High Court of Judicature at Allahabad
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Specialities Aluminium Grills Pvt. Ltd. & Another v. Appellate Authority For Industrial And Financial Recon. - WRIT - C No. 14997 of 1997  RD-AH 2364 (5 September 2005)
Companies Act, 1956. Sick Industrial Companies (Special Provisions ) Act, 1985, BIFR recommending winding up as no rehabilitation proposal while meeting all its financial obligations was forthcoming. During the pendency of proceedings the Company paid of all secured creditors and made arrangements to pay off unsecured creditors- no other liability. Matter remanded to BIFR for reconsideration of proposal.
Civil Misc. Writ Petition No. 14997 of 1997
Company Application No. 10 of 1996
Specialities Almunium Grills (P) Ltd. and another
Appellate Authority for Industrial & Financial
Re-construction New Delhi and others.
Hon. Sunil Ambwani, J.
Heard Sri P.C. Srivastava, learned counsel for the respondent company, and Sri S.K Saxena, Official Liquidator, U.P. and Uttaranchal, Allahabad.
This Company Petition was registered on receipt of recommendation of Board of Industrial and Financial Re-construction (BIFR) under section 20 of the Sick Industrial Companies( Special Provisions), Act, 1985 (SICA) dated 24.7.1996 to wind up the company. The BIFR declared the company as a Sick Industrial Company and appointed the State Bank of India as the Operating Agency. On 1.5.1996 after exploring the possibility of revival, the BIFR reached the prima facie conclusion that the company cannot be rehabilitated and thus it was just and equitable and in public interest that the company be wound up. A show cause notice was issued accordingly. The PICUP and State Bank of India (SBI) were the secured creditors. The principal dues of the PICUP were Rs. 89.75 lacks and the interest Rs. 116 lacs and that the principal duties of the SBI were at Rs. 84 lacks and the interest Rs. 69 lacs. The promoters were not in a position to raise sufficient finances for One Time Settlement.
Though it was stated on behalf of the company that there are orders for supply of manufactured product, there was no proposal for rehabilitation. The BIFR in this order observed as follows:
"9. The Bench observed that in spite of giving adequate opportunities to the promoters, they have not been able to locate a resourceful co-promoter and submit a scheme with means of finance fully tied up. A scheme based on normal reliefs and concessions as per RBI parameter would not be viable as the company would have to achieve a turn over of at lease Rs.6/8 crores to service the debt of Rs. 3.5 crores. This does not appear to be practicable as the highest turn over achieved so far has been Rs. 1.29 crores. A scheme based on OTS may cost about Rs. 2.5 crores. At today hearing, the promoters were specifically asked if they can bring in Rs. 50 lakhs upfront, i.e. 20% of the cost of the scheme based on OTS, and they have expressed their inability to do so. An advertisement had been issued by the OA for change in management, but no response was received. Under the circumstances, the Bench confirm their prima-facie opinion that the sick industrial company SAGL is not likely to make its net worth exceed the accumulated losses within a reasonable period of time while meeting all its financial obligations, and that the company as a result thereof is not likely to become viable in future and hence it should be wound up under section 20(1) of SICA. This opinion may be forwarded to the concerned High Court for necessary action according to law. Copies of all the earlier proceedings/orders of the BIFR would form enclosure of this communication."
This Court by its order dated 20.12.1996 stayed and suspended the winding up proceedings, pending appeal before the Appellate Authority for Industrial Finance and Reconstruction (AAIFR). The appeal was dismissed on 13.3.1997, confirming the findings of the BIFR. The company filed a writ petition No. 14997 of 1997 in which orders of the BIFR and AAIFR were stayed. Both the Writ Petition and the Company Application have now come up for final orders.
During the pendency of the proceedings, the company has filed thirteen supplementary affidavits, giving a gradual increase in production and the successful efforts of One Time Settlement (OTS)with PICUP and SBI. The secured loan with PICUP of Rs. 90 lacs with interest at 195 lacs was settled at Rs. 65, lacs and that the secured loan of SBI of Rs. 64 lacs and interest of Rs.107 lacs was settled at Rs. 76 lacs. No objection certificates dated 6.7.2001 and 7.3.2001 issued by the PICUP and S.B.I. respectively, have been enclosed as Annexures 1 & 2 of the Vth Supplementary Affidavit. According to petitioner the company has turned around the corner and is making profits. The net worth of the company has become positive.
By an order dated 13.3.2003, the company was required to file an affidavit along with audited accounts for the financial year ending 31.3.2001. In the affidavit filed, in compliance, the company has stated that after the taking care of the liabilities given in the balance-sheet, to the extent of 274 lacs, the net worth of the company has become positive. In the VIIth Supplementary Affidavit filed on 6.9.2003 the balance-sheet, profit and loss account and the Auditor's report of the year ending 31.3.2002, the turn over of the company and the profits have been disclosed, which shows the net worth of Rs. 125 lacs. In the Xth Supplementary Affidavit filed on 16.8.2004, the auditors report and the assessment order under section 143(3) of the Income Tax Act in the Assessment Year 2001-02 has been filed . In the notice issued by the Income Tax Department dated 20.11.2002 certain queries were raised to which reply was given by the Company, and that the assessment order of the year 2001-02 and 2003-04 have been brought on record. These orders as well as the profit and loss account for the year ending 31.3.2004 shows that the company has recorded profit of Rs. 51,50,260/- in the year 2004. The company had Rs. 34 lacs in the capital account, Rs. 43 lacs in reserve and surplus, and there are no secured creditors. The company has shown the Unsecured Credit worth Rs. 57 lacs, and 2,51,000/- as deferred Tax. It is stated that unsecured creditors namely SRG Infotec India Ltd. that dues of Rs. 28 lacs and Radsun Technologies India Ltd with dues of Rs. 20 lacs, have accepted the allotment of Preference Shares, after the decision of the writ petition and the Company Application.
The Official Liquidator in his report No. 75 of 1983 and Report No. 119 of 2005 has contended that the Ex Directors have not filed the Statement of Affairs . The certificate of the Chartered Accountant dated 15.2.2003 filed by the Company comments that the Company has not made any provision for tax liability on extra-ordinary right backs of the liabilities made by it consequent to the statement made by the secured creditors on the ground of exemption from the provisions of Income Tax Act which are extended as standard relief and concessions to Sick Industrial Company whose rehabilitation are based on One Time Settlement of dues. The company is also of the view that even without the said concessions these right backs are not taxable. The Official Liquidator has further relied upon the observations in Mahabir Prasad Agarwal Vs. Ashkaran Chatter Singh (1980) 85 CWM 557. He submits that the power under section 446 for the stay of the proceedings should not be exercised on the high sounding words like revival of industries of preference for unemployed. He submits that the company has not made out the case for revival.
I find that the company has produced sufficient material in the supplementary affidavits showing a gradual progress. It has settled all its dues with the secured creditors and has entered into memorandum of settlement with the majority of unsecured creditors, for issuing preference share after its revival. The company is making profit in its manufacturing activity and its net-worth has become positive. The turn over of the company has increased gradually. In these circumstances, the company has made out a case for reconsideration by the Board of Industrial and Financial Reconstruction.
Sri P.C. Srivastava has rightly relied upon the judgment in Crescent Iron and Steel Corporation Ltd. Versus Union of India and another, AIR 1994 SC 1248, in which in almost similar situation where the company had shown positive sign of revival after the order of BIFR recommending winding up, the matter was remanded to BIFR to have into consideration and then to decide the winding up a company.
In the facts and circumstances of the case, I am fully satisfied that the company has paid off all its secured creditors by OTS, has , entered into memorandum of settlement with majority of unsecured creditors for settlement of their dues, and is making profits. It has made its net-worth positive and thus the orders recommending the winding up passed by BIFR and AAIFR, require reconsideration. The writ petition is allowed, and the orders of BIFR and AAIFR dated 24.7.1996 and 13.3.1997 (Annexures 1 & 2 to the writ petition) are thus set aside and the Company Application No. 10 of 1996 is disposed of with the direction to the BIFR to reconsider its recommendation to wind up the company. The BIFR shall issue notice to all concerned and pass necessary orders positively within three months after receipt of this order.
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