TMI Blog1995 (3) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... assistance for revival of Flowmore for consideration even though at every stage, the proceedings were communicated to Garware. Therefore, Garware was put on notice of the steps taken and the orders passed by the Board. Yet Garware evinced no interest in the revival of Flowmore on a stand alone basis or any other alternative scheme. Thereby it is not a person interested. For its initial interest evinced by Garware, it had acquiesced by its conduct in the orders passed by the Board. It is true that in the order dated April 23, 1993, the Board declined to approve the merger scheme of S. R. F. on the premise that S. R. F. would gain undue advantage of the tax benefits under section 72A, etc., and the stand alone basis proposal was ordered to be published. But when the mistake it had committed in the matter was brought to its notice, the Board reviewed its order on November 19, 1993, no doubt without hearing any party and accepted the scheme for merger of Flowmore with S. R. F. and direction in that behalf was accordingly issued to the operating agency for publication of scheme as draft scheme. Since Garware had acquiesced in the order passed and had not evinced any interest, only two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy (for short, "OA") to prepare a financial package to revive Flowmore with a cut-off date as September 30, 1992. By clause (3) thereof, the operating agency was directed to examine the feasibility of amalgamation of Flowmore with other "healthy companies or change of management of the company on a stand alone basis" and directed to submit its report by July 30, 1992. The operating agency invited offers from the parties evincing interest in the revival of Flowmore and requested to submit their revival proposals before May 15, 1992. The first appellant (for short, "S. R. F."), the first respondent (for short, "Garware") and Assam Asbestos Limited (for short, "AAL") submitted their respective schemes. The schemes submitted on July 15, 1992 (after seeking three extensions) by Garware and Assam Asbestos Ltd. were on a "stand alone" basis, while the one submitted by S. R. F. was for "merger" of Flowmore with S. R. F. Despite the Board for Industrial and Financial Reconstruction sending notices to all parties including Garware intimating that they would be heard on their respective schemes on October 5, 1992, and on receipt of such notices by them, Garware did not appear. S. R. F. and As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1992, and annexure-B is the copy of the notice sent to all. On November 30, 1992, the operating agency submitted its evaluation report as directed by the Board for Industrial and Financial Reconstruction on the revival proposal submitted by S. R. F. and Assam Asbestos Ltd. On December 3, 1992, Garware by its letter addressed to Assam Asbestos Ltd. offered its technical assistance to Assam Asbestos Ltd. for revival of Flowmore. On December 8, 1992, the operating agency submitted its report to the Board for Industrial and Financial Reconstruction along with minutes of the joint meeting it had held with banks and financial institutions. It would, therefore, be apparent that instead of submitting its revised proposal to the operating agency or the Board for Industrial and Financial Reconstruction, Garware had agreed with Assam Asbestos Ltd. to assist it for revival of Flowmore. At the time of hearing by the Board for Industrial and Financial Reconstruction, on December 11, 1992, the Assam Asbestos Ltd. had referred to and the Board for Industrial and Financial Reconstruction had taken note of the letter of Garware dated December 3, 1992, in which Garware had undertaken to assist Assa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 18, 1993, (annexure "C" is the notice). On March 18, 1993, Garware did not appear before the Board for Industrial and Financial Reconstruction. The Board for Industrial and Financial Reconstruction noted that two schemes submitted by S. R. F. and Assam Asbestos Ltd. were being considered. After hearing the parties, S. R. F., Assam Asbestos Ltd./ATCO and Flowmore, the order was reserved. By this stage, ATCO had backed out from its earlier proposal and it did not deposit the amount as directed in the earlier proceedings. It would, thus, be clear that after submitting its revival proposal on stand alone basis, despite repeated directions and notices, Garware neither complied with the directions of the Board for Industrial and Financial Reconstruction for modification of its original scheme as per the Reserve Bank of India's guidelines nor evinced any further interest in the matter of revival of the sick company on stand alone basis nor did it participate in any of the proceedings before the Board for Industrial and Financial Reconstruction. By order dated April 23, 1993, the Board for Industrial and Financial Reconstruction approved the scheme of revival of Flowmore proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections or suggestions to the scheme. Copy thereof was also sent to Garware-annexure "D". On January 14, 1994, Garware filed an appeal before the Appellate Authority against the order dated November 19, 1993, and on January 27, 1994, and after hearing the arguments of all concerned, orders were reserved. Before it pronounced the order, Garware filed Writ Petition No. 354 of 1994 before the High Court of Bombay at Aurangabad Bench which admittedly has no territorial jurisdiction. The High Court did not pass any interim orders, but issued notice returnable on February 8, 1994. On January 27, 1994, Garware appeared before the Board for Industrial and Financial Reconstruction and admitted its failure to submit its revival proposal after rejecting its initial proposal. By proceedings dated January 28, 1994, the Appellate Authority dismissed the appeal of Garware. Subsequently, Garware amended the writ petition which was transferred by this court to the Delhi High Court. The Division Bench allowed the writ petition primarily on the ground that Garware is "an interested person" and "deeply interested in the revival of" Flowmore on a "stand alone basis". The High Court set aside the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is interested to prolong the revival of Flowmore so as to keep the company away from the competition. It had acquiesced in the orders passed by the Board for Industrial and Financial Reconstruction at different dates. The High Court was, therefore, not right in its conclusion that Garware was a deeply interested person and is entitled to file its revised scheme on a stand alone basis. While conceding that notices to the Central Government and the Central Board of Direct Taxes necessarily should have been given by the Board for Industrial and Financial Reconstruction, he contended that S. R. F. had expressly given up before the Board for Industrial and Financial Reconstruction the benefits of section 72A. During the course of the hearing in the High Court, his counterpart, Shri Harish Salve, had undertaken and S. R. F. still stood by, that the revival scheme would be operative from April 1, 1994. Thereby, other benefits of set-off under sections 70, 71 and 72 of the Income-tax Act would be marginalised. Therefore, there would be no revenue sacrifices to the State. The benefit of rebate on interest on the outstanding loans paid during the relevant accounting year to the banks and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory. An order of revival by merger without notice to them is per se illegal. Having given our anxious consideration to the respective contentions, we are of the view that the contentions of Sri Nariman merit acceptance. The first question for consideration is whether the proceedings before the Board for Industrial and Financial Reconstruction should be expeditiously disposed of? The preamble of the Sick Industrial Companies (Special Provisions) Act reads thus : " An Act to make in the public interest, special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto." Under section 17(1), the Board, after making inquiry, has to 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. Similarly, section 18(1) envisages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prepare a scheme as provided in sub-section (3) of section 18 as per the provisions and the Reserve Bank of India guidelines and the Board has been given power to review or modify such order after the operating agency makes a submission in that behalf as envisaged under section 18(1) and (2) of the Sick Industrial Companies (Special Provisions) Act. After its examination and hearing all concerned as envisaged under section 18(3) and regulations 27 to 31, the Board would finalise it and direct sanctioning the scheme and specify the date when the sanctioned scheme shall come into force as enjoined under section 18(4) of the Act. The regulations provide the procedure in that behalf. It is seen, as held earlier, that inquiry shall be completed and concluded as expeditiously as possible to revive the sick company or potentially sick company. The question, therefore, is whether the procedure adopted by the Board for Industrial and Financial Reconstruction is vitiated by any error of law and Garware is an interested person in reviving Flowmore. It is seen that Garware and Assam Asbestos Ltd. had offered their schemes on a stand alone basis. All through S. R. F. had submitted its sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that though Garware stood by, it was not out and still an interested person and was entitled to be heard before accepting the scheme of S. R. F. for merger of Flowmore with S. R. F. It is true that no notice was issued by the Board either to the Central Government or to the Central Board of Direct Taxes. The Central Government shall be required to pass an order under section 72A of the tax benefits and that, therefore, it is entitled to be heard. Since the merger scheme, which was given effect from April 1, 1992, involves tax concessions and sacrifices enumerated in sections 70, 71 and 72 as set-off. So, there would be great revenue losses. Therefore, the Central Government and the Central Board of Direct Taxes are necessary and proper parties before the Board. The Board before finalising the merger scheme and approving its draft scheme for merger of the sick industrial company with a healthy company, notice should be given to the Central Government as well to the Central Board of Direct Taxes. Admittedly, by two letters S. R. F. had given up the benefits under section 72A. Counsel for the S. R. F. had given an undertaking in the High Court and reiterated before this court that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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