TaxTMI 
TaxTMI 
TaxTMI 
1999 (12) TMI 765
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....originally functioning as an undertaking of the U.P. Government. It was converted into a public limited company in the year 1972. It is manufacturing cement. It has three units. The first unit was set up in the year 1954, at Churk. In 1972, another unit was set up at Dalla with an installed capacity of 4 lakhs t.p.a. Both these units manufacture cement under wet processing technology. In the year 1974, the IDBI along with other financial institutions and banks sanctioned financial assistance to the Corporation to set up a dry process cement plant with clinkerisation unit at Dalla of capacity of 8 lakhs t.p.a. and cement grinding unit at Chunar for manufacture of Portland Blast Furnace Slag Cement of 16.8 lakhs t.p.a. 3. The Corporation went on accumulating losses. In September 1991, the loss amounted to Rs. 180.13 crores while its paid up capital was Rs. 68.28 crores. On 31-3-1994, the loss was Rs. 319.81 crores and share capital and reserves were Rs. 68.29 crores. On 31-3-1998, the loss further increased to Rs. 548.85 crores. 4. The board of directors of the Corporation found that the accumulated losses were exceeding the entire net worth of the Corporation and it has become a s....
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....lity of mobilising resources by sale of surplus assets and was further advised to advertise inviting offers from private parties for rehabilitation of the Corporation. 18-5-1995 - The operating agency reported to the Board that in response to the advertisement made by it, four proposals were received - two from workers and two from outsiders. The State Government informed the Board that it was not possible by it to invest any funds and privatisation or joint sector was the only solution. The operating agency was asked to examine the four proposals received. 18-10-1995 - The operating agency informed the Board that the two outsiders who had submitted offers were not interested. Workers proposals were also not found acceptable. The Board gave a last opportunity to the State Government to locate some party to take over the Corporation. The operating agency was asked to make fresh advertisement for the purpose. 4-1-1996 - The operating agency reported to the Board that no concrete proposals were received by it in response to the fresh advertisement. The State Government (Promoter) did not show any interest and no one attended the meeting. The Board gave further time to earlier two b....
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....Act is as under : "The ill effects of sickness in industrial companies such as loss of production, loss of employment, loss of revenue to the Central and State Governments and locking up of investable funds of banks and financial institutions are of serious concern to the Government and the society at large. The concern of the Government is accentuated by the alarming increase in the incidence of sickness in industrial companies. It has been recognised that in order to fully utilise the productive industrial assets afford maximum protection of employment and optimise the use of the funds of the banks and financial institutions, it would be imperative to revive and rehabilitate the potentially viable sick industrial companies as quickly as possible. It would also be equally imperative to salvage the productive assets and realise the amounts due to the banks and financial institutions, to the extent possible, from the non-viable sick industrial companies through liquidation of those companies. It has been the experience that the existing institutional arrangements and procedures for revival and rehabilitation of potentially viable sick industrial companies are both in adequate and ....
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....he Board may record and forward its opinion to the concerned High Court under section 20(1) of the Act. 9. The Board appointed Industrial Bank of India (IDBI) as the operating agency. It gave directions to it in its various meetings held on several dates to take measures for revival of the Corporation. The operating agency issued advertisement inviting proposals for revival of the sick company. It presented a scheme on the basis of the report of the Cemtech India involving an expenditure of Rs. 122.23 crores to be met by the State Government. The State Government in the meeting of the Board held on May 18, 1995, informed that it was not possible for the State Government to invest any funds. There were other four proposals which were also considered by the Board. (1) Gujarat Ambuja Cements Ltd.: After submitting proposals it informed that it is not interested to take over. (2) Dalmia Industries Ltd.: It sought one month's time for submitting a detailed proposal but finally it did not submit any proposal. (3) Khandelwal Cement Ltd. (KCL): They sought waiver of entire interest on terms loans of financial institutions and banks which were not acceptable to them. It did not submit a....
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....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, it shall be deemed that the consent has been given. Sub-section (2) must be read with sub-section (1) which provides for a scheme. It reads as under : "19. Rehabilitation by giving financial assistance.-(1) Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for 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 being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company. (2) Every scheme referred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within....
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.... against whom fiction has been created that he does not consent to the proposed scheme. The Board is not precluded from examining the reality after the veil of legal fiction is removed. It is necessary to examine the facts in this light. The operating agency on the basis of the report of Cemtech India presented a scheme on 28-12-1994, before the Board involving expenditure of Rs. 122.23 crores to be met by the State Government. The Board in its meeting held on 18-5-1995, observed as follows : "The Bench further noted that a communication has been received from the State Government stating that keeping in view the magnitude of funds required for rehabilitation of the company as assessed by Cemtech and IDBI as operating agency, privatization including outright sale of the company switch over to the joint sector is the only feasible option for rehabilitating the company; and that the State Government would not invest any money on its rehabilitation. The State Government has clearly stated that they will not be able to induct any funds for the rehabilitation of the company and is in favour of the privatization. The long term liabilities of the company as on March, 31, 1994, were Rs. ....
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.... learned counsel for the petitioner is that there were surplus assets of the Corporation and if surplus assets had been identified and sold by the operating agency, no additional fund was required to give effect to the rehabilitation scheme for revival of the Corporation. The words 'surplus assets' have not been defined in the Act. In Stroud's Judicial Dictionary, fifth edition, page 2570, the meaning of "surplus assets" has been given as under : "(c) Surplus assets. - In the memorandum and articles of a company, 'surplus assets' means all the assets of the company remaining after creditors have been paid and the costs of winding up have been paid or provided for, but before any payment to members as such has been made or provided for. 'Any further surplus assets' means that part of the 'surplus assets' remaining after paying or providing for the members (Dimbula Valley (Ceylon) Tea Co. Ltd. v. Laurie [1961] 31 Comp. Cas. 655]. (d) Surplus assets. - In the memorandum of association of a company, was held to mean what was left after the payment of debts and the repayment of the whole of the preference and ordinary capital (Dunstable Portland Cement Co., In re 48 TLR 223)." 20. He....
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....Corporation. It has also been covered under the rehabilitation package that the existing employees will be provided residential facilities by the district administration on rental basis. Dalla : Dalla having surplus land of approx. 100 acres which has been valued on the market price. The assets of schools and colleges will be transferred to State Government based on the market price. The shops and some other items will be disposed of at the market value. Chunar : The hilly land available at Chunar is surplus and may be disposed of at the market price. The assets of schools and colleges will be transferred to State Government at the market price. The summary of the revaluation of surplus assets of U.P. State Cement Corporation Ltd. along with the relevant annexures is being enclosed herewith. It may be seen that the surplus assets of the corporation are for Rs. 151 crores. 25. A counter-affidavit was filed by K.L. Meena wherein it has been specifically stated that the surplus assets of the Corporation are not free from encumbrances and all of its assets are mortgaged with the financial institutions and banks including the Industrial Bank of India against the loan taken by the....
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....f the sick Corporation. 28. The third ground of attack against the opinion of the Board is that it failed to publish the scheme submitted by the operating agency under section 18(3)(a) which provides that 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 in the case of amalgam-ation also, to any other company concerned, and the Board shall publish or cause to be published the draft scheme in brief in such daily newspaper as the Board may consider necessary for suggestions and objections, if any, within such period as the Board may specify. 29. Admittedly, the Board appointed the Industrial Bank of India as operating agency and directed it to prepare and present a suitable scheme. The operating agency presented a scheme involving expenditure of Rs. 122.23 crores to be met by the State Government. In its meetings held on 28-12-1994, the Board directed the Corporation to submit an alternative proposal for its revival. The workers were also permitted to submit their rehabilitation proposal. The operating a....
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....objections if any. The suggestions and objections, if any, shall be furnished to the Board within such time as may be specified by the Board: Provided that the Board may, at the request of the concerned party and on sufficient cause being shown, suitably extend the time for submission of suggestions and objections." 32. There is nothing to show that the draft scheme was prepared by the Board and in the absence of such draft scheme, there was nothing to be published as envisaged under regulation 28 of the Regulations. 33. Where the Board fails to prepare the draft scheme and get such scheme published in the daily newspaper as contemplated under section 18(3)(a), it is still to be examined that such failure has affected the prospect of the revival of the sick company. In this context, a reference may be made to clause (b) of section 18(3) which provides that the Board may make such modifications, if any, in the draft scheme as it may consider necessary in the light of suggestions and objections received from the sick industrial company and the operating agency and also from the transferee industrial company and any other company concerned in the amalgamation and any shareholder or....
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....pany has become a sick industrial company, the Board shall, after considering the relevant facts and circumstances of the case, decide as soon as may be, by order in writing, whether it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time. Sub-section (1) is to be read with sub-sections (2) and (3) as on the basis of the order passed under sub-section (1) the Board has to take further steps. The relevant provisions of sections 17(1), (2) and (3) read as under : "17. Powers of Board to make suitable order on the completion of inquiry.-(1) If after making an inquiry under section 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be by order in writing, whether it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time. (2) If the Board decides under sub-section (1) that it is practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, the Board, shall, by order in writing and su....
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....it had required potential and it could be revived with the requisite assistance from the bank and the financial institutions. Usmani added that at present, he had no scheme to submit for rehabilitation of the company. The company, had, however, gone for appointment of a technical consultant in consultation with IDBI for study of technical feasibility of the unit and would confirm his appointment to the Bench within 15 days. In view of the company's incurring a cash loss of Rs. 2.4 crores approximately daily Usmani requested the Bench for taking the measures as it deems fit for rehabilitation of the company.' The Board made further observation : "The Bench further observed that the company was not in a position of rehabilitation with its own efforts. The Bench, therefore, appointed IDBI as operating agency in exercise of the powers under section 17(3) the Sick Industrial Companies (Special Provisions) Act. The operating agency was directed to submit a draft rehabilitation scheme keeping in view the provisions of sections 18 and 19 of the Act." 38. The Board having come to the conclusion that the Corporation cannot be revived unless measures are taken for its rehabilitation, the m....
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....ly, that there is an inconsistency and secondly, that the party has taken benefit while approbating or reprobating. The rehabilitation scheme could be enforced only when the State Government or the financial institutions infuse their funds in the scheme. The State Government never agreed to provide financial assistance in revival of the scheme. The mere fact that the appeal was filed taking a certain ground did not oblige the State Government to infuse the fund in carrying out the scheme submitted by the operating agency or the Corporation and support the version of the petitioners. 42. On behalf of the respondents, it has been urged that the workers and other employees of the Corporation have no right to object to the proceedings before the Board nor can they raise technical objections before the High Court. In Navnit R. Kamani v. R.R. Kamani AIR 1989 SC 9, it has been held that the workers have a right to submit a rehabilitation scheme in the form of the co-operative societies and in case the scheme submitted by the workers is found to be viable by the Board, the same can be sanctioned. The workmen and the trade union representing their interest are entitled to be heard and to s....
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.... surplus assets after sale of which the Corporation could be revived and its net worth could exceed heavy losses incurred by it. Secondly, mere sale of surplus assets was itself not sufficient for reviving the sick company as it has further to be examined that it will make its net worth exceed the accumulated losses within a reasonable time. 44. Great emphasis has been laid down on the fact that it is not just and equitable that the Corporation should be wound up. It may be noted that the Corporation was declared a sick company by the Board on 7-10-1992, and for about five years it laboured hard to find a viable scheme so that the sick company could be revived and its net worth exceed the accumu-lated losses. On 30-9-1991, the loss was Rs. 180.13 crores while share capital and reserves were Rs. 68 crores. On 30-3-1994, the loss was Rs. 319 crores and on 31-3-1998, it rose to Rs. 548.85 crores while the reserves remained the same. The running of an industry is based not only on investment of capital but the management and other factors are also responsible for the same. In the counter-affidavit filed by Satya Narain Singh on behalf of the State Government in paragraph 13 it has bee....