1998 (10) TMI 497 - HC - Companies Law

Summary

Issues:
1. Quashing of order directing winding up of a sick industrial company.
2. Viability and rehabilitation scheme for a company facing raw material shortage.
3. Responsibility for the company becoming sick and the role of financial institutions.
4. Feasibility of further financial assistance for sick industrial units.
5. Justness and equity in the decision to wind up a sick industrial company.

Analysis:

Issue 1:
The writ petition sought to quash the order directing the winding up of a sick industrial company due to a prima facie opinion by the Board for Industrial and Financial Reconstruction (BIFR). The petitioner argued against the order under annexures 1 and 2, citing difficulties in obtaining raw material and the impact of government policies on the company's operations.

Issue 2:
The company faced challenges in obtaining the basic raw material, sal seed, due to changes in government policies and nationalization of the trade. Despite efforts for rehabilitation, including schemes proposed by the operating agency and financial contributions, the unit faced closure multiple times due to raw material shortages, leading to the current situation.

Issue 3:
Debates arose regarding the responsibility for the company becoming sick, with the petitioner attributing it to external factors like government policies and financial institutions' reluctance to provide loans. The petitioner emphasized the need for continuous financial assistance for revival, while the opposing parties highlighted the lack of promoters' contributions and the necessity of identifying resourceful investors for revival.

Issue 4:
The judgment deliberated on the feasibility of providing further financial assistance to sick industrial units. It highlighted the legislative intent of reviving sick units and the need for expert evaluation before considering winding up. The decision emphasized the importance of assessing the viability of rehabilitation schemes and the limitations of continuous financial support.

Issue 5:
In determining the justness and equity of winding up the sick industrial company, the judgment considered the repeated failures of rehabilitation packages, lack of promoter initiatives, and the overall circumstances of the case. The court upheld the decision of the Board, finding no procedural irregularities or illegalities in the decision-making process, leading to the dismissal of the writ application.

In conclusion, the judgment upheld the decision to wind up the sick industrial company based on a comprehensive analysis of the issues surrounding raw material shortages, rehabilitation efforts, financial responsibilities, and the feasibility of further assistance. The court's decision emphasized the need for expert evaluation and considered the legislative intent of reviving sick units before resorting to winding up.