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TMI Blog2011 (2) TMI 1264X X X X Extracts X X X X X X X X Extracts X X X X ..... Jayant Bhatt and Shravanth Shankar for the Petitioner. Rajeev Nayyar, Ms. Sushmita Banerjee and Ajant Kumar for the Respondent. JUDGMENT Badar Durrez Ahmed, J. - This writ petition is directed against the order passed by the Appellate Authority for Industrial Financial Reconstruction (AAIFR) dated 16-9-2009 whereby the petitioner s appeal under section 25 of the Sick Industrial Companies (Special Provision) Act, 1985 ( SICA ) was dismissed. The said 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. 2. Mr. Amit Sibal, the learned counsel appearing on behalf of the petitioner, mainly canvassed two points. The first point that was urged by him was that neither the BIFR nor the AAIFR have returned any finding as to whether the petitioner company is a sick industrial company o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther three companies of the group stood on a different footing from that of the petitioner company and the case of the petitioner company has been painted with the same brush as that of the other three companies. And, in doing so, both the BIFR and the AAIFR have committed a gross error. To substantiate this plea, Mr. Sibal submitted that while the other three companies of the group had already filed references before the BIFR, the present company had filed its reference under section 15 only on 12-7-2005. At that time, the BIFR was already seized of the references filed by the other three companies and certain orders had already been passed therein. On 19-12-2005, when the reference of SSL and the other two group companies were considered by the BIFR, the petitioner company (DSL) was not represented as its first hearing was conducted much later, on 23-2-2006. However, there is a direction in the order dated 19-12-2005 that in future the cases of the four group companies i.e., SSL, SML and SCL and the present petitioner (DSL) be listed for hearing on the same date as in the case of SSL. It is in this order, that it is recorded for the first time that IDBI had an Investigative Aud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IFR was 4-9-2006 when the representative appearing on behalf of the petitioner had sought an adjournment. However, that adjournment was not allowed and it was observed by the BIFR that ample time had been given in the last hearings but the company had not submitted its reply to the IA report which contained very serious allega- tions with regard to the financial aspects of the working of the company. The reference of the petitioner company was, therefore, rejected, inter alia, on the ground that it had failed to avail the opportunities given by BIFR to present its case. According to Mr. Sibal, since the petitioner was not represented by advocates on that date i.e., on 4-9-2006 and the representative was merely requesting for an adjournment, the BIFR ought to have granted further time along with a peremptory direction that in case the reply is not given, the BIFR would proceed in the absence of such a reply. Consequently, it was submitted by Mr. Sibal that a proper opportunity was not given to the petitioner to give its response to the IA report, even assuming that a copy of the IA report was available with the petitioner. In this context he further submitted that the IA report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties pointed out in the SIA reports were very serious in nature and the concerned companies did not clearly and convincingly rebut the specific allegations contained therein which seriously impaired the accuracy and the credibility of the accounts. In the absence of credible accounts, any exercise aimed at determining sickness and deciding subsequent measures to deal with it were bound to be vitiated . We also find that by not granting adjournment on 4-9-2006, BIFR did not violate any principle of natural justice, equity or fairplay as the companies had participated in the hearing all along. Inability to make use of given opportunities is not denial of opportunities; such inability, especially, in matters crucial to the appellant companies is unacceptable. In the case of DSP we find that non-availability of the SIA report and the consequent inability of the company to furnish replies are not supportable arguments. 37. In view of what we have said above, we feel that the impugned orders of BIFR of 4-9-2006 do not suffer from any legal infirmity and they are just and fair. We do not see any reason to interfere with these orders. We dismiss the appeals accordingly." [Emphasis suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial company. Thus, it is clear that a reference to BIFR can be made either by the Board of Directors of the company itself or by the Central Government, RBI etc. under section 15(2). 10. Section 16 is of material significance and, as such, it would be appropriate to set out the same : "16. Inquiry Into Working of Sick Industrial Companies. (1) The Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company - ( a )upon receipt of a reference with respect to such company under section 15; or ( b )upon information received with respect to such company or upon its own knowledge as to the financial condition of the company. (2) The Board may, if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under sub-section (1), require by order any operating agency to enquire into and make a report with respect to such matter as may be specified in the order. (3) The Board or, as the case may be the operating agency shall complete its inquiry as expeditiously as possible and endeavour shall be made to complete the inquiry within sixty days from the commencement of the inqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o parts. Clause ( a ) of section 16(1) refers to a situation where the Board embarks upon an inquiry upon receipt of a reference under section 15 of SICA. We may recall that the reference under section 15 may be made either at the instance of the Board of Directors of the company which purports to be a sick industrial company or under section 15(2) at the instance of the Central Government, Reserve Bank etc. where such institution has sufficient reasons to believe that an industrial company has become a sick industrial company. Clause ( b ) of section 16(1) contemplates an inquiry in a situation where the BIFR undertakes such inquiry upon information received with respect to a company or upon its own knowledge as to the financial condition of such a company. In either eventuality, that is, either upon receipt of a reference or upon information, the BIFR has to make an inquiry for determining whether the industrial company in question has become a sick industrial company or not. Of course, the type and kind of inquiry that the BIFR has to make has been left to the BIFR, inasmuch as the expression used is :- "the Board may make such inquiry as it may deem fit". 12. By virtue of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is necessary for expeditious disposal of an inquiry and where the BIFR deems it expedient to do so, the BIFR may appoint an operating agency and require it to inquire into and make a report with respect to the matters which may be specified in the order. In any event, whether the inquiry is conducted by the Board itself or through an operating agency, it is imperative that once a reference is received, such an inquiry has to be conducted for determining whether the industrial company has become a sick industrial company or not. It is not open to the BIFR to reject a reference without returning a finding as to whether the company in question has become a sick industrial company or not. 15. What has been stated by us is also borne out in Chapter IV of the Board of Industrial and Financial Reconstruction Regulations, 1987 (hereinafter referred to as the "said regulations"). The said Chapter IV deals with inquiries under section 16. Regulation 21 specifically provides that upon a reference with respect to an industrial company under section 15 or upon information received with respect to such company or upon its own knowledge as to the financial condition of the company, the BIFR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutions, banks, other institutions, consultants, experts, chartered accountants etc. in furtherance of its functions. They placed reliance on Regulation 40 for the proposition that the IA report submitted by M/s. ANG and Associates would fall within such assistance as contemplated under this Regulation. Consequently, it was submitted that the Board committed no error in relying upon the IA report insofar as the petitioner company is concerned. Regulation 40 reads as under : " Assistance to the Board. The Board may, at any time, take the assistance of public financial institutions, banks or other institutions, consultants, experts, chartered accountants, surveyors and such other technical and professional persons as it may consider necessary and ask them to submit report or furnish any information. Provided that if the report or information so obtained or any part thereof is brought on record of any inquiry and is proposed to be relied upon by the Board for forming its opinion or view, the party or parties to the inquiry shall be given a reasonable opportunity of making his or their submissions with respect thereto." One thing that immediately strikes us is that the assistanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany has become a sick industrial company or not. The IA report is certainly not such an information. In any event, once a reference has been made under section 15, then, it will be section 16(1)( a ) which would apply and not section 16(1)( b ). 20. Insofar as AAIFR is concerned, we are in agreement with the submission made by Mr. Sibal that while the IA reports concerning SSL, SML and SCL were considered in some detail by the AAIFR, the IA report in respect of the petitioner company was not so considered. We are also in agreement with the submission made by Mr. Sibal that upon reading the discussion of the IA reports concerning SSL, SML and SCL, it appears that these companies had allegedly exaggerated their figures on the assets side and this apparently puffed up their health in order to obtain loans from financial institutions. Although these are allegations, to which Mr. Sibal obviously does not agree with, he states that on a demurer, even if this were to be true, it only reflects that the health of the companies had been propped up and not the other way round. What he meant was that if the allegations contained in the IA reports were taken to be true, they would reflec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In any event, there has been no discussion with regard to the IA report concerning the petitioner company and what is of greater significance even while the AAIFR considered the accounts of the other three group companies, it did not do so in the case of the petitioner company. The AAIFR was also wrong in coming to the conclusion that in the absence of credible accounts any exercise aimed at determining the sickness and subsequent measures to deal with it were bound to be vitiated. We are of the view that where the accounts presented by the company are to be trashed, it is incumbent upon the BIFR to inquire into the affairs of the company itself and to determine as to whether it is a sick company or not. In rejecting the reference by holding that the exercise of determining the sickness was bound to be vitiated, the BIFR as also the AAIFR, has abdicated its very vital function which is mandated by section 16 of SICA, which is to conduct an inquiry. 24. Although, we do not agree with the argument on lack of opportunity which was advanced by Mr. Sibal, but, on this aspect of the matter alone that the BIFR did not return a finding with regard to the company being a sick company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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