IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 12TH DAY OF OCTOBER, 2011
THE HON’BLE MR. JUSTICE A S BOPANNA
WRIT PETITION NO.12882/2008 (GM-RES)
A body corporate constituted
under The Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970
having its Head Office at:
No.12, J.C. Road Bangalore – 560 O02
“Mysore Branch office at:
No.127, Balaji Palace
Shivarampet, Mysore -570023
Rep. by its Senior General Manager
Sri Manjunatha Pai B. … Petitioners
(By M/s. Holla & Holla: Advs.)
- M/s. Shimoga Steels Limited
A Company registered under the
Companies Act, 1956
Having its registered office at:
KRS Road, Metagalli, Mysore-570 016
Rep. by its Chairman and
Shri. Shanthana Raman
- Board for Industrial and
Financial Reconstruction (BIFR)
Jawahar Vyapar Bhavan,
New Delhi, Rep by its Chairman
- Appellate Authority
of Reconstruction (AAIFR)
LIC bulding, New Delhi
Rep. by its Chairman
(By M/s. M.G Kumar Law Firm, Advs. for RI, R2 & R3- Service held sufficient)
This writ petition is filed under Articles 226 & 227 of the Constitution of India, with a prayer to call for the records before the R2 and Appeal No.266/2007 before the R3 and set aside the order dated 25.06.2007 of the R2 vide Anx-B and order dated 07.07.2008 of the R3 in Appeal No. 266/2007 vide Anx-D.
This writ petition is having been reserved for orders, coming on for pronouncement of this day, the Court pronounced the following:
The petitioner-Canara Bank is assailing the order dated 25.06.2007 passed by the Board for Industrial and Financial Reconstruction (‘BIFR’ for short) in Case No. 254/2002 and the order dated 07.07.2008 passed by the Appellate Authority for Industrial and Financial Reconstruction (‘AAIFR for short) in Appeal No.266/2007. By the said order, the rehabilitation scheme in respect of the first respondent herein has been sanctioned and the same has been upheld by the Appellate Authority.
- The brief facts are that the first respondent which is a company incorporated under the Companies Act, and engaged in the manufacture of steel billets and rolled products availed financial assistance for the petitioner to the tune of Rs. 3.05 crores on the security of its assets and lands as second charge. The first respondent which suffered financial set back made a reference to BIFR as provided under Section 15 of Sick Industries Companies (Special provisions) Act, 1985 [‘SICA’ for short] as its net worth has eroded as on 30.09.2001. The first respondent was accordingly declared as a sick Industrial Company by the BIFR on the 10.08.2005. The petitioner herein was appointed as the operating agency for the purpose of preparing a rehabilitation scheme. Prior to the same, on 13.06.2005, the petitioner permitted One Time Settlement (OTS) of Rs. 151.16 Lakhs and payments was to commence from October 2005. And the entire payment should have been repaired on or before 31.03.2006. The first respondent though paid a sum of Rs. 7.16 Lakhs on 27.07.2005, no further amount was paid and the OTS was recalled.
- In the meanwhile, the Draft Rehabilitation Scheme (‘DRS’ for short ) was submitted during JULY 2006 and circulated among all the creators, though all the creditors agreed to support the rehabilitation in the meeting held on 25.10.2006, the KSFC and he petitioner informed that the OTS offer made earlier had lapsed. Accordingly, a fresh OTS based on the modified DRS was to be submitted. The first respondent made a revised offer of Rs. 175 Lakhs. The petitioner sought for reconsideration of a minimum offer of Rs. 200 Lakhs subject to sanctions by the Appropriate Authority. This is stated to have been keeping in view the offer made to KSFC and KSIIDC at Rs. 194.56 Lakhs and Rs. 386.71 Lakhs respectively. However since morning materialised and sufficient time passed by the petitioner keeping in view all aspects of the matter indicated that the first respondent should offer rs. 520 Lakhs and interest from 01.04.2007. This demand was made by petitioner since according to them, the dues was to the tune of Rs. 1233.18 lakhs. Despite all these the DRS was sanctioned by the BIFR by its order dated 25.06.2007 whereunder the petitioner was allocated Rs. 200 Lakhs. The petitioner therefore assailed the order before AAIFR and having failed is before this Court.
- Heard Shri Udaya Holla, learned senior counsel for the petitioner and Shri M.G Kumar, Learned counsel for the respondent.
- Since DRS was sanctioned by the BIFR, the contention of the petitioner by the BIFR, the contention of the petitioner is that apart from merits of the matter whereby such schemes should not have been approved without reference to the value of the property owned by the first respondent company, the legal contention at the outset is that the order of BIFR sanctioning the scheme is contrary to Section 19(2) and (4) of the SICA. It is contended that unless all the creditors who are to provide financial assistance consent to the scheme, the BIFR is not empowered to sanctions of the scheme, but can only adopt such other measures, including the winding up of a sick industrial company as provided under Section 19(4) of SICA. The learned counsel for the first respondent would however oppose such contention and content that the object and scheme of the Act would make it clear that a minority creditor cannot defeat the sanction of the scheme. In this regard, reference is also made to the third proviso added to Section 15(1) by the way of amendment. Hence it is contended that it is sufficient even if 75% of the creditors consent to the scheme and the same would bind the others also.
- In view of above, it would be beneficial to extract Section 15(1) along with its proviso and 19 of the SICA which read as hereunder:-
“Section 15. Reference to Board- (1) When an industrial company has become a sick industrial company, the Board of Directors of the company, shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the Board for determination of the measures which shall be adopted with respect to the company: Provided that if the Board of Directors had sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the Board of Directors shall, within sixty days after it has formed such Opinion, make a reference to the Board for the determination of the measurers which shall be adopted with respect to the company:
(Provided further that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitisation company or reconstruction company under sub-section (1) of section 5 of that Act
Provided also that on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amounts outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of Section 13 of that Act.)
Section 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 reliefs 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 Board, and if no consent is received within such period or further period, it shall be deemed that consent has been given].
(3) Where in respect of any scheme the consent referred to in sub-section (2) is given by every person required by the scheme to provide financial assistance, the Board may, as soon as may be, sanction the scheme and on and from the date of such sanction the scheme shall be binding on all concerned.
(3A) On the sanction of the scheme under sub-section (3), the financial institutions and the banks required to provide financial assistance shall designate by mutual agreement a financial institution and a bank from amongst themselves which shall be responsible to disburse financial assistance by way of loans or advances or guarantees or reliefs or concessions or sacrifices agreed to be provided or granted under the scheme on behalf of all financial institutions and banks concerned.
(3B) The financial institution and the bank designated under sub-section (3A) shall forthwith proceed to release the financial assistance to the sick industrial company in fulfilment of the requirement in this regard.
(4) Where in respect of any scheme consent under sub-section (2) is not given by any person required by the scheme to provide financial assistance, the Board may adopt such other measures, including the winding up of the sick industrial company, as it may deem fit.
- On this aspect it would be appropriate to evaluate the legal position by taking note of the decisions cited by the respective learned counsel. In the case of Pharmaceutical Products of India (2006 (131) Comp. Cases 747 (Bom)) relied on by the learned senior counsel, the Court observed as hereunder;
“There is yet another formidable argument pressed into service on behalf of the petitioner company. Learned Counsel for the petitioner has invited my attention to the purport of Section 18 of the SICA, which pertains to the scheme with respect to sick company providing for any one or more of the measures specified in Sub-section (1) thereof. Assuming that the proposed scheme in relation to secured creditors was referable to one of the measures provided for in Section 18(1) of the Act of 1985; even So, for the nature of the proposed scheme, it would require the secured creditors to give concession or make sacrifice of the outstanding dues. The named secured creditors are banks and financial institutions referred to in Subsection (1) of Section 19 of the Act of 1985. If it was sanction of a scheme simpliciter under Section 19 of the Act undoubtedly by virtue of Subsection (8) of Section 18 of the Act of 1985, the directions given by the forum under the provisions of the Act of 1985 would not only bind the sick industrial company and the transferee company but also other companies as also shareholders, creditors, guarantors and employees of the said company. However, as specified secured creditors qualify the description of banks and financial institutions referred to in Section 19(1) of the SICA, the matter will have to be viewed from different perspective. That is so because, Section 19(4) makes it amply clear that is consent to the scheme is not given by any one of the persons required to give such consent to the scheme, to provide financial assistance, the Board will have to adopt such measures including winding up of a sick industrial measures company. In other words, even if one bank or financial institution was to withhold the consent, rehabilitation of a sick industrial company by giving financial assistance will be ruled out. On the other hand the proposed scheme, even if opposed by such banks or financial institutions, can be sanctioned by this Court and in that event the direction given by this Court la exercise of powers under Section 39) of the Companies Act will bind the non-consenting bank and financial institutions as well. In such a case drastic order of winding up of the sick industrial company will not be resorted to. Viewed in this perspective the petitioner-company may be justified in contending that the remedy under Section 391, as is invoked by the petitioner is the proper remedy and directions passed in the said proceedings by this Court will be in no way inconsistent with the scheme or tire provisions of the SICA.”
- The learned senior counsel for the petitioner further relied on the decision of a Division Bench of Delhi High Court in the case of Kotak Mahindra Bank Ltd., -US- AAIFR and Others (2008 (144) Comp.Cases 588 (Delhi)) wherein it is held as hereunder;
In the instant case, the fact situation is totally different from that in the case of NGEF Ltd vs. Chandra Developers P Ltd 2005127 Comp Cas 822 (SC); (2005/8 SCO 219). Here, the sale of assets has been directed by the AAFR which was competent to do so. There is no abdication or delegation in that regard in favor of the High Court. The order passed by the AAIFR clearly records a decision to sell the surplus assets. Even, Mr. Kaul did not find any fault with that direction. It was, however, argued by learned Counsel that so long as the proceedings under SICA are pending, the company cannot be permitted to approach the High Court even for purposes of a scheme of arrangement compromise regarding the debts payable to the secured creditors. Board powers of the High Court of Bombay in Ashok Organic Industries Ltd., In re 144 Comp Cas 144 relied upon by Mr. Kaul does not lend any support to the case of the petitioner. The Court was not, in that case, concerned with Section 22 of the Companies Act nor has the court examined whether Section 22 of SICA could be invoked by AAIFR to permit institution of proceedings under Sections 391 to 394 of the Companies Act in the fact situation in which the said proceedings have been permitted in the instant case.
- The learned counsel for the respondent on the other hand relied on the Division Bench decision of Bombay High Court in the case of Ashok Organic Industries Ltd., and Precision Fasteners Ltd., (2008 (144) Comp.Cases 144 (Bom)) and also the decision of the Hon’ble Supreme Court in the very case of Tata Motors Ltd., -US- Pharmaceutical Products of India Ltd., & Anr (AIR 2008 SC 2805) to point out that both the decisions relied on by the learned senior counsel have been overruled. Though that is the position in so far as the aspect of invoking the provisions of the Companies Act as against SICA, what is required to be noticed herein is that in the case on hand, this Court is concerned with the scope of Section 19 (2) and (4) of the SICA, limited to the aspect as to whether the consent of all the creditors is a requirement thereunder. The main question which is decided in all the aforestated decisions relied on by both the sides are relating to the aspect as to whether the Company Court could exercise powers under Sections 391 to 394 of the Companies Act for sanctioning an arrangement when the Company concerned is already before the BIFR under the provisions of SICA and in that context, the scope of Section 19(2) of SICA has been adverted to. To that extent, the Hon’ble Supreme Court has held that the proceedings under SICA would prevail, but, in the said case it is not decided as to whether or not the consent of all the creditors is a requirement under Sections 19 (2) and (4) of SICA?
- On that aspect, it is to be noticed that even though the Division Bench of the Bombay High Court in Ashok Organic Industries Ltd., relied on by the learned counsel for the respondent overruled the decision in the case of Pharmaceutical Products of India by holding that the Company Court cannot exercise jurisdiction when the matter is pending before BIFR, the Division Bench has however analysed the position that the consent of all the creditors is necessary under Sections 19 (2) and (4) of the SICA which is similar to what had been held in the case of Pharmaceutical Products of India on that aspect, which becomes relevant for the purpose of deciding the issue which arises for consideration in the case on hand.
- In that regard, it is necessary to notice the Division Bench of Bombay High Court in the case of Ashok Organic Industries Ltd., while comparing the provisions of the Companies Act and SICA, which reads as hereunder;
- ii) Section 391(2) of the Companies Act: If the statutory majority (both in number as well as in value) of the creditors or the members as the case may be have agreed to the compromise/arrangement, and such compromise/arrangement is sanctioned by the Company Court, then it will be binding on all creditors or members (or of the respective classes of creditors and members) and on the Liquidator and contributories of the Company (if it has been wound up)
Section 19(2) and (3) of the SICA 1985: Under Section 19(2) and (3) of SICA 1985 “every person required by the scheme to provide financial assistance” has to give his consent to the Scheme which might be a deemed consent under Section 19(2) Section 19(1) clarifies that a Scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, public financial institutions or State level institutions or an institution on other authority. Such Government/institutions/authorities are referred to as “the persons required by the Scheme to provide financial assistance”. By this definition even creditors who are required to accept anything less than their dues would be persons required by the Scheme to provide financial assistance and consequently their consent would be mandatory. This is made clear by the provisions of Section 1914) which is reproduced below:
“(4) Where in respect of any scheme consent under Sub-section (2) is not given by any person required by the scheme to provide financial assistance, the Board may adopt such other measures, including the winding up of the sick industrial company, as it may deem fit.”
On the other hand if such consent is obtained, Section 19(3) provides as follows:
“(3) Where in respect of any scheme the consent referred to in Sub-section (2) is given by every person required by the scheme to provide financial assistance, the Board may, as soon as may be, sanction the scheme and on and from the date of such sanction the scheme shall be binding on all concerned.”
Hence under the Sick Industrial Company Act 1985, even one such creditor can refuse consent to the Scheme, requiring the BIFR to resort to the provisions of Section 1944). Thus the legislative intent is clear, viz., that in the case of sick industrial companies, the special majority, as provided in Section 391 cannot bind all the creditors. All the institutional creditors are required to concur. This Parliamentary intent will be defeated if a sick industrial company whose Scheme falls under Section 19(3) is permitted to have recourse to Section 391 and have the scheme passed overriding the minority dissenting creditors.
- In the light of the above noticed position, the decisions relied on by the learned counsel for the respondent on the scope of Sections 19 (2) and (4) keeping in view the third proviso to Section 15 (1) of SICA requires consideration. Firstly, the decision rendered by a Division Bench of the High Court of Delhi in the case of Nasik People’s Co-operative Bank Limited -vs- M/s Datar Switchgear and another. W.P.(C) No.7143/2007 decided on 31.10.2007 was relied. In the said decision, it is no doubt true that the challenge raised by the petitioner therein to the order passed by the BIFR by contending that the entire amount due to them was to be paid upfront and as such, the DRS could not have been accepted was rejected by the Court after referring to the facts therein.
It is however seen that the said case rested only on the procedure contemplated under Section 19(1) and (2) of the SICA. In this regard, the Court had taken note of the fact that the BIFR had recorded in its order that the petitioner had not objected earlier. In the case on hand, the petitioner had objected to the acceptance of the scheme and therefore it had passed beyond the procedure contemplated under Section 19(2) of the SICA. As such, in the case on hand, the matter requires consideration in that regard relating to the scope of Section 19 (4) of SICA. Hence, the said decision is not of assistance.
- The learned counsel for the first respondent has further relied on two other decisions of the Division Bench of the High Court of Delhi in the case of Oman International Bank S.A.O.G. -US- Appellate & addi Authority for Industrial Financial Reco 05.05.2010) and in the case of International Finance Corporation Washington –vs- Bihar Sponge and Iron Ltd. And Others. Both the said decisions are rendered by the very same Division Bench and the same contentions on the provisions of the law has been discussed and has been similarly decided. As such, the said decisions are analysed together. For the purpose of convenience, it is necessary to extract the discussion and conclusions in paragraphs 14, 15 and 17in the case of International Finance Corporation Washington which reads as hereunder:
- A reading of the aforesaid statement of objects and reasons shows that the effect of sickness in industrial companies is of serious concern not only to the Government but also to the society at large. The objects and reasons further show that there is a need to fully utilize the productive industrial assets and afford maximum to employment and it is imperative to revive and rehabilitate the potentially viable sick industrial companies. When we read the aforesaid statement of objects and reasons alongside Section 20 of the Act, it becomes clear that winding up of a company is to be resorted to only as a last eventually and only when it becomes just and equitable to wind up the sick industrial company. That the proposition as was very vehemently canvassed on behalf of the petitioner has no legs to stand upon becomes clear also from the expression ‘one or more’ includes ‘all’ i.e. all measures including financial concessions. This expressions “one or more” indicates that more than one eventuality can be adopted and adopted and acted upon by BIFR to rehabilitate and revive a sick industrial company and not only one eventuality of resorting to other sub-sections of section 18 except its sub-section (1)(e). section 19(4) will have to be harmoniously construed with the expression ‘one or more’ as found in Section 18 so as to further the object of the Act. There cannot be a reading of the provisions of Section 19(1) and 19(4) of the Act in the manner as is suggested by the learned senior counsel for the petitioner further becomes abundantly clear when we read Section 18(3)(b) of the Act along with the expression “the Board may adopt such .other measures” as found in Section 19(4). In our opinion, this expression “the Board may adopt such other measures” cannot be restricted to only measures other than those prescribed under Section 18(1)(a) and 18(1)(e) of the Act. Section 18(3)(b) states categorically that the Board would make modification to a scheme of revival and rehabilitation of a company in case of any objection from a creditor, therefore, a conjoint reading of Section 18(3)(O). Section 19(1) and Section 19(4) shows that the other measures which are talked of in Section 19(4) would be the modification of a scheme in the light of the objections of a secured creditor, however, the same cannot mean that the objections can prevent the drawing up and implementation of sanctioned Scheme by an obdurate minority secured creditor. In fact, we must point out that a company becomes sick only because its net worth is eroded and it is unable to pay its creditors and when we talk of revival and rehabilitation of sick company as a first step and measure ordinarily and in a vast majority of cases, at the outset. BIFR has necessarily to bring about a composition between the creditors by bringing about reduction of their claims and dues of the sick company towards the creditors by adopting a principle which would treat the secured creditors fairly and equally, depending of course on the facts and circumstances of each case.
- There is yet another reason why we cannot accept the arguments as urged on behalf of the petitioner that a single creditor can prevent BIFR in bringing about a scheme which envisages reduction in the dues payable by the sick company to its secured creditors. This additional reason is the amendment which has been brought about to SICA by Section 4) and schedule of the Act 54 of 2002 which amended Section 15 of SICA after promulgation of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. As a result of this amendment, a third proviso has been brought about in sub Section (1) of Section 15 that the secured creditors who represent not less than 3/4th in the value of the amount outstanding against financial assistance disbursed to the sick company can bring about an abatement of proceedings pending before BIFR. This proviso reads as under:
“Provided also that on or after the commencement of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt. under sub-section(4) of section 13 of that Act.”
A plain reading of this proviso added by the Act 54 of 2002 shows that the consent of at least 3/4th of the secured creditors is necessary for the proceedings before BIFR to abate. This proviso further brings into focus the legislative intent that a minority creditor cannot frustrate the proceedings before BIFR for rehabilitation and revival of the sick industrial company. The Legislature has thought it fit that at least 75% of the secured creditors must join hands to bring about an abatement to the proceedings before BIFR, If that be so, it cannot be understood as to how one secured creditor can in fact bring about an abatement of the proceedings before BIFR because giving of financial concessions by reducing the dues payable by a sick industrial company is always the heart and basic structure of any scheme for revival and rehabilitation of a sick industrial company. After all, if no financial concession in the form of reduction of dues payable by a sick company to its creditors is given, then, what will be the use of other measures under Section 18 such as change of management or sale/lease of assets of a sick company and so on. None of these other measures would in themselves help in rehabilitation and revival of the sick industrial company and which measures could have been
adopted by the sick company without being a sick company governed by SICA. It is for this reason that the Legislature has advisedly and intentionally used the expression “one or more” as found in Section 18, and which aspect we have already adverted to above that the Board may take one or more measures le it is not confined only to one measure of Teiusing financial assistance by means of concession to a sick industrial company. Revival of a sick industrial company is a complex process involving discussions with secured creditors, other creditors, labour and other personnel employed with the company, dues 01 the revenue authorities and so on. If such complex procedure can be frustrated and set at naught by a single secured creditor, then, what is the purpose and use of enactment of SICA.
- There are two other aspects which we must note in support of unc interpretation which we seek to give to Section 19(4) of the Act. The first aspect is that even when a company is not sick and proceedings are resorted to by the company under Section 391 to Section 394 of the Companies Act, 1956 to bring about a composition and settlement with its creditors, it is the majority of the secured creditors who do prevail. meaning thereby minority secured creditors cannot frustrate a scheme which is propounded by the majority of the secured creditors. If a minority secured creditor cannot frustrate a scheme of composition under Section 391 to Section 394 of the Companies Act, 1956. there is no reason why a minority shareholder should be able to frustrate the revival and rehabilitation of a sick industrial company by refusing to accept a reduced amount and a statutory settlement which is brought about by approval of a rehabilitation Scheme by BIFR as per the proposal of the operating agency and arrived at after duly considering the suggestions and objections of all the concerned stake holders including the creditors under Section 18(3)(b) of the SICA. SICA after all is for imposition of a valid statutory settlement which forms part of a sanctioned scheme. The second aspect is that by virtue of Section 529-A of the Companies Act, the dues of the workers are to be treated as equal to the dues payable to a secured creditor. Therefore, dues of even one of the workers can be in a manner of speaking be said to be the dues claimed by a secured creditor, but can it be contended that one worker can frustrate a rehabilitation and revival scheme as proposed by BIFR after duly taking into consideration the views, suggestions, objections and contentions of the majority of the workmen? Surely not. Therefore, in our opinion. a minority creditor or any minority group cannot frustrate the majority by putting 2 spoke in the wheel by objecting to the sanction of a rehabilitation and revival scheme of a sick industrial company so as to cause the frustration in the object of revival of a sick company.
- A perusal of the above stated reasons would indicate that in order to gather the intention of the provision contained in Section 19 (2) and (4) of SICA, the Court has called in aid the statement and objects, the provisions contained in Section 18 and also the amendment brought about by introduction of the third proviso to Section 15 (1) of SICA and thereafter has arrived at the conclusion that a minority creditor or any minority group cannot frustrate the majority by putting a spoke in the wheel and objecting to the sanction. Having noticed the analysis and the conclusion by the Division Bench of the Delhi High Court, I have also before me the analysis and conclusion relating to Sections 19(2) and (4) of SICA as made by the Division Bench of Bombay High Court in the case of Ashok Organic Industries Limited. I am inclined to follow the conclusion of the Division Bench of Bombay High Court since with due respect to the view taken by the Delhi High Court, I am of the opinion that the question of taking aid of the object of the Act and the contents of another section in the same Act or any other Act would have arisen only if there was any ambiguity in the provision under consideration. As held by the Hon’ble Supreme Court, it is a well settled principle in law that the Court cannot read anything into a statutory provision which is plain and unambiguous. The language employed in a statute is the determinative factor of legislative intent. The first and primary rule of construction is that the intention of the Legislation must be found in the words used by the Legislature
- In this regard, a bare perusal of Section 19 of SICA (extracted supra) would indicate that sub-section (1) provides for the scheme to be prepared as contemplated therein. Thereafter, sub-section (2) provides that such scheme shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days. It also provides for the deemed consent if there is no response. In the case on hand, the fact that the petitioner had objected to the scheme is not in dispute and the same in fact has been recorded by the BIFR in the course of its order. It is in that context, the provision contained in sub-Section (4) would arise as otherwise the procedure as contemplated under sub section (3) was to be followed. In this regard, sub section (4) provides that if in respect of any scheme the consent under sub-section (2) is not given by any person required by the scheme to provide financial assistance, the Board could adopt such other measures including winding up of the sick industrial company. The question for consideration is as to whether in such circumstance, the BIFR can still proceed if there is objection by any of the creditors be it even one of them?
- In my opinion, the answer to the above would be clear if the purport of sub-section (4) to Section 19 is considered in the light of what is contained in sub section (3) to Section 19. The sub-section (31 which has been extracted above would indicate that if there is consent to the scheme, the Board may sanction the scheme. While stating so, the words employed in sub section (3) is, consent given by “every person“. In contrast to the same, the expression employed in sub section (4) is relating to the consent not being given by “any person“. The fact that the word “every person” has been employed in sub-section (3) so as to enable the Board to proceed further would indicate that the consent to the scheme should be unanimous. The employing of the word “any persons” in sub-section (4) would clearly indicate that if there is no consent given by even one person required by the scheme to provide financial assistance, the very implemented further and the acceptance by a particular percentage of persons so as to be sanctioned by the BIFR was not intended. This intendment is clear from the fact that as otherwise the Parliament could have in sub-section (3) to Section 19 itself clarified that on circulation of the scheme, if a particular percentage to be specified by the Parliament agreed to the scheme the BIFR could proceed further in the matter and it would not have been necessary for the Parliament to have one sub-section to specify the procedure to be followed when “every person” consents and another sub-section specifying a different procedure when “any person” does not consent to the scheme. Hence, the provision contained in sub-section (2), (3) and (4) on conjoint reading makes it clear that the DRS as proposed can be carried forward only if every person required by the scheme to provide financial assistance consents to the scheme failing which the other measures are to be adopted.
- Further, the reliance on the third proviso to Section 15(1) of SICA brought about by way of amendment with effect from 21.06.2002 also cannot be taken as guidance for arriving at the conclusion that if three-fourth of the creditors in value consent to the DRS, the same would be sufficient compliance for Section 19 of SICA. In my view, the said proviso should be construed as otherwise. In fact, by the said proviso an overriding effect has been given to the Securitization and Reconstruction of Financial Assets Enforcement of Security Interest Act, 2002 (SARFAESI Act’ for short) over SICA if three-fourth of the creditors in value choose to avail the remedy under the said Act and in such event, the proceedings initiated under SICA would stand abated which would mean that the benefits available to a sick industrial company under SICA enabling revival could be undone by three-fourth of the secured creditors in value and they could proceed to recover their dues under SARFAESI. Further, what is provided in the third proviso to Section 15(1) of SICA is for the proceedings to abate if three-fourth of the secured creditors in value choose a different forum and if that happens, there would be no scope for any further proceedings under SICA. Whereas under Section 19(4), even if one-fourth or less than that do not consent to the DRS, the proceedings does not either abate or come to an end in any other manner, but the BIFR would have to proceed further and adopt other measures as contemplated under SICA itself proviso cannot be considered as an aid to construct the true meaning of Section 19(4) as they are independent in their operation. In fact the third proviso to Section 15 (1) is an enabling provision as otherwise Section 22 of SICA would have provided immunity to a sick industrial company from other proceedings being initiated. Above all, is the amendment was intended at diluting or clarifying the intendment of Section 19(4), it would have been open for the Parliament to amend Section 19 itself.
- Hence, on this aspect of the matter, I am of the opinion that as held by the Division Bench of Bombay High Court in Ashok Organic Industries Limited case as noticed in the extracted portion (supra), the objection by even a single creditor who is required to provide financial assistance would not enable the BIFR to carry the scheme forward but would have to explore other possibilities of having a better scheme or to proceed as contemplated under Section 19(4) to adopt other measures and if everything fails resort to winding up. In fact, the very reason that in the above referred decision and also that the Hon’ble Supreme Court did not provide precedence to the procedure under Section 391 to 394 of the Companies Act when the matter is pending before the BIFR itself would point to the fact that what is intended under SICA is consent of all the parties and that cannot be whittled down by resorting to a procedure where the consent of a certain percentage of the persons is sufficient in the proceedings under the Companies Act.
- In the above background, in any event, when the legal position is determined as above, the factual contentions with regard to the nature of objections of the petitioner need not be gone into in detail. However, in view of the contentions urged before this Court, it is seen that the main objections of the petitioner herein was with regard to the enhancement made to the other creditors viz., KSFC and KSIIDC at a higher percentage relating to the OTS and in this regard the increase to the petitioner was only 32%. Further, for better settlement terms, the petitioner contended that the valuation of the land belonging to the first respondent company was very much on the lower side and in this regard there was serious dispute with regard to the earlier valuation report dated 11.10.2006 (Annexure-O) produced along with additional statement of facts. The valuation report at Annexure-F to the writ petition was relied on to contention that the valuation as contained therein was at 7.26,25,00,000/- whereas the valuation taken is at 7.538.60 lakhs as per the report dated 11.10.2006. Though the learned counsel for the respondent contended that the valuation made earlier was also by the person appointed by the petitioner, the response on behalf of the petitioner is that action has been initiated against the said valuer for undervaluing the property. In that regard, reference is made to the circular dated 19.11.2007 (Annexure-P) to indicate that the said Sri. M.K Nagaraju, Panel Valuer has been De-empanelled. Therefore, it is contended that the first respondent cannot take advantage of such valuation.
- It is further contended on behalf of the first respondent that the valuation of the immovable property would not be relevant and the same cannot be made as an issue. Even with regard to the increase relating to the OTS scheme, it is contended by the respondent that the OTS guidelines of the RBI would be binding on the petitioner/Bank as held in the case of M/s. Sardar Associates & others -US- Punjab & Sindh Bank and others (AIR 2010 SC 218). However, the same would not be relevant at this juncture as there could be no adjudication on that aspect in the instant proceedings since all these aspects are to be considered by OA and BIFR in the background of the other terms. It is also contended that in any event, by the communication dated 25.01.2007 it was agreed that a sum of * 200 lakhs by way of OTS would be accepted. Reference is also made to the sum of .30 lakhs stated to have been deposited by M/s Padmavathi Software on 30.03.2006 and that the amount had not been appropriated by the petitioner/Bank. A perusal of the was also one of the items which had been taken into consideration for formulation of the DRS as is evident from the DRS which was ultimately sanctioned. The serious issue appears to be with regard to the valuation and in that regard, the appropriate sacrifice to be made. Further, the contention is also with regard to the appropriate amount to be agreed by way of OTS keeping in view the sacrifice to be made by creditors; the benefit to the sick company and asset that is available for the the duty of the petitioners as custodian of public money also cannot be ignored.
- At the outset. the letter dated 25.01.2007 (Annexure-G) does not indicate absolute consent by the petitioner to accept 200 lakhs as OTS but had agreed to examine a minimum offer to that extent. However, these are aspects relating to the correctness or otherwise of the appropriate amount and the valuation which need not be examined by this Court since as already stated above, it is not to be adjudicated but is a matter to be negotiated in the proceedings before the BIFR so as to arrive at a scheme which would be acceptable to all concerned. However, the contentions in this regard are noticed as it would disclose that the petitioner in any event, is not an inconsequential secured creditor to be ignored while accepting the DRS despite their objection. In a circumstance, where the legal position is that all the creditors have to consent for the scheme to be sanctioned by the BIFR, the contention of the petitioner only indicates that the matter required further hearing by the BIFR so as to direct the Operating Agency to look into all these aspects and if a better scheme could be worked out. This is clear from the fact that the petitioners had not foreclosed the negotiations and are not insisting on winding up, but had sought for better bargain with reasonable sacrifice. Therefore, in a circumstance of the present nature where the orders of the BIFR and AAIFR cannot be sustained on the interpretation of the position in law and when the matter requires reconsideration, it would be open for all these aspects of the matter also to be considered either before drawing up a different DRS for the purpose of circulation by redoing the process from the stage as contemplated under Section 19(1) of the SICA and thereafter to proceed in accordance of law.
- Before parting, it is necessary to advert to the under Articles 226 and 227 of the Constitution to interfere with the orders passed by competent Forum. Reliance was placed on the decision of the Hon’ble Supreme Court in the case of Sarpanch, Lonand Gramapanchayat -US- Ramgiri Gosavi and another Ramgi Gosa (AIR 1968 SC 222) and that of the Calcutta High Court the case of Manojit Nag Chowdhury -VS Saptarni Co-operative Housing Society (AIR 2010 Culcutta 181). On the other hand learned senior counsel for the petitioner relied on the decisions of the Hon’ble Supreme Court in the case of Mani Variman Daruwala -US- Phiroz N. Bhatena and others (1991 (3) SCC 141); in the case of Appropriate Authority and another -US- Sudha Patil (Smt) and another (1998 (8) SCC 237) and in the case of Shankar Ramachandra Abhayakar -VS Krishnaji Dattatraya Bapat (AIR 1970 SC 1). Having noticed the said decisions, it is unnecessary to analyse each judgment and overburden this order. Instead, a collective perusal of the principles enunciated in the said decisions of interference but there is no bar for this Court to exercise jurisdiction. Wrong consideration of the position of law or the materials on record are also case, the acceptance of the DRS despite there being no consent from the petitioner is held to be contrary to the statutory provision and such error would certainly warrant interference at the hands of this Court.
- For all the above stated reasons, I proceed to
i)The writ petition is allowed in part,
ii)The order dated 25.06.2007 passed by the BIFR in case No.254/2002 (Annexure-3) and the order dated 07.07.2009 passed by the AAIFR in Appeal No. 266/2007 (Annexure-D) are set aside and the matter is remanded to the BIFR,
iii)The BIFR is directed to restore case No. 254,/2002 on file and reconsider the matter afresh in accordance with law,
iv)Parties to bear their own costs.