9911796707
TMI Blog2002 (2) TMI 1234X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Corporation of India Limited, Mumbai (ICICI), the 3rd respondent and W.A. No. 1699 of 1999 by State Bank of India, Gunfoundry, Hyderabad, the 6th respondent in the writ petition. 2. The writ petition was filed by Sri Krishna Oil Complex Ltd., Hyderabad, the respondent herein. The background facts leading to the filing of the writ petition be noted briefly as under : The petitioner is a company registered under the Companies Act, 1956 and was incorporated on 1-1-1975. It is said, the main objects of the company, inter alia, are to manufacture, crush, refine and prepare in the State of A.P., all products based on Castor such as Medicinal Castor Oil, Refined Castor Oil, Commercial Castor Oil, B.S.S. grade, Dehydrated Castor Oil, Dehydrated Fatty Acid, Hydrogenated Castor Oil, Hydrogenated Castor Oil Fatty Acid, Dimer Acids, Polyamides, Sebasic Acid, blown castor oil, alkyd resins, Epoxy esters, Sulphonated Castor oil, Paint additives, based on castor oil, polyamides based on castor oil, brake fluids, greases, castor cake for fertilizers, glycerine, lubricants, Nylon-11. In pursuance of these objects, the petitioner-company was granted a Letter of Intent (LoI) by the Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue, under the respective bridge loan agreements entered into between the petitioner and the respondent-financial institutions. Under these "bridge loan agreements", the IDBI agreed to provide Rs. 37.51 lakhs, IFCI Rs. 18.75 lakhs and ICICI Rs. 18.75 lakhs, thus, totalling to Rs. 75 lakhs. Out of the above committed sum, IDBI released the full share of Rs. 37.51 lakhs, IFCI released Rs. 13.26 lakhs and ICICI Rs. 12.95 lakhs totalling to Rs. 63.71 lakhs and adjusted the balance of Rs. 11.29 lakhs towards interest liability of the company. Equipped with these proposals, the promoters of the company started investing funds for purchase of lands, placing orders for machinery and construction of buildings, etc. Further, respondents 2 to 4 sanctioned additional term loans aggregating to Rs. 105 lakhs under the common loan agreement dated 3-9-1994 entered into between the petitioner and respondents 2 to 4, hereinafter referred to as second loans . In terms of the first loan agreements and the second loan agreement, the financial institutions have the right to withhold disbursement or cancel the loans if the petitioner commits default in compliance of the terms and conditions of the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraphs 13 and 14 of the order dated 1-5-1995, the BIFR held "At the request of the company made vide letter dated 2-3-1995 seeking time of 2 months for depositing an amount of Rs. 3 crores in No lien account with State Bank of India the Bench granted time up to 10-4-1995 for the purpose which was communicated to the company by the Bench officer vide telex message dated 14-3-1995 with confirmatory copy to the company as well as to the SBI and Operating Agency. Despite granting extension of time the existing promoters of the company did not deposit Rs. 3 crores in no-lien account and sought further time of 3 months for the purpose. We are now fully convinced that the existing promoters are more interested in dragging the proceedings than in revival of the company. The case has dragged on for six years and the company in the meantime has lost viability. In view of the foregoing facts and circumstances of the case it has now been conclusively established that : ( a )The existing promoters of the company are not capable of bringing necessary funds for the revival of the company of their own or in association with any other co-promoter nor have been able to submit any co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was filed complaining that the respondent-financial institutions committed default in the disbursement of the sanctioned principal amounts of term loans and on account of their default, the petitioner-company could not even complete construction of the plant and thereby failed to commence production of value-added products HCO and DCO and despite the fact that the promoters of the company brought this lapse on the part of the financial institutions to the notice of the higher authorities in the administrative echelon of the financial institutions, they did not come forward to disburse the loan amounts, and on the other hand, they prevented erection of the petitioner-company and the company was informed that the balance of the principal amounts to be disbursed would be treated as adjusted towards interest and that action of the financial institutions is patently illegal and not in public interest. In the writ affidavit, it is contended by the petitioner-company that if the financial institutions had disbursed the loans sanctioned in the first instance as per the schedule of disbursement, the petitioner-company would have successfully commissioned the castor seed unit and could have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was, thus, gradual erosion of the net worth of the petitioner and subsequently the petitioner was referred to BIFR under section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). At its first hearing held on 25-1-1989 BIFR declared the petitioner to be a sick industrial company within the meaning of section 3(1)( o ) of SICA. Later at the hearing held on 22-3-1991, the 2nd respondent was appointed as the Operating Agency (OA) under section 17(3) of SICA and was asked to examine the possibility of revival/rehabilitation of the petitioner. However, all the attempts to revive/rehabilitate the petitioner failed. Keeping in view the absence of any viable proposal, inability of promoters to bring in necessary funds and no response to the advertisement for change of management, the BIFR issued a show-cause notice for winding up the petitioner on 1-8-1994. At the BIFR hearing held on 8-2-1995, the promoters of the petitioner pleaded that they had identified an NRI who would infuse funds and join as co-promoter to revive the petitioner. BIFR decided to give the promoters last opportunity and were directed to bring in funds to the tune of Rs. 3 crores to be depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the project suffered cost and time over-run because of non-disbursement of the loans to the full extent and in time. In fact the said cost and time over-run occurred mainly due to the failure of the promoters to bring in their contributions in time in terms of the First Loan Agreement, the Bridge Loan Agreement and the Second Loan Agreement, and delay in implementation of the project. Adjustment of interest was made against the disbursement as per the normal practice, in accordance with the terms and conditions of the respective Loan Agreements and as per the request of the petitioner. It is stated that the petitioner failed to timely implement the project and obtain promoter s contribution. Even though the castor seed unit had good viability prospects with availability of fine quality raw material and a ready export demand, the petitioner failed to commence production of value added product, viz., Hydrogenated Castor Oil (HCO) and Dehydrogenated Castor Oil (DCO). The phase II project could not be completed not due to non-disbursal of the loan from the respondent No. 2 and other respondents but mainly due to lack of proper project planning and implementation, non-release of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief which it sought before the BIFR and AAIFR, and that too, without assailing the validity of the orders of BIFR and AAIFR and, therefore, the writ petition filed by the petitioner is not maintainable. 6. Having regard to these contentions, the learned Single Judge framed the following points for consideration : ( i )Whether there was failure on the part of respondents 2 to 4 in disbursing the principal amount in the first instance and additional term loans subsequently and on the part of respondents 5 to 7 consortium of banks in providing working capital assistance and if so, whether it has resulted in breach of promissory estoppel ? ( ii )What is the effect of two reports submitted by IDBI before the BIFR showing that the petitioner-company is a viable unit and what is the effect of survey by an independent agency, i.e., Tata Economic Consultancy Services; and ( iii )To what relief ? 7. The learned Single Judge opining that when the petitioner-company was still in the making and even before it took a shape, the financial institutions started cutting into its funds by not disbursing the agreed amounts and thereby respondent Nos. 2 to 7 financial institutions co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecedent to apply the doctrine of promissory estoppel. The learned counsel would also contend that the learned Judge is not justified in opining that the financial institutions and banks did not disburse the loan amounts in time and, therefore, it landed in financial crunch. Alternatively, the learned counsel would contend that even assuming that the financial institutions and the banks committed default in disbursement of the loan amounts in time, even then, such a plea could be urged before the Company Court and the respondent-company cannot be permitted to circumvent the statutory orders passed by the BIFR and AAIFR under the Act in an indirect way invoking the power of this Court under article 226. Lastly, the learned counsel for the appellants would contend that even assuming that the banks and the financial institutions committed omissions and commissions in the matter of disbursement of agreed loan amount in breach of the agreements entered into between them, as alleged by the respondent-company, such omissions and commissions on the part of the banks and financial institutions, would at the most, amount to a breach of an ordinary civil contract, in respect of which no relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondent-company to circumvent the orders made by the statutory authorities, i.e., BIFR and AAIFR and RCC. 26 of 1998 pending before the company court in filing the writ petition. As noticed above, the relief sought in the writ petition and the relief sought before the statutory authorities constituted under the Act are substantially similar. It is trite to state that except the Act, there is no other law, which provides for revival or rehabilitation of industries which have become sick. In other words, but for the mechanism provided under the Act, the revival and rehabilitation of sick industries would not arise and that no Court can direct the banks and the financial institutions to revive or rehabilitate such sick industries by providing financial assistance. Sickness in industries is a universal phenomenon. Sickness in industries is of very vast magnitude both in terms of the quantum of the funds blocked and the number of units. The Government realizing the sickness in industries as the primary cause in arresting the financial growth and development of the country and recognizing its ill-effects, felt it necessary to rehabilitate the sick or potentially sick units by ena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Chairman and other Members of the Board shall be persons who are or have been qualified to be High Court Judges or persons of ability, integrity and standing who have special knowledge of, and professional experience of not less than fifteen years in science, technology, economics, banking industry, law, labour matters, industrial finance, industrial management, industrial reconstruction, administration, investment, accountancy, marketing or any other matter, the special knowledge of, or professional experience in which, would be in the opinion of the Central Government useful to the Board. Thus, the BIFR to be constituted under section 4 is an eminent expert body consisting of Chairman and Members who are well versed in all relevant sciences and knowledge which are necessary to revive or rehabilitate sick industries. Under section 5 of the Act, the AAIFR has to be constituted consisting of a Chairman and Members, not exceeding 3, to be appointed by the Government of India, for hearing appeals against the orders of the BIFR under the Act. Here again, sub-section (2) of section 5 of the Act requires that the Chairman to be appointed should be a person who is or has been a Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that even assuming that the financial institutions and the banks committed omissions and commissions in the matter of disburse-ment of different loans, i.e., first loans, bridge loans, second loans in breach of the terms of the agreements, the respondent-company is not entitled to make any grievance in that regard in a proceeding under article 226 and the only appropriate remedy for it is to work out its legal remedies by approaching jurisdictional civil court. The breach alleged by the respondent-company against the financial institutions is with regard to a purely civil contract not supported by any statute. This point need not be dilated further because, quite understandably Shri K. Pratap Reddy, the learned senior counsel appearing for the respondent-company would not rest his argument in support of the company only on the basis of the alleged omissions and commissions of the banks and financial institutions stated to have been committed by them before the matter was referred to BIFR in the year 1989. The emphasis of the argument of the learned senior counsel is that the banks and financial institutions though came forward to extend the necessary financial support to revive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Company Court is bound by the recommendation of the BIFR or AAIFR, and if the Company Court finds that BIFR has recommended winding up of the company without properly exploring the possibilities of reviving and rehabilitation of the company, it may refuse to wind up the company. Therefore, it is always open for the respondent-company to advance its grievances against the proceedings taken before the BIFR and AAIFR before the Company Judge in the pending RCC. 26 of 1998. 16. This Court under article 226 cannot assume the role of an appellate authority over the judgments of BIFR and AAIFR and again explore the possibilities of reviving or rehabilitating the respondent-company as an expert supreme body. As pointed out supra, the revival or rehabilitation of a sick industry can be worked out only under the provisions of the Act and not otherwise. The learned senior counsel appearing for the respondent-company was not in a position to refer to any law on the basis of which the respondent-company can seek a mandamus to the banks and financial institutions to extend financial support to revive and rehabilitate its industry de hors the provisions of the Act. The learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. N.M. Shah AIR 1966 SC 334 that mandamus will not issue to enforce a private contract and the remedy, if any, is in private law, e.g., a suit for damages or specific performance. From the same decisions of the Supreme Court, it is also well settled that the State, instrumentalities of the State, and statutory authorities can enter into a contract with a person just as any other person can, and the contract, as such, does not change its legal character merely because the other party to the contract is the State. Thus, mandamus will not issue to compel a public servant to carry out his obligation arising out of a contract of re-appointment of a manager of evacuee property as held by the Supreme Court in Lekhraj Sathramdas Lalvani s case ( supra ) or to enforce a right claimed in terms of a contract by a non-statutory body as held in Banchhanidhi Rath v. State of Orissa AIR 1972 SC 843 and Vidya Ram v. Jai Narain College AIR 1972 SC 1450 or to get rid of contractual obligations arising out of a public auction where the petitioner bade voluntarily, accepting its terms and conditions as held in Har Shankar v. Dy. Excise Taxation Commr. AIR 1975 SC 1121. In or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Punjab AIR 1976 SC 2045, Chet Singh v. State of Punjab AIR 1977 SC 1496, Bareilly Development Authority s case ( supra ) are the authorities in that regard, to cite a few. 18. In Central Bank of India v. Rooplal Bansal [1999] 9 SCC 254 dealing with a dispute between a nationalised bank and a party standing as a guarantor for loan advanced to third party arising out of a pure commercial transaction, the Apex Court held that the High Court would not entertain the writ petition and go into the merits of the case when the transaction between the parties was purely a commercial one and when it involves resolution of disputed questions of fact and that the proper remedy in such a case is a civil suit. It is true that State action in contractual matters also is subject to judicial review, if public element is present in such matters. 19. In the instant case, as pointed out supra the agreements entered into between the parties are ordinary civil contracts without involving opera-tion of any statute or public element. Therefore, even assuming that the banks and the financial institutions have committed omissions and com-missions in the matter of disbursement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial institutions in their counter affidavits as false and incorrect. On the other hand, according to the financial institutions and the banks, the operations of the company s unit were not satisfactory from the beginning; it could hardly achieve 10 per cent capacity utilization thereby incurring huge losses; the problem of the company was aggravated on account of its inability to tie-up adequate working capital; and the company s unit became a sick industry due to inordinate delay in completion of the project by two years and the cost over run of Rs. 133 lakhs caused incipient sickness. It is also contended by the financial institutions that the delay was mainly due to lack of project planning and implementation, non-release of sanctioned power by APSEB, promoter s inability to mobilise the required resources, non-compliance of sanctions of assistance, etc. Adverting to the allegation of the respondent-company that the financial institutions have arbitrarily adjusted interest against disbursement, it is contended by the financial institutions that this factual plea is false; in fact, it was in accordance with the wishes of the respondent-company, as requested vide its letters da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, each of which the promoters in spite of several extensions of time sought for and granted before the BIFR and AAIFR failed to comply. Even the BIFR, in its order dated 1-5-1995, in paragraphs 13 and 14 extracted above, has squarely blamed the promoters of the company for the failure of the revival and rehabilitation of the company. Further, in paragraph 3 of the order, the BIFR dealing with the progress made in the implementation of the agreed package as well as the physical and financial position of the company at the hearing on 22-3-1991 has stated that the agreed package as taken on record under section 17(2) could not be implemented mainly for the reasons of managerial deficiencies and that on account of those deficiencies, the performance of the company had deteriorated and the cash losses mounted up. A reading of the order of BIFR and AAIFR also shows that the promoters are given fair number of opportunities to revive and rehabilitate the sick industry. But, the attempts went in vain because of the failure of the promoters themselves in bringing in the stipulated funds. Thus, it can be seen that from the material pleadings of the parties noticed above and also the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sinha [1996] 5 SCC 111, State of Madhya Pradesh v. M.V. Vyavsaya Co. AIR 1997 SC 993, State Bank of India v. State Bank of India Canteen Employees Union [1998] 5 SCC 74, Ram Badan Rai v. Union of India AIR 1999 SC 166, Chairman, Grid Corpn. of Orissa Ltd. v. Smt. Sukamani Das [1999] 7 SCC 298, Indian Overseas Bank v. I.O.B. Staff Canteen Workers Union AIR 2000 SC 1508, Factory Manager CIMMCO Wagon Factory v. Virendra Kumar Sharma [2000] 6 SCC 554 and Jai Singh v. Union of India AIR 1977 SC 898 to cite a few. Further, in Union of India v. T.R. Verma AIR 1957 SC 882 and Burmah Construction Co. v. State of Orissa AIR 1962 SC 1320 the Supreme Court held that claims arising out of breach of contract or tort where it becomes necessary to investigate into the disputed questions cannot be entertained under article 226. In Maheswar Prasad Srivastava v. Suresh Singh AIR 1976 SC 1404 the Apex Court held that the determination made by an expert body, in the absence of mala fides, cannot be interfered with by exercising the power under article 226. Since the factual pleas put forth by the parties to the writ petition do involve investigation of di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sound and positive foundation must be laid in the petition itself by the party invoking the doctrine. Bald expression, without any supporting material, to the effect that the doctrine is attracted because the party invoking the doctrine has altered its opposition relying on the assurance of the Government or public authority would not be sufficient to press into aid the doctrine. As opined in Kasinka Trading v. Union of India [1995] 1 SCC 274 the doctrine of promissory estoppel cannot be invoked in the abstract and the courts are bound to consider all aspects including the results sought to be achieved and the public good at large, because while considering the applicability of the doctrine, courts have to do equity, and the fundamental principles of equity must forever be present in the mind of the court, while considering the applicability of the doctrine. The doctrine must yield when the equity so demands and if it can be shown having regard to the facts and circumstances of the case that it would be inequitable to hold the Government or the public authority to its promise, assurance or representation. 26. Unless the above noticed conditions co-exist, application of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequent upon the breaches committed by the company and their failure to perform their part of the undertaking given to the BIFR consequent on the failure of the promoters of the company to bring in the stipulated amounts, is irrational or arbitrary so as to attract the wrath of article 14. 27. The learned Single Judge by the order under appeal has straightaway directed the financial institutions and the banks to provide necessary financial assistance to the company for revival and rehabilitation of the company s castor oil unit within 3 months. The contention of the appellants is that in issuing such direction to the financial institutions and the banks, the High Court exceeded its jurisdiction under article 226 and usurped the power and discretion vested in them. The Apex Court in large number of pronouncements have defined the limitations of and circumscribed the powers of the High Courts under article 226 to interfere with the decisions of the financial institutions and the banks in the matter of transactions/dealings and their rights and obligations arising out of the State Financial Corporation Act or even otherwise. It is trite to state that the financial institutions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the loan instalments with the result that the recovery certificate had to be issued against it under section 3 of the U.P. Public Moneys (Recovery of Dues) Act. The then management misman-aged the company and a company petition had to be filed on grave charges of manipulation of accounts, reallotment of forfeited shares, etc. The non-discharge of the liabilities of the company was on account of the said fraudulent practices of the management. By 30-5-1986, the dues of the company mounted to Rs. 90,31,102.13 with the result that on 13-6-1986, the Corporation had to take over its industrial establishment under section 29. The IRBI submitted its report at the instance of the Supreme Court on 29-1-1988, which stated that the industrial unit could be made only marginally viable provided another Rupees one crore were invested in it and the loan instalments were rescheduled. Between 1981, when the industrial establishment was closed down, and 1988 when the IRBI report was submitted, the machinery of the establishment was lying idle and became almost rusty with the result that by 1988, the value of the machinery had gone down considerably, while its liabilities had gone up still furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. We agree that the Corporation is not like an ordinary money-lender or a Bank which lends money. It is a lender with a purpose - the purpose being promoting the small and medium industries. At the same time, it is necessary to keep certain basic facts in view. The relationship between the Corporation and the borrower is that of creditor and debtor. The corporation is not supposed to give loans once and go out of business. It has also to recover them so that it can give fresh loans to others. The Corporation no doubt has to act within the four corners of the Act and in furtherance of the object underlying the Act. But this factor cannot be carried to the extent of obligating the Corporation to revive and resurrect every sick industry irrespective of the cost involved. Promoting industrialization at the cost of public funds does not serve the public interest; it merely amounts to transferring public money to private account. The fairness required of the Corporation cannot be carried to the extent of disabling it from recovering what is due to it. While not insisting upon the borrower to honour the commitment undertaken by him, the Corporation alone cannot be shackled hand and foot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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