1. This appeal filed by S and S Industries and Enterprises Ltd. (hereinafter referred to as the appellant company) is directed against the order of the Board for Industrial and Financial Reconstruction (hereinafter referred to as the BIFR) dated 17-1-2006 whereby the BIFR rejected the reference of the appellant company on the ground that the appellant company was not an industrial company within the meaning of section 3(1)(e) read with section 3(1)(f) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as SICA) and the company, therefore, does not fall under the definition of the âsick industrial company in terms of section 3(1)(o) of SICA.
2. Briefly, facts of the case are that the appellant company was incorporated in the State of Tamil Nadu on 12-10-1990 and was engaged in the manufacture of edible oil refining, oil seed processing, shrimp farming, etc. The appellant company commenced commercial production on 5-9-1991 and, on account of technical problems, financial problems; shortage of raw materials, etc., the appellant company became sick. The appellant company filed a reference under section 15(1) of SICA based on its audited balance sheet (ABS) as on 31-3-1999. As per its ABS, as on 31-3-1999, its net worth of Rs. 2,838.71 lakhs was completely eroded on account of its accumulated losses of Rs. 9,951.50 lakhs. The appellant company had filed the reference on 16-7-1999 based on its provisional accounts which was rejected by the Secretary of BIFR on 10-8-1999. Subsequently, the appellant company got its accounts for the year ending 31-3-1999 audited and the board of directors (BoD) of the company formed the opinion that the company has become sick in terms of section 3(1)(o) of SICA and, accordingly, filed the reference before BIFR on 14-11-2000. Thereafter, the BIFR considering the reference filed by the appellant company, in its hearing held on 17-1-2006, passed the impugned order: Hence, this appeal.
3. The learned counsel for the appellant contended as follows :
(a) The BIFR erred in proceeding on the premise that no manufacturing activity was being carried on in any of the industrial undertakings of the company as the factories of the appellant company had been closed since the year 2000. Therefore, since the industrial undertakings of the company remained closed for more than 12 months, it did not fit into the definition of âfactory as given under the Industries (Development and Regulation) Act, 1951 (hereinafter referred to as the IDR Act). The learned counsel for the appellant pointed out that the appellant company is also maintaining the factory license in its own name which has been renewed from time to time and the appellant company was continuing to carry on manufacturing activity and earned revenues from edible oil and mineral water business till 2002;
(b) The BIFR erred in holding that in view of the factory remaining closed for more than one year, it was not inclined to accept that the company had been maintaining 50 or more workers and that the closure of the appellant company was temporary, and, therefore, it could not be said that the appellant company is a sick industrial company within the meaning of section 3(1)(e) read with section 3(1)(f) of SICA. The learned counsel for the appellant pointed out that, undisputedly, the appellant company had more than 50 workers in its rolls prior to its closure and the fact that subsequently, the number of workers had been reduced on account of temporary closures would not affect the character of the company as an industrial company.
4. The learned counsel for Oriental Bank of Commerce, respondent No. 5, Unit Trust of India, respondent No. 11, and representatives of respondents No. 7, 8, 24, Canara Bank and First Leasing Company of India Limited, opposed the appeal on the ground that the BIFR has rightly rejected the reference of the appellant company based on this Authority's judgment dated 31-3-1994 in Appeal No. 107 of 1994 in the case of Continental Textile Mills Ltd. It was submitted that the manufacturing activities of the appellant company was closed for more than 12 months and, as such, the appellant company no more remains an industrial company. It is further contended that in Form âA, the appellant company has itself given the status of various manufacturing units of the appellant company stating the dates on which the various units were closed. It is argued that it is not the production capacity of the appellant company which is relevant but the actual manufacturing activity going on in the factory which is relevant to decide whether there was closure or not. It is submitted that, in view of the clear admission on the part of the appellant company about the closure of its various units, the productivity capacity of the appellant company is immaterial. It has been further contended that an attempt has been made by the appellant by filing an additional affidavit along with documents to establish that some of the units of the company were functioning as on January, 2007. However, it is submitted that January, 2007, is not the relevant date for deciding whether the appellant company was an industrial company or not. It is also submitted that the additional documents filed by the appellant company along with its affidavit only show that there was no manufacturing activity in any of the units of the appellant company prior to January, 2007. Therefore, the BIFR was right in rejecting the reference of the appellant company.
5. We have considered the submissions of the parties and the material on record. In the impugned order, the BIFR has rejected the reference of the company on the following grounds :
(a) The industrial activity in the company as per Form âA was closed since the year 2000 (if not earlier) and that the company has not established that any industrial activity was going on in any of the company's factories;
(b) Since the factories of the company remained closed for more than one year, the company had not been employing 50 or more workers and as a result it did not fit into the definition of 'factory' as given under the IDR Act;
(c) The BIFR has held that the company had not stated anywhere in Form âA that its closure was temporary nor did the Factories Act, 1948, anywhere distinguishes between temporary closure and permanent closure. Accordingly, it could not be stated that the company was an industrial company within the meaning of section 3(1)(e) read with section 3(1)(f) of SICA and the appellant company, therefore, did not fall under the definition of a 'sick industrial company' in terms of section 3(1)(o) of SICA.
6. In this context, it is necessary to examine the provisions of sections 3(1)(e), 3(1)(f) and 3(1)(n) of SICA which are quoted below :
â3(1)(e) âindustrial company means company which owns one or more industrial undertakings;
3(1)(f) âindustrial undertaking means any undertaking pertaining to a scheduled industry carried on in one or more factories by any company but does not include â
(i) An ancillary industrial undertaking as defined in clause (aa) of section 3 of the Industries (Development and Regulation) Act, 1951; and
(ii) A small scale industrial undertaking as defined in clause (j) of the aforesaid section 3.
* * *
3(1)(n) âscheduled industry means any of the industries specified for the time being in Schedule I to the Industries (Development and Regulation) Act, 1951.'
6.1 Section 3(2) of SICA lays down as follows :
(a) Words and expressions used and not defined in this Act shall have the meanings, if any, respectively assigned to them in the Companies Act, 1956;
(b) Words and expressions used but not defined either in the Act or in the Companies Act, 1956, shall have the meanings, if any, respectively assigned to them in the Industries (Development and Regulation) Act, 1951.â
7. Therefore, in the context of the definition of an industrial company and industrial undertaking as occurring in section 3(1)(e) and 3(1)(f) of SICA, we need to see the definition of word âfactory as defined under section 3(c) of IDR Act. The word âfactory has been defined under the IDR Act as under :
â3(c) âfactory means any premises, including the precincts thereof, in any part of which a manufacturing process is being carried on or is ordinarily so carried on :â
(i) With the aid of power, provided that fifty or more workers are working or were working thereon on any day of the preceding twelve months; and
(ii) Without the aid of power, provided that one hundred or more workers are working or were working thereon on any day of the preceding twelve months and provided further that in no part of such premises any manufacturing process is being carried on with the aid of power.â
7.1 The Honble High Court of Delhi in the case of Kusum Ingots and Alloys v. AAIFR [2005] 7 Comp. LJ. 332 (Delhi)/[2006] 133 Comp. Cas. 394 (Delhi) while expounding the import of section 3(c) of the IDR Act held as follows :
âFrom the plain language of the definition of factory, it postulates two contingencies. A factory is a premises from where a manufacturing process is being carried on or is ordinarily so carried on. The expression of two eventualities used in the definition clause of factory postulates that manufacturing process is on in the present context or manufacturing process is being carried on. So, the subsequent part of the sentence âor is so ordinarily carried on used by the legislature envisages that even at present no manufacturing process is carried on but was ordinarily so carried on will fulfill the requirement of a âfactory. Therefore, the arguments advanced by the learned counsel for the respondents that if no manufacturing activities are on, the factory ceases to be a factory are fallacious. Entire argument of the respondents is based on the submission that manufacturing activity was not carried on. As a matter of fact, AAIFR construed these two different expressions used in the aforesaid section to mean that manufacturing process must be on, which is not the intention of the legislature and it could not have been so because if a factory or an industrial undertaking for the purposes of the Sick Industrial Companies (Special Provisions) Act, 1985, is sick, it is possible that no manufacturing activity is taking place as in the instant case before us.
20. The same intention is discernible if we carefully and harmoniously read sub-clause (i) of section 3(c) of Industries (Development and Regulation) Act, 1951. The said clause also postulates two eventualities where with the aid of power, 50 or more workers are working or were working on any day of preceding twelve months. The second eventuality contemplated by sub-clause (i) of section 3(c) of the said Act after the word âor were working thereon on any day of the preceding twelve months clearly demonstrates that there can be a factory where 50 workers were working in the past on any day of the preceding 12 months, therefore, if harmonious construction of section 3(c)(i) of the said Act is to be given then the first eventuality is that there must be manufacturing process carried on and 50 or more workers are working. In second eventuality, the manufacturing process was ordinarily carried on and 50 workers were working previously on any day of the preceding 12 months and that factory would also be a factory in terms of the said Act.â
8. It is clear from the above that by adopting a harmonious interpretation of the aforesaid statute, one is to take into consideration not only the situation where manufacturing activity is on but also the other situation where the manufacturing activity is ordinarily so carried on any day of the preceding 12 months from the relevant date. The Hon'ble Delhi High Court also pointed out that if a unit is sick, its chances of non-renovation and non-manufacturing is greater.
9. In a similar case, the Honble High Court of Mumbai in the case of Shiva Suiting Ltd. v Union of India [2003] 3 Bom. CR 593 held that whether units of a company qualify to be defined as factories as defined in 3(c)(i) of IDR Act, is to be decided with reference to the date on which the appellant company filed the reference. This means that in a unit of a company where manufacturing process is being carried on or is ordinarily so carried on with the aid of power provided 50 or more workers are working or were working there in any day preceding 12 months of the date of filing of the reference, it would qualify to be a âfactory as defined under section 3(c) (i) of IDR Act. In this context, the Honble High Court of Mumbai in the aforesaid case cited supra, held as follows :
âThe question therefore has to be seen whether on the date the reference was made on 11 September, 1995, the first petitioner company was sick industrial company within the meaning of section 3(1)(o) or not. The 'sick industrial company' is defined under clause (o) which means an industrial company, being the company registered for not less than five years and which has at the end of any financial year accumulated losses equal to or exceeding its entire worth. âIndustrial company means a company which owns one or more industrial undertakings and âindustrial undertakings means any undertaking pertaining to a scheduled industry carried on in one or more factories by any company. âFactory is defined under the Industries (Development and Regulation) Act, 1951 which inter alia means where manufacturing process is carried on with the aid of power provided fifty or more workers are working or were working thereon on any day proceeding of twelve months. It is not in dispute before us that after 31 March, 1993 the factory was closed and that no payment was made towards salary or wages of any of the employees. It would be thus seen that for the period preceding twelve months from 11 September, 1995 in the first petitioner company no workers were working much less fifty or more workers. In this view of the matter, the first petitioner company cannot be held to be a sick industrial company within the meaning of section 3(1)(o) of SICA.â
10. This authority also in Krimpex Synthetics Ltd. v. BIFR [1996] 4 Comp. LJ 7 (AAIFR) in Appeal Nos. 148/95, 28/96, 29/96, 74/96 and 80/96 has held that there are three ingredients in the definition of a sick industrial company under section 3(1)(o) of SICA :
(a) It should be an industrial company;
(b) It should be a company registered for not less than five years under the provisions of the Companies Act, 1956; and
(c) Its accumulated losses should be equal to or exceed its entire net worth at the end of any financial year.
10.1 In respect of (a) above, this authority in the Krimpex case [1996] 4 Comp. LJ/(AAIFR), cited supra, held as follows :
â15. (a) It should be an industrial company. There is no requirement of any particular period for its status as an industrial company but it should have the status of an industrial company in any financial year at the end of which its accumulated losses are equal to or exceed its entire net worth. It should also fulfill the definition of 'industrial company' at the time of making a reference under section 15(1) of SICA as well as at the time when a decision is being taken by BIFR as to whether it falls within the definition of âsick industrial company under section 3 (1) (o) of SICA.â
11. The above decision of this Authority clearly lays down that not only the company should have the status of an industrial company in any financial year at the end of which its accumulated losses are equal to or exceed its entire net worth, but it should also fall within the definition of an industrial company at the time of making the reference as well as at the time when a decision is being taken by the BIFR regarding its sickness. In the light of the above judgments of the Honble High Court of Mumbai and this Authority, it is to be seen in the instant case whether the appellant company had the status of an industrial company on 31-3-1999 when its accumulated losses exceeded its entire net worth and on 14-11-2000 when it filed its reference under section 15(1) of SICA as well as at the time when the BIFR passed the impugned order after considering the question of sickness of the appellant company.
12. It is an admitted fact that the appellant company had filed the reference on 16-7-1999 based on its provisional accounts which was rejected by the Secretary of BIFR on 10-8-1999. Subsequently, the appellant company got the accounts audited and based on its audited accounts of 31-3-1999, it filed its reference under section 15(1) of SICA on 14-11-2000. It is clear from the above that based on the audited balance sheet (ABS) as on 31-3-1999, the board of directors (BoD) of the company formed its opinion that the company has become sick in terms of proviso to section 15(1) of SICA. Therefore, it is to be seen whether 50 or more workers were working in the factories of the appellant company 12 months preceding 31-3-1999 and 14-11-2000.
12.1 The appellant company in Form âA has indicated that it has the following units :
(a) Shrimp Farm at Sirkali Taluk, Tamil Nadu (Period of closure : 1-10-1997 to date)
(b) Shrimp hatchery at Sirkali Taluk, TN (period of closure: 1-10-1997 to date)
(c) Edible oil refinery at Arcot Taluk, TN (period of closure : 1-11-1999 to date)
(d) Oil Seed Processing Unit at Arcot Taluk, TN (period of closure : 1-11-1999 to date)
(e) Mineral Water Bottling Unit, Arcot Taluk, TN (period of closure : 1-8-1998 to date)
(f) Mineral Water Bottling Unit at Vikroli, Maharashtra (period of closure : 1-8-1998 to date)
(g) Minister Water Bottling unit at Toli Chowki, AP (period of closure : 1-8-1998 to date)
12.2 The appellant company has also indicated in Form âA the dates of closure of its units as indicated above.
13. The appellant company in column No. 10 of Form âA has indicated that it had employed 100 employees in its factories on any day during the twelve months preceding 31-3-1999 in which the accumulated losses of the appellant company exceeded its net worth. However, the appellant company has failed to indicate the number of workers working in each of the units. To fall within the definition of a 'factory' under section 3(c) of the IDR Act, the appellant company had to adduce evidence to prove that each of the units of the company are employing or were employing 50 or more workers twelve months preceding 31-3-1999. In La Mansion Granites Ltd. Appeal No. 104 of 1999, this Authority has held that as none of the three units of the company, i.e., La Mansion Granites Ltd., has 50 or more workers, none of them constitutes a âfactory as defined under section 3(c) of the IDR Act. Consequently, though the company owns undertakings, these undertakings cannot be treated as âindustrial undertaking as defined under section 3(1)(f) of SICA.
14. In the instant case, in the absence of the break-up of the workers who are working or were working in each of the seven units of the appellant company 12 months preceding 31-3-1999, it cannot be established that any of these units would constitute a âfactory as defined in section 3(c) of IDR Act. Besides, the appellant company has not produced any documentary evidence, e.g., ESIC or EPF statements, etc., to establish that 50 or more works are or were working in any of these units of the company twelve months preceding 31-3-1999. Moreover, the shrimp farm and hatchery were closed on 1-10-1997. As per the settlement of the appellant company they have been closed as a result of a judgment of the Honble Supreme Court banning aquaculture activities. It is obvious from the date of closure of these two units that in none of these units, any employee was employed twelve months preceding 31-3-1999. Edible Oil refinery unit at Arcot and Oil seed processing units at Arcot are closed since 1-11-1999. Similarly, the Mineral Water bottling units at Arcot, Vikroli and Toli Chowk were closed from 1-8-1998 as per form âA submitted by the appellant company. Though the appellant company has contended that the edible oil unit was operated during the period October, 2001 to August, 2004 and then from December, 2005 to August, 2006 and then from December, 2006 till date, however, no evidence has been produced by the appellant company to show that the above units had employed the required number of workers twelve months preceding 31-3-1999 to qualify as âfactories.
15. Similarly, no evidence has been produced to prove that the required number of employees, i.e., 50 or more had been employed on any day during the 12 months preceding the date of reference on 14-11-2000 or at the time the BIFR took a decision regarding the sickness of the appellant company. As a matter of fact, it is established from the Form âA by the appellant company that no unit of the company was functioning beyond 1-11-1999. Therefore, the question of the appellant company employing the required number of employees 12 months preceding 14-11-2000, i.e., at the time of making the reference does not arise. Accordingly, as per the Honble Mumbai High Court decision in Shiva Suitings, supra, the appellant company cannot be held to be a sick industrial company within the meaning of section 3(1)(o) of SICA.
16. The appellant company has filed an additional affidavit along with documents to establish that the company was functioning in the year 2007 and had employed 57 workers in its factory. This claim of employment of 57 workers is based on the companys own certificate dated 6-3-2007 not corroborated by any independent evidence. Similarly, the appellant company has filed factory license, power license, certificate of use of boiler, etc., for the period February, 2007 which are not relevant to any of the relevant dates, i.e., 31-3-1999, 14-11-2000 and 17-1-2006. Besides, the appellant company has not filed any ABS for any of the years after year ending 31-3-2007 to show that any of its units were working from 2000 to 2007 and that any expenditure was booked on salary and wages. The additional documents filed by the appellant company would also not prove that the company was operating before January, 2007, and that the required numbers of employees were working in the units of the company 12 months preceding the relevant dates.
17. It is clear from the above that there is hardly any evidence to establish that in any of the units of the appellant company, 50 or more workers were employed on any date during the twelve months preceding 31-3-1999, i.e., last day of the financial year at the end of which the accumulated losses of the appellant company were equal to or exceeded its net worth. The appellant company has also failed to prove that any of the units of the appellant company had employed the required number of workers twelve months preceding the date of the reference, i.e., 14-11-2000, or at the time the BIFR decided as to whether the appellant company falls within the definition of a sick industrial company under section 3(1)(o) of SICA.
18. In the result, we find no illegality or infirmity in the impugned order of the BIFR. Accordingly, the appeal fails and is dismissed.
19. The Agri Development Finance Limited, Tamil Nadu, has filed MA No. 21 of 2007 praying for grant of leave to the applicant to proceed with the winding up proceedings in CP No. 185 of 2000 and civil suit in CS No. 715 of 2001. Since we have upheld the order of the BIFR rejecting the reference of the appellant company, the applicant is at liberty to proceed with the proceedings in CP No. 185 of 2000 and civil suit in CS No. 715 of 2001. MA No. 21 of 2007 is accordingly, disposed of.
20. The appellant had filed MA No. 364 of 2008 seeking permission of this Authority to approach the Honble Madras High Court for filing an application under sections 391-394 of the Companies Act, 1956 (Companies Act) for sanction of a scheme of arrangement or compromise with respect to the depositors of the sick company. The appellant has stated that the MA has been filed in terms of the liberty given to it by the Honble Madras High Court to seek the permission of this Authority. Therefore, the appellant had sought the permission of this Authority for approaching the Company Court with a scheme of arrangement on the ground that if a scheme of arrangement is approved by the Honble High Court, it will facilitate the expeditious rehabilitation of the sick company and also will be in the interest of the depositors as it will enable them to consider a proposal for uniform settlement and early payment of the dues.
21. Since we have upheld the impugned order of the BIFR rejecting the reference of the appellant company, we are of the view that no purpose will be served if permission is granted to the appellant company to approach the Company Court for a scheme of arrangement under section 391-394 of the Companies Act. Even otherwise, in a similar case of Shivam Rosins (P.) Ltd., by our order dated 10-12-2008 on MA No. 176 of 2008 in Appeal No. 32 of 2006, we had refused permission in that case to the applicant to approach Honble High Court of Punjab and Haryana for formulation and sanction of a scheme of arrangement under sections 391-394 of Companies Act for reasons contained therein, relying upon the judgment of the Honble Supreme Court in NGEF v. Chandra Developers (P.) Ltd. [2004] 4 Comp. LJ. 556 (SC) and judgment of the Honble Mumbai High Court in Ashok Organics Industries Ltd. v. Asset Reconstruction Co. (India) Ltd. [2008] 3 Comp. LJ. 61 (Bom.) (Company Petition No. 108 of 2006) and Precision Fasteners Ltd. v. Asset Reconstruction Company (India) Ltd. [2008] 3 Comp. LJ. 61 (Bom.) (Company Petition No. 468 of 2006).
22. MA No. 364/08 is accordingly, disposed of.