" by the Central Government in cases involving financial assistance to be given under direct tax laws for rehabilitating sick industries under the SICA. The CBDT, by circular dated December 30, 1993, withdrew the two earlier circulars and gave the following directions : "3. While issuing the two circulars, the provisions of section 19(2) of the SICA were not considered. According to section 19(2), all parties concerned with giving financial assistance for the rehabilitation scheme should have their consent. It has, therefore, been decided to withdraw the above circulars with immediate effect. Each case of fiscal concession or financial assistance under the direct tax laws will now be considered in each individual case on the merits for the purpose of consent as contemplated in section 19(2) of the SICA, 1985, and consent or denial of consent will be conveyed to the BIFR by the Central Government. The nodal agency for co-ordination between the BIFR and the Central Board of Direct Taxes and the Appellate Authority for Industrial and Financial Reconstruction (AAIF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SRF had given up the benefits under section 72A. Counsel for SRF had given an undertaking in the High Court and reiterated before this court that the merger scheme would be effective from April 1, 1994. Consequently, the benefits of set-off under sections 70, 71 and 72 have been marginalised and, therefore, no considerable revenue loss would occur to the public exchequer. Any minor benefits would be consequential to the offer of merger with the healthy company. In these appeals and before the High Court, they are impleaded as respondents and were heard through Shri Ahuja, learned senior counsel, who has stated that there would be no loss of revenue to the State and benefit under section 43B of the Income-tax Act is bound to be given to a company revived on either basis. In that view, the orders passed by the Board and approved by the Appellate Authority are not vitiated by any error of law warranting interference." It may be noted that in this very judgment, the Supreme Court stressed on the expeditious disposal of the matter by the BIFR, the Appellate Authority and the High Court, while considering the objects of the SICA. It would be, thus, seen that the Supreme Court did not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also been mentioned that DAIL's unequivocal commitment for implementation of the final rehabilitation scheme (including inducting such further funds as may be deemed necessary, under the finally sanctioned scheme) may be taken into account by this authority and it may be permitted to implement the scheme. In view of this undertaking, there arises no question of setting aside the scheme on this count. It is no illegality committed by the BIFR. Rather, it was done in accordance with the contents of the circular effective on June 6, 1994 ([1994] 208 ITR (St.) 98), and if any amount is required to be paid as per the directions of the CBDT, in any way, the new promoter has undertaken to bring in the additional money for that purposed" By another letter dated March 23, 1995, of Mr. S.N. Bhargava, Director of Income-tax (Recy.) to ACL he has clarified his earlier letter. The letter reads as under : "The Director, Andhra Cements Ltd., C/o. Duncans, 12th Floor, H.T. House, 18-20, Kasturba Gandhi Marg, New Delhi-110 001. Sir, Please refer to our letter dated January 30, 1995, regarding the grant of various concessions to you by BIFR. 2. CBDT in its letter F. No. 246/115/93-A&PAC-I* ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment in certain cases. "Industrial undertaking" has been defined under clause (d) of section 3 of this Act which means any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including the Government. Section 18A of the I (D&R) Act, on which reliance was placed by Mr. Bhatt, prescribes that if the Central Government is of the opinion that-(a) an industrial undertaking to which directions have been issued in pursuance of section 16 has failed to comply with such directions, or (b) an industrial undertaking in respect of which an investigation has been made under section 15 (whether or not any directions have been issued to the undertaking in pursuance of section 16), is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest, then the Central Government may authorise any person or body of persons to take over the management of the whole or any part of the undertaking or to exercise in respect of the whole or any part of the undertaking such functions of control as may be specified in the order. Under sub-section (2) of this section, any order made under sub-section (1) shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to have been duly appointed as the managing agent in pursuance of the Indian Companies Act, 1913 (7 of 1913) [now the Companies Act, 1956], and the memorandum and articles of association of the industrial undertaking, and the provisions of the said Act and of the memorandum and articles shall, subject to the other provisions contained in this Act, apply accordingly, but no such managing agent shall be removed from office except with the previous consent of the Central Government ; (d)the person or body of persons authorised under section 18A to take over the management shall take all such steps as may be necessary to take into his or their custody or control all the property, effects and actionable claims to which the industrial undertaking is or appears to be entitled, and all the property and effects of the industrial undertaking, shall be deemed to be in the custody of the person or, as the case may be, the body of persons as from the date of the notified order ; and (e)the persons, if any, authorised under section 18A to take over the management of an industrial undertaking which is a company shall be for all purposes the directors of the industrial undertaking dul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sick industrial company or, as the case may be, of the transferee-company ; (b)the transfer to the transferee-company of the business, properties, assets and liabilities of the sick industrial company on such terms and conditions as may be specified, in the scheme ; (c)any change in the board of directors, or the appointment of a new board of directors, of the sick industrial company and the authority by whom, the manner in which and the other terms and conditions on which, such change or appointment shall be made and in the case of appointment of a new board of directors or of any director, the period for which such appointment shall be made ; (d)the alteration of the memorandum and articles of association of the sick industrial company or, as the case may be, of the transferee-company for the purpose of altering the capital structure thereof or for such other purposes as may be necessary to give effect to the reconstruction or amalgamation ; (e)the continuation by, or against, the sick industrial company or, as the case may be, the transferee-company of any action or other legal proceedings pending against the sick industrial company immediately before the date of the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the measures stipulated in the scheme prepared under subsection (1). It was submitted that clauses (a), (b), (c ), (d), (e), (g ), (h) and (i) have reference to clause (c) of sub-section (1), while clause (f) of subsection (2) has reference to clause (a) of sub-section (1); clauses (i), (j) and (k ) of sub-section (2) have reference to clause (b) of sub-section (1) of section 18. Clause (m) of sub-section (2) is stated to be a general provision. In short, the argument of Mr. Bhatt was that clause (1) of sub-section (2) of section 18 which deals with the transfer and issue of shares in the sick industrial company could be invoked only if the scheme stipulated amalgamation of the sick industrial company with any other company or any other company with the sick industrial company. It was stated that the scheme, in the present case, did not provide for amalgamation of the sick industrial company, and so the order of transfer of shares in ACL as visualised by the scheme was illegal and could not be given effect to. The two Acts, i.e., the I (D&R) Act and the SICA, operate in different fields though there would appear to be some overlapping. The I (D&R) Act was enacted for the developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in Kamani's case [1989] 66 Comp. Cas. 132 (SC), where also the sick industrial company was revived, shares had been transferred to the employees of that company at a certain value, and the provisions of the SICA had been invoked there. Mr. Bhatt, therefore, had to meet a formidable challenge, and to meet that an argument was raised that this court was not bound to follow the law laid down by the Supreme Court in Kamani's case [1989] 66 Comp. Cas. 132 (SC). Before we examine Kamani's case [1989] 66 Comp. Cas. 132 (SC) in detail we may note that both the SICA and the I (D&R) Act separately prescribe respectively the effect when management of an industrial company is assumed by the Central Government under section 18A of the I (D&R) Act and a scheme which would be sanctioned by the BIFR under section 18 of the SICA. Kamani's case [1989] 66 Comp. Cas. 132 (SC) came up to the Supreme Court on the basis of a special leave petition arising out of various litigations between different branches of a family headed by Mr. Ramjibhai Kamani, an industrialist, on his death. The court appointed A.C. Gupta J., a retired judge of the Supreme Court, to go into the disputes between the family mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r be placed before the BIFR for consideration whether it should proceed to pass an order in terms of the proposed scheme as revised in consultation with the IDBI under section 18(4) of :he SICA. The relevant part of the order, of the court is as under (at page 139 of 66 Comp Cas) : "In compliance with the court's order dated October 13, 1987, the Board for Industrial and Financial Reconstruction, New Delhi, established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985, in consultation with the Industrial Development Bank of India, constituted under section 3 of the Industrial Development Bank of India Act 1964, as its operating agency within the meaning of section 3(1) of the Act, considered in depth the scheme submitted by the Kamani Employees' Union and has evaluated the same by its feasibility report dated January 12, 1988, We have heard learned counsel for the parties and they agree to the order we propose to make. We direct that the matter shall now be placed before the Board for Industrial and Financial Reconstruction for consideration as to whether it should proceed to pass an order in terms of the proposed scheme as revised in consultation wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecially in order to restructure or revive the sick undertakings." The court also approved the transfer of shares of the face value of Rs. 10 per share at Re. 1 per share to the employees. It found that the valuation of the shares fixed at Re. 1 per share by the BIFR was proper, and observed as under (at page 146) : "Having given our anxious consideration to this factor even on our own, we are fully convinced and fully satisfied that the Board was perfectly right in directing the members of the Kamani family to transfer the shares at the rate of Re. 1 per share in order to effectuate the scheme for the revival of KTL. We may also mention that the BIFR was wholly right in saying that the provisions of the Act were immune from challenge by virtue of the declaration contained in section 2 of the Act attracting the application of article 31C of the Constitution. Turning to the merits of the scheme sanctioned by the BIFR, it does not suffer from any infirmity. It has been considered to be feasible and economically viable by experts. It envisages the management by a board of. directors consisting of fully qualified experts and representatives of banks, Government and of the employees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad become a sick company ; had stopped production and ceased working since August, 1985 (the date of order being September 19, 1988) ; KTL had not resorted to closure of the unit or to retrenchment of the workers in accordance with the relevant provisions of law ; while in the eyes of law and in theory the workers continued to be on the rolls of KTL, they had not been paid wages for over eight months since December, 1984, till stoppage of work in August, 1985, and ever since till then and that the arrears till August, 1988, worked out were in the region of Rs. 6V2 crores ; and even the employees' contribution to the provident fund which had been deducted from the wages of the workers had been wrongly retained by the management and criminal prosecutions were pending in the court. No one disputed before the court that KTL had become a sick industrial company within the meaning of the SICA and the stage had been reached where an order had to be passed under sub-section (3) of section 17 of the SICA. As noted above, the court directed the BIFR by order dated October 13, 1987, to examine the scheme prepared by the workers KEU and also gave directions subsequently to the BIFR to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effect when the management and control of the management of an industrial undertaking is assumed by the Central Government, Mr. Bhatt had also referred to a decision of the Supreme Court in Balkrishan Gupta v. Swadeshi Polytex Ltd. [1985] 58 Comp. Cas. 563 ; [1985] 2 SCC 167, which is as under (at page 588 of 58 Comp Cas) : "One other subsidiary contention urged on behalf of the appellants relates to the effect of an order made by the Central Government on April 13, 1978, under section 18AA(1)(a) of the Industries (Development and Regulation) Act, 1951, taking over the management of Swadeshi Cotton Mills along with five other industrial units belonging to the Cotton Mills Company which was the subject-matter of dispute in Swadeshi Cotton Mills Co. Ltd. v. Union of India [1981] 51 Comp. Cas. 210 ; [1981] 1 SCC 664 and the order of extension passed by the Central Government on November 26, 1983, which is the subject-matter of dispute in a case now pending before this court. It is urged on behalf of the appellants that on the passing of the above-said orders, the Cotton Mills Company lost its right to exercise its voting rights in respect of the shares in question. There is no subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as BCCL was not a debtor whose rights were affected by this provision and further that this matter was not agitated before the Appellate Authority. He further said that if there was any such concession that was not feasible in the circumstances, it would be for the new promoter to take care of the additional resources needed for which an affidavit was filed with the Appellate Authority by DAIL and duly taken on record by the Appellate Authority. Mr. Shanti Bhushan said that the impugned scheme was not ultra vires the Act and in this connection referred to section 32(1) of the SICA. This section is as under: "32. Effect of the Act on other laws. - (1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976), for the time being in force or in the memorandum and articles of association of an industrial company or in any other instrument having effect by virtue of any law other than this Act...." To understand the implication of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority to extend the period of limitation beyond what is provided under the Limitation Act, 1963 ? We do not think the BIFR has any such power given to it under the Act. What section 32(1) provides is that the provisions of the Act would prevail if there is any inconsistency between the provisions of this Act and any other Act. It must be understood that the Rules which are to be framed under the Act must be within the framework of the Act and cannot travel beyond that. Section 36 of the Act empowers the Central Government to make rules. This rule-making power is for the purpose of carrying out the provisions of the Act and cannot travel beyond that. The scheme to be framed under the Act and the Rules has to be within the four corners of the Act and the Rules. Section 18(2) clearly specifies what the scheme could provide. If the Act had provided that the BIFR could extend or limit the period of limitation under the Limitation Act only then it could have issued such a direction. But we have been unable to see any provision in the Act which gives any such power to BIFR. To that extent, the direction given to the Central Government to extend the period of limitation for ACL for fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crore of rupees to BCCL and had also surrendered possession of tenanted premises belonging to the company in New Delhi to BCCL, this could be of no avail to Dr. Jain to be treated as an existing promoter inasmuch as the agreement was contingent or conditional upon approval by the IDBI and the financial institutions, which they refused. As we have said above, in our view, even BCCL could not be treated as existing promoters. Moreover, as seen above, at a stage after section 17(2), it is not very material who is the promoter of the sick company though the prompter may yet have a preference to rehabilitate or revive the sick company if its scheme is equal to any other scheme and the promoter was not responsible for making a company a sick company and too depending upon various factors enumerated above, depending upon the facts and circumstances of each case. To stress his point that Dr. Jain was an existing promoter, Mr. Ganesh referred to the writ petition filed by him in this court earlier, it being CWP No. 5193 of 1993, when the BIFR had refused to consider the scheme given by Dr. Jain in that Dr. Jain had contended that he was the existing promoter of the sick company. It is sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the various proposals received, the proposal of DAIL was. only feasible. By order dated January 27, 1994, the BIFR directed circulation of the draft rehabilitation scheme of DAIL for the consent of all the parties as required under section 19 of the Act. Against this order Dr. Jain had preferred an appeal before the Appellate Authority. A stay order was passed on February 24, 1994, by the Appellate Authority with the assurance of counsel for Dr. Jain that Dr. Jain was in a position to bring sufficient money to rehabilitate the company and that he would deposit an amount of Rs. 25 crores in a no lien account with the Bank of Baroda. We may also note that by letter dated July 30, 1992, the Bank of Baroda had reported that in the consortium meeting of the banks held on July 7, 1992, one of the decisions arrived at was that the management of the company should be changed and should not be entrusted either to Dr. Jain or to BCCL. The prospective promoter as mentioned by the Appellate Authority was one Mrs. Shaon of Tamil Nadu. DAIL found out that there was no such person at the address given by Dr. Jain. Counsel for Dr. Jain submitted that Dr. Jain had no direct contact with that lady ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to arrange the finances required of his own that this was beyond his capacity considering the amount of funds required. He conceded that it would not be practicable for the company to make its net worth positive pf its own within any reasonable period. The Appellate Authority also noted that Dr. Jain had made various attempts to bring in the required funds but all of them failed. It recorded as under: "His first attempt in the year 1992 was on the basis of a letter from GTC Industries Ltd. which the BIFR considered to be as being in very general terms. Dr. Omkar Goswami, representing ACL, submitted that the total net worth of GTC was only of the order of Rs. 24 crores and, therefore, the BIFR had rightly not considered, them to be a resourceful party. Two other proposals were also of a similar type. In December, 1993, Dr. M.P. Jain named one Akshay International of Singapore and submitted that that party was willing to fund US $60 million which was apparently readily available and lying in a specified account of an European bank. Dr. Jain insisted on his scheme being sanctioned so that he may get the money. According to the letter from the High Commission of India, Akshay Interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial institutions, the banks and the Government of Andhra Pradesh. Lastly, we may note that the Appellate Authority considered the argument of DAIL that there was a connivance between A.K. Jain and Dr. M.P. Jain in entering into the agreement dated November 23, 1989, and in that context referred to clause 7 of the agreement which is as under : "7. The purchaser is aware that the company is occupying offices at (i) Times House, 7-Bahadur Shah Zafar Marg, New Delhi ; and (ii) 8-Camac Street, Calcutta. The purchaser shall ensure that the company vacates the said premises on or before the 30th November, 1989. The purchaser shall give certified copies of the board resolutions of the company to this effect to the vendors immediately on the execution of this agreement." It was, thus, submitted that ACL was made to part with valuable tenancy rights in the aforesaid premises. Then it was contended by BCCL and Dr. Jain that these premises were of no use to ACL and that possession was surrendered to save liability of rent. The Appellate Authority, however, did not express any view on this as it was stated that the rights of the parties under the aforesaid agreement were the subject-mat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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