?IN THE HIGH COURT OF JUDICATURE AT MADRAS %DATED: 22/10/2010 *CORAM THE HON'BLE MR.JUSTICE F.M.IBRAHIM KALIFULLA AND THE HON'BLE MR.JUSTICE N.KIRUBAKARAN +WP.17126 of 2010 #Asian Health and Nutri Foods Ltd $Appellate Authority !FOR PETITIONER : Mr.A.L.Somayaji ^FOR RESPONDENT : Mr.G.Desingu :ORDER
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 22.10.2010
C O R A M :
THE HONOURABLE MR.JUSTICE F.M.IBRAHIM KALIFULLA
AND
THE HONOURABLE MR.JUSTICE N.KIRUBAKARAN
W.P.No.17126 of 2010
and
M.P.No.1 of 2010
Asian Health and Nutri Foods Ltd.
959/1A, K.S.Road, Sooravarikandigai, Sirupuzhai Pettai (Post), Gummidipoondi, Thiruvalluvar District-601 201, Tamil Nadu, ... Petitioner -vs- 1. Appellate Authority for Industrial and Financial Reconstruction, 10th Floor, Jeevan Prakash Building, Kasturba Gandhi Marg, New Delhi-110 001. 2. Board for Industrial and Financial Reconstruction, Jawahar Vyapar Bhawan, Connaught Place, New Delhi-110 001. 3. The Chairman & Managing Director, State Bank of India, Central Office, P.B.No.12, Madam Cama Road, Mumbai-400 021. 4. The Secretary, Department of Industries, Government of Tamil Nadu, Chennai. 5. The Regional Provident Fund Commissioner, No.37, Royapettah High Road, Opp. Swagat Hotel, Chennai-600 014, Tamil Nadu. 6. The Chairman & Managing Director, State Bank of Mysore, PB No.9727, Kempegowda Road, Bangalore-560 009. 7. The Chairman & Managing Director, Union Bank of India, Central Office, 239, Vidhan Sabha Marg, Nariman Point, Mumbai. 8. The Chairman & Managing Director, ICICI Bank Ltd., ICICI Bank Towers, 9th Floor, North Tower, Bandra Kurla Complex, Bandra (E), Mumbai-400 051. 9. The Director of Income Tax (R), Mayur Bhawan, Connaught Place, New Delhi. 10. The Chairman & Managing Director, Kotak Mahindra Bank Ltd. 36-38 A, Nariman Bhawan, 227, Nariman Point, Mumbai-400 021. 11. The Director General, ESIC, ESIC Regional Office, Rajendra Bhawan, Rajendra Place, New Delhi-8. 12. The Manager, Hongkong & Shanghai Banking Corporation, 52-60, Mahatma Gandhi Road, Mumbai-1. ... Respondents
PRAYER : Petition filed under Article 226 of the Constitution of India seeking for the issuance of a writ of certiorarified mandamus to quash the order dated 16.6.2010 passed by the first respondent AAIFR in Appeal No.248/2009; remand the matter back to the 2nd respondent BIFR and consequently directing the 2nd respondent BIFR to appoint any independent agency/Bank/Financial Institution from the list of notified operating agencies who is not a creditor of the Company as the operating agency and direct respondent No.2 to proceed with the matter in accordance with law.
For petitioner :: Mr.A.L.Somayaji, SC for Mr.R.Murari For respondent No.4 :: Mr.G.Desingu, Spl.G.P. For respondent No.6 :: Mr.J.Radhakrishnan For respondent No.8 :: Mr.Karthik Seshadri For respondent No.9 :: Mr.K.Subramanian, Sr.Standing counsel *** O R D E R (ORDER OF THE COURT WAS MADE BY F.M.IBRAHIM KALIFULLA, J.)
The petitioner has filed the above writ petition for the issuance of a writ of certiorarified mandamus to call for the impugned proceedings of the first respondent – AAIFR in Appeal No.248 of 2009 dated 16.6.2010, quash the same, remit the matter back to the second respondent – BIFR and to consequently direct the second respondent – BIFR to appoint any independent Agency/Bank/Financial Institution from the list of notified Operating Agencies, which is not a creditor of the Company, as the Operating Agency and to further direct the second respondent to proceed with the matter in accordance with law.
2. The sum and substance of the grievance of the petitioner is whether the Appellate Authority for Industrial and Financial Reconstruction (hereinafter will be referred to as the ‘AAIFR’, for short) was justified in appointing the State Bank of Mysore as the Operating Agency.
3. The brief facts which are required to be stated are that the petitioner Company is engaged in the business of manufacturing pulses, food products etc. and it borrowed funds from various financial institutions, which have been arrayed as respondents 3, 8, 10 and 12. The petitioner filed an application for reference before the second respondent Board for Industrial and Financial Reconstruction (hereinafter will be referred to as ‘BIFR’ for short) in its application dated 27.4.2009 seeking for a declaration to declare the petitioner as a ‘sick industrial company’ having regard to its financial position. Initially, the BIFR passed an order on 23.7.2009 directing the secured creditors/banks to submit their objections on the sickness of the company and the petitioner to submit its rejoinder. The parties were directed to file their written submissions for change of statutory Auditors. The hearing was fixed on 21.10.2009. After the hearing held on 21.10.2009, the BIFR passed its order on 28.10.2009 in and by which M/s. Hongkong and Shanghai Banking Corporation (HSBC) was appointed as the Operating Agency exercising its powers under Section 16(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter will be referred to as ‘SICA’) to conduct an enquiry into the accounts of the Company keeping in view the objections of the secured creditors raised before the BIFR and as per the guidelines passed along with the said order dated 28.10.2009. While passing the said order, the BIFR observed that the Operating Agency can get the Audit conducted by a firm of independent Chartered Accountants as per professional standards and the final view on the report of Special Investigative Audit (SIA) to be conducted by the Chartered Accountants would be taken by the BIFR after considering the report of the Operating Agency as well as the petitioner. Along with the said order, dated 28.10.2009, guidelines to be followed by the Special Investigative Audit of the petitioner’s accounts were also enclosed. The BIFR also directed the Chartered Accountants to conduct the Special Investigative Audit into the accounts of the petitioner as on 31.3.2008. In the guidelines annexed to the said order, the manner in which the Chartered Accountants should be identified and entrusted with the task of conducting Special Investigative Audit and the nature of check to be made by the Auditors and the report to be filed by the Chartered Accountants were all indicated in detail. The Secured Creditors and the petitioner were also directed to file their comments/rejoinders on the findings of the Special Investigative Audit within two weeks and that the factual findings of the Special Investigative Audit would be normally accepted by the Board unless relevant documentary evidence in relation to any of the objections relating to such factual findings are filed within a period of two weeks specified therein. The Operating Agency was directed to submit the Special Investigative Audit Report alongwith a Summary Statement. Various other aspects were also indicated in the said guidelines.
4. Aggrieved against the said order of the BIFR, dated 28.10.2009, the petitioner approached the AAIFR by way of appeal. The grievance of the petitioner before the AAIFR was three-fold. In the first place, the petitioner contended that the BIFR ought not to have restricted the verification of the accounts only upto 31.3.2008 but should have extended it upto 31.3.2009. The other contention was that HSBC was not one of the notified institutions of the BIFR and, therefore, it had no jurisdiction to function as the Operating Agency. It was then contended that none of the Secured Creditors can be appointed as the Operating Agency.
5. By the impugned order, the AAIFR modified the BIFR’s order in so far as it related to restricting the scrutiny of accounts upto 31.3.2008 and extended it upto 31.3.2009. The AAIFR also sustained the grievance of the petitioner that HSBC being not a notified institution of the BIFR ought not to have been appointed as the Operating Agency. However, the AAIFR appointed one of the Secured Creditors, viz., State Bank of Mysore itself to be its Operating Agency in the place of HSBC. It is as against the said order of the AAIFR, dated 15.6.2010, the petitioner has come forward with this writ petition.
6. We heard Mr.Murari, learned counsel for the petitioner; Mr.G.Desingu, Special Government Pleader for respondent No.4; Mr.J.Radhakrishnan, learned counsel for respondent No.6; Mr.Karthik Seshadri, learned counsel for respondent No.8; and Mr.K.Subramanian, learned Senior Standing counsel appearing for respondent No.9.
7. Mr.Murari, learned counsel appearing for the petitioner, in his submissions, by drawing our attention to Section 16(2) and Section 27 of the SICA and Regulation 40 of the BIFR Regulations, contended that the investigation relating to the sickness of the petitioner Company can be examined only by the BIFR and the present Operating Agency, viz., State Bank of Mysore being one of its Secured Creditors, which has got very many grievances against the petitioner ought not to have been appointed as the Operating Agency. According to the learned counsel, since the said Operating Agency has been vested with the powers to identify the Chartered Accountants for holding the Special Investigative Audit and in their reply dated 08.8.2009 filed before the BIFR, they have made very many scathing remarks as against the petitioner allowing the said Secured Creditor to function as the Operating Agency would cause serious prejudice to the petitioner. According to the learned counsel, such a course adopted by the BIFR and affirmed by the AAIFR being in contravention of the statutory provisions as well as the Regulations, the order of the AAIFR is liable to be set aside and the petitioner has got no objection for appointing any other Agency, which is unconnected to the petitioner, as Operating Agency.
8. As against the above submission, Mr.Radhakrishnan, learned counsel for the sixth respondent – Operating Agency as well as the learned counsel appearing for the other respondents contended that under Section 16(2) of the SICA, every power is vested with the BIFR to entrust the task of holding the enquiry, collect the information relating to financial status of the petitioner to enable the BIFR to determine the question as to whether the petitioner can be declared as a ‘Sick Industrial Company’ under Section 3(1)(o) of the SICA. The learned counsel contended that since the petitioner has been given liberty to choose one of the Auditors out of three independent Chartered Accountants to be identified by the Operating Agency, no prejudice would be caused to the petitioner. The learned counsel for the respondents also contended that there is no legal impediment for the BIFR for appointing any one of the Secured Creditors as the Operating Agency. It was lastly contended that since sufficient safeguards have been provided in the order of the BIFR as well as in the order of the AAIFR, the apprehension of the petitioner has no basis.
9. Having heard the learned counsel for the respective parties and having perused the order of the BIFR and the guidelines annexed to the order of the BIFR, dated 28.10.2009 as well as the order of the AAIFR, we are convinced that none of the grievances expressed by the petitioner can be countenanced in order to interfere with the order impugned in this writ petition. Under Section 16(2) of the SICA, every power has been vested with the BIFR to appoint an Operating Agency to hold necessary enquiries and make a report with respect to such matters which are specified in its order. Even under Section 27 of the SICA, the restriction with regard to delegation of powers of the BIFR while imposing conditions and limitations is only relating to appointment of the Operating Agency itself to be made under Section 16(2) of the SICA. In other words, if once the Operating Agency is identified and appointed by the BIFR in exercise of its powers under Section 16(2), in all other respects, there was every authority in the BIFR to delegate its functions subject however to such conditions and limitations that it may specify in its order. Even under Regulation 40 of the BIFR Regulations, we do not find any restriction imposed on the BIFR in choosing one of the Secured Creditors being appointed as an Operating Agency in relation to any application for reference made under Section 15 for being declared as a ‘Sick Industrial Company’ as defined under Section 3 (1)(o) of the SICA. Regulation 40 only postulates the scope of assistance to be taken by the BIFR of any public financial institution, banks or other institutions, consultants, experts, chartered accountants, surveyors and such other technical and professional persons, which it may consider necessary and call upon them to submit a report or furnish any information. In fact, a perusal of the order of the BIFR dated 28.10.2009 disclosed that it has only invoked the said provision when it directed the Operating Agency to go in for appointment of the Chartered Accountant to hold a Special Investigative Audit in respect of the petitioner Company and file a report, based on which it could pass final orders in the reference application of the petitioner. Therefore, we do not find violation of any of the statutory provisions much less either Section 16(2) or Section 27 of the SICA. On the other hand, the BIFR has rightly invoked its jurisdiction under Section 16(2) when it resorted to the appointment of Operating Agency from amongst one of the Secured Creditors notified by it. Inasmuch as the said Secured Creditor was not one of the notified institutions of the BIFR, the AAIFR by its order dated 15.6.2010 rectified the said error by appointing the State Bank of Mysore, which is one of the notified institutions of BIFR, as the Operating Agency.
10. In so far as the grievance of the petitioner that the said Operating Agency has got its own grudge against the petitioner as has been disclosed in its letter dated 08.8.2009 placed before the BIFR is concerned, we find that the said letter was filed by the State Bank of Mysore by way of its stand in the reference application preferred by the petitioner, dated 27.4.2009. When the Secured Creditors have advanced huge sums to the petitioner along with other financial institutions, it was entitled to place before the BIFR any discrepancy which might have been noticed by the Secured Creditors and put forth their stand before the BIFR while resisting the claim of the petitioner for being declared as a ‘Sick Industrial Company’. That by itself cannot be a ground to hold that that will operate as a disqualification for the Secured Creditor, which is otherwise a notified institution to be validly recognized as an Operating Agency by the BIFR. Moreover, the order of the BIFR as well as that of the AAIFR disclose that the BIFR only steps into the shoes of the Operating Agency to collect facts and figures relating to the financial status of the petitioner in order to determine as to whether or not the petitioner can be declared as a ‘sick industrial undertaking’ and whether its net worth has been eroded to that extent for making such a declaration. For that purpose, both the BIFR and the AAIFR only directed the Operating Agency to suggest the names of three Chartered Accountants and the one to be appointed is also to be ultimately made only by the petitioner. In the order of the BIFR, as regards the said direction for appointment of Chartered Accountant, it has been directed that the Operating Agency should shortlist three independent Chartered Accountants, from among whom, the petitioner Company can choose one, with whom the task of conducting the Special Investigative Audit can be entrusted by the Operating Agency.
11. Now, by virtue of the order of the AAIFR, such Special Investigative Audit into the accounts of the petitioner as on 31.3.2009 can be made. In fact, when the BIFR held that after the submission of the Special Investigative Audit Report, the terms of reference would be formulated, the AAIFR in its order has directed that even while holding the Special Investigative Audit, the BIFR should finalise the terms of reference to be conducted by the firm of Chartered Accountants. Therefore, whatever minor errors in the order of the BIFR viz., the ultimate date upto which the Special Investigative Audit into the accounts of the company is to be held and also the terms of reference which is to be formulated by the BIFR, were all rectified by the AAIFR in its ultimate order dated 15.6.2010. On a perusal of the guidelines, which were annexed along with the order of the BIFR dated 28.10.2009, we find that except shortlisting three of the Chartered Accountants to enable the petitioner to select one among them and collect the report from the independent Chartered Accountants after the Special Investigative Audit, no other work has been entrusted with the Operating Agency. In fact, it was open to all the Secured Creditors as well as the petitioner to place before the Chartered Accountants, who have been directed to hold the Special Investigative Audit to place all the materials in support of their respective stand. Further, even after filing of the report by the Chartered Accountants after holding the Special Investigative Audit, then again, in respect of any of the findings mentioned therein, it is open to the Secured Creditors as well as the petitioner to submit their detailed objections, of course, within two weeks from the date of filing of such request.
12. Therefore, when there is no other scope of interference that could be made by the Operating Agency in regard to the work to be carried out by the independent Chartered Accountants while holding the Special Investigative Audit, we do not find any prejudice being caused to the petitioner in the said exercise. Therefore, when statutorily the BIFR as well as the AAIFR are entitled to appoint the Operating Agency from among one of the notified institutions of the BIFR and the State Bank of Mysore though one of the Secured Creditors is a notified institution of the BIFR and inasmuch as we do not find any scope for interference in regard to the Special Investigative Audit to be held by the Chartered Accountants to be chosen at the instance of the petitioner, there is no scope to hold that there is even a remote chance or likelihood of any bias or prejudice being caused to the petitioner.
13. We, therefore, do not find any scope to interfere with the order impugned in the writ petition. The writ petition fails and the same stands dismissed. Consequently, the connected miscellaneous petition is also dismissed. However, there will be no order as to costs.
(F.M.I.K., J.) (N.K.K., J.)
22.10.2010
Index :yes/ no
Internet :yes/no
js
To
1. Appellate Authority for Industrial and
Financial Reconstruction,
10th Floor, Jeevan Prakash Building,
Kasturba Gandhi Marg,
New Delhi-110 001.
2. Board for Industrial and Financial
Reconstruction,
Jawahar Vyapar Bhawan,
Connaught Place, New Delhi-110 001.
3. The Chairman & Managing Director,
State Bank of India,
Central Office, P.B.No.12,
Madam Cama Road,
Mumbai-400 021.
4. The Secretary,
Department of Industries,
Government of Tamil Nadu,
Chennai.
5. The Regional Provident Fund Commissioner,
No.37, Royapettah High Road,
Opp. Swagat Hotel,
Chennai-600 014, Tamil Nadu.
6. The Chairman & Managing Director,
State Bank of Mysore,
PB No.9727, Kempegowda Road,
Bangalore-560 009.
7. The Chairman & Managing Director,
Union Bank of India, Central Office,
239, Vidhan Sabha Marg,
Nariman Point, Mumbai.
8. The Chairman & Managing Director,
ICICI Bank Ltd., ICICI Bank Towers,
9th Floor, North Tower,
Bandra Kurla Complex, Bandra (E),
Mumbai-400 051.
9. The Director of Income Tax (R),
Mayur Bhawan, Connaught Place,New Delhi.
10.The Chairman & Managing Director,
Kotak Mahindra Bank Ltd.
36-38 A, Nariman Bhawan,
227, Nariman Point,Mumbai-400 021.
11.The Director General, ESIC,
ESIC Regional Office,
Rajendra Bhawan, Rajendra Place, New Delhi-8.
12. The Manager,
Hongkong & Shanghai Banking
Corporation,
52-60, Mahatma Gandhi Road,
Mumbai-1.
F.M. IBRAHIM KALIFULLA, J.
AND
N. KIRUBAKARAN, J.
js
W.P.No.17126 of 2010
and
M.P.No.1 of 2010
22.10.2010