CHEMIEQUIP LIMITED Vs. BANK OF BARODA

JUDGEMENT

(1.) By this petition filed under Article. 226 of the Constitution of India, the petitioners are seeking a writ of mandamus directing the Bank of Baroda-the respondent No. 1-to take petitioner No. 1 Company into the nursing/rehabilitation programme for viable sick units in accordance with the guidelines and directions contained in the Circular dated Nov. 5, 1985 issued by the Reserve Bank of India.To appreciate the claim of the petitioners, it is necessary to set out the relevant facts which led to the filing of the present petition. The petitioner No. 1 is a Public Limited company and carries on business of manufacturing dyes, dyes intermediates and auxiliaries at its two plants situated at Ambarnath and Tarapore. Petitioner No. 2 is the Managing Director of the Company. The respondent No. 1-Bank of Baroda, respondent No. 7 Andhra Bank and respondent No. 8-Corporation Bank are Nationalised Banks and had advanced large amounts to the petitioner from time to time. The petitioner No. 1 Company was incorporated in the year 1960 and enjoyed credit facilities from the inception from Bank of Baroda. The petitioner No. 1 Company has employed about 500 workmen. The production capacity at Ambarnath is 720 metric tonnes per annum and that at Tarapore is 300 metric tonnes per annum and the products manufactured by the petitioners are principally used in the textile industry. Between April and June 1980, the Company suspended its work and in the year 1980-81, the Company sufferred considerable losses. The labourers went on strike for a period of eight months in the year 1981-82 and ultimately on March 5, 1983, the Company was declared as a sick unit. From the year 1980 onwards, the Company has been continuously incurring losses.The sickness of the Company has been attributed by the petitioners mainly to the textile strike in Bombay, labour strike in the Company, competition from small scale units enjoying special excise reliefs and also lack of supply of adequate working capital in time. On Oct. 13, 1983, the petitioner No. 1 Company was declared as a Relief Undertaking under the Bombay Relief Undertakings (Special Provisions) Act, 1958 by the Government of Maharashtra.

(2.) The petitioner No. 1 Company had a Cash Credit account in addition to the working capital term loan account with the Bank of Baroda and availed of the facilities to the extent of Rs. 4 crores. The Company after being declared as a sick unit, approached Bank of Baroda for more financial assistance and the Bank noticed that the Company had continuously incurred losses from the year 1980-81 onwards and the irregularities in the account had increased. As on June 30, 1983, the total excess withdrawals and the interest there on came to about Rs. 250 lakhs. The Bank of Baroda, therefore, thought it wise to secure a viability report about the petitioner No. 1 Company from one Gami Consultants on July 22, 1983. Gami Consultants made a preliminary report on September 20, 1983 and in pursuance of that report, the petitioner Company submitted an application to the Bank under the Credit Authorised Scheme for additional funds of Rs. 265 lakhs. The Bank decided to regularise the irregularity in respect of an amount of Rs. 250 lakhs by converting the same into a working capital term loan in addition to the existing working capital term loan of Rs. 30 lakhs. Between March 22, 1984 and August 1984 Bank of Baroda entered into correspondence with Reserve Bank of India seeking approval for enhancement of working capital. The Reserve Bank of India initialy sanctioned the amount which was less than sought by Bank of Baroda, but after follow up, ultimately, the Reserve Bank of India gave authorisation in January 1985 for working capital of Rs. 307 lakhs and working Capital Term Loan of Rs. 360 lakhs. The Reserve Bank of India gave authorisation on condition that no further irregularity is developed in the account either by debit of interest or by allowing excess withdrawals. The Reserve Bank of India gave authorisation only for a period of one year. In January 1985, Gami Consultants made their final report about the viability of petitioner No. 1 Company and the report was favourable to petitioner No. 1 Company. In July 1985, the General Manager of Bank of Baroda advised the financial expert Shri Mody who is an officer of the Bank, to study the report and make a note. Shri Mody forwarded his note on August 3, 1985 pointing out that the report made by Gami Consultants was too optimistic and it is unlikely that the company would be rescued by pouring of more funds by the Banks and financial institutions. On August 26, 1985, Maharashtra State Financial Corporation which had advanced Rs. 12.71 lakhs to petitioner No. 1 Company served notice of recovery of the balance.

(3.) On Novemer 5, 1985, the Reserve Bank of India issued Circular to Scheduled Commercial Banks prescribing parameters for provision of reliefs/concessions by Banks under rehabilitation packages evolved for sick units considered as potentially viable. The Circular, inter alia, recites that in absence of guidelines regarding the concept of viability as well as the extent of reliefs/concessions which could be extended by the Banks, much time is lost in arriving at mutually acceptable packages and the packages are drawn up on an ad hoc basis resulting into disparities between one case and another and inequitable sharing of sacrifices amongst the concerned agencies. Some uniformity in the matter of concession extended within a broad framework was felt essential. The Circular also sounds warning that availability of large concessions from the Banks and term lending institutions has often tempted the borrowers to demand excessive concessions with practically no contribution on their part in the rehabilitation measures. The Circular then sets out that viability on a commercial basis should be the main criterion for undertaking the rehabilitation of a sick unit. The viability is defined as under :