TMI Blog2010 (5) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... not limited to superseding a scheme of revival merely because of the objection of one minority secured creditor. We dismiss the petition challenging the impugned orders of BIFR and AAIFR. - W.P. (C) NO. 8644 OF 2009 - - - Dated:- 5-5-2010 - SANJAY KISHAN KAUL AND VALMIKI J. MEHTA, JJ. Adarsh B. Dial, R.K. Pandey and Sushil K. Tekriwal for the Petitioner. Karan Khanna, N.K. Karhail, Vivek Sibal, Vikas Chandel and Rakesh Pathak for the Respondent. JUDGMENT Valmiki J. Mehta, J. - The petitioner by way of this writ petition raises an interesting and important question with regard to interpretation of section 19, more particularly section 19(4) of the Sick Industrial Companies (Special Provisions) Act, 1985 ( Act or SICA ). The proposition which is sought to be canvassed on behalf of the petitioner is that even if one of the secured creditors refuses to give consent to a scheme which provides for financial assistance to a sick company, then, a sanctioned scheme has necessarily to be framed by resorting to other measures as specified under section 18 without allowing the company the benefit of financial assistance as envisaged under section 19(1) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der sub-section (4) of section 13 of that Act." ........... "16. Inquiry into working of sick industrial companies. (1) The Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company ( a )upon receipt of a reference with respect to such company under section 15; or ( b )upon information received with respect to such company or upon its own knowledge as to the financial condition of the company. (2) The Board may, if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under sub-section (1), require by order any operating agency to enquire into and make a report with respect to such matters 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." .......... "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law; ( e )such other preventive, ameliorative and remedial measures as may be appropriate; ( f )such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified in clauses ( a ) to ( e )." ....... "Section 18(2) The scheme referred to in sub-section (1) may provide for any one or more of the following, namely: ....... ( h )any other terms and conditions for the reconstruction or amalgamation of the sick industrial company; ...... ( m )such incidental, consequential and supplemental matters as may be necessary to secure that the reconstruction or amalgamation or other measures mentioned in the scheme are fully and effectively carried out." ...... "Section 18(3) ( a )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 amalgamation, also to any other company concerned, and the Board shall publish or cause to be published the draft scheme in brief in such daily newspapers as the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the sanction of the scheme under sub-section (3), the financial institutions and the banks required to provide financial assistance shall designate by mutual agreement a financial institution and a bank from amongst themselves which shall be responsible to disburse financial assistance by way of loans or advances or guarantees or reliefs or concessions or sacrifices agreed to be provided or granted under the scheme on behalf of all financial institutions and banks concerned. (3B) The financial institution and the bank designated under sub-section (3A) shall forthwith proceed to release the financial assistance to the sick industrial company in fulfilment of the requirement in this regard. (4) Where in respect of any scheme consent under sub-section (2) is not given by any person required by the scheme to provide financial assistance, the Board may adopt such other measures, including the winding up of the sick industrial company, as it may deem fit." ........ "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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing an appeal No. 170/07 before AAIFR contending that under section 19(4) of SICA, BIFR is not empowered to sanction the scheme when no consent was given by the appellant. AAIFR in this regard observed and has held as under: "12. Insofar as M/s. Oman International Bank (OIB) is concerned, we are unable to accept the stand of OIB. We are of the opinion that this company is revivable at least in part. The basic philosophy underlying SICA is that in the process of revival of a sick company sacrifices would have to be made by those who have a stake in the company by way of security or direct interest. We find from the records that the majority of the secured lenders (in terms of the quantum of their debts) are in favour of revival and are also willing to make some sacrifices in this behalf. OIB is being paid the CTS amount upfront which is more than the dispensation made for the Indian Banks. We had examined the scope of section 19(4) of SICA in appeal No. 204/04 in the case of M/s. Raj Solvex Ltd. This Authority vide its order dated 3-3-2008 has held, inter alia , as under: We are of the view that the settlement with respect to the dues of secured creditors who have adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entuated by the alarming increase in the incidence of sickness in industrial companies. It has been recognized that in order to fully utilize the productive industrial assets, afford maximum protection of employment and optimize 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 realize 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 inadequate and time-consuming. A multiplicity of laws and agencies makes the adoption of coordinated approach for dealing with sick industrial companies difficult. A need has, therefore, been felt to enact in public interest a legislation to provide for timely determination by a body of experts of the preventive, ameliorative, remedial and other measures th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable sick industrial companies. When we read the aforesaid Statement of objects and reasons along with section 20 of the Act, it becomes clear that winding up of a company is to be resorted to only as a last eventuality and only when it becomes just and equitable to wind up the sick industrial company. That the proposition as was very vehemently canvassed on behalf of the petitioner has no legs to stand upon becomes clear also from the expression "one or more" as found in section 18 of the Act. The expression one or more includes all i.e., all measures including financial concessions. This expression "one or more" indicates that more than one eventuality can be adopted and acted upon by BIFR to rehabilitate and revive a sick industrial company and not only one eventuality of resorting to other sub-sections of section 18 except its sub-section (1)( e ). Section 19(4) will have to be harmoniously construed with the expression one or more as found in section 18 so as to further the object of the Act. There cannot be a reading of the provisions of section 19(1) and 19(4) of the Act in the manner as is suggested by the learned senior counsel for the petitioner further becomes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FR. This proviso reads as under: " Provided also that on or after the commencement of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act." A plain reading of this proviso added by the Act 54 of 2002 shows that the consent of at least 3/4th of the secured creditors is necessary for the proceedings before BIFR to abate. This proviso further brings into focus the legislative intent that a minority creditor cannot frustrate the proceedings before BIFR for rehabilitation and revival of the sick industrial company. The Legislature has thought it fit that at least 75 per cent of the secured creditors must join hands to bring about an abatement to the proceedings before BIFR. If that be so, it cannot be understood as to how one secured cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereby minority secured creditors cannot frustrate a scheme which is propounded by the majority of the secured creditors. If a minority secured creditor cannot frustrate a scheme of composition under section 391 to section 394 of the Companies Act, 1956, there is no reason why a minority shareholder should be able to frustrate the revival and rehabili- tation of a sick industrial company by refusing to accept a reduced amount and a statutory settlement which is brought about by approval of a rehabilitation scheme by BIFR as per the proposal of the operating agency and arrived at after duly considering the suggestions and objections of all the concerned stake-holders including the creditors under section 18(3)( b ) of the SICA. SICA after all is for imposition of a valid statutory settlement which forms part of a sanctioned scheme. The second aspect is that by virtue of section 529A of the Companies Act, the dues of the workers are to be treated as equal to the dues payable to a secured creditor. Therefore, dues of even one of the workers can be in a manner of speaking be said to be the dues claimed by a secured creditor, but can it be contended that one worker can frustrate a reha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors." All that the above para says is that if consent is refused by one of the secured creditors, then the Board (BIFR) is thrown to section 19(4), however, as already discussed above section 19(4) allows various alternatives to BIFR to adopt one or more measures as per section 18(1) and section 18(3)( b ) of the Act. The last line of the above para of Ashok Organic Industries Ltd. s case ( supra ) only deals with the issue of minority dissenting creditors being not overridden and which can take place while approving a scheme strictly in accordance with sections 391 and 394 of the Companies Act, but, this cannot have a bearing on the interpretation of section 19(4) when dealt with in the context of options available to BIFR when a minority secured creditor opposes a draft scheme. As already stated above in such circumstances various options under SICA including those mentioned in section 18 can then be resorted to and Board is not limited to superseding a scheme of revival merely because of the objection of one minority secured creditor. 13. One last factor we must mention that the recent commercial crisis arising in the western world from insolvencies of transnati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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