2000 (4) TMI 764 - HC - Companies Law

Court affirms BIFR's decision to wind up company without viable rehab scheme.

The court upheld the BIFR's decision to wind up the petitioner-company due to the absence of a workable rehabilitation scheme and the secured creditor's ... Winding up of sick industrial company Issues Involved:1. Legality of the BIFR's winding-up order.2. Compliance with the Sick Industrial Companies (Special Provisions) Act, 1985.3. Locus standi of the State Bank of India in the proceedings.4. Requirement for consent from financial institutions for rehabilitation schemes.Detailed Analysis:1. Legality of the BIFR's Winding-Up Order:The petitioner, a limited company registered under the Companies Act, 1956, with two manufacturing units, became a sick industrial company as defined under section 3(o) of the Sick Industrial Companies (Special Provisions) Act, 1985, due to accumulated losses. The BIFR, by its order dated 29-4-1994, decided that it was just, equitable, and in the public interest to wind up the petitioner-company. This decision was upheld by the appellate authority on 31-1-1996. However, a learned Single Judge of the High Court set aside the appellate authority's order, remanding the matter to the BIFR to request the operating agency to first frame a scheme and then ask the petitioner-company to bring up a proposal. Despite this, the BIFR again decided on 30-6-1999 that the company should be wound up, a decision upheld by the appellate authority on 10-1-2000.2. Compliance with the Sick Industrial Companies (Special Provisions) Act, 1985:The Act mandates timely detection of sick companies and the determination of necessary measures. Under section 17, the BIFR must decide if it is practicable for the company to make its net worth exceed accumulated losses within a reasonable time. If not, the BIFR must consider public interest measures under section 18 before resorting to winding up under section 20. The BIFR initially decided that public interest necessitated measures for the petitioner-company but failed to properly frame and publish a rehabilitation scheme as required under section 18. The operating agency's draft scheme requiring promoters to bring fresh funds was not finalized due to lack of consent from the secured creditor, State Bank of India.3. Locus Standi of the State Bank of India:The State Bank of India, as a secured creditor, filed WPMP No. 7869 of 2000 to be impleaded as a party-respondent, claiming interest in the proceedings. The petitioner objected to the bank's locus standi. However, the court held that under section 15(2), the bank had a statutory right to bring the matter to the BIFR's notice and participate in the proceedings. The outcome of the writ petition would directly affect the bank's right to recover dues, thus justifying its locus standi.4. Requirement for Consent from Financial Institutions for Rehabilitation Schemes:Section 19 and Regulation 34 of the BIFR Regulations, 1987, stipulate that any scheme providing financial assistance or concessions requires consent from the concerned financial institutions. The operating agency's draft scheme was not finalized due to the lack of consent from the State Bank of India. The court agreed with the bank's position, noting that as a nationalized bank dealing with public funds, it must assess the necessity of such consent in the larger public interest. The BIFR's refusal to frame a scheme without the bank's consent was deemed appropriate.Conclusion:The court dismissed the writ petition, upholding the BIFR's decision to wind up the petitioner-company due to the lack of a feasible rehabilitation scheme and the secured creditor's refusal to consent to financial concessions. The State Bank of India's locus standi was affirmed, and the necessity for consent from financial institutions for rehabilitation schemes was emphasized.