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TMI Blog2003 (8) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... pany as a result thereof was not likely to become viable in future. Accordingly, it recommended that it was just, equitable and in public interest that the respondent company should be wound up under section 20(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The aforesaid opinion of the Board was forwarded to this Court on the basis of which this company petition was registered in this Court. 2. In the aforesaid company petition the applicants, namely, the owners of the property bearing No. 16, Friends Colony (West), New Delhi have filed an application registered as CA No. 1168/2002 praying for an order directing for handing over vacant, peaceful possession of the ground floor of the aforesaid property to the applicants, which was allegedly let out by them to the respondent company. In support of the aforesaid prayer the applicants have referred to the lease deed dated 11-6-1965 letting out the ground floor premises by the mother of the applicants, who was the predecessor-in-interest of the said property to the respondent company. There is also an application being CA No. 343/2003 filed by the workmen of the respondent company seeking for an order of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company got the scheme sanctioned only to get protection under section 22(1) for full nine years. In the meantime, the company/promoters also disposed of some of the assets/inventory, the proceeds of which were, however, utilised to pay only to IFCI and ICICI. In paragraph No. 12 of the said recommendation the submission of the counsel appearing for the respondent company before the BIFR was recorded thus : "Shri Rajiv Tyagi, Advocate, representing BSTML, submitted that for change in the name of the company, a petition had to be filed before the Company Law Board and public notices had to be given. He acknowledged the fact that the Board and the secured creditors should have been informed about the change in the name of the company and regretted for the lapse. He submitted that Shri Raunaq Singh, Chairman of the group company had written to the Board and had requested that time upto 31-7-2000 may be granted to put the rehabilitation process in motion. He submitted that the promoters were not willing to risk their money under the threat of winding up and in the circumstances the Show Cause Notice should be withdrawn. Since winding up would not yield any fruitful results, furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The scheme was sanctioned by BIFR due to the promoters commitment to bring in Rs. 53 crore as well as additional funds to meet the shortfalls in the projections under the scheme. The scheme became a non-starter immediately after it was sanctioned because the amount of Rs. 38 crore which was to be inducted by the promoters immediately after the sanction of the scheme, was not brought in. Consequently the amount of Rs. 15 crore, which was required to be paid to PNB by 31-1-1998, has not been paid till date and the balance OTS amount of Rs. 21 crore which was required to be paid in four half yearly instalments with interest at prime lending rate, has also not been paid till date. Moreover, the company has not denied that the securities of PNB have been diluted. In other words, the goods mortgaged to PNB have been sold and the proceeds have been utilised for purposes other than the payment to PNB. The so-called new facts, presented through a written application and also urged orally by Sh. Anil B. Divan, do not give any hope for the payment of the dues of PNB or for the rehabilitation of the company which is heavily indebted. Due to default in payment of OTS amounts to PNB, the ori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition against the legality and validity of the order of the BIFR so as to enable the respondent to raise the said pleas in this Court. No such liberty was prayed for or was granted under section 25 of the SICA. An appeal against the order of BIFR lies to the AAIFR. Against the order of AAIFR, the High Court exercises the jurisdiction of judicial review under Articles 226 and 227 of the Constitution. The respondent company has gone through and availed of all the aforesaid forums. Therefore, the order passed by the BIFR has reached a finality, particularly when the writ petition was withdrawn by the respondent unconditionally. 8. However, since counsel appearing for the parties have also advanced arguments on the merit of the reference made and also on the legality of the orders of the BIFR and AAIFR, I propose to deal with the same as well in the present company petition. 9. It is contended by Mr. Tikku, appearing on behalf of the applicants-landlords that in view of the provisions of sub-section (2) of section 20, the High Court necessarily has to pass an order winding up the respondent company on the basis of the opinion of the Board. It was submitted by him that since the Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the court would proceed with winding up of the sick company including by exercising powers under section 448 of the Companies Act, onwards. In paragraphs 4.2, 4.3 and 4.4 of the said judgment it was recorded by the Bombay High Court as under : "4.2 Under section 433 of the Companies Act, and more specially, [under clause](f)[thereof], the company may be wound up by the Court if the Court is of the opinion that it is a just and equitable that the company should be wound up. Section 439 is the provision as to applications for winding up. Section 441 is for commencement of winding up by the Court. Section 443 is powers of the court hearing petition and section 444 provides the effect of winding up. Cumulative reading of these sections with section 22 would show that when the opinion is forwarded to the Court under section 20, there is nothing further left in the Company Court to form an opinion. All that happens is that on the order of winding up being passed, section 437 operates and then the Court will proceed with winding up of the sick company including by exercising powers under section 448 onwards. 4.3 It is, therefore, clear that once the Board forms an opinion, there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts. In the said decision it was held that where a scheme is framed by the AAIFR, the same cannot be challenged in a collateral proceeding in the Court. It was also held that the said scheme was framed in public interest and the Court would not sit in judgment over it. In the present case the scheme proposed and finalised was allowed to be implemented but the promoters failed to discharge their obligations under the scheme and, therefore, it was the promoters of the respondent company who nullified the scheme. In J.M. Malhotra's case (supra), the Division Bench of the Madras High Court has held that sub-sections (1) and (2) dispense with only the requirement of sections 439 and 440, as the case may be, of the Companies Act for the purpose of initiating winding up of the company and also to enquire into the question whether it is just and equitable to order winding up of a company but the winding up shall have to be conducted in accordance with the provisions of the Companies Act. It was also held that sub-section (2) of section 20 of the Act is not happily worded and that although it opens with the words that "the High Court shall, on the basis of the opinion of the Board order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the BIFR. 15. In the light of the aforesaid aims and objects of the Act, both the Delhi High Court and Madras High Court have upheld the validity of the provisions of section 20 of SICA. The BIFR makes an extensive effort of fact finding to make the respondent company viable. After making such effort and even after appointing an operating agency to furnish a rehabilitation scheme, if it is found that no such scheme is viable, then only it recommends winding up of the company and that also when the situation is found to be helpless. Such a report as held by the various High Courts including the Madras High Court and the Supreme Court, must be given due weightage. This Court neither has the expertise nor the experience as that of the members of the BIFR who act as a fact-finding body to salvage a company and makes all out efforts to rehabilitate the same. In the present case, an extensive effort was made by the BIFR. Although reference was made some time in 1989, the final order came to be passed recommending winding up only in the year 2000. The matter is pending in this Court from the year 2000 till date. Even during this period the respondent company has neither proposed a sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent company. The reference was made by the respondent company themselves for declaring the company as a sick industry on the basis of which a proceeding was registered under section 15 of the SICA in 1989. Negligence and laches on the part of the respondent company are writ large on the face of the records. It has not done any act which could be said to be a sincere effort to make the company a viable company. The aforesaid conclusion is apparent when the orders of the BIFR and AAIFR are read. The respondent company has neither submitted any progress report with regard to the scheme propounded nor the balance sheet was prepared and submitted to the BIFR. Although a scheme was sanctioned even a show-cause notice was issued to the promoters of the company to show-cause why action should not be initiated against them for their failure to implement the scheme. The company as also the promoters failed to comply with the conditions contained in the scheme, which establishes their lack of interest in the rehabilitation of the company. It is also disclosed from the records that by gaining time after the sanction of the scheme the respondent disposed of some of the assets/inventory ..... X X X X Extracts X X X X X X X X Extracts X X X X
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