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TMI Blog2014 (2) TMI 1318X X X X Extracts X X X X X X X X Extracts X X X X ..... before the BIRF, AAIFR, this Court or the Supreme Court in the various rounds of litigation witnessed in this matter. Thus, in terms of Section 19(2), deemed consent of the Railways to Clause 11.6 of the Sanctioned Scheme was taken, and it is accordingly binding on it. The object and purpose of Section 19 is to enable and garner support - in the form of wide-ranging concessions - by entities with which the sick company conducts business, in this case the Railways, as CBL is a wagon producer and a captive industry that supplies exclusively to the Railways. The argument that Section 19, thus, does not allow for relaxation of tender requirements in incorrect, especially in a case such as the present one, where the concession is narrowly tailored to ensure that the past performance requirement is not prejudicial to CBL only for the period of its closure. Rather than putting CBL at an unfair advantage, Clause 11.6 only requires that the period of closure be excluded from consideration, and the bids be examined competitively in all other respects, for the time. Given conclusions within the Railways‟ own ranks that Clause 11.6 does not vitiate the tender conditions, and no rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year orders, in which CBL could not participate due to its closure, Railway Board to extend ad- hoc order. (b) XXXXXX XXXXXX (c) XXXXXX XXXXXX (d) Considering the nature of business CBL is in and various past performance requirements based on which orders are normally awarded by the potential customers (such as Railways, NHPC etc.) the period starting from 13 th November, 2000 till the date of sanction of the scheme by BIFR, may be excluded while working out the past performance criteria. For avoidance of doubt, if past 5 years performance records have to be considered by a particular customer for award of new orders, the performance of CBL for the 5 year preceding 13th November, 2000 be taken followed by the period post sanction of scheme thereby excluding the period of the closure completely from reckoning ... 3. Previously, a tender had been floated by the Railways in September, 2009 for 17,670 wagons. While on 1.2.2010, when the tender was opened by the Railways, CBL was ineligible under the terms of the tender, with a view to develop an additional source of supply, the Railways complied with Clause 11.6 and placed an order for 10% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AAIFR, the learned Additional Solicitor General appearing on behalf of the Railways argues first that BIFR exceeded its statutory powers under the SICA in the Sanctioned Scheme, as it cannot bind the Railways. For this, the learned ASG relies on Section 18(8) of the SICA to argue that only the sick company itself, the transferee company or any other such company and its shareholders, creditors, guarantors and employees can be bound by a scheme of rehabilitation. It is argued that Section 19 of the SICA must be read subject to Section 18(8), such that only those entities finding a reference in sub-clause 8 can be bound by the BIFR. Since the Railways does not fall within Section 18(8), it is argued that the Sanctioned Scheme in this case cannot bind it, which had previously chosen to grant a concession to CBL on its own terms. Further, the learned ASG argues that, in any case, Clause 11.6 only requires the Railways to consider CBL‟s bid given its past history and closure during sickness, rather than impose any mandate to exclude that period. 7. It is urged that doing so would be contrary to the public interest, in that competition in the tender process would be adversely a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other company and also on the shareholders, creditors and guarantors and employees of the said companies. 19. REHABILITATION BY GIVING FINANCIAL ASSISTANCE. (1) Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or relief's or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority (any Government bank, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company. (2) Every scheme referred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation or within such further period, not exceeding sixty days, as may be allowed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DRS will be provided by them and either to consent or reject the provision. If the entity rejects the provision, unlike in the case of the entities covered under Section 18(8), they will not be bound by the scheme sanctioned subsequently. This is made clear by clause 2 of Section 19, which states that the DRS is to be circulated in order to obtain consent. Once consent is obtained, however, the provision becomes binding for the period of the sanctioned scheme. Crucially, in this regard, Section 19(2) categorically provides that if no consent is received within such period or further period, it shall be deemed that consent has been given. 11. In this case, as the AAIFR has noted in the impugned order - at paragraph 3 - that it is undisputed that the DRS was circulated to the Railways, for the purpose of obtaining consent and inviting suggestions/objections. No objections were filed by the Railways. It states today - for the first time since the scheme was sanctioned by the BIFR on 11.3.2010 - that the scheme was circulated to the Secretary, Ministry of Railways and then redirected to the Stores Directorate of the Ministry later (which is the concerned department, it is clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether Clause 11.6 is binding or only recommendatory. While Clause 11.6 does use the words to consider , this does not imply that the clause is only recommendatory, for three reasons: first, a close reading of Clause 11.6 indicates that the Railways is to consider the bid of CBL in its tender process, after excluding the period of closure. The requirement to consider‟ only indicates - quite naturally - that the Railways may proceed with (or consider) the evaluation of bids, including that of CBL, without somehow directly awarding it a contract. The Railways must consider the other factors and conditions involved in the bidding process, and reach a fair evaluation, but in doing so, exclude CBL‟s period of closure for the purpose of judging past performance. Secondly, given that Section 19 incorporates a consent requirement, the very purpose is to circulate schemes which contain clauses that are binding. Holding that Clause 11.6 itself is not binding would render the purpose of circulation of the DRS redundant. Finally, given that CBL is a captive producer that only manufactures wagons for the Railways, an interpretation that renders Clause 11.6 recommendatory would se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sk. But once consensus is arrived at, and a scheme is sanctioned, it cannot equally be jettisoned without due deliberation and adherence to the provisions of law. Thus, the apprehension of the department that assets will be salted away is misconceived. The company which is the beneficiary of the sanctioned scheme can be brought to heel by taking recourse to appropriate remedies in order to obtain its obeisance to the sanctioned scheme. 13...................mere fact that the net worth has become positive does not provide an automatic exit route from the proceedings before the BIFR. It is open to the BIFR to continue to monitor the implementation of the unimplemented part of the sanctioned scheme. In the captioned cases, the BIFR appears to have discharged the reference solely on the ground that the net worth had turned positive. The discharge of reference is followed by consequent directions of relieving the operating agency and the independent director, of its mandate. The BIFR has noticed that a substantive part of the sanctioned scheme has been implemented, while issuing a direction to implement the remaining part of the sanctioned scheme. If one may say so, the second part i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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