T.S. Sivagnanam, J.@mdashBy consent, the main writ petition itself is taken up for final disposal. The prayer in the writ petition is for issue of a writ of mandamus to direct the respondents to implement the order of the BIFR dated January 22, 2007, in paragraphs 10(i), (ii), (iii) of the sanctioned scheme as well as the proceedings dated February 16, 2009, in paragraph 12(c) and the clarification dated April 2, 2009.
2. The petitioner was declared a sick industrial company by the BIFR under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the Act"). A scheme for rehabilitation of the petitioner was sanctioned by the BIFR on January 22, 2007. For the purpose of the present dispute, Clause No. 10 of the scheme would be relevant which is as follows:
10. Special terms and conditions
(i) The existing equity capital of the company is to be reduced by 50 per cent, by reducing the face value of the shares from Rs. 10 to Rs. 5 in terms of Section 18(2)(f) of the SICA without the requirement of following the provisions of Sections 100 - 103 of the Companies Act, 1956 and without following any other SEBI or other guidelines in this regard.
(ii) After the reduction of equity capital as mentioned above, unsecured loan of Rs. 200 lakhs and further amount of Rs. 600 lakhs inducted by the promoters and interest dues of Rs. 50 lakhs to IDBI will be converted into equity. For this purpose, exemption shall be granted from the provisions of Sections 81(1A), 295, 372A and other applicable provisions of the Companies Act, 1956, the SEBI Guidelines for preferential allotment of shares and from the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, the SEBI (Disclosure and Investor Protection) Guidelines, 2000, the SEBI (Central Listing Authority) Regulations, 2003 and ceiling on promoters holding.
(iii) The SEBI and stock exchange (s) on which the shares are listed shall revoke the suspension of trading of the equity shares forthwith and list the reduced shares as well as the shares allotted in terms of the sanctioned scheme without any cost or charges and the company shall be exempted from the provisions of the Companies Act, the SEBI Guidelines and the listing requirements. Listing fee and other arrears payable to stock exchanged) where shares of the company are listed shall be waived fully till the date of sanction of the scheme.
3. Subsequently, a corrigendum was issued by the BIFR on April 2, 2009, by replacing a clause in the earlier scheme to the following effect:
2. The paragraph 12(f) of the said SOP is deleted and replaced to read as under:
(f) As the sanctioned scheme has been substantially implemented, and the net worth of the company has turned positive, the Board discharges the company from the purview of the SICA and the BIFR, and the Board also issues the following further directions:
(i) The IDBI would stand relieved from its responsibility as the MA to the Board.
(ii) The un-implemented provisions of the SS-07, as may be there, would be implemented by the concerned agencies, and their implementation would be monitored by the company.
(iii) All the reliefs and concessions in terms of SS-07, as modified by the Board''s order dated May 11, 2007, will be in force till the end of revival period up to June, 2011.
(iv) The ''special director'', appointed by the BIFR, on the company''s board of directors (BoD) would stand discharged with immediate effect.
(v) The company would complete the necessary formalities with the concerned Registrar of Companies (RoC), as may be required.
4. The grievance of the petitioner is that in spite of the specific directions issued by the BIFR in Clause No. 10 of the scheme directing that the equity capital of the company is to be reduced by 50 per cent, by reducing the face value of the shares from Rs. 10 to Rs. 5 without following the provisions of Sections 100 - 103 of the Companies Act and without following any other SEBI or other guidelines in this regard, the respondents have failed to implement the same. Further, the BIFR has also granted exemptions of various provisions as noted in Sub-clause (2) of Clause 10 of the scheme. Further, the BIFR directed the respondents to revoke the suspension of trading of the equity shares forthwith and list the reduced shares as well as the shares allotted in terms of the sanctioned scheme without any cost or charges and the company shall be exempted from the provisions of the Companies Act, the SEBI Guidelines and the listing requirements. Therefore, it is contended that if there were specific directions, the respondents being subordinate authorities ought to have implemented the directions forthwith and in spite of notice having been issued to the respondents as they failed to implement the order of the BIFR, the petitioner is before this Court by way of the present writ petition.
5. Mr. M. Krishnappan, learned senior counsel appearing for the petitioner would contend that if the respondents are aggrieved by the direction issued by the BIFR, the remedy lies by way of an appeal to the appellate authority in terms of Section 25 of the Act. Further, in terms of Section 32, the directions issued by the BIFR under the provisions of the Act shall have an overriding effect over the other provisions and the effect of other laws and therefore, there cannot be any impediment for implementing such directions. Further, learned senior counsel would contend that the writ petition is maintainable before this Court, since part of the cause of action has arisen within its jurisdiction and by placing reliance on the decisions of the honourable Division Bench of this Court in
6. Learned senior counsel would further submit that in respect of the petitioner mill, this Court in earlier writ petitions in Writ Petitions Nos. 2868 of 2008 and 20413 of 2007 has directed the sales tax authorities and the electricity board to implement the directives of the BIFR. Learned senior counsel would further submit that the respondents being lower authorities are bound to comply with the directions of the BIFR, as it is judicial discipline for the authorities to comply with such directives. In support of the said contention, learned senior counsel placed reliance on the decision of the honourable Supreme Court in
7. Per contra, Mr. Suresh, learned Counsel for the first respondent would contend that the reading of Section 32 of the Act reveals that the provisions of the Act and any rules or schemes shall not have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973, Urban Land (Ceiling and Regulation) Act, 1976 or in the memorandum of articles of an industrial company or in any other instrument having effect by virtue of any law other than the Act. By emphasising the words "other instrument", learned Counsel would submit that in terms of the Securities Contracts (Regulation) Act, 1956, Section 21 of such Act states that where securities are listed on the application of any person in a recognised stock exchange, such person shall comply with the conditions of the listing agreement with that stock exchange. By placing reliance on the listing agreement, more particularly, in Clause No. 36 of the same, learned Counsel would submit that the directives given by the BIFR under the scheme cannot have an overriding effect.
8. Further, learned Counsel for the first respondent would submit that the second respondent has since passed an order on May 17, 2007, by which the trading of equity shares of the petitioner has been discontinued with effect from May 18, 2007 and this order has not been questioned. Further, learned Counsel would submit that the company has since come out of the BIFR as its net worth has turned positive and the question of implementing these directions does not arise. Finally, learned Counsel placed emphasis on the letter sent by the first respondent to the Deputy Director of BIFR on February 27, 2009, wherein it had pointed out as to what are the requirements to be complied with for carrying out such directions. Further, it has been requested that all the facts may be placed before the BIFR for consideration. Therefore, learned Counsel would submit that the writ petition cannot be entertained at this stage.
9. Mr. S. Senthil Kumar, learned Counsel appearing for the second respondent would contend that the directions given by the BIFR had been issued without notice to the second respondent. By relying upon Section 19 of the Act, learned Counsel would submit that if the BIFR requires any authority to provide any financial assistance or such other relief, the draft scheme is required to be circulated to such authority within a period of 60 days for their consent. However, in the instant case, the BIFR has not even issued notice to the second respondent or to the first respondent. By relying upon the decision of the honourable Supreme Court in
10. I have heard learned Counsel for the parties and perused the materials available on record.
11. Though elaborate arguments have been advanced and the question as to whether the directives issued by the BIFR would have a binding effect on the respondents and the effect of Section 32 of the SICA, whether the BIFR is justified, in granting exemption in favour of the petitioner from the provisions of the Companies Act, the SEBI Act and the regulations, in my view these issues need not be considered at this stage of the matter for the following reasons:
Admittedly, the petitioner, an industrial company, approached the BIFR for being declared as a sick industrial company and after hearing the operative agency and the other banks as well as the Department of Income Tax, the BIFR came to a conclusion that the company could be revived and made a viable unit and for which, the authorities conducted a detailed study of their past performance, their financial position, management and share holding pattern, the technical details as well as the liabilities to sundry debtors, secured creditors, etc. Thereafter, a draft rehabilitation scheme has been prepared giving certain reliefs and concessions and in that it is seen that the Government of Tamil Nadu was directed to consider declaring the company as a relief undertaking and granting all reliefs and concessions as per the standard package of the Government, the Commercial Tax Department was directed to consider granting extension in time, reschedulement, etc. Notwithstanding, the electricity board was directed to consider granting exemption from payment of fuel surcharge/peak hour consumption charges, etc., and various other directions to other Departments to consider exemption under the provisions of the Income Tax Act, 1961, the Central Excise Act, 1944, etc. In Clause No. 10, the BIFR has issued certain directives which are to be effected and implemented by respondents Nos. 1 and 2. However, one fact to be noted is that the direction issued by the BIFR is in the nature of positive direction though in the earlier paragraphs of the same scheme, the State Government or the Income Tax authorities were only directed to consider the case of the petitioner for granting exemption. Therefore, the respondents are now aggrieved in the sense that their powers under the statute and regulations by which they are governed were being taken away by the BIFR without issuing notice to them and without affording them an opportunity of hearing.
12. One factor which is to be borne in mind is that the scheme of rehabilitation is prepared with the avowed object, to make the sick industrial companies viable units and to turn their net worth positive. In fact, it is to be noted that the BIFR in its order dated March 12, 2009, has observed that the sanctioned scheme has been substantially implemented and the net worth of the company has turned positive and the Board discharges the company from the purview of the BIFR and the SICA. Therefore, this could not have been achieved, but for the various concessions which were directed to be considered and in fact granted by the various Departments. Subsequently, the BIFR by order dated April 2, 2009, has recorded that all the reliefs and concessions in terms of a sanctioned scheme, as modified by the Board''s order dated May 11, 2007, will be in force till the end of the revival period up to June, 2011. Thus, the scheme appears to have worked well and continues to help the company to come out of its sickness.
13. Bearing all these issues in mind, yet, I am of the view that the respondents ought to have been heard by the BIFR before issuing such a positive direction. One issue which has been raised by the respondents is whether the BIFR could issue such positive direction granting exemption from the various statutory provisions under Clause 10 of the scheme. It is the submission of learned Counsel for the respondents that they are governed under the statute and the statute prescribes certain procedures and these procedures have been brought about in the interest of the trading public and to avoid various other difficult situations and ultimately, these statutes and the regulations framed, by which the respondents are guided are in public interest. Therefore, it is contended that the petitioner could not be permitted to implement the reduction of share capital without complying with the procedural formalities. In my view, this issue need not be adjudicated in the present writ petition. In view of the fact that the first respondent has now placed all the details before the BIFR by their letter dated February 27, 2009 and in that letter addressed to the Deputy Director of the BIFR, the first respondent has been requested to place all the facts before the honourable BIFR for their consideration. It appears that this letter dated February 27, 2009, has not been placed before the BIFR for its consideration. In my view, the respondents are to be heard before passing such an order. In fact, this Court in the case of Pentamedia Graphics Ltd. v. Bombay Stock Exchange [2008] 145 Comp Cas 327, referred above, while considering whether a no objection certificate from the stock exchange was mandatory, while approving a scheme of arrangement under the Companies Act and as to whether any scheme approved by the court containing a clause for listing before an exchange must necessarily comply with the mandate of securities laws, rules, regulations and guidelines, held as follows (page 344):
31. A perusal of the bye-laws of the stock exchange show that bye-laws 34 and 35 are the relevant ones containing the list of conditions. Bye-law 34 mandates the Governing Board to consider and in its discretion subject to such terms as it deems proper, approve or defer or reject any application for admission of the securities of a company to dealings on the exchange. Bye-law 35 states that the Governing Board may not grant admission to dealings on the exchange to the securities of a company unless it complies with the listing conditions and requirements prescribed in the relative regulation, namely, regulation 2, or such other conditions and requirements as the Governing Board may from time to time prescribe in addition thereto or in modification or substitution thereof in addition to the listing requirements prescribed in the Securities Contract (Regulation) Rules, 1957. Regulation 2 prescribes a check list of items to be complied with. It further shows the detailed requirement starting from the memorandum and articles of association, advertisement, listing agreement, application for securities from public, kept open for three days; at least 25 per cent, of the issued capital offered to the public to be allotted fairly and unconditionally. The listing agreement enumerates number of clauses touching on every aspect of dealing with public money by a company going in for listing. It must be noted that the stock exchanges are there as the regulatory bodies to monitor the business in the capital market. Hence, they are the authority to regulate all the matters connected with the business of the stock exchange. These stock exchanges regulate and control the business of buying and selling or dealing in securities. With a regulatory mechanism like a stock exchange, it goes without saying that compliance of the regulation for listing is a mandatory one for anyone desiring to have their shares listed....
38. The Explanation appended to Sub-clause (g) gives what are included in securities laws. In the context of Sub-clause (g), one cannot view Sub-clause (f) as a mere requirement without a purpose. If Sub-clause (g) is to have some relevance for its existence, Sub-clause (f) must necessarily be understood as to require a satisfactory compliance of Sub-clause (g), so that the authority constituted therein discloses its views on the scheme. Considering the fact that the existence of the stock exchange is a regulatory mechanism, so that the investing public interests are safeguarded, the mere compilation of financial information placed before the shareholders, per se, would not mean that matters of compromise or arrangement on the affairs of the company with select third parties like creditors would automatically enure to the protection of investing public, particularly in a case of this nature. It must be noted that any scheme of arrangement or compromise centers more on the internal affairs of the company and the projection of its image on the public rather than one keeping in forefront the interest of the investing public. Hence, given the constitution of the stock exchange and the purport of the securities laws, Sub-clause (g) contemplates that the scheme does not in any way violate the principles of the securities laws, as enumerated therein. Hence, when in compliance of Sub-clause (f), the concerned stock exchange comes forward with its objection before the court passes an order of approval, the granting of the approval necessarily involves the examination of the objection from the stock exchange, so that the public interest is protected. Where a stock exchange places its objection to any clause on listing before the court, keeping in mind the interest of parties, the court may pass an order subject to modification or on the satisfactory explanation from the petitioner, grant the scheme. It must however be kept in mind that non-participation or non-issuance of a no objection certificate prior to the approval of the scheme does not seal the jurisdiction of the stock exchange to reject the application for listing as per the scheme, if the clause is in violation of the SEBI laws, even after the approval is given. The merits or demerits of such an order passed is one to be dealt with under the remedial measures provided therefor.
43. In the face of such requirement, it must be noted that the compliance of the provisions of securities laws, the stock exchange requirements and the listing agreement is absolute if any company wishes to have the shares listed thereon. While the requirement of no objection is not a mandatory requirement for granting a scheme, at the same time, it must be noted that any scheme approved containing a clause for listing before an exchange must necessarily comply with the mandate of the securities laws, rules and regulations and guidelines made under the Acts and the listing agreement. Hence, even after the sanction of the scheme, it is open to the stock exchange to insist on compliance of its regulations as a condition for listing, and in the event of any violation thereof, reject an application. By such rejection, the scheme, per se, does not become bad or the order of this Court granting sanction violated. It must be noted that when the court grants an approval to the scheme, it is on the satisfaction that the arrangement or the compromise is not violative of the provisions of the Companies Act and is not against public interest. But where in the process of implementing the scheme as approved by the court, an authority, in exercise of its statutory power or a regulation, finds that the implementation of a clause in the scheme as approved may not be implemented for violation of the securities laws and thus, the public interest would suffer, I do not think any objection could be taken to such view taken by an authority validly constituted. When an expert body assesses various aspects as regards the requirement on listing as required under law, it is well within its jurisdiction to pass an order rejecting the plea for listing, if it is satisfied on the materials therein, such listing is in violation of the securities laws. In considering the scope of the jurisdiction of the authorities functioning under the Securities Act of this Court u/s 391, one must keep in mind the clear-cut respective jurisdiction on matters before it.
14. Therefore, compliance with the procedural formalities has been held to be mandatory. In that view of the matter without rendering any finding on the contentions raised by the respondents as regards the scope of the directions issued by the BIFR in Clause 10 of the sanctioned scheme dated January 22, 2007, there will be a direction to the BIFR to take on file the letter submitted by the first respondent dated February 27, 2009 and issue notice to the petitioner as well as respondents Nos. 1 and 2 and afford them an opportunity of hearing and thereafter, pass appropriate orders on the merits in accordance with law with regard to the directives which was issued in Clause No. 10 of the scheme dated January 22, 2007. Considering the fact that the petitioner-company is in the path of revival and the conditions of the scheme have to be kept in force till June 2011, it is appropriate for the BIFR to decide the matter at the earliest preferably within a period of three months from the date of receipt of the copy of this order. It is needless to state that when the BIFR decides the issue, the question of limitation need not be insisted.
15. Further, in order to expedite matters, the petitioner as well as the respondents are directed to forward one copy of the petition filed by the first respondent dated February 27, 2009, along with the copy of this order to the BIFR.
16. The writ petition is disposed of with the above direction. There shall be no order as to costs.
