Kotak Mahindra Bank Ltd v. A.A.I.F.R. & Ors

T.S.THAKUR,J ARUNA SURESH, J APRIL 11, 2008 anb

* IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 1458/2008 Date of Decision: th April, 2008 KOTAK MAHINDRA BANK LTD. ..... Petitioner Through: Mr. Neeraj Kishan Kaul, Sr. Adv. with Ms. Nandini Gore, Ms. Prachi Goel, Ms. Lakshmi Ramchandran, Mr. Amit Kr. Singh, Mr. Karan Mehta, Ms. Shikha Sarin, Adv. versus A.A.I.F.R. & ORS. ..... Respondents Through: Mr. Sandeep Sethi,Sr. Adv. with Mr. Rajeev Ranjan Prasad, Mr. Anirudh Sharma, Mr. Lakshay Sawhney, Adv. for R-3. Mr. Rajeev Nayyar, Sr. Adv. with Ms. Sushmita Banerjee, Adv. for R-4. CORAM: HON'BLE MR. JUSTICE T.S. THAKUR HON'BLE MS. JUSTICE ARUNA SURESH 1. Whether reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes T.S. Thakur, J The short question that falls for consideration in this writ petition is whether the order passed by the Appellate Authority for Industrial and Financial Reconstruction(for short 'AAIFR') granting permission under Section 18(1)(e) of Sick Industrial Companies (Special Provisions) Act, 1985 (for short 'SICA) to approach the appropriate High Court for submitting a scheme of arrangement/compromise qua the secured creditors of the company under Section 391 of the Companies Act suffers from error of law or jurisdiction. The petitioner, who claims to have secured in its favour the assignment of a debt which the respondent-sick company owed to M/s Fuji Bank Ltd alleges that the order passed by the AAIFR granting permission to the respondent-company suffers from an illegality inasmuch as SICA is a special enactment no authority including the High Court exercising powers under any other enactment can, during the pendency of the proceedings under SICA, entertain or sanction any scheme of arrangement or compromise. Before we examine the merits of that contention, we may briefly set out the facts giving rise to the controversy: 2. The respondent-company was declared sick by the Board for Industrial and Financial Reconstruction in terms of an order dated 20th April, 2006 passed in Case No. 395/2003. The Board noted that the respondent-company was not in a position to work out a scheme under Section 17(2) of the Act on its own and that the provisions of Section 18 shall have to be explored in public interest. The Board, accordingly, appointed the IDBI as an Operating Agency (OA) with directions to advertise for change of management keeping in view the guidelines given in the order. The Board noted that all the secured creditors had decided not to support the present management thereby necessitating a change. The following passage appearing in the order passed by the BIFR makes this position clear. "The Bench observed at that stage that the company in its letter dated 18.4.06 had submitted to BIFR that they were quite willing to give up control of J&N to ensure J&N's future. Moreover, all secured creditors had unanimously decided not to support the present management." 3. The Board permitted the present promoters also to participate with a further direction that they would be given preference if their offer equalled the offer of others. The operative portion of the order passed by the BIFR was in the following words: "Considering the facts on records and the submissions made at today's hearing, the Bench observed that there were no valid objections to the company's sickness from the parties present today and considering that the company had fulfilled the various criteria for sickness under the Act, the Bench was satisfied that the company had become a sick industrial company in terms of Section 3(1)(o) of the Act and accordingly declared it sick. On a query from the Bench, the representative of the company indicated that it would not be possible for them to work out a scheme u/s 17(2) of the Act on their own. In view of this, the Bench noted that the provisions of Section 18 of the Act would have to be explored in public interest in relation to t