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1994 DIGILAW 568 (DEL)

LINK TRADE AND TECHNOLOGY INC. v. UNION OF INDIA

1994-08-26

D.P.WADHWA, DEVENDER GUPTA

body1994
( 1 ) THE petitioner, an aspirant, for revival of the Andhra Cement Company Limited, a sick industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985 (for short "the Act"), has filed this petition, under Article 226 of the Constitution praying various reliefs but in effect praying that its scheme for revival of the sick company be considered. The petitioner failed before the Board for Industrial and Financial Reconstruction (BIFR)and also the Appellate Authority for Industrial and Financial Reconstruction. (AAIF ). BIFR is respondent No. 3 and AAIFR respondent No. 2. There are as many as 22 respondents which include host of employees unions, financial institutions, bank, etc. M/s. Duncans Agro Industries Ltd. ,respondent No. 4, would appear to be winner in revival of the sick company Andhra Cement. ( 2 ) IT is not necessary for us to refer to various definitions given in the Act like "sick industrial company , the "operating agency" and also various other provisions of the Act except to note BIFR had declared Andhra Cement to be a sick industrial company under section 16 of the Act and then process started for revival and rehabilitation of the sick industrial company. Industrial Development Bank of India (IDBI) was appointed as the Operating Agency (O. A.) to prepare a scheme providing for such measures in relation to the sick industrial company. ( 3 ) THIS Court in C. W. P. No. 4446/93 - Upper India Couper Paper Mills Company Ltd v. Appellate Authority for Industrial and Financial Reconstruction and others, decided on 27 May 1994, after considering the provisions of the Act (SICA) as to how the matter is processed before the BIFR, observed (in relevant part) as under :- (1) The Board of Directors of a sick company or any of the authorities specified in Section 15 of the SICA can make a reference to the BIFR for determination of measures which may be adopted with respect to such a company. (2) The BIFR under Section 16 of the SICA is empowered to make such enquiry as it may deem fit for determining whether an industrial company has become a sick industrial company. For this purpose the BIFR can appoint an operating agency to enquire into and make a report with respect to such matters as may be specified in the order. For this purpose the BIFR can appoint an operating agency to enquire into and make a report with respect to such matters as may be specified in the order. (3) The BIFR under Section 17 of the SICA after making enquiry under Section 16 can ask the sick company to make its net worth positive within a reasonable time subject to such restrictions or conditions as may be specified in the order. 4) On failure of the sick industrial company to make its net worth positive within a reasonable time, the BIFR under Section 17 (3) of the SICA in public interest may appoint any operating agency to prepare a scheme in the light of the guidelines as may be specified in the order and to adopt any of the measures specified in Section 18 of the Act including the reconstruction, revival and rehabilitation of the sick industrial company. (5a) After an order under Section 17 (3) is passed by the BIFR the operating agency shall prepare a scheme within the time specified under Section 18 (1 ). Draft scheme can also be prepared by the BIFR under Section 18 (3 ). If a scheme is prepared by the BIFR, the same is required to be circulated in draft to the sick industrial company and the operating agency etc. On receipt of the suggestions and objections, if any, the BIFR may. make such modifications, if any, into draft scheme as it may consider necessary. (5b) Under Section 18 (4) a scheme comes into operation only on being sanctioned by the BIFR from a specified date. "under sub-section (5) of section 18, the BIFR can review the sanctioned scheme on the recommendation of the Operating Agency or otherwise. ( 4 ) WE may also note that the petitioner, as the name shows, would appear to be a company incorporated under some law. We are told it is not an incorporated company under the Companies Act, or even incorporated in the United States of America. ( 5 ) AFTER having said this, we pick up the thread from the meeting of the BIFR held on 26 July 1993. The BIFR noted that in view of the earlier directions given to the O. A. , who had evaluated various bids received by it for revival of the sick company, it had since submitted its report which was being considered in that meeting. The BIFR noted that in view of the earlier directions given to the O. A. , who had evaluated various bids received by it for revival of the sick company, it had since submitted its report which was being considered in that meeting. There were four proposals before the O. A. As regards the proposal of the petitioner it was noted on the basis of submissions made by the representative of the O. A. that the petitioner had informed the O. A. that M/s. Kumar Holding Group and Mr. Mohan Shandilya, NRI, would bring in funds of Rs. 150 crores in the first year of rehabilitation instead of Rs. 100 crores proposed earlier. The representative of O. A. further mentioned that "besides, they would pay the due of the banks and financial institutions towards term-loans, interest on term-loans and interest on WCTL, amounting to Rs. 118. 20 crores. within a year of the take over of the unit. " Then the representative of the O. A. said that, however, the banks were yet to verify the financial standing of M/s. Kumar Holding Group and Mr. Mohan shandilya, and further that at a joint meeting of the banks and the institutions, the institutions had sought deposit of the 50% of the proposed consideration amounting to Rs. 75 crores by the petitioner before examining its proposal. The BIFR then noted the submissions of the petitioner that it was prepared to deposit an amount of Rs. 75 crores in a "no lien account" with the bank provided the banks and the institutions furnish guarantee for the deposit. The BIFR expressed surprise at such a suggestion which reflected lack of confidence in the banking system of the country and said no lien account deposits could not on their own be appropriated by the banks for any purpose whatsoever, and that if the petitioner was interested in revival of the sick company it may deposit an amount of Rs. 75 crores in foreign exchange in a no lien account within three weeks with the lead bank, i. e. , the Bank of Baroda (BOB), and that no further time for depositing the amount would be allowed. It is not necessary to consider the details of the minutes of the meeting of 26 July 1993 except to note the operative portion of the order of the BIFR in this meeting which is as under :- "20. It is not necessary to consider the details of the minutes of the meeting of 26 July 1993 except to note the operative portion of the order of the BIFR in this meeting which is as under :- "20. After hearing the parties, the Bench directed the representative of the LTT to deposit 50% of the amount proposed to be brought in by them in foreign exchange, i. e. , equivalent to Rs. 75 crores in a no Lien Account with the BOB by 16th August, 1993. The Bench of clarified that the deposit in the no Lien Account would be for a period of 4 months and carry normal rate of interest. The Bench directed the representative of the BOB to communicate to the OA and the Bench, by 18th August, 1993, whether the said deposit in foreign exchange had been made or not by the stipulated date. In case the LTT deposits the amount the OA would analyse the revival proposal submitted by them. All the intending parties present in today s hearing were also allowed to submit their modified proposals, if any, to the OA within a week. No further modification would be allowed to any one thereafter. The OA should evaluate the aforesaid proposals, quantify the sacrifices expected by various parties correctly and submit its revised report to the Bench by 31st August, 1993. " ( 6 ) THE petitioner did not feel itself aggrieved by this order and did not prefer any appeal against that order to the AAIFR under section 25 of the Act. Next meeting of the BIFR was held on 28 October 1993. BIFR noted that the petitioner had not deposited any amount in a no lien account as directed earlier arid even during the extended time granted to it. The representativ of the petitioner in this meeting said that the petitioner did not deposit any amount in a no lien account with the BOB for want of necessary confirmation from the Q. A. that its proper would be accepted. BIFR observed that since the petitioner had failed to deposit the amount of Rs. 75 crores in a no lien account with the BOB, its proposal could not be considered, and that apparently the petitioner was not interested in the rehabilitation of the sick company. BIFR observed that since the petitioner had failed to deposit the amount of Rs. 75 crores in a no lien account with the BOB, its proposal could not be considered, and that apparently the petitioner was not interested in the rehabilitation of the sick company. The BIFR, therefore, gave certain directions to the O. A. to further examine the proposals given by three other parties, and it further clarified that since the petitioner had not deposited the amount in a no lien account with the BOB despite seeking extension of time, its proposal should not be considered. ( 7 ) THE petitioner filed an appeal against this order before the AAIFR which by order dated 13 January 1994 dismissed the same. Thereafter, the BIFR by order dated 27 January 1994 observed that it was in the interest of all concerned that proposal of M/s. Duncans Agro Industries Ltd. (Respondent No. 4) be pursued in preference to other proposals received so far, and directed that draft rehabilitation scheme in favour of M/s. Duncans Agro Industries Ltd. be circulated for consent to all concerned parties as required under sub-section (2) of section 19 read with sub-section (1) of section 19 of the Act. The present petition was filed on 19 March 1994 wherein the petitioner has sought quashing of the orders dated 13 January 1994 of the AAIFR and dated 27 January 1994 of the BIFR, and has further prayed, inter alia, for waiver of the pre- condition of pre-deposit of Rs. 75 crores before accepting petitioner s scheme and proposal for winding up/rehabilitation of the sick industrial company, and that in the alternative both parties, i. e. , the petitioner as well as respondent No. 4, be directed to deposit Rs. 75 crores each independently in no lien account with a nationalised bank in foreign exchange, and further that both these parties be directed to deposit Rs. 10 crores each independently for "holding on" operations, and lastly, the O. A be directed to prepare a report evaluating both the schemes or schemes as might be modified and put up the report to the AAIFR for its recommendations to this Court. ( 8 ) IT is contended by Mr. Arun Jaitley, learned counsel for the petitioner, that the impugned order of the AAIFR is bad in law inasmuch a proper opportunity was granted to the petitioner to deposit the amount of Rs. ( 8 ) IT is contended by Mr. Arun Jaitley, learned counsel for the petitioner, that the impugned order of the AAIFR is bad in law inasmuch a proper opportunity was granted to the petitioner to deposit the amount of Rs. 75 crores in no lien account with the result that the petitioner could not approach the Reserve Bank of India for permission to deposit this amount, and that the use of the expression "besides" in the minutes dated 26 July 1993 of the BIFR was erroneous which led it to believe that its bid was for Rs. 260 crores and not Rs. 150 crores, and that the petitioner had been discriminated against as it was asked to deposit Rs. 75 crores in foreign exchange in no lien account which condition was not put on respondent No. 4. ( 9 ) WE are unable to agree with any of the grounds advanced by the petitioner in challenging the impugned orders. If the petitioner had felt aggrieved by the order dated 26 July 1993 it could have filed an appeal before the AAIFR which it did not do. No question of discrimination arises as each proposal had to be independently examined and its worth considered. The opinions of the banks and the financial institutions have to be given due weight as they have all invested huge public funds in the sick company and they have to see that only a genuine party comes forward for revival and rehabilitation of a sick company. In the revised report of the 0,a. (No. IV) it has been mentioned that at a joint meeting of the financial institutions and banks held on 24 May 1993 the representative of the petitioner had stated that the funds amounting to Rs. 100 crores for take over of the sick company would be routed through Dr. Mohanan (who has styled himself as President of the petitioner) by a Sheikh from UAE and that Dr. Mohanan s personal funds would not be involved in the take over bid. It was also noted that the petitioner had also stated in the meeting that the funds earmarked for the project had already reached India and the petitioner was agreeable to deposit Rs. 100 crores with the O. A. (IDBI) towards its promoter s contribution before its proposal was considered. It was also noted that the petitioner had also stated in the meeting that the funds earmarked for the project had already reached India and the petitioner was agreeable to deposit Rs. 100 crores with the O. A. (IDBI) towards its promoter s contribution before its proposal was considered. Thereafter, the minutes of the BIFR dated 26 July 1993, which we have already noted, show that now the offer given by the petitioner was for bringing in funds amounting to Rs. 150 crores in foreign exchange from two parties and further that it was prepared to deposit an amount of Rs. 75 crores in foreign exchange in a no lien account . We are unable to see how the use of the expression "besides" in the minutes of the BIFR dated 26 July 1993 caused any confusion in the mind of the petitioner or caused any hinderance in complying with the direction of the BIFR for deposit of Rs. 75 crores in foreign exhchange , in no lien account with BOB. As a matter of fact, on a representation made by the petitioner the word "besides" was deleted from the minutes. A great deal of arguments were addressed before us that the certified copy of the minutes of the meeting of the BIFR dated 26 July 1993 was received too late for the petitioner to apply to the R. B. I, for permission to bring in Rs. 75 crores as ordered by the BIFR, earlier stand of the petitioner that funds amounting to Rs. 100 crores had already moved into India sent by some Sheikh from UAE notwithstanding. We have gone through the correspondence entered into by the petitioner bringing to the notice of the BIFR about delayed receipt of the minutes of the meeting of 26 July 1993 and on that account inability of the petitioner to apply to the R. B. I, for necessary permission to bring in Rs. 75 crores in foreign exchange. BIFR did extend time on the plea raised by the petitioner uptil 29 September 1993. Nothing has been shown to us as to what attempt, if any, the petitioner made in applying to R. B. I, even though it received the order late and the source from which the money was to come. 75 crores in foreign exchange. BIFR did extend time on the plea raised by the petitioner uptil 29 September 1993. Nothing has been shown to us as to what attempt, if any, the petitioner made in applying to R. B. I, even though it received the order late and the source from which the money was to come. The AAIFR while dismissing the appeal by order dated 13 January 1994 observed in the penultimate para as under :- " In view of the above discussions, we are of the opinion that it is not a case in which the Board did not provide adequate opportunity to the appellant to deposit the amount. It is rather a case in which the opportunity given was not availed of by the appellant and after 29th September, 1993, the appellant did not care to approach the Board in this regard. The learned counsel for the appellant made a submission that the BIFR even now be directed to grant adequate time to the appellant to deposit the amount and consider their proposal. The reference. was made in the year 1990. The representative of the - operating agency has submitted that in compliance of the directions given by the Board, the operating agency has already scrutinised four proposals and have filed their report to the BIFR on 25th October, 1993 which is under consideration before the Board. What happened subsequent thereto, we are not aware. We do not feel inclined to allow the prayer of the appellant for direction to the Board to give further opportunity to the appellant for the reason that the appellant had not complied with the direction of the -Board having granted adequate opportunity. The negligence on the part of the appellant in not approaching the Board after 29th September, 1993 also disentitles them for such indulgence. "no fault can be found with this. ( 10 ) WE are also of the view that the petitioner was not sincere in its approach and was just marking time and raising lame excuses to delay the whole process of revival of the sick industrial company. Mr. Jaitley. strenuously argued that without the permission of the R. B. I, the money could not have been brought into this country. But then the petitioner never applied to the R. B. I. We asked Mr. Mr. Jaitley. strenuously argued that without the permission of the R. B. I, the money could not have been brought into this country. But then the petitioner never applied to the R. B. I. We asked Mr. Jaitley what was the requirement of law that the money could be brought into this country only by permission of the R. B. I. He referred to section 32 of the Act, sub-section (1) of which provided as under :- "32. Effect of the Act on other laws.- (1) The Provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act. " ( 11 ) THEN reference was made to sub-section (1) of section 13 of the Foreign Exchange Regulation Act, 1973, which is as under :- "13. Restrictions on import and export of certains currency and bullion.- (1) The Central Government may, by notification in the Official Gazette, order that, subject to such exemption, if any, as may be specified in the notification; no person shall, except with the general or special permission of the Reserve Bank and on payment of the fee, if any, prescribed, bring or send into India any foreign exchange or any Indian currency. "then we asked about any notification issued by the Central Governmenit as mentioned in sub-section (1) of section 13 of FERA. We were referred to Exchange Control Manual (1993 Edition) issued by the R. B. I. Chaper 10 deals with Foreign Investment in India and Part "c" of (his Chaper deals with Non-resident Indians Investment. Para 16 in this part deals with Investment in Sick Industrial Units and is as under :- "16. We were referred to Exchange Control Manual (1993 Edition) issued by the R. B. I. Chaper 10 deals with Foreign Investment in India and Part "c" of (his Chaper deals with Non-resident Indians Investment. Para 16 in this part deals with Investment in Sick Industrial Units and is as under :- "16. (i) NRIs/ocbs will be permitted by Reserve Bank to undertake revival of sick industrial units by making bulk investment in them either by way of purchase of equity shares from existing shareholders or in the form of subscription to new equity issues of the sick units on the following basis : (a) The bulk investment can be made on private placement basis upto 100% of the equity capital of the sick company with full benefits of repatriation of capital invested and income earned thereon. (b) Repatriation of capital brought into India for the revival of the sick company will be permitted after a minimum period of five years, on merits of individual cases, after taking into account the future payment liabilities of the investee company. (c) Issue/transfer of equity shares should be approved by the existng shareholer of the company through a Special Resolution. for the purpose of investment under the Scheme, a company is considered sick only if (a) a public financial institution or a consortium has already formulated a plan for its rehabilitation/revival, or (b) public financial institution/bank providing credit facilities to the company has classified it as a sick unit on the basis of losses made consecutively for at least the previous three years and the market price of its shares has been below part for at least two years. (ii) Applications for permission for issue/ transfer of equity shares to non-residents should be made by the concerned Indian company in form RSU to the Central Office of Reserve Bank together with the particulars/documents specified in the application form. A form has also been prescribed with reference to para 16 (ii) above. There are instructions for filling this form, and one of the documents required to be filed is : "a certificate regarding the sickness of the company from a public financial institution or a consortium which is formulating the plan for the company s rehabilitation/ revival or from a bank/public financial institution providing credit facilities to the company indicating the basis on which the company has been classified as a sick unit. " ( 12 ) A bare perusal of para 16 and the form would show that it has nothing to do with the provisions of the Act (SICA) and the sick industrial unit as defined therein. We have not been shown any other provision under which any permission from the R. B. I. was required after the BIFR directed deposit of Rs. 75 crores in foreign exchange in no lien account . In any case sufficient opportunity had been granted to the petitioner to comply with the requirement stipulated by the BIFR for considering the proposal of the petitioner which it failed to avail. We find no error in the impugned order for us to interfere. Petitioner is not entitled to any relief. We would, therefore, dismiss this petition with costs. Counsel fee Rs. 5,000/ -. --- *** --- .