TaxTMI 
TaxTMI 
2000 (4) TMI 764
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.... Admittedly, the production was stopped from the month of April, 1993. The company became a sick industrial company as defined under section 3(o) of the Act. The matter was referred to the Board for Industrial and Financial Reconstruction (BIFR), under section 15 of the Act. The same was registered as case No. 15 of 1993. 2. The BIFR by its order dated 29-4-1994 held that it would be just, equitable and in the public interest the petitioner-company be wound up; a decision which the BIFR is authorised to take under section 20 of the Act. Subsequent to the said decision, proceedings were initiated in this Court as contemplated under section 20 and a case, being case No. 11 of 1994 was registered for the purpose of winding up of the petitioner-company. In the mean while, it appears that, challenging the order of the BIFR, dated 29-4-1994, an appeal No. 93 of 1994 was preferred before the appellate authority constituted under section 12 of the Act. The said appeal was also dismissed by an order dated 31-1-1996. Challenging the said order, the petitioner earlier approached this Court by filing Writ Petition No. 4183 of 1996. A learned Single Judge of this Court by order dated 16-7-19....
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....t by the second respondent for taking appropriate action as required under the provisions of the Act. Therefore, the matter came to be registered as RCC. No. 11 of 1999. 7. It is to be mentioned for the sake of record that by strange process, another communication from the second respondent was received by the Registry of this Court dated 16-2-2000 on 28-2-2000, which reads as follows : "I am directed to refer to your letter No. W.P. No. 1636 of 2000 dated 7-2-2000 on the above subject and to forward herewith certified copies of the Board's proceedings dated 19-4-1993, 22-11-1993, 15-2-1994 and winding up order dated 29-4-1994 passed by Bench-II of BIFR along with the copy of our earlier letter dated 4-5-1994 for necessary action". 8. Obviously the Registry of the second respondent lost track of the earlier litigation and as a consequence of the said communication, another case in RCC No. 4 of 2000 came to be registered by this Court under section 20. In fact, RCC No. 4 of 2000 cannot be continued, as the order of the second respondent, on the basis of which, the said RCC is registered merged in the order of the appellate authority dated 31-1-1996 which was set aside by th....
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.... receipt of the said reference, the Board is required to make an enquiry as it deem fit and proper to determine whether the industrial company has in fact become a sick industrial company within the expression assigned under the Act. Alternatively the Board is also authorised under sub-section (2), to require 'an operating agency', an expression defined under section 3(1) to make such enquiry contemplated under section 16. On the conclusion of the enquiry contemplated under section 16, if the Board comes to the conclusion that the industrial company has become a sick industrial company, the Board is required to make a further decision as to whether it is practicable for the company to make its net worth exceed accumulated losses within reasonable time. 12. If the Board comes to the conclusion that it is practicable for the industrial sick company to make net worth exceed the accumulated loss within reasonable time, the Board may direct the company to make its net worth positive within stipulated time. On the other hand if the Board comes to the conclusion that it is not practicable for the company to make its net worth exceed accumulated losses within a reasonable time, two cour....
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....dify the order in such manner as it may deem appropriate. Section 20. Winding up of sick industrial company - (1) Where the Board, after making inquiry under section 16 and after consideration of all the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court. (2) The High Court shall, on the basis of the opinion of the Board, order winding up of the sick industrial company and may proceed and cause to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act, 1956 (1 of 1956). (3) For the purpose of winding up of the sick industrial company, the High Court may appoint any officer of the operating agency, if the operating agency gives its consent, as the liquidator of the sic....
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....ection 17(1), whether it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time or not, the Board is required to take all the 'relevant facts and circumstances of the case'. Such relevant facts and circumstances include the reason for the sickness of the company - it may be due to bad management, due to bad financial planning, due to the lack of the supply of raw material, due to the lack of market for the product etc. Once it is identified as to what exactly is the reason for the sickness of the company, then perhaps it is possible for the Board to reach a conclusion whether it would be practicable for the company to make its net worth exceed the accumulated losses within a reasonable time. For reaching this conclusion, once again the Board has to necessarily take into consideration the various facts. To take an extreme example - if the product of the company has no market at all or the product as such become an obsolete product that it would not be purchased by any consumer, any amount of planning and assistance to the company will not make the company to make its net worth exceed the accumulated losses, for the simple reason, ....
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....ve its consent for such a scheme or not. This question will be considered later in this judgment. 20. Coming to section 20 of the Act, as already noticed, the Board is required to make a decision whether the sick industrial company is likely to make a net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations. In my view, the decision required to be taken under section 20 is slightly different from the decision to be taken under section 17. From the scheme of the Act, it is clear that every company which is a sick company need not necessarily be wound up. The 'sickness' might be so marginal, in the sense, the corrosion of the networth of the company is so small, that even without any assistance or any one of the steps contemplated under section 18 been taken, it is possible for the company to make its net worth positive with a little care on the part of the management. In which case, the directions as contemplated under section 17(2) can be given by the Board. But in another given case the corrosion of the net worth is so substantial that the financial obligations owed by the company are so huge and that it is not reasonably poss....
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....3) of the section 18, provides the various modes by which the measures indicated under section 18(1)(a) to (f) could be implemented. 24. The case of the petitioner is that such a scheme was never framed by the operating agency nor the requirement of the publication of such a scheme stipulated under section 3(a) of section 18 is ever complied with by the second respondent. 25. On the other hand, the operating agency filed a counter affidavit. At para 5 of the counter affidavit, it is stated that a draft scheme was prepared by the third respondent whereunder the promoters were required to bring fresh funds of Rs. 1,535.16 lakhs to receive the unit and as the promoters were not in a position to secure the funds, the scheme was not finalised. 26. The learned counsel for the petitioner argued that if the promoters are in a position to raise such funds, there is no necessity for the company to become a sick industry; therefore, it was not a reasonable proposal on the part of the operating agency. Apart from that whatever proposals were given by the petitioner or its promoters were rejected by the second respondent on the ground that the State Bank of India who is the secured cre....
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...., advances, guarantees, reliefs, concessions or sacrifices. (2) The Board shall cause the scheme to be circulated to every person required by the scheme, to provide financial assistance by way of loans, advances, guarantees, reliefs, concessions or sacrifices for giving his consent, latest, within a period of sixty days from the date of such circulation [, or within such further period not exceeding 60 days as may be allowed by the Board. If no such consent is received, it shall be deemed to have been given.] (3) Upon receipt of consent from every person [or when consent deemed to have been given] in terms of sub-regulation (2), the Board may, as soon as may be, sanction the scheme, which shall be binding on all concerned on and from the date of such sanction." and submitted that in framing any scheme and making a provision for granting financial assistance to sick industrial company, or granting of concessions or making sacrifices in favour of the sick industrial company, the consent body is required to be taken and the second respondent Board cannot without such consent unilaterally declare obligating either the State or a financial institution to make either any advance....