M/S Agarpara Company Ltd v. Appellate Authority for Industrial and Financial Reconstruction & Ors

Order).

¶11The petitioner's claims are mutually contradictory. The petitioner requests this Court to issue a writ prohibiting the circulation of the Respondent's DRS, asking rather for the recognition of its own DRS. Entering the same question, and the fact of allowing one DRS and not another, would draw the Court into an exercise of determining which management is legally valid and correct under the Companies Act and related laws; an exercise Page 8

which the petitioner itself admits falls within the special jurisdiction of the CLB. Accordingly, for that precise reason, to avoid litigation on the question of which management ought to, under the law, represent the sick company, and focus solely on the factual question of which management, as of the date of hearing before the BIFR, has de facto control, the AAIFR's order is reasonable. This limited factual determination allows for the BIFR/AAIFR to proceed with the rehabilitation of the company, without any of the attendant legal complexities of determining the validity of ownership/management that are assigned to another statutory body under the Companies Act and related laws.

¶12The breadth of the authority vested in the BIFR for the management of sick companies has been recognized. For example, in Pasupati Fabrics Ltd and Ors v. Priyanka Overseas Pvt. Ltd. and Ors., [2006] 132 Comp Cas 113 (Delhi), this Court at paragraph 51 noted that "from the date of registration of reference, there is a complete take over by the BIFR which assumes total control and the company is to function thereafter as per the mandate of the BIFR. It is the BIFR which has to decide how the company is to be rehabilitated and sanction the scheme, which would be a package deal, for operation of the functioning of such a company. The company has to thereafter function as per the provisions of the scheme sanctioned. As noted above, these provisions may provide for the complete take over by the new management, new Board of Directors, new constitution of the company with altered Memorandum and Articles of Association Page 9

and even reduction of the interest or rights of the existing shareholders and allotment of shares of such a company to some other persons, particularly the creditors."

¶13Furthermore, this Court is of opinion that, equally, Courts must be cautious of interfering with the functioning of the BIFR in such instances of proceedings involving rival factions battling for the management of a sick company. This was specifically recognized by the Andhra Pradesh High Court in B. Subba Reddy v. Appellate Authority for Industrial and Financial Reconstruction, 2008 (1) ALT 113, in noting the "utmost importance that the courts do not lengthen the proceedings before BIFR unless such interference is absolutely imperative for well defined reasons in the interest of the creditors as a whole and in the interest of the workers and the sick industry itself, but not in the interest of a particular management." The question in this case is precisely of supporting the DRS of one management faction over another, and entertaining such a relief would fall foul of the limited supervisory function played by the Court in instances of action taken by the BIFR. Similarly, in Dharam Godha v. Universal Paper Mills Ltd., [2012] 110 CLA 32 (Cal), paragraphs 11-13, the AAIFR's discussion and recognition of a particular management was acknowledged by the Calcutta High Court.

¶14The AAIFR, by the impugned order has said that since there were disputes about the ownership and challenges regarding the acquisition of shares had to be decided or resolved by the Company Law Board, at the same time, the DRS pending before the BIFR Page 10

had to be decided. To ensure that the company's rehabilitation process did not suffer, the AAIFR proposed that the proposals of the Sarda group, which appeared to be (to it) in de facto control, should be considered on merits. At the same time, the petitioner group was also permitted to participate in the hearings. There is, in this Court's opinion, no unreasonableness or irregularity with the approach of the AAIFR in its impugned order.

¶15Finally, Learned counsel for the petitioner submits that he would not be pressing additional grounds number 7.35 and XXXV, alleging that "one of the Members sitting (sic) in the present Bench is a close friend of Sh. Ghanshyam Sarda. The Bench is biased against the Petitioner".

¶16For the above reasons, the writ petition is dismissed with no order as to costs.

S. RAVINDRA BHAT

(JUDGE)

NAJMI WAZIRI (JUDGE)

JULY 15, 2013

Page 1 * IN THE HIGH COURT OF DELHI AT NEW DELHI Decided on: 15.07.2013 + M/S. AGARPARA COMPANY LTD. ..... Appellant Through : Mr. Akhil Sibal, Mr. Jatin Mongia and Mr. Sandeep Bisht, Advocates. versus APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION & ORS. ..... Respondents Through : Mr. Amit. S. Chaddha, Sr. Advocate with Mr. Atanu Mukherjee and Ms. Shalini Kapoor, Advocates, for Resp. No.3. Mr. Anirben Sen, Advocate. Mr. Neeraj Kishan Kaul, Sr. Advocate with Mr. C. Mukund and Mr. Ashok Jain, Advocates, for Resp. No.5. Mr. Tanuj Khurana, Advocate, for Resp. No.6. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE NAJMI WAZIRI MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT) % CAV. 579/2013 TO 582/2013 Learned counsel for the caveators have put in appearance. Cav. 579/2013 to 582/2013 are accordingly discharged. Page 2 W.P.(C) 4301/2013, C.M. APPL.9983/2013 (for stay), C.M. APPL. 10060/2013 1. M/s Agarpara Company Ltd (ACL), the petitioner, challenges the order of the Appellate Authority for Industrial & Financial Reconstruction (AAIFR), dated 13.06.2013, under Section 25 of the Sick Industrial Companies (Special Provisions) Act of 1985 (SICA). That appeal had been preferred against an order of the Board for Industrial and Financial Reconstruction (hereinafter "BIFR") dated 20.10.2010, whereby that authority (the BIFR) held that Mr. Ghanshyam Sarda was the real promoter/owner of the Respondent No. 3 in this writ, M/s. Agarpara Jute Mills Ltd (AJML). 2. Briefly, this case revolves around the financial reconstruction and rehabilitation of AJML. Based on its audited balance sheet of 31.03.1993, AJML filed a reference before the BIFR under Section 15(1) of SICA, and was declared sick in terms of Section 3(1)(o) of the Act on 14.07.1995. In the facts relevant to the present dispute, three stages are important: At the first stage, on being declared sick, the BIFR observed that the scheme prepared by the Operating Agency appointed under the Act was inadequate and ordered for winding up of AJML on 17.12.1999. This order for winding up was quashed by the Calcutta High Court on 08.07.2004, and AJML was ordered to present an alternate plan for rehabilitation. Accordingly, on 29.09.2004, AJML submitted a rehabilitation proposal, and the BIFR through its order dated Page 3 06.02.2007 directed circulation of the DRS for objections/suggestions. Till this date, neither party to the present petition presented any facts alluding to a dispute as to ownership. Subsequently, however, in the second stage of this dispute, two rival factions emerged within the sick company, one headed by Mr. Ghanshyam Sarda and the other by the present petitioners, ACL. The petitioners claim that Mr. Ghanshyam Sarda, acting through various instrumentalities, took over the management of the sick company in the interim. Contrary to this, the Respondent claims that it was always in control of the sick company, having, at all relevant times, possessed the requisite shares to display ownership and relying on the fact of payment of salaries and other dues to employees of the sick company. The Petitioner further claims that, contrary to the object and purpose of the SICA, the Respondent appointed 3 and 8 directors on 29.11.2008 and 24.01.2009, respectively, thereby constructing a false majority. The events of 29.11.2008 and onwards are disputed by the Appellant specifically, though the Appellant admit de facto control of the Sarda Group, and its payment of dues/salaries (paragraph 6 of the impugned order). Finally, the third stage of this dispute revolves around the shareholding of AJML and the ability of ACL to propose a DRS of its own for the purposes of circulation and objection. Here, the Petitioner claims that out of a total of 1,00,007 shares of AJML, 1,00,001 shares were owned by it; thus the petitioner was the holding company for AJML. However, as these shares were found missing, on application to AJML, duplicate shares were issued to Page 4 the