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2010 DIGILAW 169 (CAL)

Motilal Thanvi v. Punalur Paper Mills Limited

2010-02-19

SYAMAL KANTI CHAKRABARTI

body2010
JUDGMENT Syamal Kanti Chakrabarti, J. 1. IN this Writ Application under Article 226 of the Constitution of INdia 25 workers of Purnalur Paper Mills Limited, Kerala, having its controlling office at 13, Lindsay Street, Kolkata - 700 087 have challenged the propriety of an order dated 20.10.1992 passed by Bench-II of the Board of INdustrial and Financial Reconstruction and the adjournment order sine die of the Appeal No.114/92 still pending before the Appellate Authority for INdustrial and Financial Reconstruction, New Delhi. 2. THE Petitioners contend that they are the employees of Purnalur Paper Mills Limited, respondent No.1, which is an existing company having 59000 MT pulp and paper mill employing about 1000 workers. Respondent Nos. 4 to 9 are all workers trade unions. In 1967 the majority shares in the respondent- Company No.1 was acquired by one L.N. Dalmia while it was lying closed. At that time the company suffered huge losses and had various liabilities under several statutory authorities. Mr. Dalmia endeavoured to revive the company gradually and at a certain stage he was capable of wiping out the entire financial liabilities of the company. THEreafter the present management embarked on renovation and expansion programme in two phases at an estimated cost of Rs. 12 Crores. THE company earned profits in 1976-77 but after 1977 it began to incur losses on account of shortage of raw materials and failure to utilize optimum production capacity. THE company sustained cash losses from 1980-81 onwards and at the end of 31.3.1987 accumulated losses of the respondent No.1-company equaled to or exceeded its entire net worth which was estimated at Rs. 7,45,99,000/- only at the end of 31.07.1983. In March, 1992 the management of the respondent-Company made a reference under Section 15 of the Sick Industrial Companies (Special Provisions Act) 1985 before the Board for Industrial and Financial Reconstruction for adoption of measures by the BIFR for reviving the company. Meanwhile there was no production of the company and the employees were without any employment from 1987. THEir arrear wages, gratuity etc. have not been paid and unless the company is revived, their chance of survival, recovery of arrears and maintenance of livelihood will be at stake. Meanwhile there was no production of the company and the employees were without any employment from 1987. THEir arrear wages, gratuity etc. have not been paid and unless the company is revived, their chance of survival, recovery of arrears and maintenance of livelihood will be at stake. On receipt of the letter dated 9th March, 1992 of the Management, the BIFR registered a case being No.50/92 and considered the matters and after hearing by order dated 20.10.92 rejected the reference on the ground that since in a suit filed by ICICI before the Bombay High Court, a Receiver had already been appointed over certain assets of the respondent No.1-Company by the Honble Bombay High Court, the BIFR could not proceed with the case and adopt any measure for revival of the company contemplated under Section 16 of the Act of 1985. Against such order of the BIFR dated 20.10.1992 the company preferred an appeal before the appellate authority for Industrial and Financial Reconstruction which was registered as Case No.114 of 1992. The authorized representatives of the respondent Nos. 4 to 9 also appeared before the AAIFR and claimed that mere appointment of a Receiver over some assets of the respondent No.1-Company in a suit filed by the ICICI before the Honble Bombay High Court does not prevent either the BIFR or the AAIFR to take steps for revival of the respondent No.1-Company under the Act of 1985. But unfortunately AAIFR like the BIFR also decided that since a Receiver had already been inducted over some assets of the respondent No.1- Company in connection with a mortgage suit for Rs. 5 Crore filed by ICICI in 1986 they will not be able to proceed any further with regard to the respondent No.1-Company under the Act of 1985 till disposal of the said suit or till the Receiver appointed over some of the assets of the respondent No.1- Company is discharged by the Honble High Court at Bombay. 3. IN course of time it is now being felt by the petitioners-workers that the respondent-company has now no desire to revive the company though it has sufficient potentiality and the workers are exposed to vagrancy by such unscrupulous attitude of the respondent-Company. 3. IN course of time it is now being felt by the petitioners-workers that the respondent-company has now no desire to revive the company though it has sufficient potentiality and the workers are exposed to vagrancy by such unscrupulous attitude of the respondent-Company. It is apprehended that AAIFR like BIFR will also reject the prayer of the company to facilitate its winding up liquidation in a circumlocutory manner and thereby the workers will be deprived from recovery of their arrear dues and legitimate right to maintain livelihood in future. Therefore, they have prayed for necessary direction in the nature of mandamus commanding the BIFR to rescind, recall or set aside their order dated 20.10.1992 with similar direction to the AAIFR to set aside their purported order dated 20th October, 1992 and to direct them to consider the reference filed by the management of respondent No.1- company under section 15 of the Act of 1985 and to dispose of the same under the provisions of the Act of 1985 irrespective of the fact that a suit filed by ICICI pending before the Honble High Court at Bombay in which a Receiver has been appointed. 4. LEARNED lawyer for the petitioners has contended that Sub-Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 has laid down the procedure being mandatory procedure to be followed by the BIFR on receipt of any reference from the sick industry which is declared by the company at a meeting of their Board of Directors as a sick industry. The provision is quoted below for ready reference: 15. The provision is quoted below for ready reference: 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 finalization 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 finalization 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 measures 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 the 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 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. 5. Learned lawyer for the petitioner has contended that upon receipt of such reference it is the duty of the BIFR to hold enquiry into the workings of sick industrial companies as prescribed in Section 16 of the Act within sixty days from the commencement of the enquiry. 5. Learned lawyer for the petitioner has contended that upon receipt of such reference it is the duty of the BIFR to hold enquiry into the workings of sick industrial companies as prescribed in Section 16 of the Act within sixty days from the commencement of the enquiry. If after making such enquiry under Section 16 the Board is satisfied that a company has become a sick industrial company, the Board shall after considering all the relevant facts and circumstances of the case decide as soon as may be by order in writing, whether it is practical for the company to make its network exceed the accumulated losses within a reasonable time and to issue necessary direction as prescribed in Section 17 and 18 of the Act in such manner as the BIFR deems fit and necessary, but in the instant case, no effective attempt has been made either by the BIFR or by the AAIFR to hold and complete such enquiry within sixty days which is a statutory obligation on their part after receipt of the reference made under Section 15 of the Act by the respondent No.1- company. They have taken a plea that since the ICICI Bank has filed a suit before the Bombay High Court in which a Receiver has been appointed, it will not be feasible for them to proceed further. But obviously there is no stay order issued by the Honble Bombay High Court restraining either the BIFR or the AAIFR from taking recourse to the provisions of statutory enquiry as laid down in Section 16 of the Act. But failure on their part to take any tangible step mentioned by the statute has infringed the right to livelihood of the large number of workers of the factory for which they have approached this writ Court for issuance of necessary direction upon them for compliance of the mandatory provisions of Section 16 of the Act. 6. But failure on their part to take any tangible step mentioned by the statute has infringed the right to livelihood of the large number of workers of the factory for which they have approached this writ Court for issuance of necessary direction upon them for compliance of the mandatory provisions of Section 16 of the Act. 6. SECTION 26 of the Act provides that no order passed or proposal made under this Act, shall be appealable except as provided therein and no civil Court shall have jurisdiction in respect of any matter which the appellate authority or the Board is empowered by or under this Act to determine and no injunction shall be granted by any Court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. Learned lawyer for the petitioners has refuted such argument and contended that since both the BIFR and AAIFR have failed to comply with the mandatory provisions contained in Section 16 of the Act, they have no other alternative forum but to approach the writ Court seeking appropriate direction and from this point of view the instant application is maintainable in law. 7. HAVING heard learned advocates for both parties, and on perusal of the affidavits and other documents on record, it appears to me that the BIFR has failed to comply with the mandatory directions of Section 16 of the Act for conducting statutory enquiry within sixty days from the commencement of such enquiry to explore the viability of revival of the sick company without any reasonable cause and rejected the reference made violating the mandatory provisions of Section 16 of the Act. Filing of a suit before the Honble Bombay High Court without any injunction order cannot absolve the BIFR of its bounden duty to hold necessary enquiry into the affairs of the company for its revival and when a method and follow-up action has been prescribed under the statute, all concerned are bound to follow and execute it in the same manner as prescribed in the Act. When any authority fails to discharge its duties in the manner prescribed under the statute on flimsy ground, the writ Court has ample jurisdiction to interfere with such illegal action to prevent abuse of the process of law and from this point of view I hold that the instant application is maintainable in law. 8. PROVISO to sub-Section (1) of Section 15 of the Act of 1985 has cast an embargo to the operation of Section 15 of the Act where a reference is pending before the BIRF on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 if the secured creditors, representing no less than three forth 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. From a plain reading of the aforesaid proviso it will appear that on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 with effect from 21.04.2002 if a reference under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 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 the financial assistance disbursed to the borrower of such secured creditors have taken any measure to recover their secured debt under Section 4 of the Section 13 of that Act. There is no averment of the respondent or material document on record to show that the secured creditors representing three fourth in value of the amount outstanding against financial assistance have taken any measure to recover their secured debt under sub-Section 4 of Section 13 of the said Act of 2002. On the contrary from the impugned order of the BIFR I find that there is only mention of one case filed by ICICI Bank in 1986 in a mortgaged suit for Rs. 5 Crore in connection of which a Receiver was appointed by the Honble Bombay High Court on 29th April, 1986. On the contrary from the impugned order of the BIFR I find that there is only mention of one case filed by ICICI Bank in 1986 in a mortgaged suit for Rs. 5 Crore in connection of which a Receiver was appointed by the Honble Bombay High Court on 29th April, 1986. From the order dated 20th April, 1993 in Appeal No. 114 of 1992 of the Appellate Authority for Industrial and Financial Reconstruction, New Delhi it further appears that on prayer of the Punalu Paper Mills Limited Vs. Canada Bank for supplying certain information regarding the status of the proceedings pending before the Honble Appellate High Court. Therefore, prima facie there is no cogent ground for the AAIFR, New Delhi to adjourn the matter sine die in absence of any stay order from the Honble Bombay High Court even after expiry of the time granted for supply of some information. 9. IT is also contended by the learned lawyer for the added respondent that the instant writ petition is barred by Section 26 of the Sick Industrial Companies (Special Provisions) Act, 1985 which runs as follows: Section 26. Bar of jurisdiction. No order passed or proposal made under this Act shall be appealable except as provided therein and no civil court shall have jurisdiction in respect of any matter which the Appellate Authority or the Board is empowered by, or under, this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. 10. LEARNED lawyer for the petitioners has refuted the argument and contended that where there is miscarriage of justice on account of failure to comply with the statutory provisions contained in Section 15(1) of the Act, the Writ Court has absolute jurisdiction to interfere to suppress the mischief and to advance the remedy prescribed in the Act and as such the instant writ petition is maintainable in law. He has relied upon the principle laid down in (2006) 129 Comp. Cas 778 (Delhi) in support of his contention. He has relied upon the principle laid down in (2006) 129 Comp. Cas 778 (Delhi) in support of his contention. In the said case the Honble Delhi High Court has held that under certain conditions the sell of the assets of the petitioner was done by public notice and no other better proposal was received and the stake holders had given their consent and the BIFR has also taken into consideration the valuation made in 1997. When no objection had been raised by the Government and the respondent company had accepted the liabilities to clear the dues of cane growers, the Court would be reluctant to exercise its jurisdiction under Article 226 of the Constitution of India on the background that all efforts were made by the BIFR to rehabilitate the company while the rehabilitation proposal was considered and after evaluation of the proposal, financial institutions, bankers and other parties came to the conclusion that the proposal was accepted in the best interest of the stake holders and the petitioner neither at the stage consideration of the rehabilitation proposal nor at the stage of fixation of the draft rehabilitation scheme had raised the issue of valuation or fixation and reserved price. From the facts and circumstances of the present case it will appear that the above principle is not identical and as such inapplicable in considering merit of the present writ application. In the instant case the BIFR has not complied with the mandatory provision of Section 16 of the Act on receipt of the reference made by the company to it under Section 15 of the Act and ipso facto declined to hold any enquiry for revival. In such decision appeal has been preferred before the appellate authority which is now pending. I hold that the pending proceedings initiated in 1983 has not abated in absence of requisite quantum outstanding against financial assistance disbursed to the borrower of secured creditors. So there is no legal bar for the appellate authority to consider the propriety of the findings made by the BIFR and Section 26 of the Act of 1985 is also not a bar to claim the reliefs under Article 226 of the Constitution since Honble Bombay High Court has already entertained a prayer for appointment of Receiver in connection with the sick company. 11. 11. FROM this point of view, I conceive that the instant writ petition is maintainable in law and the order of the BIFR rejecting the reference made by the respondent No.1 without holding any enquiry for revival under Section 16 of the Act should be treated as illegal, void and inoperative. The legitimate expectation of the large number of unfortunate employees for revival of the company cannot also be kept in animated suspension merely on grounds of pending litigation with one of the secured creditor. Which affects right to maintain livelihood. Though they are impleaded as respondent No.3 in this case, they have not contested this application. However, since an appeal is now pending before the AAIFR against such order of rejection dated 20.10.1992, it is wise on my part to leave the matter for immediate decision by the AAIFR within a stipulated time subject to the result of the proceedings now pending before Honble Bombay High Court. 12. ACCORDINGLY, the AAIFR, the respondent No.2, is directed to hear and dispose of the appeal after complying all statutory formalities within two months from the date of receipt of this order giving opportunity of hearing to all parties in absence of any injunction or restraint order from the Honble Bombay High Court subject to the result of such pending litigation. It is further made clear that the observation so made by this Court shall not stand in the way of taking any appropriate decision by the appellate authorityrespondent No.2 or the Board in the matter of disposal of the pending appeal or reference as the case may be and that findings of the AAIFR and BIFR shall abide by the result of the litigation now pending before Honble Bombay High Court. The writ petition is thus disposed of. 13. LET a copy of this order be sent down by the department to the respondent No.2 by Speed Post at once for compliance. 14. URGENT certified photostat copies of this order, if applied for, shall be given to the parties subject to compliance with all requisite formalities.