Supreme Court Upholds BIFR Merger Approval, Dismisses Shareholder Appeal

SRF. Limited Versus Garware Plastics And Polyesters Limited And Others

SRF. Limited Versus Garware Plastics And Polyesters Limited And Others - [1995] 214 ITR 678, 128 CTR 76, 80 TAXMANN 102 Issues Involved:
1. Whether Garware is an interested person in the revival of Flowmore.
2. Whether the Board for Industrial and Financial Reconstruction (BIFR) followed due process in approving the merger scheme.
3. Whether the Central Government and Central Board of Direct Taxes should have been notified.
4. The legitimacy of the appeal filed by the shareholder.

Detailed Analysis:

1. Whether Garware is an interested person in the revival of Flowmore:
The Supreme Court found that Garware was not an interested person in the revival of Flowmore. Despite being given multiple opportunities to submit a revised scheme for the revival of Flowmore, Garware did not do so. Instead, Garware entered into an agreement with Assam Asbestos Ltd. to provide technical assistance for the revival of Flowmore. The court noted that Garware's consistent conduct of not appearing before the BIFR and not submitting revised proposals indicated a lack of genuine interest in the revival of Flowmore. The court concluded that Garware was more interested in prolonging the revival process to keep its trade rival, Flowmore, out of competition.

2. Whether the Board for Industrial and Financial Reconstruction (BIFR) followed due process in approving the merger scheme:
The Supreme Court held that the BIFR followed due process in approving the merger scheme of Flowmore with S.R.F. The BIFR had repeatedly communicated with Garware, but Garware did not submit any revised proposals. The court observed that the BIFR had acted within its jurisdiction and followed the legislative intent of the Sick Industrial Companies (Special Provisions) Act, which aims for the timely detection and speedy revival of sick companies. The court emphasized that the proceedings before the BIFR should be completed expeditiously to avoid unnecessary delays that could harm the interests of the workmen and the state's revenue.

3. Whether the Central Government and Central Board of Direct Taxes should have been notified:
The Supreme Court acknowledged that the BIFR should have issued notices to the Central Government and the Central Board of Direct Taxes before finalizing the merger scheme, as the scheme involved tax concessions and potential revenue losses. However, the court noted that S.R.F. had expressly given up the benefits under section 72A of the Income-tax Act, and the merger scheme was to be effective from April 1, 1994, thereby marginalizing the benefits of set-off under sections 70, 71, and 72. Consequently, the court found that there would be no significant revenue loss to the state, and the omission of notice did not vitiate the orders passed by the BIFR and the Appellate Authority.

4. The legitimacy of the appeal filed by the shareholder:
The Supreme Court dismissed the appeal filed by the shareholder, finding it to be lacking in bona fides. The court observed that the shareholder had not challenged the BIFR's order declaring Flowmore a sick company and had only shown a facade of interest by filing an appeal as a pretext. The court concluded that the shareholder was acting as a stooge for Garware, intending to prevent the revival of Flowmore to maintain market monopoly. The court dismissed the appeal with exemplary costs of Rs. 25,000.

Conclusion:
The Supreme Court allowed the appeals, set aside the orders of the High Court, and confirmed the orders of the Appellate Authority and the BIFR. The court emphasized the need for expeditious proceedings in the revival of sick companies and dismissed the shareholder's appeal with costs.