KHANNA RAYON INDUSTRIES LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) The first petitioner is a company registered under the Companies Act, 1956 and is engaged in the business of processing, crimping and dying of synthetic yarn at its mills at Ghatkopar (West), Bombay. In the year 1980 the first petitioner made a reference under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short 'the SICA'), to the Board for Industrial and Financial Reconstruction (for short 'the BIFR') on the ground that the petitioner had incurred cash loss of Rs. 225.06 lakhs in the year ending September 30, 1987 and a further cash loss of Rs. 353.84 lakhs in the accounting period ending March 31, 1989 and the accumulated losses amounting to Rs. 598.00 lakhs as on March 31, 1989 which exceeded its entire networth, thus rendering the company a sick company within the meaning of Section 3(1)(o) of the SICA. On July 17, 1992 the BIFR formed a prima fade opinion for winding up of the company, but the company not being satisfied with the order of the BIFR filed an appeal before the Appellate Authority for Industrial and Financial Reconstruction (for short 'the AAIFR'). On May 27, 1994 the AAIFR sanctioned a scheme of rehabilitation in respect of the first petitioner. As per the scheme the promoters were required to bring in Rs. 1.87 crores besides Rs. 8.98 crores were to be arranged by them from sale/development of land owned by the first petitioner. The scheme envisaged development of 93,500 sq. ft. of land at Ghatkopar, out of which 21,000 sq. ft. was to be retained for the use of the first petitioner and the remaining 72,500 sq. ft. was to be sold at Rs. 13.25 per sq. ft. to raise Rs. 9.61 crores. For the purposes of working out the scheme a committee was constituted by the AAIFR which included representative of the Bank of India and two nominated directors of the BIFR. Pursuant to the scheme, the first petitioner made an application to the Municipal Corporation of Bombay for sanction of plan for development of land to construct an area of 1,00,000 sq. ft. The Municipal Corporation of Bombay permitted the first petitioner toconstruct 86,000 sq.ft. Thus there was a short fall of 14,000 sq.ft. the value of which was Rs. 1,76,80,000.00 . According to the petitioners the scheme sufferred a set-back as the estate prices fell in Bombay, but still the first petitioner paid Rs. 472 lakhs to the Bank of India out its dues of Rs. 628 lakhs. On July 13, 1998 the petitioner submitted a revised scheme before the AAIFR but the same was rejected. The petitioner is aggrieved of the order of the AAIFR whereby not only the scheme was rejected but the appeal against the order of the BIFR dated July 17, 1992 was also rejected. It is clear from the order of the AAIFR that the promoters failed to bring in their contribution of Rs. 1.87 crores as envisaged in the scheme. It was also noted that the promoters made payments to sister concerns before completing the payment of OTS amount to the Bank of India, It was also noticed that the promoters had failed to fulfil their assurance dated March 25, 1988 that they would make a term deposit of Rs. 1 crore with the Bank of India. In regard to the failure of the promoters to bring in their contribution of Rs. 1.87 crores and their action by way of payment of Rs. 68 lakhs to the sister concerns before completing the payment of OTS amount to the Bank of India, the AAIFR observed as follows : "5. The promoters have failed to fulfil their assurance to this Authority on 25.3.98 that they would-make a term deposit of Rs. 1 crore with BOI. It is clear from the submissions made before this Authority on their behalf on 10.7.98 that, in fact, they have no intention of doing so. Moreover, they want to postpone infusion of their own contribution to the next two years even though their contribution of Rs. 1.87 crore should have already been brought in. 6. The scheme sanctioned by this Authority on 27.5.94 has failed due to the promoters' failure to bring in their contribution as well as violation of several terms of the sanctioned scheme. We strongly disapprove of the appellant's action by way of payment of Rs. 68 lakhs to sister concerns before completing the payment of OTS amount to BOI and the pressing creditors and thereby violating the terms and conditions of the scheme. 7. The learned Senior Counsel forcefully argued that KRIL/promoters are keen to complete the revival of KRIL, that about 73% opf the scheme has already been completed by utilising Rs. 7.93 crore received from the builders, and that it would not be proper to wind up KRIL. He suggested that a fresh scheme should becon- sidered for sanction and that the promoters will fulfil their obligations. We do not accept the contention that 73% of the scheme has been implemented. There are new added costs (not calculated) on account of total failure on several important counts : progress of capital expenditure, production, payments to pressing creditors, infusion of promoters' funds is zero and outstanding liabilities to BOI, pressing creditors, statutory authorities etc. have to be met with accumulated interest. " Dr. Singhvi, learned Senior Counsel appearing for the petitioners submitted that 73% of .the scheme has already been implemented by utilisation of Rs. 7.93 crore received from the builders. He also submitted that the scheme envisaged the payment of the dues of the sister concerns. He further submitted that there was no requirement that before the payment of Rs. I crore to the Bank of India no payment was to be made to the sister concerns. Learned Senior Counsel also submitted that the scheme is to run till the year 2003 and there is still time for implementation of the scheme and during the currency of the scheme the company should not have been ordered to be wound up. He submitted that the AAIFR has committed an illegality in directing winding up of the company.

(2.) We have considered the submission of the leamed Counsel for the petitioners. We are not inclined to interfere with the order passed by the AAIFR. As per the scheme, the company agreed to pay Rs. 564 lakhs with interest to the Bank of India in full and final payment of its dues which had been arrived at as follows : Outstanding as on May 2, 1988: (Rs. in lakhs) Cash credit 257 Term Loan - Principal 58 Int.accrued on Term Loan upto 2.5.88 45 Outstanding as on December 31, 1993: Simple interest at 10% p.a. on the above for the period 2.5.88 to 31.12.93 204 Out of the amount of Rs. 564 lakhs. Rs. 341 lakhs was to be paid during 1995 and the balance of Rs. 223 lakhs was to be paid during 1996. As per para 3 of Part III relating to Package of Reliefs & Concessions, it was agreed as follows : "3. PACKAGE OF RELIEFS & CONCESSIONS Reliefs and concessions sought by KRIL are detailed below : 3.1. BANK 1. To waive penal interest, liquidated damages, penalties and other levies of like nature by Bank of India: the amount of such waiver is expected to be in range of Rs. 3 lakhs. 2. To charge 10% simple interest on all loans and facilities outstanding to the Bank of India amounting to Rs. 360.02 lakhs from May 2,1988 to December 31,1993. 3. To agree for repayment of crystallised loans and facilities from the bank amounting to Rs. 564 lakhs over eighteen months with effect from January 1, 1994 with 10% simple interest thereon. 3.2. CENTRAL GOVERNMENT: 1. To permit repayment of statutory dues of Provident Fund, contributions to Employees' State Insurance Corporation over next 36 months. 3.3. STATE GOVERNMENT: 1. To permit repayment of sales tax dues over 36 months with interest @ 13%. 2. To permit repayment of dues of property tax and water charges over a period of 36 months with interest @ 10%.

(3.) To grant permission to develop the property to the full FSI with a view to raise interest-free funds for rehabilitation scheme." Thus, the amount of Rs. 564 lakhs was to be paid within eighteen months w.e.f. January 1, 1994 with 10% simple interest thereon. Out of this amount of Rs. 564 lakhs, the petitioner has paid Rs. 475 lakhs thereby leaving a balance of Rs. 89 lakhs. It must, however, be noted that the amount of Rs. 564 lakhs which was to be paid in eighteen months has still not been liquidated in full even after four years of the operation of the scheme. It also cannot be ignored that a sum of Rs. 564 lakhs was to be paid to the Bank of India with 10% simple interest thereon. It is not the case of the petitioner that interest w.e.f. January 1, 1994 on Rs. 564 lakhs has been paid to the Bank of India. Before discharging the loan of the Bank of India the Company paid to its sister concerns Rs. 68 lakhs. That payment obviously could not have been made before payment of the sum of Rs. 564 lakhs with simple interest at the rate of 10% per annum to the Bank of India. Besides, the promoters have failed to bring in their contribution of Rs. 1.87 crores. It needs to be noticed that the outstandings of the Bank of India related to the year 1988. Ten years later in 1998 the petitioner still owes more than Rs. 89 lakhs to the Bank of India. This does not include the interest which has accrued to the Bank of India since January 1,1994. The money due to the Bank is public money and the petitioners cannot be heard to say that the public money should remain tied up in their projects even though there is hardly any chance to resuscitate and revive the Company in the facts and circumstances of the case. If the promoters cannot muster Rs. 1.87 crores, how can they be expected to restore the Company to health and run the scheme successfully. The writ petition has no merit and the same is dismissed.