LAV CHADHA Vs. SICOM LIMITED

JUDGEMENT

(1.) This is a discharge application filed by two Insolvents, who are senior citizens and who claim that they have continued to be undischarged insolvents for more than 9 years; that their assets have been fully adminsitered; and that it is time that they be relieved of the stigma that comes with insolvency in the last few years of their life. The application is under Section 38 of the Presidency-Towns Insolvency Act ("Act").

(2.) The Applicants' case, briefly, stated is this: The Applicants are both senior citizens, Applicant No.1 being of 65 years and Applicant No.2, 61 years. The Applicants have been first generation entrepreneurs with technical and managerial background, Applicant No.1 being a management graduate with experience in multi-national companies and Applicant No.2 being an engineering graduate with technical experience. In the year 1978, the Applicants started a small scale textile manufacturing unit, which had to be closed down at the time of the infamous textile strike led by Dr.Datta Samant. In the year 1985, the Applicants started a new company by the name of Prudential Polywebs Pvt.Ltd. Apart from the Applicants, there were other directors also of this company. For the company's new project at Amravati for production of plastic woven sacks, SICOM (Petitioning Creditors and Respondents to the present application) extended a term loan. This loan was against the security of mortgage of land, buildings, super-structures and plant & machinery of the company. In February 1987, the company started its commercial production. Soon thereafter, the Government of India introduced Jute Mandatory Packaging Materials Act banning all packaging materials for packing of fertilizers except jute. As a result, plastic woven sack units across the country went out of business, as nearly 99 per cent production of country's woven sacks was being used for packing of fertilizers. The Applicants' company, as a result, had to modify its unit for production of a particular grade of plastic woven sacks for filling of hot cement with foreign collaboration. The Applicants had to plan an IPO of Rs.4.25 crores in April 1993. Just few days before the public issue, serial bomb blasts occurred in Mumbai, including one at the Mumbai Stock Exchange. That was another set-back for the company. This was followed by labour agitation by two rival unions in the company. The capacity utilization went below the break even level. In addition to suffering penalties and liquidated damages, the company faced rioting and damage to its property due to violent labour agitation. There were even attempts on the life of the Applicants. All this resulted into erosion of the net worth of the company and its account becoming NPA. The company was referred to BIFR. IDBI was appointed as an operating agency. The efforts to revive and rehabilitate the company did not bear fruits. On 16 August 2000, BIFR passed an order recommending winding up of the company. Soon thereafter, the Petitioning Creditor herein (SICOM) gave a notice under Section 29 of the State Financial Corporations Act. On 5 February 2001, SICOM took possession of the unit, in pursuance of this notice. The personal assets of the Applicants including their residential premises were taken over by Union Bank, who had given working capital to the company against the collateral security of these assets. The residential premises were auctioned by the DRT. The unit was sold by SICOM at a value much below its estimated valuation, and could not discharge the liability of SICOM. In the premises, SICOM, which held an ex parte decree for recovery of over Rs.1.5 crores against the Applicants in their capacity of guarantors of the term loan extended to the company, filed the present insolvency petition. By an ex-parte order dated 19 August 2006, the Applicants were declared insolvents. Subsequent to the insolvency of the Applicants, on 14 March 2008, even the company was ordered to be wound up.

(3.) Through the years preceding the present application, in the course of the insolvency proceedings, the Applicants duly filed their schedule of assets and liabilities. The public examination was concluded on 12 November 2013. A certificate dated 9 July 2014 was issued by the Official Assignee certifying the creditors. As per this certificate, there are three creditors, namely, (i) the Petitioning Creditor in the sum of about Rs.2.76 crores, (ii) LIC in the sum of Rs.19.32 thousands and (iii) Oriental Bank of Commerce for about Rs.2.9 thousand. There are no assets of the Applicants to be realized in insolvency as of date. The Applicants submit that they have not committed any offence under the provisions of the Act or under sections 421 to 424 of IPC. More than 9 years have now passed, at the end of which the Applicants continue to be undischarged insolvents. The Applicants, who are now senior citizens, have, in the premises, moved the present application for discharge under Section 38, claiming to be rid of the ignominy of undischarged insolvency at this phase of their life. It is submitted that the Applicants do not attract any of the disabling provisions of Section 39 for claiming a discharge.