Application No. 5842... v. Industrial Reconstru...

Srinivasan, J.

These three applications have been posted before us as directed by the Chief Justice on a reference by a single judge. The first application is filed by the first respondent in O.P No. 137 of 1987. The prayer is for discharging advocate-receiver appointed in Appln. No. 1153 of 1987 and directing him to hand over possession of the mills and its assets in his custody to the Chairman-cum-Managing Director of the petitioner company pursuant to the order of the Appellate Authority for Industrial and Financial Reconstruction, dated 27-9-1993. The necessary facts are in short as follows:— The company by name Vasantha Mills Limited, which was promoted in 1923, fell in evil days. In 1980 Sri Arvind Kikani took over the management of the company by acquiring controlling interest and undertook modernisation of the mill with term loans from IDBI and IRBI. The Scheme could not be completed, as the institution did not disburse the entire amount of their loans due to loss of confidence in the management of the company. The recession in the textile industry and severe power cuts contributed to the continued poor performance of the company and there were huge losses which resulted in closure of the unit in 1984. The case of the Company was referred to the BIFR and it was declared to be a sick company under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985. The State Bank of India was appointed as Operating Agency for BIFR. It submitted its report indicating that the Company was not a viable unit and no industrial group was interested in taking over the same due to legal complications, huge debt burden, labour problems, poor conditions of the machinery etc. The BIFR issued a show cause notice for winding up the company. The Government of Tamil Nadu evinced interest in taking over the company, but it did not materialise. The BIFR passed an order on 12th July, 1990 that the company should be wound up and directed the matter to be placed before this Court for appropriate action. The company filed an appeal against the said order before the Appellate Authority and by order dated 8-8-1991, the appeal was dismissed.

2. Challenging the validity of the said order, the company filed W.P No. 199 of 1992 in this Court. It prayed for quashing the orders of the BIFR dated 12-7-1990 and the Appellate Authority dated 8-8-1991 and also for a direction to them to rehear the case after giving enough opportunities to all the concerned, examine the revised rehabilitation proposal to be submitted by the promoter and pass suitable and appropriate orders for revival of the closed unit. The writ petition was admitted by a learned single judge on 8-1-1992. At the same time, the learned Judge passed an order in W.M.P No. 269 of 1992 issuing an interim direction to the Appellate Authority for Industrial and Financial Reconstruction to consider the revised rehabilitation proposal to be submitted by the promoter, as the learned Judge found that after the disposal of the appeal, a proposal was given to the authority and prima facie that proposal appeared to be a matter to be considered. The learned judge said, “Considering the scope of the Act and the object of the Act, I think, in the interest of justice and to keep the industry going, the second respondent is directed to submit a report to the Court on or before 28-2-92 on the revised Rehabilitation proposal to be submitted by the promoter”. Pursuant thereto, the Appellate Authority called for objections to the proposal from the interested parties and after considering the objections, approved of a scheme for the purpose of rehabilitation of the company. The scheme provides for discharge of debts due to the various institutions and also for sale of excess lands so that the sale proceeds could be utilised for discharge of such debts. The main purpose of the scheme is only to provide employment for nearly 1000 workmen who were working in the mills. The Authority has taken into account the fact that the mills were closed for nearly nine years. All the Unions of the workers were also heard and they had entered into an agreement with the management agreeing to receive the amounts due to them in instalments. They had also agreed to give up some claims. The creditors were also heard and their claims were considered. Ultimately, the scheme was framed on 27-9-1993.

3. The company filed Application No. 5842 of 1993 for the reliefs already set out. The said application is opposed by two creditors by name Shanmugam Brothers Charity Trust and Sri Rangammal Educational Trust represented by their respective trustees. Application No. 5911 of 1993 is filed by Shanmugham Bros. Charity Trust. The prayer in the application is to defer the disposal of Application No. 5842 of 1993 and direct the Receiver to pay the applicant therein the amount due to it from and out of the realisation made by him. In Application No. 5912 of 1993, the other trust viz., Sri Rangammal Educational Trust has prayed for an order in Application No. 5842 of 1993 for the discharge of the Receiver after directing him to pay a sum of Rs. 11,17,520/- to the applicant from out of the realisations he has made. The applicants in Appln. Nos. 5911 and 5912 of 1993 are hereinafter referred to as creditors.

4. When these three applications were heard by the learned single judge, several objections which were not raised by the creditors were put forward by their counsel on behalf of some workers who claimed to be having certain agreements in their favour for conveyance of certain portions of the land belonging to the mills. Counsel claimed that he was appearing for those workers in other applications said to have been filed by them. The learned judge has unfortunately permitted such contentions and allowed himself to be misled thereby. He thought that there was an order winding up the company and so long as it was in force the only course to be adopted was for the AAIFR to place its report before this Court in W.P 199 of 1992 and get further orders from this Court. According to the learned judge the order of winding up will be in force till then. The learned judge has also observed that the proposed scheme contemplates sale of surplus lands belonging to the company which will not be possible on account of the provisions of the Tamil Nadu Urban Land Ceiling Act. After referring to the arguments advanced before him by counsel on both sides, the learned judge said:—

“……. I am of opinion that intricate questions of law, whether the scheme could be approved by this Court in this Original Petition when a Writ Petition for quashing the order of winding up is pending before Justice K.S Bakthavatsalam, whether the promoter can be permitted to sell the land belonging to Vasantha Mills Limited in which the houses of the employees are there, against the provisions of the Urban Land Ceiling Act and whether the scheme could be approved on the ground that it will pave way for reopening a sick mill which has remained closed for eight long years against the interest of the occupants of the houses, who had a right over the property which they are occupying and who had the benefit of an injunction in their favour have to be decided before an order is passed in Application No. 5842 of 1993. I am of opinion that it is expedient in the interest of justice to place the entire papers before my Lord the Hon'ble Chief Justice with a request to refer the matter to a Bench of this Court for considering the legal implications and other consequences that may arise if the scheme is approved and order is passed as prayed for in Application No. 5842 of 1993 instead of a Single Judge sitting in the Original Side deciding these questions.”

Thereafter, the Hon'ble the Chief Justice has directed the matter to be posted before us.

5. At the outset, we are of the view that the matter need not have been referred to a Division Bench at all. The questions, which according to the learned single Judge arose for consideration, do not at all arise in this case. Unfortunately, the learned Judge has overlooked the scope and the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 and erroneously thought that he was called upon to approve of the scheme. Further, the learned judge has proceeded on the footing that there is an order winding up the company and as long as that order is in force, there can be no acceptance of the Scheme framed by the AAIFR or discharge of the receiver. Thirdly, the learned judge has erroneously thought that the question as to whether the proposed sale would hit the provisions of the Tamil Nadu Urban Land Ceiling Act has to be considered by this Court at this stage.

6. None of the above questions does arise for consideration in this case. As pointed out already, even at the stage of admission of W.P 199 of 1992, the Writ Court directed AAIFR to consider the revised proposal. Even though the AAIFR had rejected the appeal filed by the Company against the order of the BIFR dated 12-7-1990, when this Court directed it to consider the revised proposal, it was only meant that the AAIFR was to ignore the decision already taken by it in the appeal filed by the Company. The AAIFR has understood the scope of the order of this Court properly and proceeded to take further action in accordance with the procedure prescribed by the Act. That is how the AAIFR called for objections from the interested parties and considered the objections. Once a scheme is framed by the AAIFR, it cannot be challenged in a collateral proceeding in this Court. Section 26 of the Sick Industrial Company (Special Provisions) Act, 1985 bars the jurisdiction of any Court in respect of any action taken or to be taken in pursuance of any power conferred by or under the Act. In this case, the Appellate Authority has framed a scheme taking into account the interests of all the parties concerned, such as the creditors as well as the workers of the mills and come to the conclusion that the proposal would revive the working of the mill and thereby the sufferings of about 1000 workers can be brought to an end. A perusal of the scheme shows that it is entirely in the larger interest of the workers of the mills and it is undoubtedly made in public interest. In those circumstances, it is not for this Court to sit in judgment over the correctness of the scheme in these proceedings on the grounds urged by learned counsel for the creditors.

7. Secondly, the objections raised by the creditors have been considered by the Operating Agency. In its report in paragraph 3, the objections of these two persons have been considered as the very first item. The objections have been overruled and a decision has been taken. It is not for us to consider whether such a decision is proper or not. The Operating Agency having considered the objections of the creditors, it is not open to them to attack the scheme in these proceedings.

8. Thirdly, it is not for this Court to find out whether the proposal to sell certain portions of lands of the Mill would violate the provisions of the Tamil Nadu Urban Land Ceiling Act. It is stated by counsel for the creditors that objections have been raised before the Urban Land Ceiling Authorities. It is for the said authorities to consider the same and pass appropriate orders. If ultimately the said proceedings end in their favour, suitable remedies are available to them in law. However, we must point out that the AAIFR has referred to a communication sent by the Deputy Secretary to State Government to the Managing Director of Vasantha Mills on 22-4-1993 that the request of the company for granting exemption under Section 21(1)(a) of the Urban Land Ceiling Act, 1978 was under favourable consideration of the Government and that it was proposed to issue final orders granting exemption once the revised scheme was approved. Learned counsel for the creditors contends that the Supreme Court has ruled in S. Vasudeva v. State of Karnataka [(1993) 3 SCC 467] that the State Government has no power to grant exemption for the purpose of sale of the land under the Urban Land Ceiling Act. The facts of that case are entirely different and the dictum of the Supreme Court has to be understood in the light of those facts. It has no bearing on this case.

9. There is no substance in the contention of learned counsel for the Creditors that there is an order winding up the company and so long as that order is in force, the Receiver cannot be discharged. It is already pointed out that there is no order for winding up. What all the authorities under the Act have done is only to make a recommendation for winding up the company. At that time, they had taken the view that rehabilitation could not be taken up properly and the Unit was not viable. The orders of the authorities will not tantamount to winding up the company. What was challenged in the Writ Petition was only the recommendation of the authorities and there was no order to wind up the company as such.

10. The workers of the Mills are represented by counsel before us. Learned counsel has pointed out that the workers had contested the objection filed by the creditors before the AAIFR. Learned counsel has produced before us a copy of their objections. It is stated therein that there are 1000 workers in the mills and about 500 of them had already attained the age of superannuation and they are waiting to receive the gratuity amounts due to them when only they can live. It is also stated in the said objections that the other workers are anxiously expecting employment in the Mills and reopening of the same. It is seen that all the Unions of the workers in the Mill have signed the settlement and it is a settlement under Section 12(3) of the Industrial Disputes Act. It is undoubtedly binding on all the workers of the Mills.

11. We have no doubt that the objections raised by the creditors are only for the purpose of stalling the revival of the mills and they are not bona fide. We have no hesitation to reject the same.

12. It is brought to our notice that the Receiver has filed a memo claiming remuneration. The Receiver has not appeared before us to-day, as probably he is not aware of the date of hearing. He has claimed a remuneration at the rate of Rs. 5000/- per month from the date of taking charge in 1987. The question of remuneration cannot be decided without hearing the Receiver. It is a matter which can be decided by the learned single Judge sitting on the original side. Hence, we direct the office to post the memo filed by the Receiver for remuneration before the learned single Judge for orders. The Receiver shall be intimated of the date of hearing of the said matter and after hearing him and all the parties, remuneration due to the Receiver shall be fixed. If and when remuneration is fixed, it is open to the Receiver to take it from the funds which are available in the current account standing in his name in the State Bank of India.

13. The State Bank of India has filed an affidavit in Application No. 5842 of 1993. Learned counsel for the State Bank of India states that the hypo the cated goods were sold by the Receiver and a sum of Rs. 96,00,000/- was realised. One half of it was directed to be paid to the State Bank of India towards discharge of the loan due to it. It is stated that the remaining half is kept in current account in the name of the Receiver in the State Bank of India itself. The Bank is praying for payment of the said amount to it towards discharge of the dues. There is no objection thereto by any of the parties before us as admittedly the bank had a first charge over the hypo the cated goods. After the remuneration of the Receiver is fixed and he draws the same from the current account, the balance left in the current account in the name of the Receiver shall be paid to the State Bank of India towards the discharge of its dues.

14. In the result, A. No. 5842 of 1993 is ordered. Prayers (ii) and (iii) are granted. A. Nos. 5911 and 5912 are dismissed. Parties will bear their respective costs.

KA/RR/VCS