2004 (11) TMI 337 - HC - Companies Law

Court quashes AAIFR order, emphasizes reasoned judgments & compliance with rehab scheme

The court allowed the writ petition, quashed the AAIFR's non-speaking order, and closed the proceedings before AAIFR. It emphasized that quasi-judicial ... Procedure of Appellate authority Issues Involved:1. Validity of the non-speaking order by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR).2. Compliance with the rehabilitation scheme approved by AAIFR.3. Settlement of claims by various creditors including workers, banks, State Government (sales tax and urban land tax), suppliers, and the Provident Fund Department.4. The legality of the AAIFR's dismissal of the appeal based on technicalities.5. The impact of subsequent events on the proceedings.Issue-wise Detailed Analysis:1. Validity of the Non-Speaking Order by AAIFR:The petitioner contended that the AAIFR's order dated 20-3-2001 dismissing the appeal was unsustainable as it was a non-speaking order, lacking detailed reasons at the time of issuance. The court emphasized that quasi-judicial bodies like AAIFR must provide a reasoned judgment at the time of passing the order. Citing precedents, the court held that the practice of issuing orders without immediate reasons was impermissible, except for the Supreme Court. The subsequent provision of reasons on 23-3-2001 could not cure the defect of the original non-speaking order.2. Compliance with the Rehabilitation Scheme Approved by AAIFR:The court noted that the rehabilitation scheme approved on 27-9-1993 was in the monitoring stage, focusing on ensuring compliance. The scheme involved settling claims of six classes of creditors: banks and financial institutions, workers, State Government (sales tax and urban land tax), suppliers, and the Provident Fund Department. The petitioner had settled with the majority of the workmen under section 18(1) of the Industrial Disputes Act, paid dues to the Provident Fund Department, and settled with IDBI and sales tax dues. The court acknowledged the substantial compliance with the scheme by the petitioner.3. Settlement of Claims by Various Creditors:The court detailed the settlements made by the petitioner:- Workers: The petitioner paid Rs. 130 lakhs to the workers, with only five dissenting workmen challenging the settlement, which was ultimately dismissed by the court.- Banks and Financial Institutions: The petitioner cleared dues to IDBI and settled with other banks, resulting in positive net worth for the company.- State Government (Sales Tax): The court noted that the sales tax liability for the year 1997-98 was under fresh assessment, with the petitioner agreeing to pay the tax and 50% of the penalty.- State Government (Urban Land Tax): The petitioner obtained clearance under the Urban Land Ceiling Act and settled some tax liabilities.- Suppliers: The petitioner settled principal amounts with suppliers, agreeing to pay 9% interest on the principal amounts.- Provident Fund Department: The petitioner's claims for damages under section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act were pending in writ petitions.4. Legality of AAIFR's Dismissal of the Appeal Based on Technicalities:The court criticized AAIFR for dismissing the appeal on hyper-technical grounds, such as the non-payment of airfare for trade union leaders and the promoter's absence due to political engagements. The court held that AAIFR, being a quasi-judicial body, must adjudicate cases on merits and not dismiss them on technicalities, especially during the monitoring stage of the rehabilitation scheme.5. Impact of Subsequent Events on the Proceedings:The court considered subsequent events, such as settlements with creditors and compliance with the rehabilitation scheme, in its judgment. It concluded that since the scheme had been substantially implemented and the company's net worth had become positive, remitting the matter back to AAIFR would serve no purpose. Consequently, the writ petition was allowed, and the proceedings before AAIFR were closed.Conclusion:The court allowed the writ petition, quashed the AAIFR's order, and closed the proceedings before AAIFR. It emphasized that AAIFR must adjudicate cases on merits and provide reasoned judgments. The court acknowledged the substantial compliance with the rehabilitation scheme by the petitioner and dismissed all related company petitions and miscellaneous petitions. No final order was passed regarding W.P. No. 4411 of 1998, leaving the parties at liberty to pursue it.