Core Healthcare Ltd. vs Standard Chartered Bank

The applicant, Core Healthcare Ltd., has filed these two applications with a prayer to review the order dated 2-5-2000, passed by this Court and to permit the applicant to withdraw from its statement that it will not approach the Board for Industrial and Financial Reconstruction till the hearing and final disposal of the appeal from Order No. 167 of 2000.

To appreciate the grievances of the parties, certain facts are necessary. The Respondent No. 1 herein filed a suit being Special Civil Suit No. 259 of 1999, in the Court of the learned Fourth Joint Civil Judge, Senior Division, Ahmedabad (Rural) at Mirzapur, for recovering the alleged dues from the applicant. In the said suit, the respondent No. 1 made an application exhibit No. 5 for interim relief, inter alia, for a temporary order of injunction restraining the applicant from selling, encumbering, alienating, transferring, parting with possession of or creating any third party rights and interest in the movable and immovable properties described in the suit. In the said application, a further relief to appoint any fit and proper person as a Receiver or Commissioner to take possession of the movable properties of the applicant as described in the suit was also prayed for. The trial court, on 24-12-1999, granted the exparte ad interim injunction as prayed for. However, with regard to the prayer for appointment of a receiver, the court only issued notice. The trial court, after hearing the parties, vide an order dated 25-4-2000, confirmed the ad interim injunction granted earlier. However, it refused to grant relief regarding appointment of a receiver.

The Respondent No. 1 preferred an appeal from Order No. 175 of 2000, challenging the order passed by the trial court refusing to appoint a Receiver. In the said appeal from order, an application being Civil Application No. 3148 of 2000 was filed with a prayer to appoint any fit and proper person as a Receiver with a direction to take the possession of the securities stated in the application till the hearing and final disposal of the appeal. Pending hearing and final disposal of the appeal, a further relief was prayed for, namely, respondent No. 1 or their servants, employees, agents be directed to make disclosure on oath of (1) particulars of all the assets owned by respondent No. 1; (2) particulars of all the assets acquired by respondent No. 1 from the loan funds advanced by each of the consortium banks; and (3) manner in which loan funds advanced by the consortium banks have been utilised.

Against the order confirming the ad interim injunction by the trial court, the applicant also filed an appeal being Appeal from Order No. 167 of 2000. Along with the same, an application being Civil Application No. 2971 of 2000 was also filed with a prayer to stay the order dated 25-4-2000, passed by the learned Trial Judge to the extent it is against the applicant and to vacate the temporary injunction continued by this Court till the final disposal of the suit by the impugned order.

Both the appeals from order and civil applications came up for hearing before me on 2-5-2000, and I admitted both the appeals with a direction to hear both the appeals pre-emptorily on 22-6-2000. In Civil Application No. 2971 of 2000, preferred by the present applicant, I issued rule returnable on 22-6-2000, while in Civil Application No. 3148 of 2000, preferred by the present respondent No. 1,1 passed the following order :

"Heard learned counsel appearing for the respective parties at length on the question of interim relief. Mr. Soparkar, learned counsel appearing for respondent No, 1-company states that since the court has fixed the hearing of both the appeals from order, respondent No. 1-company will not approach the BIFR till hearing and disposal of both the appeals from order with a liberty to apply for withdrawing the said statement, if for any reason, both the appeals from order are not heard by July 15, 2000. Liberty to apply. The managing director of respondent No. 1-company shall file an undertaking in line with the statement made by Mr. Soparkar within ten days from today. Respondent No. 1 -company shall also pass an appropriate resolution ratifying the undertaking of the managing director as well as the statement made by its learned counsel.

Learned counsels appearing for the parties have assured that they will not seek any adjournment and will proceed with the hearing of both the appeals from order on the date of hearing. D.S. permitted."

The said appeals are not heard in view of the fact that the Government of Gujarat, has issued a notification under the provisions of the Bombay Relief Undertakings (Special Provisions) Act, 1958. Under the said notification, any remedies for the enforcement of all rights, privileges, obligations, liabilities (other than those liabilities, etc., towards its employees) are suspended and all proceedings relating thereto pending before any court, Tribunal, officer or authority are suspended during such period till the notification is in force. In view of the liberty granted to the applicant to withdraw from the said statement, the present application is filed.

Mr. Soparkar, the learned counsel appearing for the applicant, submitted that the applicant has finalised its accounts as on 30-6-2000, and the same have been approved in the meeting of the board of directors held on 28-9-2000. According to the said accounts, the company has already become a sick industrial company within the meaning of the Sick Industrial Companies (Special Provisions) Act, and on approval of the said accounts in the annual general meeting, it shall be mandatory for the applicant to make a reference to the BIFR. In the submission of Mr. Soparkar, under the provisions of the said Act, no company has an option in the matter of making a reference and if a company which is liable to make a reference does not do so, the company and its directors are liable to be prosecuted. Mr. Soparkar, further submitted that the applicant is not responsible for the fact that the appeals are not heard or disposed of on the day on which the appeals were fixed for hearing or thereafter.

Mr. M.J. Thakore, the learned counsel appearing for the Respondent No. 1, on the other hand, submitted that the applicant adopted a sharp practice with the court by not intimating to the court while assuring that it will not approach the BIFR till 17-6-2000, even though it had already applied to the State Government for being declared a relief undertaking under the Bombay Relief Undertakings (Special Provisions) Act, 1958, and for obtaining relief in terms of Section 4(l)(d)(4) of the said Act making it impossible for this Court to proceed with the hearing of the appeal on 17-6-2000. Mr. Thakore vehemently contended that the applicant very well knew that they had applied for obtaining notification under Sections 3 and 4 of the Bombay Relief Undertakings (Special Provisions) Act on 2-5-2000, the day on which this Court admitted the appeals from order. As the notification was issued on 17-5-2000, the applicant was duty-bound to disclose to this Court. On the contrary, as submitted by Mr. Thakore, the applicant sought to misguide this Court and the respondent by filing an undertaking that they will not approach the BIFR and thereby will not stall the proceedings. Mr. Thakore, therefore, submitted that this Court may not permit the applicant to withdraw the statement given by it or the undertaking filed.

To substantiate the contention, Mr. Thakore relied on the decision of the learned Single Judge of the Bombay High Court dated 12-8-1999, passed in Company Application (Lodging) No. 608 of 1999, in Company Petition No. 705 of 1999 and the judgment of the Division Bench in Appeal No. 1027 of 1999 dated 21-9-1999, confirming the said decision.

I have gone through the application as well as affidavit in reply, rejoinder affidavit filed in the proceedings and the judgments cited by learned counsel appearing for the parties. The question involved in the matter is whether the applicant is justified in making a prayer to permit it to withdraw from the statement of not approaching the BIFR till hearing and final disposal of the appeal from order. Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, casts an obligation upon the board of directors of the company which has become sick industrial company within 60 days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company to make a reference to the Board for determination of the measures which shall be adopted with respect to the company. In other words, Section 15 places a responsibility on the board of directors of a sick industrial company to make a reference to the Board and the reference is to be made within 60 days from the date of finalisation of duly audited accounts of the company.

Section 33 provides for penalty in the case of certain violations which are named as offences which include any violation of the provisions of the Act; etc. Section 34 of the said Act deals with the offences by the company.

A plain reading of the aforesaid provisions makes it clear that it is obligatory on the Board of Directors of a sick industrial company to make a reference to the Board and any violation of the same is considered to be an offence for which they can be held liable and can be punished with an imprisonment and also with a fine. When this Court passed the order on 2-5-2000, I fixed the hearing of the appeal on 22-6-2000, in view of the intervening summer vacation. The respondent had a strong apprehension that the applicant will approach the BIFR by taking advantage of the summer vacation. In the circumstances, learned counsel Mr. Soparkar made a statement that the company will not approach the BIFR till hearing and final disposal of both the appeals from order with a rider to apply for withdrawing the said statement if for any reason, both the appeals from order are not heard by 15-7-2000, which was granted by this Court. From the record, it appears that the applicant had finalised its accounts tor the year ended on 30-6-2000, and the same had been approved in the meeting of the Board of Directors held on 28-9-2000. According to the said accounts, the company has become a sick industrial company within the meaning of the Sick Industrial Companies (Special Provisions) Act. Not only that, but the accounts were also approved in the annual general meeting of the applicant held in December, 2000. In view of this, immediately thereafter, it was obligatory upon the applicant to approach the BIFR, failing which the company or its directors shall be liable to be prosecuted. I, therefore, find substance in the submission of Mr, Soparkar that when he made a statement on 2-5-2000, that the applicant will not approach the BIFR till hearing and disposal of the appeal from order and if for any reason, the appeal is not heard before 15-7-2000, liberty was reserved to apply for withdrawing the said statement as no accounts were finalised at that time. As stated above, the accounts of the applicant were finalised for the year ended on 30-6-2000, approved by the Board of Directors in its meeting held on 28-9-2000, and thereafter in the general meeting in December, 2000. The applicant, in my opinion is, therefore, justified in seeking permission to withdraw from its statement made before this Court.

Reverting back to the contention advanced by Mr. Thakore, the learned counsel for the respondent, namely, that the applicant adopted a sharp practice with the court by not intimating the court while assuring on 2-5-2000, that it will not approach the BIFR till 17-6-2000, even though it had already applied to the State Government for being declared a relief undertaking under the Bombay Relief Undertakings (Special Provisions) Act in December, 1999, I can only say that the applicant could have disclosed the said fact. However, the applicant has come with sufficient reasons for not disclosing the fact of having applied to the State Government for being declared as a relief undertaking. The applicant has stated as under:

''I submit that notification is issued by the State Government under the provisions of the Bombay Relief Undertakings (Special Provisions) Act, 1958, only for the purpose of saving unemployment. Whenever it is felt that it is necessary to obtain such a relief it is the duty of an undertaking to approach the State Government for such a relief in the larger interest of preventing unemployment. The said notification operates in the field different from the field in which the BIFR operates. The notification gives a temporary relief and does not aim at restructuring of the debt. Under the circumstances, it was not necessary for the applicant-company to refer to its request made to the State Government for issuance of such notification. In any case, admittedly, on May 2, 2000, such notification was not issued. Whether such notification would at all be issued, and if so the terms thereof, are matters entirely at the discretion of the State Government. It was impossible to predict on May 2, 2000, that such a notification would be issued and if so the terms thereof. The applicant had requested the State Government to issue such notification in the second week of December, 1999, and for more than four months, the State Government had not taken any action in the matter. There was no correspondence between the State Government and the applicant in this behalf. Under the circumstances, on May 2, 2000, the applicant had no reason to conclusively believe or know that the BRU notification would be issued or that it would be issued on May 17, 2000. It may be also stated that on account of a judgment of this hon''ble court, it appears that the State Government had taken a policy decision not to issue BRU notification for quite sometime. Further, according to one interpretation of the judgment of this hon''ble court, notification may not be issued without hearing the concerned parties. The applicant, therefore, had no reason to believe that the notification would necessarily be issued by the State Government without issuing advertisements or without hearing the concerned parties. Under the circumstances, the applicant did not know on May 2, 2000, that a notification is being issued shortly in its favour by the State Government. It is only a matter of coincidence that after the statement was made before the hon''ble court, the BRU notification was issued."

The above explanation, in my opinion, is sufficient for not disclosing the fact of having applied to the State Government to issue the BRU notification in December, 2000. In the circumstances, I am of the opinion that the applicant has not suppressed any material facts or adopted any sharp practices as alleged by the respondent.

The judgment of the Bombay High Court cited by the Respondent is in a case where a statement was made on behalf of the respondent-company that it will not be making any application before the BIFR till the disposal of the ad interim injunction application and thereafter the time was sought to convene a meeting between the respondent-company and the Chairman of the petitioner-bank to arrive at an amicable settlement. In the name of settling the dispute, many adjournments were obtained. When the matter was taken up for hearing, another counsel for the respondent tendered a xerox copy of the letter by the BIFR regarding the fact that a reference with regard to the application made by the respondent-company has been received by the BIFR and the case was registered. In short, the respondent-company adopted a sharp practice upon the court by approaching the BIFR in the name 6f settlement talks during the pendency of the proceedings even though a solemn statement was made on its behalf not to approach the BIFR. Considering the said fact, the learned Single Judge rightly came down heavily on the respondent-company by observing that in view of the gross facts and in view of the fraudulent conduct and sharp practice adopted by the respondent-company on the court, the application made by the respondent-company to the BIFR itself is non estin the sense that it has no legal sanctity in view of the statement made before the Court by the learned senior counsel. It was further observed that any order passed on such application is also non est and cannot be given effect to.

As stated above, the said judgment was carried in appeal by the respondent-company and the Division Bench of the Bombay High Court also dismissed it by imposing heavy costs. Considering the facts and circumstances of the case, the Bombay High Court was justified in passing the order against the respondent-company. There cannot be any dispute regarding the exercise of power by the Court when it finds that the party has adopted fraudulent conduct as well as sharp practice upon the court. However, the case on hand is quite different. In the instant case, the applicant is seeking relief to permit it to withdraw from its statement that it will not approach the BIFR. Therefore, mere non-disclosure of the fact of the applicant having approached the State Government for issuance of the BRU notification by itself is no ground to reject the prayer made in this application. In view of this, I see no merit in the submissions of Mr. Thakore and, therefore, the same are rejected.

As observed earlier, it is obligatory on the applicant to approach the BIFR by way of reference no sooner it is declared a sick unit. Therefore, merely because a statement was made followed by the undertaking, that fact by itself, cannot foreclose the statutory remedy, (see-- P.R. Deshpande Vs. Maruti Balaram Haibatti, .

Apart from the above, I hardly see any other justifiable reason on the part of the respondent to oppose the reference to the BIFR. In view of provisions of Sub-section (2) of Section 15, a reference by a public institution or a State level institution or a scheduled bank against the sick industrial company, is permissible. I am quite sure that the BIFR will certainly hear all the financial institutions including the respondent while considering the reference of the applicant-company. Even in the said proceedings, the say of the respondent to secure their interest can be considered.

The above discussion leads me to conclude that the applicant has made out a case to withdraw from its statement that it will not approach the BIFR till hearing and final disposal of the appeal from Order No. 167 of 2000.

In the result, both these applications are allowed. I permit the applicant to withdraw from its statement that it will not approach the BIFR till hearing and final disposal of the Appeal from Order No. 167 of 2000 and Appeal from Order No. 175 of 2000. Both these civil applications are, accordingly, allowed with no order as to costs.

At the request of Mr. Mihir J. Thakore, this order is stayed till 12-3-2001, to enable the respondents to approach the Hon''ble Apex Court.