Oman International Bank S.A.O v. A.A.I.F.R. & Ors

judgment are worth a quote:-

Page 13

"10. As noted above, under Section 16(1)(b) of the SICA, the BIFR itself is empowered to take cognizance of the problem and register reference on its own. There is no period of limitation therein. There is no period of limitation when it comes to the reference at the instance of Central Government, Reserve Bank, State Bank or Public Financial Institutions under Section 15(2) of the SICA. In this background, when we look at Section 15(1) of the SICA, the only inference, that can be drawn, will be that this is a requirement which puts the Companies on their toes and it expects them to file their reference within a period of sixty days. In the event, the reference is not filed, there will be a penal consequence under Section 33(1) of the SICA. However, to say that the reference would not be registered at the end of the period of sixty days, would be negating the objectives, for which the quasi judicial Authority under the Act is created. The Authority cannot close the eyes in the problem brought to its notice merely because the reference is made beyond sixty days. It has power to hold an inquiry as required under Section 16(1) of the SICA and proceed to frame an appropriate scheme by way of rehabilitation and/or to pass appropriate order, if it is of the opinion that no rehabilitation is possible; reference must to go its logical conclusion and it cannot be scuttled by reading Section 15(1) as a period of limitation."

¶12This Court in its judgment dated 23.9.2004 rendered in WP(C) No.713/2003 entitled Avik Pharmaceuticals Limited agreed with the view of the Bombay High Court expressed in the aforesaid judgments. In that case, the Board of Directors formed an opinion that the company had become sick vide its resolution recorded in its meeting dated 5.2.2001. The reference was Page 14

registered on 30.4.2001, which was beyond 60 days. The BIFR dismissed the reference vide judgment dated 26.6.2002 holding that it lacked power to condone the delay. The AAIFR upheld the order of the BIFR, which was reversed by this Court in its decision rendered in the aforesaid writ petition extracting the aforesaid quote of the Bombay High Court in its judgment. The AAIFR in its impugned order has also referred to another judgment of this Court in M/s.Empire Jute Co. v. AAIFR – WP(C) No.4035/2001 – decided on 13.8.2001. In that case, reference was filed based on the audited balance-sheet for the financial year dated 31.3.1998. However, on noticing that the company had become sick in the year 1989 itself, the BIFR rejected the reference as time-barred, which decision was upheld by the AAIFR holding that cause of action would arise as soon as the company became sick for the first time and not every year when its annual accounts are audited even though the sickness persisted in subsequent years. Though Section 15(1) of SICA does not lay down limitation but casts an obligation on the part of the Board of Directors to file the reference within time as stipulated in the said sub-section, the position, thus, emerges would be the following:-

a) Section 15(1) does not lay down any period of limitation but creates an obligation upon the Board of Directors of the sick industrial company to approach the BIFR within the period prescribed. Page 15

b) In case the Board of Directors fails to approach the BIFR within the stipulated period, the management of such sick industrial company would be liable for penal action under Section 33(1) of SICA. c) The reference can still be entertained on merits as the purpose is to take expeditious steps for revival of a sick industrial company, if such revival is feasible. d) Even in the absence of any specific provision, the BIFR can exercise its discretion to condone the delay. e) The reference should be rejected only if the Board of Directors of the company are guilty of "supine indifference" or when there is lack of bona fides in making such a reference.

¶14When the position in law, is as stated hereinabove, it cannot follow that the reference can be made during the period as opined by the AAIFR in its conclusion (a). If that interpretation is accepted, even when the reference is made beyond 60 days, the Board of Directors can contend that there is no fault on their part and they are not liable for action under Section 33(1) of SICA. The carving out of "earliest date" and "latest date" between which reference can be filed is clearly in the teeth of provisions of Section 15, as if the proviso lays Page 16

down an additional date for filing the reference. The provisos are not to be interpreted in this manner. It would be of interest to note that the AAIFR took note of certain judgment of the Apex Court as well as Privy Council providing guidelines as to how provisos are to be interpreted, as is clear from the following discussion contained in the judgment:-

"In the case of Angurbala Mullick Vs. Bebabrata Mullick, AIR 1951 SC 293, the Hon"ble Supreme Court has held as under:-

"proviso is normally an excepting or qualifying clause and the effect of it is to execute out of the preceding clause upon which it is engrafted something which but for the proviso would be within it. Proviso which is found contradictory to the whole document, held to be ignored."

¶13In the words of Lord Macmillan [Madras & Southern Maharatta Rly. Co. Vs. Bezwada Municipality AIR 1944 PC 71 at 73]:

"As a general rule, a proviso is added to an enactment to qualify or create an exception to which is in the enactment and ordinarily, a proviso is not interpreted as stating a general rule."

(iv) In the case of S. Sundaram Pillai v. V.R. Pattabiraman, [(1985) 1 SCC 591, at page 611], the Hon"ble Supreme Court has held as under:

"43. We need not multiply authorities after authorities on this point because the legal position seems to be clearly and Page 17

manifestly well established. To sum up, a proviso may serve four different purposes:

(1) qualifying or excepting certain provisions from the main enactment:

(2) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable.

(3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and

(4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision."

¶15In spite thereof, the Tribunal concluded that proviso to Section 15(1) was an enabling provision and could not have overriding effect over the main provision. On this basis principle (a) was laid down with which we are unable to agree and substitute the said principle in the following words:-

"(a) The reference is normally to be made by the Board of Directors of a sick industrial company, with BIFR, within 60 days from Page 18

the date of finalization of the duly audited accounts of the company for the financial year. However in case the Board of Directors has sufficient reasons to form the opinion, even before the finalization of accounts, that the company has become sick, then the Board of Directors are not to wait till the accounts are finalized but are under obligation to make a reference to the BIFR within 60 days from the date of forming such an opinion.

In this eventuality, provided under the proviso, the date by which reference is to be made would even be earlier than the time, which is stipulated in sub-section (1)

In so far as principles (b) to (e) are concerned, we approve the same.

¶16Notwithstanding the view which we have taken, we do not deem it proper to interfere with the direction given by the AAIFR in remanding the case to the BIFR for fresh consideration. Reason is simple. As noted above, BIFR had rejected the reference as time-barred only on the ground that the company did not approach on the basis of balance-sheet as on 1.3.2001, though statutory auditors had confirmed that it had become a sick industrial company as per the provisions of the Act. Even in such a case, when the reference is sought on the basis of balance-sheet as on 31.3.2002, it has to be considered in the light of the principles laid down in paras (b) to (e) above and the BIFR has to determine as to whether there were justifiable reasons for delay or it was a case of "supine indifference" or there was any mala fides in not filing Page 19

the reference within the stipulated period. Of course, because of delay, action under Section 33(1) of SICA could be taken against the management of the company as observed by the AAIFR as well. We, therefore, dismiss these writ petitions and direct the BIFR to consider the reference submitted by these companies in the light of the discussion above. There shall, however, be no order as to costs.

(A.K. SIKRI)

JUDGE

March28, 2008

(VIPIN SANGHI) HP.

JUDGE

Page 1 Reportable IN THE HIGH COURT OF DELHI AT NEW DELHI +WP(C) Nos.3669/2006 and 3672/2006 Date of Decision: 28.03.2008 #Oman International Bank S.A.O.G. …..Petitioner ! Through: Mr.Adarsh B. Dial, Senior Advocate with Mr.Rajeev K. Pandey and Mr.Sushil Kr. Tekriwal Versus $Appellate Authority for Industrial And Financial Reconstruction and Ors. …..Respondents ^ Through Mr.Vibhu Bakru with Mr.Sumesh Dhawan and Mr.Vikas Chandel for respondent No.2 Mr.Vijay Kumar for respondent No.13/Canara Bank Mr.Raj Kumar for the Insurance Inspector, ESIC Ms.Sushmita Banerjee for Federal Bank CORAM :- *THE HON'BLE MR.JUSTICE A.K.SIKRI THE HON'BLE MR. JUSTICE VIPIN SANGHI 1.Whether Reporters of Local papers may be allowed to see the Judgment? 2.To be referred to the Reporter or not? 3.Whether the judgment should be reported in the Digest? A.K. SIKRI, J. : Page 2 WP(C) No.3669 & 3672/2006 1. The petitioner is a banking company constituted under the laws prevailing in Sultanate of Oman. For carrying out banking business in India, it has been granted licence by the Reserved Bank of India. It had granted financial accommodation to the two companies, namely, Premier Synthetics Ltd. (respondent No.2 in WP(C) No.3669/2006) and Blue Blends (India) Ltd. (respondent No.2 in WP(C) No.3672/2006) and both the companies are declared as sick companies. Both these companies have approached the Board for Industrial and Financial Reconstruction (in short the "BIFR") for revival/rehabilitation on the ground that they are sick companies. Though their reference under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act (in short the "SICA") for declaring them sick companies was rejected by the BIFR, appeals filed by them before the Appellate Authority for Industrial and Financial Reconstruction (in short the "AAIFR") under Section 25 of the Act have been allowed and the cases are remanded back to the BIFR for fresh consideration on the basis of the principle set out by the AAIFR in the impugned judgment. The petitioner bank was objector in both the appeals and is not happy with the impugned orders passed by the AAIFR. In these circumstances, these two writ petitions are filed assailing the orders of the AAIFR. The legal effect of both the orders is same Page 3 as identical question is determined by the AAIFR in a common judgment. It is, in these circumstances, both these writ petitions were clubbed and heard together. For the sake of brevity, we take note of facts of WP(C) No.3672/2006. 2. In the year 1986, credit facilities were sanctioned by the petitioner in favour of Blue Blends (India) Ltd. (hereinafter referred to as the "Company"). The company had availed similar facilities from some other banks as well. As it committed default in making repayments of these loans, all those banks, forming a consortium, filed an OA, being OA No.2518/2000, before the Debt Recovery Tribunal, Mumbai. The same is still pending adjudication. As per the petitioner bank, as on 30.9.2002 an amount of Rs.25.30 crores with further interest was due from the company. 3. After the filing of the said OA, on 6.2.2001, the company filed a reference under Section 15(1) of the SICA before the BIFR, which was registered as Reference Case No.235/2002. The company had sought the prayer that it be declared a sick industrial company and measures be determined for its rehabilitation by the BIFR. The BIFR heard this reference and vide its order dated 6.11.2002 rejected the same on the ground that reference filed by the company was time-barred. In coming to this conclusion the BIFR took into consideration certain dates. Page 4 4. The company had preferred first reference under Section 15(1) of the SICA on the basis of balance-sheet as on 31.3.2000. The Board of Directors of the company in their meeting held on 29.11.2000 had formed an opinion on the basis of the aforesaid balance-sheet, to the effect that net worth of the company was completely eroded and therefore, a reference wa