DWARIKADHISH SPINNERS LIMITED Vs. UCO BANK

JUDGEMENT

(1.) This writ petition is directed against the order passed by the Appellate Authority for Industrial & Financial Reconstruction (AAIFR) dated 16.09.2009 whereby the Petitioner's appeal under Section 25 of the Sick Industrial Companies (Special Provision) Act, 1985 (hereinafter referred to as "SICA?) was dismissed. The said appeal before the AAIFR was in turn directed against the order dated 04.09.2006 passed by the Board for Industrial and Financial Reconstruction (BIFR) whereby the reference made by the Board of the Petitioner company under Section 15 of SICA was rejected as non maintainable on the grounds that the company (Petitioner) did not approach the BIFR with clean hands and had failed to avail the opportunities 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 it is decided that the company is a potentially viable company then schemes can be framed as provided under Section 18 of SICA. However, if it is felt that the company is so sick that it cannot be revived or rehabilitated then consequences of winding up, as contemplated under Section 20, would flow. In this backdrop Mr Sibal submitted that it is, therefore, the duty cast upon the Board, as also the AAIFR, at the appellate stage, to return a conclusive finding as to whether the company in question is within the definition of a sick industrial company as defined in Section 3 (1)(o) of SICA or not. If the BIFR or AAIFR does not return any such finding then they could be regarded as having abdicated their primary or most important function. He submitted that in the present case this is exactly what has happened and, therefore, the impugned order passed by the AAIFR is liable to be set aside and the matter is liable to be remanded to the BIFR for conducting an inquiry in terms of Section 16 of SICA and for a clear determination as to whether the Petitioner is a sick industrial company or not.

(3.) The second point urged by Mr Sibal, on behalf of the Petitioner, is that BIFR, as also the AAIFR, has been unfair to the Petitioner company, inasmuch as the case of the Petitioner company has been dealt along with three other group companies, namely, M/s Shamken Spinners Limited (SSL), M/s Shamken Multifab Limited (SML) and Shamken Cotsyn Limited (SCL). He submitted that, as the facts would reveal, the other three companies of the group stood on a different footing from that of the Petitioner company and the case of the Petitioner company has been painted with the same brush as that of the other three companies. And, in doing so, both the BIFR and the AAIFR have committed a gross error. To substantiate this plea, Mr Sibal submitted that while the other three companies of the group had already filed references before the BIFR, the present company had filed its reference under Section 15 only on 12.07.2005. At that time, the BIFR was already seized of the references filed by the other three companies and certain orders had already been passed therein. On 19.12.2005, when the reference of SSL and the other two group companies were considered by the BIFR, the Petitioner company (DSL) was not represented as its first hearing was conducted much later, on 23.02.2006. However, 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 others concerned.