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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 ..... Companies Act, 1985 ("SICA") on 21.8.2002. On 11.3.2010, the BIFR sanctioned a revival scheme for CBL after inviting suggestions/objections from all stakeholders by circulating a Draft Rehabilitation Scheme ("DRS"). The dispute today concerns the application of Clause 11.6 of the Sanctioned Scheme, which envisages a certain concession by the Ministry of Railways vis- à-vis CBL as regards tenders floated by the Railways for supply of wagons, the business in which CBL is engaged. Clause 11.6 states as follows: "XXXXXX XXXXXX XXXXXX Clause 11.6: MINISTRY OF INDIAN RAILWAYS: (Secretary, Railway Board): (a) The railways to give preferential support to the company for facilitating the revival process on current terms and waiving interests and penalties on the outstanding dues, if any, due to the closure of the company. In respect of current 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter of challenge in these proceedings. 5. The question that arises in the present case is whether Clause 11.6 is binding upon the Railways and obliges it to give preference to CBL. The concurrent findings of the BIFR order dated 12.3.2012, the AAIFR order dated 2.7.2012, the High Court order dated 22.8.2012, and the second AAIFR order dated 7.5.2013 have been three-fold: first, the Sanctioned Scheme - having been circulated to the Railways for its consent - is binding under Section 19, SICA, and Section 19 envisages concessions such as those incorporated in Clause 11.6; secondly, Clause 11.6 cannot be said to violate Article 14 of the Constitution as CBL is not equal to other bidders, and thus, equality must apply only between equals; thirdly, Section 18(8) of the SICA is not applicable to the present issue; and finally, Clause 11.6 is mandatory, and the use of the words "to consider" does not make it merely recommendatory. 6. Impugning the order of the 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 lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; contemplated in that section ought to be read in a similar fashion as financial sacrifices, and not sacrifices in respect of tender conditions. 8. Before considering the questions that arise in this case, it is useful to extract the relevant portions of Sections 18 and 19 of the SICA. "18. PREPARATION AND SANCTION OF SCHEMES. (1) Where an order is made under sub-section (3) of section 17 in relation to any sick industrial company, the operating agency specified in the order shall prepare, as expeditiously as possible and ordinarily within a period of ninety days from the date of such order, a scheme with respect to such company providing for any one or more of the following measures, namely:- (a) XXXXXX XXXXXX (8) On and from the date of the coming into operation of the sanctioned scheme or any provision thereof, the scheme or such provision shall be binding on the sick industrial company and the transferee company, or as the case may be, the other company and also on the shareholders, creditors and guarantors and employees of the said companies. 19. REHABILITATION BY GIVING FINANCIAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, its creditors, employees, guarantors etc. Indeed, these are the only entities which the BIFR can unilaterally bind. The scope of application of Section 19, however, is different. In the words of the section, as regards "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", the BIFR does not have the authority to bind these entities by its orders and thus modify the obligations and rights owed between the sick company and these entities. However, the scheme for rehabilitation may - in the interests of ensuring that the sick company returns to a profitable state as soon as possible - envisage "financial assistance by way of loans, advances or guarantees or relief's or concessions or sacrifices from" any of the above entities. These provisions in the DRS will not be binding on these entities, unless their consent is obtained. Thus, these entities - the Railways in this case - may determine whether the concessions envisaged in the DRS will be provided by them and either to consent or reject the provision. If the entity rejects the provision, unlike in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be provided to a sick company, there is nothing in the text of Section 19 to disallow concessions as to appropriate tender conditions in order to allow the sick company to revive itself. In fact, 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 that CBL was operational. 13. The next question that arises is 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 cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p in mind that any scheme is a package to rehabilitate the company. It is possible that such rehabilitation may result in early success or at times may take a greater period of time to achieve financial stability. If the argument of the Department were to be accepted it would imply that if a sick industrial company achieves success in making its net worth positive, all benefits of a sanctioned scheme would stand withdrawn whether exhausted or not, even though the emergence from sickness, and its continued health is dependent on the sanctioned scheme being fully implemented. This would, defeat the very purpose of formulating a sanctioned scheme. A sanctioned scheme in myriad ways would ordinarily devise ways and means by which the assets of the referrer are to be dealt with. The provisions of the sanctioned scheme would bind both the referrer and those who are party to it, including those in respect of which SICA makes a specific provision. It has to be appreciated that to forge a consensus on rehabilitation of a sick industrial company is no mean task. But once consensus is arrived at, and a scheme is sanctioned, it cannot equally be jettisoned without due deliberation and adherenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual performance of the firm when it was working, can be considered. In our view, this order of the BIFR is more akin to a guidance on the method of application of tender clause and not a complete modification/vitiation of the clause itself." 16. Given conclusions within the Railways‟ own ranks that Clause 11.6 does not vitiate the tender conditions, and no reasons have been provided to indicate that these concurring legal opinions are incorrect, the Court finds no reason to interfere with the application of Clause 11.6. In any case, Section 32 of the SICA prescribes that the SICA overrides any contrary provisions in any other law, except for the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976, let alone contractual tender conditions or policy guidelines prescribed by the Railways. Indeed, as the Supreme Court noted in Raheja Universal Limited .v NRC Limited and Ors., (2012) 4 SCC 148: "26..........................The purpose is so very clear that during the examination, finalization and implementation of the scheme, there should be no impediment caused to the smooth execution of the scheme of revival of the sick industrial com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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