BEFORE THE APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION

Appeal

85 of 2008

G D RATHI STEEL LTD - Complainant(s)

Versus

BIFR AND OTHERS - Opp.Party(s)

BEFORE: Abhay Gohil, Badal K Das, A K Mohapatra

Purti Marwaha, Varsha Banerjee, R K Meena

20 Sep 2010

ORDER

[1] This appeal has been filed by G.D. Rathi Steel Ltd. (GDRSL) against the order of the Board for Industrial and Financial Reconstruction (BIFR) dated 21.1.2008 (in BIFR Case No. 88 of 1999) vide which BIFR discharged the company from the purview of the Sick Industrial Companies (Special Provisions) Act, 1989 (hereinafter called SICA) on the ground that the company had lost its industrial character and did not fulfill the definition of a sick industrial company within the meaning of Section 3(1)(o) of SICA.

[2] The facts, in brief, are the following:

2.1 GDRSL was incorporated in the year 1992 at Delhi and was engaged in the production of (sic) steel and bars at its unit situated at Lord Road, Shahadhara, Delhi. Hon'ble Supreme Court of India passed an order in 1996 by which 168 industries (including GDRSL) situated in Delhi were directed to shift outside of Delhi [see M.C. Mehta v. Union of India and Ors, 1996 4 SCC 750]. On account of this, the company suspended its operations since 30.11.1996. Meanwhile, the secured creditors of the company recalled their loans and the workers, demanding their entire dues covering compensation package, resorted to violent agitation. The company started incurring losses and its entire net worth was completely eroded in FY ending 31.3.1999. Based on the audited balance sheet (ABS) as on 31.3.1999, the company made a reference to BIFR under Section 15(1) of SICA and was declared sick by BIFR on 28.7.1999. IDBI was appointed as the operating agency (OA) to formulate a rehabilitation scheme. Since the company could not submit a fully tied up rehabilitation proposal, BIFR issued a show cause notice for winding up vide its order dated 20.12.2002. In response to the show cause notice, the company submitted a rehabilitation proposal to the BIFR that was rejected and, in the hearing held on 7.3.2003, BIFR confirmed winding up of the company under Section 21 of SICA. Against this order the company came up in appeal before the Authority and this Authority vide its order dated 4.4.2006 set aside the BIFR's order and directed the appellant and also IDBI (OA) to submit a DRS to BIFR. BIFR asked the company to submit a fully tied up DRS and also furnish certain information. The company furnished the information to the BIFR vide their letter dated 15.1.2008. It also submitted a DRS as per the directions of BIFR on 14.6.2006.

[3] In the hearing held on 21.2.2008, IDBI apprised BIFR that the appellant company had sold the plant, and the company had offered a one-time settlement (OTS) for Rs. 30 lakhs as against Rs. 52 lakhs which was not acceptable to IDBI.

[4] BIFR came to the conclusion that the company was closed since 1996 for 11 years, plant and machinery had been mostly disposed of and no specific land had (been identified even at a new place (Raipur) where the company intended to relocate the factory. The company also failed to settle with the sole secured creditor. Therefore, BIFR came to the conclusion that the company was not able to revive itself. BIFR held that the company had lost its industrial character and, therefore, discharged the company from the purview of SICA.

[5] It is against this order that GDRSL has come up in appeal before this Authority in Appeal No. 85 of 2008.

[6] The main arguments of the appellant are the following:

(i) BIFR did not appreciate that the operation of the company was closed on account of the order passed by the Hon'ble Supreme Court, and that the appellant was planning to relocate its unit at Raipur and resume its operations. The appellant continued to be an industrial undertaking since the closure was only temporary, not permanent. The company had the intention to resume manufacturing activity. Thus it did not cease to exist nor did it lose its industrial character,

(ii) The company did not sell off its plant and machinery. In fact, the plant and machinery had been reduced to scrap by a violent mob of workers in 1996. Its immovable property including structures thereon had not been sold.

(iii) Citing the judgement of Hon'ble High Court of Delhi in the matter of Upper India Coopers Paper Mills Ltd. v. AAIFR and others, 1992 75 CompCas 653 it was argued that the establishment of an entirely new plant at a new place by selling the existing one is permissible for the revival of the company. What is sought to be revived under SICA is the sick company and not its industrial undertaking or factory.

(iv) The company intended to relocate its unit at Raipur but it had to obtain permission of DDA to sell its factory land in Delhi. Since the permission of DDA had not been given yet, the company could not take immediate action for relocating its unit at Raipur.

(v) BIFR did not consider the DRS submitted by the' company to the IDBI (OA) on merits. The procedure prescribed under SICA has not been followed by BiFR which after declaration of sickness was obliged under SICA to explore the revivability of the company, and only if the revival was not possible the company was to be wound up under Section 20 of SICA.

(vi) In view of the judgment of Hon'ble Supreme Court in the matter of NGEF v. Chandra Developers (P) Ltd., 2005 6 CompLJ 203, BIFR was the custodian of the assets of the company and was, thus, duty bound to assist the appellant to relocate its factory and resume production in order to revive the company.

[7] The counter-arguments made are the following:

(i) Hon'ble Supreme Court vide its order dated 8 July 1996 in a public interest litigation (PIL) [M.C. Mehta v. Union of India and Ors., 1996 4 SCC 750] had asked 168 industries including the appellant company which were hazardous in nature to relocate themselves in the National Capital Region (NCR) so that their workers could be relocated in the new places. The appellant company did not pay heed to the mandatory provisions of the Master Plan of Delhi and continued its operations till November, 1996. If it had complied with the Master Plan, its sickness and closure could have been avoided.

(ii) The appellant had already sold off its machinery and utilized the sale proceeds towards payment of labour dues. In the hearing held on 4.2.2007, BJFR had directed IDBI (OA) to conduct an inspection of the factory on 12.7.2007 to ascertain the status of plant and machinery at the factory and submit a report. Accordingly an inspection report was submitted on 23.7.2007 informing that there was no plant and machinery available at the site except some junk and loose iron scrap.

(iii) The appellant company does not have enough resources to fund revival It has not yet identified any land at Raipur, Chhattisgarh, even after a lapse of more than 11 years. No labour is employed in the factory as the factory is closed since 1996. The company has lost its industrial character. The appellant has not shown any inclination towards settling the dues of IDBI, the sole remaining secured creditor.

[8] We have heard the arguments on both sides and also perused the relevant records. Some basic facts remain undisputed that the appellant company suspended its operations since 30.11.1996. Its plant and machinery had been sold off. It has not been able to relocate its unit at Raipur as proposed by it even though more than ten years have elapsed. Since the company had not been able to offer a viable revival proposal, BIFR had earlier confirmed its winding up order on 7.3.2003. It is only with the orders of this Authority that the company was given another opportunity to submit a fresh DRS. Even this opportunity did not yield any worthwhile results. The company is lying closed, and there is no evidence of its earnestness to relocate its unit at Raipur.

[9] In the case of Upper India Coopers Paper Mills Ltd. v. AAIFR and Ors.,1994 3 CompLJ 93 Hon'ble Delhi High Court has held that the revival under SICA is that of the sick company and not the industrial unit. Therefore, if a sick company proposes to set up a new industrial unit at a distant place as a strategy for revival, it is perfectly in order. However, in our opinion disposing of one industrial unit and then relocating the industrial unit at a different place afresh must be predicated on a reasonable time frame. If the time frame is not definite then the whole tiling becomes uncertain and BIFR cannot determine revival ? measures on nebulous intentions In the instant case, we find that the company has proposed to relocate the industrial unit at Raipur but no concrete progress [has been made in regard to identification of land and other related measures necessary for relocating the industrial unit. Mere intention to relocate the I industrial unit will not suffice for considering the revival plan of a sick industrial I company, it is not the intention of the Hon'ble Delhi High Court that the revival of the company by way of relocation of an industrial unit can be considered seriously merely on the basis of intentions in an open ended indefinite time frame. In our opinion, therefore, the case of Upper India Coopers Paper Mills Ltd. v. AAIFR and Ors.,1994 3 CompLJ 93 is, indeed, of no help to the appellant in the face of its prolonged inaction. The instant case smacks of a deliberate intention to continue with the protection of SICA without any genuine intention for revival.

[10] The appellant company has also cited the judgment of Hon'ble Supreme Court in the matter of NGEF v. Chandra Developers (P) Ltd., 2005 6 CompLJ 203 to argue that the BIFR was the custodian of the assets of the company and was, thus, duty bound to assist the appellant to relocate its factory and resume production in order to revive itself. We are afraid that the case cited is also of no help to the company in view of the company's own inaction. The Hon'ble Supreme Court has held in the aforesaid case 'BIFR retains control over the assets of the company and in terms of the aforementioned provisions, may either prevent any sale or permit any sale of the assets of the sick industrial company. Such a power in BIFR remains till a winding up order is passed by the High Court and a stage arrives for the High Court for issuing orders for distribution of the sale proceeds'. In the instant case, it is the responsibility of the appellant company to identity a suitable site in order to relocate the industry and that too in a reasonable time frame. This responsibility of the sick industrial company cannot be surrogated by the BIFR. The BIFR can only facilitate, but it cannot take over the entrepreneurial role of the company itself. We, therefore, feel that quoting the case of NGEF v. Chandra Developers (P) Ltd., 2005 6 CompLJ 203 is inapt in the present case.

[11] To sum up, the company is lying closed since 1996. This cannot be treated as a temporary closure. Nor is there any reasonable hope of its relocation and resumption of operations which prospects have already been negated long back by considerable efflux of time. However, since the company was declared sick, it was not proper for BIFR to discharge the company from the purview of SICA on the ground that it had lost its industrial character, as this would amount to BIFR's reviewing its own order. On this very ground also this appeal is allowable and the impugned order is liable to be set aside. However, in the interest of justice, we feel that BIFR should reconsider the case in accordance with law after hearing the parties concerned, and if revival is not possible, action for winding up under Section 20(1) of SICA may be taken. We, therefore, reluctantly remand the case to BIFR with the aforesaid direction. The appeal is accordingly disposed of.

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