HON'BLE SRI JUSTICE C.V. NAGARJUNA REDDY C.P.No.27 of 2001 Date : 29-10-2014 Between :
M/s. Futuristic Off-shore Services and Chemicals Limited, formerly known as M/s. Ganesh Anhydride Ltd., Mumbai Represented by Mr. B.R. Pitale, Finance Manager (Recovery) .. Petitioner And M/s. Bakelite Hylam Limited, Hyderabad, represented by its Managing Director .. Respondent Counsel for petitioner : Smt. Manjari S. Ganu for Sri T.S. Praveen Kumar Counsel for respondent : Sri S. Ravi, Senior Counsel for Ch. Ramesh Babu The Court made the following:
JUDGMENT:
This Company Petition is filed for an order to wind up the respondent for non-payment of debt due to the petitioner.
This is a 13 year old case kept in hibernation due to the reason that after its filing the respondent was declared as a sick industrial company leading to suspension of further proceedings in view of the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act 1985 (for short "SICA") by the Board for Industrial and Financial Reconstruction (for short “the Board”). Needless to refer to the facts relating to the indebtedness of the respondent to the petitioner, for the debt is admitted now. It will suffice if the facts are narrated from the stage of declaration of the respondent as a sick industry by the Board.
By order dated 15-10-2001, this Court has deferred further proceedings in the case based on the Memo filed by the counsel for the respondent that the proceedings before the Board are pending. By order dated 23-3-2004, this Court, while taking note of the fact that the proceedings before the Board relating to the affairs of the respondent were kept pending, closed the case in view of Section 22 of the SICA, giving liberty to the parties to approach this Court again after the case is disposed of by the Board. The petitioner was also given liberty to approach the Board. Post disposal of the case by the Board, the petitioner filed Company Application No.696 of 2010 for reopening the Company Petition and proceeding with the case from the stage at which it was deferred.
It is stated in the Company Application No.696 of 2010 that after filing of the Company Petition, the respondent paid a sum of Rs.11,63,178/- and is liable to pay Rs.18,84,443-60 ps. more which includes Rs.4,47,227-20 ps. towards interest along with further interest @ 24% per annum. It was further stated that the Board disposed of the case on 22-9-2008. It was averred that on a false representation made by the respondent, the Board has recorded in its order that the respondent has settled/paid the dues of all workers/employees and also the company’s unsecured creditors. The petitioner pleaded that as the debt due to it is admitted debt and the same remained unpaid, the petition may be further proceeded with.
By order dated 2-4-2012, this Court allowed Company Application No.696 of 2010, but deferred the publication of advertisement accepting the submission of the learned Counsel for the respondent that as the Board’s scheme is under implementation, advertisement in the newspapers will irretrievably damage the rehabilitation process. Following this order, trial was conducted. On behalf of the petitioner, Mr. Bhupendra Pitale, its authorised representative was examined as PW-1. Exs.A-1 to A-18 have been marked on its side. On behalf of the respondent, Mr. N.P.S. Shinh, one of the Directors of the respondent, was examined as RW-1 and Exs.B-1 to B-12(b) have been marked on its side.
I have heard Mrs. Manjari S. Ganu, learned Counsel for the petitioner and Sri S. Ravi, learned Senior Counsel representing Sri Ch. Ramesh Babu, Counsel for the respondent, and carefully perused the record. Under Section 433(a) r/w. Section 434(1)(a) of the Companies Act, 1956 (for short "the Act"), a company can be ordered to be wound up if it fails to pay a debt in excess of Rs.500/-. Undoubtedly, the debt owed by the respondent is an admitted debt, but the petitioner is facing an insurmountable legal hurdle in the form of Board’s order dated 22-8-2005 (Ex.B-1) under which it has sanctioned a scheme in exercise of the powers conferred on it under Section 18(4) r/w. Section 19(3) of the SICA. Clause 3.4 of the scheme deals with unsecured creditors. It reads as under :
“The unsecured creditors will be reconciled and amounts payable, net of time-barred amounts, restructured as under:
a. Any interest/penalties etc., charged w.e.f. 1-4-99 will be waived (being the date from when the company has been making continuous losses).
b. The balance principal amounts as on 31-3-2001, determined as above, will be written off by 50% and repaid over 5 years in equal quarterly interest free instalments after a moratorium of two years of the cut-off date.
The learned Counsel for the petitioner strenuously argued that the petitioner is not included in the list of unsecured creditors before the Board and that therefore the said scheme does not cover the debt owed to the petitioner. She has further argued that even assuming that the debt is covered by the scheme, the petitioner has option to stand outside the scheme till operation of the scheme comes to an end and claim its debt in full thereafter without being bound by the scheme. In support of this submission, the learned Counsel placed heavy reliance on the Division Bench Judgment of Delhi High Court in Continental Carbon India Ltd. Vs. Modi Rubber Ltd. The learned Counsel advanced an alternative argument that even if the scheme is binding on the petitioner, the respondent failed to implement the same as it has failed to discharge even its reduced liability under the scheme qua the petitioner.
Sri S. Ravi, learned Senior Counsel, strongly opposed the above noted submissions and argued that the debt of the petitioner is included in the proceedings before the Board. He placed reliance on Ex.B-12 certificate dated 9-5-2012 issued by the respondent’s Chartered Accountant in support of this submission. The learned Senior Counsel further submitted that the Judgment of the Division Bench of the Delhi High Court is carried in appeal to the Supreme Court and that the same has been stayed. He has urged that the said Judgment has the effect of completely negating the very purpose of the scheme framed under the SICA and that this Court may not follow the view taken in the said Judgment.
As regards the submission of the learned Counsel for the petitioner that the respondent has even failed to follow the payment of debt as per the scheme, the learned Senior Counsel referred to the oral and documentary evidence and submitted that on 24-1-2005 advertisement was issued by the respondent informing all concerned including the creditors, the broad contents of the scheme and inviting them to refer to the scheme being made available at its registered office with prior appointment and that as some of the creditors had not submitted their claims, a further publication was made in English and Telugu newspapers by the respondent on 4-1-2008 requesting all the creditors to send their statement of accounts from 2001 till date to enable the respondent to reconcile and make payments as per the scheme. He has submitted that despite the said publications, the petitioner has not come forward to claim the debt.
Before proceeding further, it requires to be stated that at the hearing, on the initiative taken by this Court, the respondent agreed to pay a sum of Rs.4,85,169/- towards principal amount as per the scheme along with reasonable interest aggregating to Rs.8 lakhs. This offer was turned down by the learned Counsel for the petitioner on instructions from her client.
Having regard to the rival contentions advanced by the learned Counsel for the parties, the following Issues arise for consideration :
1. Whether the debt of the petitioner is included under the Board’s scheme ?
2. Whether the Board’s scheme is binding on the petitioner?
3. Whether the respondent was ready and willing to pay the debt as per the scheme of the Board to the petitioner?
Re Issue No.1: As noted hereinbefore, while closing the Company Petition, in view of the pendency of the proceedings before the Board, this Court has given option to the petitioner to participate in the said proceedings. In his cross examination, PW-1 has admitted that the petitioner has approached the Board for its impleadment as a creditor; that they have not received any communication from the Board; and that in the year 2009, the petitioner came to know that the Board has sanctioned the scheme to revive the respondent company in 2005. In the affidavit filed in lieu of chief-examination, RW-1 categorically stated that the petitioner’s dues were duly included in the Board’s scheme under ‘sundry creditors’ and that being well aware of the Board’s reference, the petitioner has not chosen to participate in the proceedings before the Board despite the opportunity given by this Court. The petitioner got Ex.B-12–Chartered Accountant’s certificate dated 9-5-2012, marked through RW-1. A perusal of this certificate would show that the Chartered Account has certified that as per the audited accounts of the respondent, a sum of Rs.12,98,034/- was payable to the petitioner as on 31-3-2004. Except a vague suggestion, which of course, is denied by RW-1 that the documents filed by RW-1, including the order passed by the Board do not disclose the petitioner’s liability, no pointed suggestion was put to RW-1 that the petitioner’s debt has not been included in the proceeding before the Board. The respondent sought to file a purported true copy of the application filed by it before the Board. The same was marked as Ex.B-14 by the respondent itself. However, it was not formally marked as an exhibit in view of the objection raised by the learned Counsel for the petitioner that it was not a certified copy issued by the Board. The Counsel for the respondent has taken an adjournment for producing a certified copy. He, however, reported later that in view of the long lapse of time after disposal of the case by the Board, it is unable to procure a certified copy from the Board. Though, the purported application filed by the respondent before the Board is not admitted in evidence, a cursory glance of the said application shows that at column-11, which pertains to the poser as to whether any legal action is already initiated by any creditor etc., a reference is made to the present Company Petition filed by the petitioner. However, this Court hastens to make it clear that it has not proposed to rely upon this document as it is not formally admitted in evidence.
Be that as it may, from the admitted facts of the case, it is not possible to accept the plea of the petitioner that its debt is not included before the Board. The petitioner being the only unsecured creditor who filed the Company Petition for winding up of the respondent, there can be no reason for the respondent not to have included the petitioner’s debt as an unsecured debt in the list submitted to the Board. As already noticed, except a feeble suggestion, nothing is placed before this Court to discredit the strong plea taken by the respondent through the evidence of RW-1 and supported by Ex.B-12–the certificate issued by the Chartered Accountant, that the petitioner’s debt is included under the scheme before the Board. Moreover, having filed an application before the Board for its impleadment, the petitioner did not appear to have taken the said application to its logical end and chosen not to participate in the proceedings before the Board on its own volition. I have therefore no hesitation to hold that the petitioner’s debt is included in the scheme sanctioned by the Board. This Issue is accordingly answered against the petitioner.
Re Issue No.2: For adjudication of this issue, a few statutory provisions of the SICA need to be referred to. The long title of the SICA reads as under:
“An Act to make in the public interest, special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto.”
As reflected from its long title, one of the objects of the SICA is undertaking preventive, ameliorative, remedial and other measures relating to sick and potentially sick companies in order to see that such companies are rehabilitated and prevented from getting extinct. Under Chapter-II, the Board and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) are constituted. Chapter-III deals with reference, enquiries and schemes. Section 15 thereof enables the Board of Directors of a sick industrial company to make a reference to the Board for determination of the measures which shall be adopted with respect to the company. Section 16 provides for inquiry into the working of sick industrial companies by the Board. The Board, inter alia, is empowered to appoint an operating agency to inquire into and make a report with respect to such matters as may be specified in the order. Under Section 17, if after making an inquiry under Section 16, the Board is satisfied that a company had become a sick industrial company, it shall, after considering all the relevant facts and circumstances of the case decide in writing whether it is practicable for the company to make its networth exceed the accumulated losses within a reasonable time. Section 18 deals with Preparation and sanction of schemes by the operating agency. Clauses (a) to (f) of sub-section (1) of Section 18 relate to the measures that may be included in the scheme. Clause (e) of sub- section (1) of Section 18, which is relevant for the present purpose reads :
“(1) Where an order is made under sub-section (3) of Section 17 in relation to any sick industrial company, the operating agency specified in the order shall prepare, as expeditiously as possible and ordinarily within a period of ninety days from the date of such order, a scheme with respect to such company providing for any one or more of the following measures, namely :
a. …
b. …
c. …
d. …
e. such other preventive, ameliorative and remedial measures as may be appropriate”
Sub-section (2) of Section 18 of the SICA also deals with many aspects which may be included in the scheme. For deciding this case, it is not necessary to refer to the said provision. Under sub- section (3) of Section 18, the scheme prepared by the operating agency shall be examined by the Board and a copy of the scheme with modification, if any, made by the Board shall be sent, in draft, to the sick industrial company and the operating agency and the Board shall publish or cause to be published the draft scheme in brief in such daily newspapers as it may consider necessary for suggestions and objections, if any, within such period as the Board may specify. After receiving such suggestions and objections, the Board may make such modifications if any in the draft scheme as it may consider necessary. The scheme shall thereafter be sanctioned under sub-section (4), as soon as may be, by the Board and shall come into force on such date as the Board may specify in this behalf. Sub-section (8) of Section 18 envisages that on and from the date of the coming into operation of the sanctioned scheme or any provision thereof, the scheme or such provision shall be binding on the sick industrial company and the transferee company, or, as the case may be, the other company and also on the shareholders, creditors, guarantors and employees of the said companies.
Section 19 of the SICA relates to 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) to the sick industrial company. Under sub- section (2) thereof, the above mentioned measures proposed in the scheme shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of 60 days from the date of such circulation or within such further period, not exceeding 60 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. Under sub-section (3) of Section 19, 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 from the date of such sanction the scheme shall be binding on all concerned. Under Section 22 of the SICA, the Board may declare that the operation of any contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board. Section 25 provides for appeal to any person aggrieved by an order of the Board.
From a conspectus of the above discussed statutory provisions, it is clear that in order to bail out a sick industrial company, the Board is empowered, inter alia, by way of a scheme to announce various preventive, ameliorative and remedial measures, as may be appropriate for revival of a sick industrial unit. Objections and suggestions are also invited from various quarters which may necessarily include the creditors as well. If the scheme is sanctioned, it binds every one connected with the sick industrial company including the company itself and its transferee and also shareholders, creditors, guarantors and the employees of the said company.
Once a scheme is made and an order is passed, an aggrieved party is entitled to question the same under Section 25 thereof. In this context, a marked difference is noticeable between the provisions of Section 18 and that of Section 19. The latter provision governs the financial assistance, the reliefs, concessions or sacrifices from the State and Central Governments, banks, public financial institutions or State level institutions or other authorities. In respect of liabilities pertaining to these agencies, in order to bind the scheme on them, their consent is required unlike in relation to the liabilities falling under Section 18. It is thus clear that even if the scheme sanctioned by the Board is not consented to by a creditor falling under Section 18, the scheme, nevertheless binds him unless he successfully challenges the same under Section 25 before the AAIFR.
Let me now consider the Division Bench Judgment of the Delhi High Court in Continental Carbon India Ltd. Vs. Modi Rubber Ltd. (1- supra) heavily relied upon by the learned Counsel for the petitioner. In that case, a creditor of a sick industrial company filed an appeal before the AAIFR feeling aggrieved by the scheme sanctioned by the Board. The appeal having been dismissed, the creditor filed Writ Petition before the Delhi High Court assailing the orders of the Board and the AAIFR. It was submitted by the creditor that denial of full price and compelling the petitioner to accept a lesser amount would tantamount to taking away the right to property in goods without appropriate consideration and would be violative of Article 300-A of the Constitution of India. It was further contended that the scheme of the SICA provides for preparation and sanction of schemes for rehabilitation under Section 18; and that there was no specific provision in the SICA which authorised the Board to deprive the petitioner of its full value of unsecured debt. Upon referring to some of the decided case law, the Division Bench framed the following question :
“The crucial question in the present case would be, in our considered view, as to whether the contract inter se the parties arrived at whereafter the company has become sick, can be compulsorily over ridden by the provisions of the SICA even if a person is willing to wait by the side till such time as the company is financially rehabilitated and then claim its dues.”
After referring to Section 22, the Division Bench relied heavily on the commentary in a book titled “The law of Sick Industrial Companies & BIFR (Law, Practice & Procedure), Second edition, 1999, S.A. Naik” and upon considering the provisions of Sections 18 and 19, it has held that there is no provision made for a reduction or scaling down the liability of a sick company without the consent of creditors concerned. It has further held that the provisions of Section 18(8) of the SICA has to be read along with other provisions and that on such a reading it must be held that consent of a creditor needs to be obtained under the usual legal procedure for a scheme to bind him. The Division Bench also considered a case where a creditor being conscious of the fact that where there is no rehabilitation and the networth of the company is wiped out it may not have any means to recover any debt or even a part thereof, chooses to wait for completion of the statutory period for operation of the scheme, its claim to the debt would stand postponed by reason of approval of the scheme and that once the networth of the company has become positive and the scheme has worked itself out, a creditor will have an opportunity to claim his debt in full.
With due respect to the Division Bench, I am unable to subscribe to its view. In my opinion, once the scheme is framed, it binds each one of the entities mentioned in sub-section (8) of Section 18 of the SICA subject to any order that may be passed by the appellate authority. Unless the scheme itself makes a provision that if any creditor is willing to wait till the expiry of the period for which the scheme is in operation and claim its full money after the scheme ceases to operate, the creditor cannot enforce its claim contrary to the sanctioned scheme even after expiry of the period for which the scheme is sanctioned. Reading the provisions of Chapter-III of the SICA in any other manner would render the entire statutory scheme itself nugatory throwing the sick industrial company at the mercy of its creditors even after the sanction of the scheme.
In the instant case, the petitioner has not raised any objections or suggestions in response to the draft scheme notified by the Board as envisaged under Section 18(3) of the SICA nor it has filed any appeal questioning the scheme. Therefore, the petitioner is bound by the Board’s scheme and it cannot be heard to say that as the scheme has worked itself out, it is entitled to press for recovery of full money. This issue is accordingly answered against the petitioner.
Re Issue No.3 : In his affidavit filed in lieu of chief-examination, RW-1 deposed at paras 8 and 9 as under :
“After the rehabilitation scheme was sanctioned by the BIFR, an advertisement was issued by the Bakelite on 24/10/2005 informing all concerned (including creditors) of the broad contents of the scheme and informing that a copy of the scheme could be inspected at the Registered Office of the company with prior appointment. A true copy of the text of the public notice published on 24/10/2005 is enclosed as Annexure 4.
As some of the creditors had not submitted their Statement of Account, a further advertisement was published in English and Telugu papers by the company on 04.01.2008, requesting all creditors to send their Statement of Accounts from 2001 till date, to enable the same to reconcile and to enable payments to be made as per SS-05 (Sanctioned scheme). True copies of the public notices published on 04.01.2008 are enclosed as Annexure 5 (English paper) & Annexure 6 (Telugu paper). Even in response to this notice to creditors, the petitioner did not send the Statement of Account to justify its claim.”
In cross-examination, RW-1 has deposed that the publications inviting claims were made in the All India edition of Business Standard and also in Telugu newspaper in Hyderabad. No suggestion has been put to the witness that no such publication has been made or that the petitioner was not aware of such publication. Ex.B-5, which is a publication made by the Business Standard on 4- 1-2008 of Hyderabad edition, reads as under :
PAYMENTS TO CREDITORS Payments to Creditors as per BIFR order are being made after reconciliation of balances. All concerned are requested to send Statement of Accounts from 2001 to date to enable reconciliation & payment as per SS-05.
BAKELITE HYLAM LIMITED “Surya Towers”, 3rd Floor, ‘C Block’, 104, S.P. Road, Secunderabad-03. Tel: 040-27841104.
Ex.B-6 is a publication dated 4-1-2008 in Andhra Prabha Telugu newspaper, which also published a similar notice. This evidence adduced by the respondent remained uncontroverted. Therefore, I do not find any merit in the plea of the petitioner that the respondent failed to settle the dues of the petitioner even as per the Board’s scheme. This Issue is accordingly answered against the petitioner.
In the light of the detailed discussion undertaken hereinabove, the petitioner failed to make out a case for ordering winding up of the respondent.
In the result, the Company Petition is dismissed.
Justice C.V. Nagarjuna Reddy Date : 29-10-2014 L.R. copies
AM