JUDGMENT A.K. Banerji, J.
1. Indian Maize and Chemicals Limited ("respondent No. 2" in short), which was incorporated as a public limited company suffered huge losses, as a result of which it was declared as a "sick industrial company" under the provisions of the Sick Industrial Companies (Special Provisions) Act. The Board for Industrial and Financial Reconstruction (i.e., "the BIFR") explored various possibilities for its rehabilitation but the process having failed, ultimately recommended its winding up. The appeal filed against the recommendation of the BIFR dated February 26, 1997, was also dismissed, vide order dated August 8, 1997. The matter is placed for consideration before this court.
2. An application (A-9) has now been filed by the applicant, Bengani Food Products Private Limited of Calcutta, stating that they have entered into a lease agreement with respondent No. 2 and has prayed that the same may be approved by this court under Section 536(2) of the Companies Act, 1956, and appropriate directions as made in the prayer be issued. In the said application, the applicant has impleaded the official liquidator as respondent No. 1, Indian Maize and Chemicals Limited as respondent No, 2, the Karamchari Sangh as respondent No. 3, ICICI, IDBI, IFCI as respondents Nos. 4, 5 and 6, the Punjab National Bank, Central Bank of India as respondents Nos. 7 and 8, U. P. State Electricity Board as respondent No. 9 and Infrastructure Leasing and Finance Limited as respondent No. 10.
3. The official liquidator has filed a counter-affidavit in which it has been stated that the proposal given by the applicant may be beneficial and in the interest of the company and the same can be considered by this court. However, a condition can be imposed that the applicant will execute an undertaking and will not dispose of any of the assets of the company. Respondent No. 2 has also supported the proposal given by the applicant in the counter-affidavit filed by them. The proposal has, however, been opposed by respondent No. 4, who have stated in their counter-affidavit (A-18) that the said respondent was a secured creditor and under the terms and conditions of the agreement between the said creditor and respondent No. 2, the latter was under a legal/contractual obligation to obtain prior approval of the secured creditor before entering into any agreement or understanding with any third party. However, no such consent or approval has been taken by respondent No. 2 while entering into an agreement with the applicant. It has also been denied that the lease agreement was not in public interest. On the contrary, it was asserted that respondent No. 2 owes substantial dues to the said respondent as well as to respondent No. 9, which they have not paid and the proposal submitted by the applicant will not benefit the creditors in any manner. A counter-affidavit has been filed on behalf of respondent No. 9, in which it has been stated that respondent No. 2 owes the said respondent an amount of Rs. 516.31 lakhs and the electricity supply is lying disconnected since 1996, on account of non-payment of electricity dues and the same cannot be restored under the rules unless the entire outstanding dues are cleared and, therefore, there was no question of reconnection of electricity even if it was run by a third party unless the entire outstandings were cleared. Respondent No, 10 has filed an objection to the application in which it has been stated that the said respondent had leased out plant and machinery valued at Rs. 60 lakhs for a period of five years with a renewal option. Respondent No. 2 not only defaulted in making payment of the lease rentals to the said respondent but they have also defaulted in paying the financial institutions and banks. Consequently, the BIFR had recommended the winding up of the company after considering all the aspects of the matter and had concluded that it was not possible to rehabilitate respondent No. 2 on account of the huge losses and dues which remained to be paid. It has been further stated that even before the AAIFR a similar sort of proposal was given by the applicant-company but the Appellate Authority on a consideration of the matter concurred with the opinion of the BIFR. The total outstanding against respondent No. 2 was about Rs. 47 crores and the proposal given by the applicant was a collusive one to circumvent the winding up proceedings and to siphon off the assets. The total electricity dues was about Rs. 50 lakhs and the application of respondent No, 2 for restoration of the electricity connection was rejected by respondent No. 9 and, even the Hon'ble Supreme Court refused to stay the recovery instituted by respondent No. 9. Consequently, it was prayed that the application be rejected. The applicant has filed rejoinder affidavits to the aforesaid counter-affidavits filed by the respondents.
4. I have heard Shri R. P. Agrawat, learned counsel for Bengani Food Products Private Limited (applicant), Shri Vivek Chawdhary for respondent No. 2, Shri K. P. Agrawal for respondent No. 3, Shri 0, P, Mishra for respondents Nos. 4, 5 and 6, Shri K. L, Grover for respondent No. 7, Shri Sharad Varma for respondent No. 8 and Shri Sunil Ambwani for respondent No. 10.
5. Learned counsel for the applicant has placed the terms and conditions of the lease agreement and had contended that the applicant would be paying a sum of Rs. 60 lakhs per annum at Rs. 5 lakhs per month as lease rent, part of which could be utilised for payment to the workers of respondent No. 2 who would be retained. Part of the amount deposited could be paid towards the old dues of respondent No. 9. Apart from the same, the applicant will pay the insurance premium, keep the plant and machinery in good condition and use and also pay the fees, taxes, assessment during the period in which the lease subsists, which has been agreed to be for three years. However, in the event of respondent No. 2 being wound up by the orders of this court they would hand over possession of the same to the official liquidator provided they get a notice of about six months, It has been contended that as the winding up of this company might take a little time, it would be in the interest of creditors as well as the respondent-company that some funds are generated to pay the workmen and the old dues of the electricity department, besides, it will help in starting the factory which is lying closed for over two years. Learned counsel has also submitted, firstly, that this court has power to approve the disposition of property under Section 536(2) of the Act even before passing of the winding up order. In support of his submission, he has referred to the following decisions :
(1) Kamani Metallic Oxides Ltd. v. Kamani Tubes Ltd. [1984] 56 Camp Cas 19 (Bom).
(2) Uska R. Shetty (Smt.) v. Radeesh Rubber Put Ltd. [1995] 84 Comp Cas 602 (Kar).
(3) B. Gopal Das v. Kota Biran Board (P.) Ltd. [1972] Tax LR 2285 (Raj ) [FB].
(4) Travancore Rayons Ltd, v. Registrar of Companies [1988] 64 Comp Cas 819 (Ker).
6. So far as this submission is concerned, the proposition that the power to approve the disposition of property under Section 536(2) even before passing of the winding up order, cannot be seriously disputed. The court has the jurisdiction and the power to pass necessary orders provided it is found that the scheme or proposal which has been put forward was a viable scheme and would be in the interest of the creditors as well, and whether the same would be beneficial for the general public including the unsecured creditors. Shri Agrawal has, secondly, contended that the proposed lease is in the interest of all the concerned parties and it is bona fide, equitable and just. He has further contended that the court's duty is to make an earnest effort to put life in the company and not to order its death as it is in the interest of every one to preserve the company as a going concern. In support of the above proposition advanced by him, he has referred to certain decisions which are noted below :
(1) Prasad Mills Ltd. v. Parikh Agencies [1986] 60 Comp Cas 727 (Guj).
(2) Aryodaya Spinning and Weaving Co. Ltd., In re [1986] 60 Comp Cas 897 (Guj).
(3) Siddhpur Mills Co. Ltd., In re [1987] 61 Comp Cas 756 (Guj).
(4) Punjab Maize Products Ltd. (In liquidation), In re [1996] 1 Comp LJ 253 (P & H) ; [1998] 94 Comp Cas 757.
(5) Wearwell Cycle Co. (India) Ltd. (in Liquidation), In re [1994] 1 Comp LJ 219 (Delhi) ; [1998] 94 Comp Cas 723 (Delhi).
(6) Champaran Sugar Mills Co. Ltd., In re [1998) 91 Comp Cas 182 (All).
(7) J. Sengupta P. Ltd (in liquidation), In re, AIR 1962 Cal 405.
7. I have also carefully considered the second submission made by learned counsel and the aforesaid decisions cited by him. The observations made in the said cases were on the peculiar facts of the respective cases. It is well-settled that the effort of the court should be to preserve the company as a going concern provided the proposition is viable and there is prospect of the company to be put on the rails. In the present case at hand it will be noticed that the company had become a sick industrial concern. The BIFR gave adequate opportunity to respondent No. 2 to submit a viable rehabilitation scheme. However, all its efforts failed. Having exhausted all possibilities to rehabilitate the company, the BIFR formed a prima facie opinion that the company was not likely to become viable in future and to make its net worth positive. Consequently, they issued a show-cause notice to the company as to why winding up may not be recommended. After considering the proposal in response to the show-cause notice, the BIFR confirmed its prima facie opinion and recommended that the company be wound up. Respondent No. 2 filed an appeal before the Appellate Authority which also after considering the proposals and submissions made by respondent No. 2 concurred with the opinion expressed by the BIFR. The said recommendations were challenged by the respondent-company before this court by means of a writ petition but failed to obtain any interim orders. The writ petition is still pending. The BIFR has noted in its order that as on March, 1996, the total outstanding dues of respondent No. 2 were Rs. 47 crores whereas, the value of the fixed assets was about Rs. 18 crores and the current assets would be worth about Rs. 6 to Rs. 7 crores. An opportunity was given to respondent No. 2 for a one-time settlement and they were asked to deposit Rs. 1 crore which they failed to do. Before the BIFR and also before this court, the ICICI which was one of the secured creditors of the respondent and also the operating agency before the BIFR had submitted its report that the unit was not viable and no party was prepared to pump more money to rehabilitate the respondent. As already noticed above, the electricity dues against respondent No. 2 was about Rs. 50 lakhs and the electricity was disconnected. Respondent No. 9 has stated in their counter-affidavit before this court that the same cannot be restored unless the dues of the said respondent were deposited. Respondent No. 10 has already filed a winding up petition before this court on the ground that respondent No. 2 has failed to pay the lease rentals and have not cleared their dues despite the service of the statutory notice. The financial position of respondent No. 2 is, therefore, weak as it is indebted in a huge amount amounting to almost Rs. 50 crores. Against that, the applicant-company has come up with a proposal to take the factory of respondent No. 2 on lease on payment of Rs. 60 lakhs per annum for a period of three years. The said amount would not be even 2 per cent. of the total dues of respondent No. 2. The contesting respondents have strongly opposed the present application and have stated that the same appears to be collusive and not in the interest of the creditors and the real purpose being to delay the winding up proceedings. It has also been pointed out before the Appellate Authority that respondent No. 2 had mentioned about the proposal being given by the applicant to take the factory on lease and to run the same, however, the Appellate Authority had also not accepted the said submission. In the writ petition filed before this court against the recommendation of the BIFR, the applicant was one of the petitioners. However, subsequently, it withdrew from the writ petition and has filed the present application before this court.
8. Having given my anxious consideration to the matter, I am of the view that in the facts of the present case and also in view of the huge amount of dues against respondent No. 2, the proposal given by the applicant will not be a viable one or for the benefit of the company or its creditors. No doubt that the workmen of the company have supported the applicant as it was a question of their livelihood. Shri K. P. Agrawal appearing for the Karamchari Union has also submitted that the proposal would be in the interest of the workmen, therefore, a trial may be given to the proposal. I am unable to agree as the court has not only to keep the interest of the workers in mind but has also to see whether the proposal submitted would in any manner be in the interest of the company, its creditors and the public at large. As already stated above, I am of the view that the amount of the lease money offered by the applicant is just a pittance, taking into consideration the dues outstanding against the company and consequently, the said proposal cannot be accepted by this court in view of the fact that the BIFR and the Appellate Authority has recommended the winding up of the company and as there is no stay order in the writ petition filed by respondent No. 2 challenging the recommendation, this court would be considering the question of winding up shortly and in case it is found that the company be wound up, no useful purpose will be served in handing over possession of the assets to a third party only for a short period which this court would take in hearing the winding-up matter.
9. Shri Agrawal has however made a reference to the authority passed by this court in the case of Champaran Sugar Mills Co. Ltd., In re [1998] 91 Comp Cas 182 and has contended that in the said case, this court taking into consideration the plight of the workmen had permitted the running of the factory as an interim measure. The facts of the said case were somewhat different from the present one. That apart, the order given in that case could not be complied with by the party which had proposed to run the factory as an interim measure. Thereafter, the workers had also formed a co-operative and had obtained an order for running one of the factories of the said company as an interim measure. However, the said venture has not been very successful and the co-operative has been unable to keep up with its commitments. The said case is, therefore, of no help to learned counsel.
10. In view of the aforesaid reasons, it is not possible to allow the application (A-9) and the same is rejected.