JUDGMENT
Dalveer Bhandari, J.
(1) This writ petition has been filed against the order dated 30th April, 1996, passed by the Appellate Authority for Industrial and Financial Reconstruction, (for Short AAIFR) confirming the order dated 22nd/29th December, 1995 passed by the Board of Industrial and Financial Reconstruction sanctioning a rehabilitation scheme for revival of M/s Stallion Shox Limited, for short, S.S.L. with some modification.
(2) The Appellate Authority for Industrial and Financial Reconstruction, by its impugned order dated 16.4.96 disposed of Appeal no.23/96 filed by M/s Stallion Shox Ltd. and three others against the said orders of the brif in case No-9/94. The AAIFR also disposed of Appeal no.24/96, filed by the Punjab National Bank, and Appeal No.54/96 by the S.S.L. and two others against the order of the brif in the same case No.9/94.
(3) The Stallion Shox Ltd., was promoted by Mr. Ajit Sarin of Sarin International Private Limited and their associates in technical collaboration with Monroe Auto Equipment company (Monroe), a leading manufacturer of shock absorbers in the U.S.A.
(4) The financial condition of the said company deteriorated very rapidly. The said company did not pay large amounts to the Provident Fund Commissioner collected from the workers. The said company did not pay even insurance premium collected from the workers. On account of the continued unsatisfactory performance and crumbling financial conditions of the Stallion Shox Ltd., the institutions and banks took in principle a decision to recall their term loans/working capital assistance in the month of January, 1993. Consequently recall notices were sent and suits were filed for the sale of assets in March, 1993. The company thereafter approached the Bombay High Court and contended that the Ssl was a sick company under the purview of Section 15 of the Board of Financial and Industrial Reconstruction, and represented that the order appointing the receiver be quashed. The High Court did not rescind its earlier order, but stayed the sale of assets by the receiver. The existing promoter (Mr. Ajit Sarin and Associates) submitted a proposal for revival of the company entailing a ‘One Time Settlement’ of institutional-and bank dues. The proposal of other promoters were also discussed in the meet- 382 ing of September 22, 1994. ‘The banks and institutions agreed in principle to the proposal, subject to the confirmation from their respective managements. However, Mr. AJit Sarin requested the institutions/banks to put his ‘One Time Settlement’ proposal on hold, in view of Monroe (the collaborators of Ssl and a division of Tenneco Automotive, USA) expressing interest in taking over the unit. The number of opportunities were given to the existing promoter but no viable proposal was placed by the existing promoter. Ultimately the brif in its meeting held on 6.2.1995 appointed the Icici as operating agency. The Icici was directed to advertise and invite bids to take over/change in management. The operating agency received two bids: i) A joint venture of Tenneco Automotive -of U.S.A. and Hydraulics Limited, (Tenneco-HL); ii) The Gabriel India Limited (for short G.I.L.) both of which, inter-alia, proposed a one time settlement with the institutions and banks. The two bids were discussed in the joint meeting held on July 28, 1995 where the institutions and banks felt that while both bidders are equally strong in terms of capability to revive the Ssl, the Gabriel bid is better on account of higher Npv of payments to institutions, lower sacrifices, etc. The brif in its hearing on August 25, 1995, felt that considering the material on record and the submissions made by the representatives of the bidders, banks, workers’ union and institutions, the proposal submitted by the Gabriel may be circulated as a draft scheme. The brif also directed that Rs.72 lacs of royalty payment be made to Monroe for which the Gabriel was seeking a waiver, because there was no agreement with Monroe to waive this royalty.
(5) It may be pertinent to mention that despite number of opportunities, the existing promoters had expressed their inability to put any funds upfront in a no lien account. They had also deducted the funds from one time settlement obtained through companies outside India, however, the prospective sources of funds from outside were never indicated. In these circumstances, the brif had no option but to appoint an operating agency for finding out an alternate suitable promoter. The Icici was consequently appointed an operating agency. The Icici gave advertisement for getting alternate promoters. The intending bidders were given four months’ time to give their proposals for rehabilitation of the company. In order to keep the bidding within the parties serious it was stipulated that the intending bidders should give a bank guarantee of Rs. 2.5 crores as a condition for considering their offer. The existing promoter did not bid, perhaps for the reason that he could not arrange the said amount of Rs. 2.5 crores.
(6) The President of Stallion Shramic Sangh ( Workers’ Union) explained the difficulties faced by the workers on account of lock out of the company. He 383 has even gone to the extent of saying that the company has not paid a large amount to the Provident Fund Commissioner towards contribution collected from the workers. The company had also not paid any insurance premium collected from the workers. To protect the interest Of all concerned, the brif had to look for an alternate promoter for reviving or rehabilitating the said unit. The offer which has been given by the Gabriel was the best offer received by the brif. The Gabriel India Limited, had agreed to pay the amount of Rs-26.95 crores to defray the liability of all the creditors/ statutory dues/workers dues, etc. The Gil also agreed to make capital investment of Rs.9 crores to revive the SSL. Therefore, the total investment of the Gil would be to the tune of Rs. 35.95 crores. In contrast to this, the existing promoter could not even arrange to get a bank guarantee of Rs.2.5 crores as a condition for considering his offer. The brif has passed this order after hearing all the concerned parties. Therefore, this is not the case where the appellant had offered higher amount to revive and rehabilitate the Ssl in comparison to the GIL. This is also not the case that any other promoter had given higher or better offer, than the GIL. The offer given by the Gil was the best available offer and the brif was justified in accepting the same.
(7) The order passed by the brif was challenged before the Appellant Authority of Industrial and Financial Reconstruction (AAIFR). The Aaifr also heard the counsel and the representative of all the parties at length. The Aaifr disposed of these appeals by modifying the order passed by the brif on 22.12.1995 and 26.3.1996, sanctioning the same.
(8) The learned counsel for the petitioner has reiterated the arguments which were advanced before the Aaifr, that the brif had no jurisdiction to proceed under the provisions of the Sick Industrial Companies (Special Provision) Act, 1985 with regard to the Ssl, because the Ssl ceased to be a sick industrial company under the provisions of the Sick Industrial companies (Special Provisions) Act, 1985 (hereinafter referred to as the said act).
(9) Mr. Ajit Sarin, Managing Director of the Ssl had stated before the brif on 27.4.1994 that the industrial unit, was closed since October, 1992 due to lock out. The Ssl had a strength of 370 workers prior to the lockout. It was also submitted by the learned counsel, for the petitioner that the number of workers as on date is only seven. Therefore, it ceased to be an industrial undertaking within the meaning of section 3(l)(f) of the said Act read with Section 3(c) of industries (Development & Regulation) Act, 1951. This argument was rejected by the Appellate Authority for Industrial and Financial Reconstruction in its order dated 30th April, 1996 on the ground that at the time of making the reference, if the number of workers were 50 or more, the reference cannot be subsequently struck off on the ground that the industrial undertaking is closed and the number of workers engaged in ‘manufacturing’ has been reduced to less than 50. The right of workers’ wages continue and their dues have to be settled either by negotiations, or revival or by winding up of the company. The Aaifr was quite justified in rejecting the arguments of the appellant because otherwise the whole purpose of enacting the Act would be defeated. The Aaifr was also quite justified in arriving at a conclusion that the existing promoter lacks financial capability, and competence of rehabilitating or reviving the said unit.
(10) The petitioner submitted that the scheme as approved, is bad in law because dues of some unsecured creditors have been waived wholly or partially without their consent. The shareholding of the existing shareholders has been written down by 90 per cent and their shares have been compulsorily transferred to the Gil at 10% of their face value. These creditors and shareholders have been deprived of their property without their consent and without fair compensation.
(11) In the case of a Sick Industrial Company where the accumulated losses are more than the net worth, the unsecured creditors and shareholders ordinarily do not get anything in the event of winding up. The question of compensation for deprivation of property could only arise if there is any real property. In these circumstances, the shareholders and creditors can be assumed to have no property in respect of the investment or dues from a sick industrial company whose accumulated losses are more than the net worth.
(12) In the instant case a draft scheme was circulated to all parties and a gist was published in newspapers inviting objections and suggestions from all the parties and every one was given sufficient opportunity to file objections and suggestions which were duly considered by the brif before sanctioning the scheme.
(13) The petitioner also challenged that part of the scheme by which the unsecured loan of existing promoters were totally written off and the unsecured loan of M/s Monroe Auto Equipment Ltd. to the extent of 72 lacs have been provided for on the ground that they have not consented to waive the dues. The dues of Sundry creditors have also been settled at Rs.94 lacs. It was submitted that there has been unequal treatment to persons equally placed. The brif has provided justification i’or making provision for Rs.72 lacs for Monroe Auto Equipment Limited because it would not be appropriate to public policy to give an impression to foreign technical suppliers that their legitimate dues on account of supplies made shall not be paid because of our administrative and judicial processes. The full payment of this amount of royalty was accepted in this scheme so that wave of confidence amongst foreign technical collaboration be sustained. This submission was accepted by the AAIFR. We do not see any serious lacuna or infirmity in this approach.
(14) We have also carefully considered submissions advanced by the learned counsel for the parties and the basis on which the scheme has been sanctioned by the brif. According to our view the approach adopted by the Aaifr of approving the scheme with some modifications cannot be said to be unreasonable or contrary to the settled principles of law.
(15) The brif while sanctioning the scheme has .considered various factors and possibilities. The scheme was approved with certain modifications after hearing all concerned parties and has received the approval of the Aaifr in following terms. “a) The existing shareholders shall have an option to hold YOUR transfer to the new promoter (GIL). Their shareholding is reduced under the sanctioned scheme. The new promoter (GIL) shall send a suitably devised option form to all the existing shareholders for exercising their option within a specified.time to be determined by the brif. b) The new promoter (GIL) shall pay simple interest (c) 15 per cent from 1.4.1995 to 29.3.1996 on the amount of Rs.23.23 crores (the negotiated amount of Ots in respect of the dues of financial institutions and banks as on 31.3.1995). This amount of interest shall be paid by the Gil as per the agreed schedule of payment to be incorporated by brif in the sanctioned scheme. This amount shall be distributed amongst the financial institutions and banks in proportion to their Ots amount as 31.3.1995. c) The sales tax dues of the Government of U.P. to the extent of Rs.32 lakhs shall be paid by the new promoter (GIL) by 31.5.1996 (without any interest) failing which it shall be competent for the State Government to recover this amount along with the interest from the S.S.L. d) The amounts referred to in (b) and (c) above shall be added to the cost of the scheme and shall be brought in by the new promoter (GIL) as additional interest from unsecured loan.”
(16) We have heard the learned counsel for the parties at length. We have carefully gone through the scheme as sanctioned by the brif and later modified by the AAIFR. We are clearly of the opinion that the brif was justified in inviting new promoter to revive or rehabilitate the sick company. We are also of the opinion that the brif had made all serious efforts of reviving the said company (the S.S.L.). The brif has also appointed the iIcici as the operating agency and directed the said agency to give vide publicity in newspapers and thereafter accepted the best available offer after hearing all concerned parties before sanctioning the scheme with certain modifications.
(17) Looking to the totality of the facts and circumstances of this case, we do not find any merit in the writ petition. The writ petition is devoid of any merit and is accordingly dismissed. In the facts and circumstances of this case, parties are directed to bear their own costs.