TaxTMI 
TaxTMI 
2011 (2) TMI 1264
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....ities given by the Board to present its case. 2. Mr. Amit Sibal, the learned counsel appearing on behalf of the petitioner, mainly canvassed two points. The first point that was urged by him was that neither the BIFR nor the AAIFR have returned any finding as to whether the petitioner company is a sick industrial company or not. According to him, this determination is the duty of the BIFR as mandated by the provisions of SICA. He further submitted that once a company is determined to be sick under the provisions of SICA, then, that company can be dealt with only as provided under the said Act. The jurisdiction in respect of such determination, that is with regard to the sickness of the concerned company, is at the sole authority of the BIFR and there is a complete bar as provided under section 26 of SICA for approaching any other Court including Civil Courts to enter into this domain. Mr. Sibal further submitted that once the BIFR, or as the case may be, AAIFR comes to a determination that a company is a sick industrial company, the further question would have to be answered as to whether the said company can be revived or not. In either eventuality different consequences flow. If....
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...., there is a direction in the order dated 19-12-2005 that in future the cases of the four group companies i.e., SSL, SML and SCL and the present petitioner (DSL) be listed for hearing on the same date as in the case of SSL. It is in this order, that it is recorded for the first time that IDBI had an Investigative Audit (IA) conducted in respect of the group companies and that the audit report of M/s. ANG and Associates revealed serious financial irregularities including furnishing of false and misleading information to the Banks/Institutions, multiple financing of projects, submission of forged Bank Statements and "fabricated auditor's certificates" for the purpose of availing disbursements, diversion of funds to group companies etc. In the said order itself it has been observed that the said IA report had not been served on the group companies and as such they had not been in a position to comment thereon. Consequently, the BIFR directed IDBI to immediately serve the IA report on the company (SSL), which was given at the hearing itself, and to all the secured creditors. SSL was allowed four weeks time to respond to the IA report with copies to the Banks/Financial Institutions and ....
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.... in the absence of such a reply. Consequently, it was submitted by Mr. Sibal that a proper opportunity was not given to the petitioner to give its response to the IA report, even assuming that a copy of the IA report was available with the petitioner. In this context he further submitted that the IA report itself, as would be apparent from the proceedings before the AAIFR, was not sacrosanct and was not based on authenticated evidence but was based on unauthorized and unconfirmed information supplied by the banks to the said chartered accountants. 6. Mr. Nayyar, the learned Senior Counsel appearing on behalf of the respondent Nos. 2, 3 and 4, submitted that insofar as the denial of opportunity argument is concerned, the petitioner had no case. He submitted that if it were true that the petitioner company did not have a copy of the IA report, it could have made a request for the same before the BIFR on 22-3-2006 or even on 3-7-2006. In fact, even on 4-9-2006 the Authorized Representative could have said that he is seeking an adjournment because he did not have a copy of the IA report and, therefore, was unable to give a response thereto. Since this is admittedly not the case, accor....
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....supportable arguments. 37. In view of what we have said above, we feel that the impugned orders of BIFR of 4-9-2006 do not suffer from any legal infirmity and they are just and fair. We do not see any reason to interfere with these orders. We dismiss the appeals accordingly." [Emphasis supplied] 9. We have considered the arguments advanced by the counsel for the parties as well as the material on record and the statutory provisions. We find that as per the statement of objects and reasons of SICA, it has been designed to take care of not only those sick industrial companies which are potentially viable and can be revived and rehabilitated but also of the non-viable sick industrial companies. The potentially viable sick industrial companies are sought to be revived and rehabilitated under SICA whereas the non-viable sick industrial companies are to be dealt with under section 20 of SICA in order to salvage the productive assets and realize the amounts due to the banks and financial institutions through liquidation of such companies. Before either eventuality is undertaken, the BIFR has been given the duty under the Act to determine whether an industrial company has become a sick i....
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....pect to such matter as may be specified in the order. (3) The Board or, as the case may be the operating agency shall complete its inquiry as expeditiously as possible and endeavour shall be made to complete the inquiry within sixty days from the commencement of the inquiry. Explanation.-For the purposes of this sub-section, an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board. (4) Where the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under sub-section (1) or, as the case may be, under sub-section (2), it may appoint one or more persons to be a special director or special directors of the company for safeguarding the financial and other interests of the company or in the public interest. (4A) The Board may issue such directions to a special director appointed under sub-section (4) as it may deem necessary or expedient for proper discharge of his duties. (5) The appointment of a special director referred to in sub-section (4) shall be valid and effective notwithstanding anything to the contrary contained in the C....
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....come a sick industrial company or not. Of course, the type and kind of inquiry that the BIFR has to make has been left to the BIFR, inasmuch as the expression used is :- "the Board may make such inquiry as it may deem fit". 12. By virtue of sub-section (2) of section 16 of SICA, in cases where the BIFR deems it necessary or expedient so to do for the expeditious disposal of an inquiry under section 16(1), the BIFR may require an operating agency to inquire into and make a report with respect to such matters as may be specified in the orders passed by the BIFR in this regard. At this juncture we would like to point out that the definition of "operating agency" given in section 3(1)(i) is as follows : "(i )"operating agency" means any public financial institution, State level institution, scheduled bank or any other person as may be specified by general or special order as its agency by the Board;" In other words, the operating agency has to be appointed by the BIFR by a general or a special order as its agent for the purposes of making a report. We may also mention that by virtue of section 16(3), it is apparent that all endeavours are to be made to complete the inquiry as expedi....
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....y provides that upon a reference with respect to an industrial company under section 15 or upon information received with respect to such company or upon its own knowledge as to the financial condition of the company, the BIFR may either itself make such inquiry, as it may deem fit, for determining whether the company in question has become a sick industrial company or if it deems it necessary or expedient so to do, for the expeditious disposal of the said inquiry, direct by an order, an operating agency, to be specified in the order, to inquire into and make a report in respect of such matters as may be specified in the said order. By virtue of Regulation 22 the BIFR may also direct the operating agency to make a further inquiry if deemed necessary. 16. Regulation 24 is important. It reads as under :- "24. Where the Board after completion of its inquiry or after considering the report or, as the case may be, the further report of the operating agency, is satisfied that no case exists for coming to the conclusion that the industrial company has become a sick industrial company, it shall drop further proceedings in the reference." It is clear that as per the said Regulation 24 al....
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....s opinion or view, the party or parties to the inquiry shall be given a reasonable opportunity of making his or their submissions with respect thereto." One thing that immediately strikes us is that the assistance that is spoken of in Regulation 40 is invited at the instance of the BIFR. The language is clear, inasmuch as it contemplates that the BIFR may ask any of the said institutions, consultants, chartered accountants etc. to submit a report or furnish information. The occasion for the BIFR to do so would arise only after it commences an inquiry. As we have noticed above, the inquiry commenced, in this case, on 12-7-2005, the date on which the reference received by the BIFR. Therefore, the assistance that is contemplated in Regulation 40 is one which would be sought after the commencement of the inquiry by the BIFR and not some pre-existing report. 18. Having surveyed the various statutory provisions as well as the applicable regulations, we are of the clear view that the BIFR, once it receives a reference from the Board of Directors of the company, is duty bound to determine as to whether the company has become a sick industrial company or not. In the present case, we find ....
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....cts that the health of the companies had been propped up and not the other way round. What he meant was that if the allegations contained in the IA reports were taken to be true, they would reflect that the companies were sicker than they were actually portrayed to be in the audited accounts which the said companies submitted along with their references. In any event, we need not deal with this aspect of the matter any further, inasmuch as no such exercise had been done by the AAIFR in the case of the petitioner company. 21. Furthermore, Mr. Sibal also pointed out that Bank of India, which was one of the lending organizations insofar as the group companies are concerned, had filed a complaint before the Institute of Chartered Accountants of India against Mr. Kapil Dev Aggarwal who was part of M/s. B. Aggarwal and Company who were the statutory auditors of the group companies including the petitioner company. The complaint essentially was that the said Chartered Accountants had wrongly certified the accounts of the said group companies as being accurate when they were allegedly not so. These very accounts were before the BIFR and AAIFR in the shape of the documents accompanying the....