Sunil Ambwani, J.
1. On a recommendation of Board for Industrial & Financial Reconstruction (B.I.F.R.) vide its order dated 14.2.1990, M/s. Cawnpore Chemical Works (P.) Ltd. (hereinafter called as respondent company) and upon dismissal of appeal preferred by respondent company before the appellate authority on 8.2.1991, the respondent company was wound up, by an order of this Court dated 2.5.1991, and Official Liquidator was appointed as liquidator for conducting winding up proceedings.
2. A Writ Petition No. 9441 of 19.91 was filed by respondent company challenging the orders of B.I.F.R. and A.A.I.F.R. By an interim order dated 3.9.1991, the operation of appellate order was stayed. Subsequently, by another ex parte order dated 3.2.1994, the order dated 14.2.1990 passed by B.I.F.R. was also stayed. An application (A-17) was filed on behalf of the company in Misc. Company Application No. 1 of 1991 praying that winding up order dated 2.5.1991 be kept in abeyance on account of the stay orders passed in the above writ petition. After hearing learned counsel for respondent company and official liquidator, this Court vide its order dated 2.11.1994 directed that the winding up order dated 2.5.1991 shall remain in abeyance till further orders of this Court.
3. On 16.7.1992, the respondent company entered into an agreement with a society named as Uttar Railway Sahkari Avas Samiti, Kanpur for selling 51,730 sq. mts. of land situate in the factory premises of 84/63, Anwarganj, Kanpur for a sum of Rs. 5 crores, out of which, Rs. 27.98 lakhs had been received as advance payment. The respondent company had disposed of scraps, machineries, raw materials and chemicals stored in the factory premises at Kanpur and had utilized the said amount for clearing a substantial part of the liabilities of company. After counter-affidavit (A-22) was filed by Official Liquidator, this Court by order dated 2.11.1994 directed the company not to sell any other movable and immovable properties of the company situate at Kanpur till further orders of the Court. The respondent company was required to give details of the name of the parties. It appears that some sale deeds were executed without seeking permission and approval of the Court and the possession was given on which proceedings for disobeying the orders of this Court were initiated in which by an order dated 11.7.1996, this Court found the Directors of the company to be guilty, but accepting their apology, took lenient view and imposed Rs. 500 as fine. Thereafter by an order dated 30.5.1997, application A-24 was allowed permitting respondent company to sell the land, as aforesaid and after the execution of the sale deeds, the entire sale consideration be deposited with the Official Liquidator and disbursement be made to creditors with the consent of Court. These conditions modified the order dated 30.5.1997. Upto 30.8.1997, 16185 sq. yds. were sold and an amount of Rs. 1,25,35,000.00 was deposited with Official Liquidator.
4. United Commercial Bank, a secured creditor, settled its dues with the company vide letter dated 4.11.1999 for Rs. 35 'crores. On Application No. 80777 of 1999, a direction was issued to Official Liquidator on 24.11.1999 to release and disburse the sum of Rs. 1,25,35,000.00 to UCO Bank and the balance amount was required to be paid by the directors of Company from their own resources. It is submitted that the entire amount, as settled towards full and final payment, was paid to UCO Bank within time. UCO Bank is, however, not satisfied and claimed Rs. 23,32,424.00 towards the interest earned on the deposit with the Official Liquidator and thus it moved an application A-50 demanding the aforesaid amount over and above the amount paid to them. The application was rejected on 6.1.2000 against which a special appeal had been filed by UCO Bank, which is said to be pending before a Division Bench of this Court. The bank, however, released the properties and discharged the security and issued a certificate as contemplated by Section 138 of Companies Act, 1956.
5. Respondent company also entered into one time settlement in respect of dues payable to U.P.F.C., the other secured creditor in which U.P.F.C. agreed to receive Rs. 5,50,000.00 as full and final payment towards its dues. By an order dated 19.1.2001, time for execution of remaining sale deeds was extended upto 19.4.2001 and an amount of Rs. 4,90 lacs was directed to be paid and that on such payment, the dues of U.P.F.C. was also discharged.
6. Application A-63 was filed on behalf of respondent company with a prayer that since net worth of the company has become positive, the proceedings for winding up of the company, may be dropped and the order dated 2.5.1991 passed by this Court be recalled. Along with the application, an audited balance sheet of the company had been annexed showing the profits and loss of the company from which it can be found that the company had total liability of Rs. 80,20,389.18 whereas an amount of Rs. 2,12,62,289 is in deposit with Official Liquidator and the land measuring 3,700 sq. mtrs. of the agreed value of Rs. 1,25,46,000 is still to be sold. By an order dated 28.2.2002, the Official Liquidator pointed out that from Directors' report in terms of Section 217(2AA) of the Companies Act, 1956, filed along with the rejoinder-affidavit of Shri Satish Chand Singhal, the matter was reported that the Directors of company did not provide complete information about dues of the Company including the taxes and workman's dues and thus a direction was issued that the Directors of the company shall provide a provisional balance sheet of its accounts upto 31st March, 2002. The Official Liquidator was also directed to get accounts of the company audited through an auditor appointed by him, and to appropriate his fee from the amount in the account of the company available with him. The prayer for sale of remaining land as well as the prayer of UCO Bank for payment of interest was deferred for the next date.
7. Official Liquidator has submitted his report No. 122 of 2002 dated 26.4.2002, the contents of which are quoted as below :
'(1) That the abovenamedcompany has been ordered tobe wound up by the Hon'bleCourt vide its order dated2.5.1991 on therecommendations of theB.I.F.R. and the OfficialLiquidator has beenappointed as its Liquidator byvirtue of Section 449 of theCompanies Act, 1956.
(2) That in compliance of the Hon'ble Court's order dated 28.2.2002 the Official Liquidator submits that the Official Liquidator appointed M/s. Goel and Pandey, Chartered Accountants of Kanpur for Audit of Accounts of the Company and to submit the Balance-sheet and profit and loss account of the Company as at 31.3.2002 and also to confirm the amount due and payable to the unsecured creditors of the Company (in liquidation).
(3) That the Chartered Accountants have audited the accounts and submitted the Balance-sheet and profit and loss account as at 31.3.2O02. A copy of the balance-sheet and profit and loss account along with the Auditors report is annexed herewith as Annexure-I for kind perusal of the Hon'ble Court.
(4) That as per the balance-sheet, the position of the assets and liabilities is as under after adjusting of entries :
LIABILITIES
ASSETS
Secured Loans
Nil
Fixed Assets
30,33,830.81
Unsecured loans
42.42,936.81
Current assets
19,000.00
Current liabilities andprovisions
80.11.599.18
O.L.
2,36,64,839.00
Inventories
1,11,152.00
Sundry debtors
9,42,116.67
Cash and Bank Balance
41,117.47
Loans andadvances
22,53,424.14
Rs.
1,22.54,535.99
Rs.
2,70,12,660.10
Surplus of assets Rs. 1,47,58,124.11.
(5) That even if depreciation as provided in the balance-sheet is considered which is Rs. 25,36,154.14 on the fixed assets the surplus of assets over liabilities will be Rs. 11,22,21,969.97.
(6) That the Company is still having some land which is to be sold out, therefore, according to the Balance-sheet the Company is having surplus of assets over liabilities and is able to meet out its liabilities.
(7) That, the paid up capital and reserve and surplus as per balance-sheet is Rs. 1,51,92,823.72 whereas the accumulated losses of the Company are Rs. 1,94,35,760.53. However, the auditors in its notes on account of para 15 has stated that the accumulated losses standing at the debit of profit and loss account have been set off from the profits arising on the sale of company's land. Therefore, the share capital and reserve of the Company has not been written off and the net worth is not in negative.
(8) That the unsecured loans to be paid by the Official Liquidator has been verified by the Auditors from the books of account of the Company and the details of the same has been furnished on page one of the Auditors report as well as Schedule 12 of the balance-sheet which is Rs. 10,58.601.50. The unsecured creditors as shown and verified by the Auditors can be paid out of the funds available with the Official Liquidator of this Company.
(9) That the Audited Accounts, balance-sheet of the Company as at 31.3.2002 shows that the Company is now able to meet out its liabilities from the available assets of the Company.
(10) That the Hon'ble Court may consider to withdraw the wind-up order on merit and as per balance-sheet of the Company submitted as at 31.3.2002 by the Chartered Accountants M/s. Goel and Pandey of Kanpur.'
8. There are unsecured loans of Rs. 42,42,936.81 and that against total liabilities of Rs. 1,22,54,535.99, the respondent company has assets, including fixed assets of Rs. 2,70,12,660.10 and there are surplus assets of Rs, 1,47,58.124.11. The accumulated losses of Rs. 1,94,35,760.53 according to the auditor's notes, have been set off from the profits arising on the sale of company's land and thus the share capital and reserve of the Company has not been written off and as such the net worth is in positive.
9. 'Sick Industrial Company', as defined under Section 3(o) of Sick Industrial Companies (Special Provisions) Act, 1985, means an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth. 'Net worth' is also defined under Section 3(ga) as the sum total of the paid up capital and free reserves. The Explanation appended to this definition explains 'free reserves' for the purpose of this clause to mean all reserves credited out of the profits and share premium account but does not include reserves credited out of re-evaluation of assets, write back of depreciation provisions and amalgamation.
10. Under Section 20 of the Act, the Board, after making inquiry under Section 16 and after consideration of all the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time, while meeting all its financial obligations, and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up. It may record and forward its opinion to the concerned High Court. While affirming a judgment of Tamilnadu High Court, which had upheld the vires of Section 20(2) of the Act, the Supreme Court in V. R. Ramraju's decision, (1997) 89 Comp Cos 600, agreed with the reasoning and conclusion of the Madras High Court in J. M. Malhotra v. Union of India and V. R. Ramaraju v. Union of India', (1997) 3 Comp LJ 222 (Mad) that the said provision did not take away the power of the High Court in examining the correctness of the opinion of the Board as to winding up of the sick industrial company and instead of accepting the normal connotation of the. term 'shall' in the mandatory sense of making it scheme and aims and objects of the 1985 Act read down the provision in the context of further expression used therein 'may'.
11. In Crescent Iron and Steel Corporation Ltd. v. Union of India and Anr., (1992) 4 SCC 680, B.I.F.R. passed an order on February 15, 1991, proposing the winding up of appellant company. On May 16, 1991, the appellant company passed a special resolution at a general meeting of the share-holders resolving that the order of B.I.F.R. Is not in the interest of the company and requested to revoke its order. The application was rejected on the ground that it was not possible to adopt any measures for revival of the company. In appeal, the appellate authority for Industrial and Financial Reconstruction upheld the order of B.I.F.R. It was contended before the Supreme Court that during the pendency of reference before B.I.F.R., the shares of the appellant company held by Voltas Limited, were transferred in favour of the present shareholders after obtaining approval of the concerned authorities. The new management had settled liabilities of all the creditors, workers' dues, as well as Government dues, by arranging funds of their own. The dues of bank had also been settled to their satisfaction and bank guarantee was given to the bank for remaining amount. All the workers of the foundry had also voluntarily resigned and have been paid their dues, except for two workers whose whereabouts could not be traced. The final settlement of the dues of the workers was done with a view to shifting the location of the industrial undertaking outside the metropolis of Bombay and that the State Government had taken a view that no permission for closure under Section 25(o) of the Industrial Disputes Act, 1947, would be necessary, and thus it was not necessary to wind-up the company. On the aforesaid facts and circumstances, the Supreme Court held that the B.I.F.R. and A.A.I.F.R. were authorised to take into consideration the facts and circumstances of each case and then to decide whether any reference under Section 15(1) of the Sick Industrial Company (Special Provisions) Act, 1985, was at all necessary or not and to pass any other appropriate order meeting the ends of justice in each case. The matter was thus remanded to the B.I.F.R. for passing a fresh order in accordance with law.
12. Following the aforesaid judgment, M. P. High Court in B.I.F.R. v. Gwalior Synthetics Put. Ltd.. (1998) 91 Comp Cos 515, held that even after a winding up opinion under Section 20(1) was forwarded to the High Court, if the financial condition of the company Improved by virtue of satisfying 'some of the major creditors, the Board should reconsider the matter.
13. In the present case, with the sale of non-productive assets of company and settlement of dues with U.P.F.C. the net worth of the company has become positive. The assets, including paid up capital and free reserve without their revaluation or reducing by depreciation, are more than its total liability. It is submitted that taking into account the aforesaid subsequent developments, the opinion of B.I.F.R. requires reconsideration and that, instead of sending the matter back to the B.I.F.R., the Court may examine the viability of the company to become a profit earning industrial company within a reasonable time.
14. In Official Liquidator, High Court, Bombay v. Chase Bright Steel Limited, B.I.F.R. Case No. 38 of 1987, vide order dated 1st November, 2001, Bombay High Court considered the opinion of B.I.F.R. In almost similar circumstances. In the said case, respondent company had settled dues with Allahabad Bank, the only secured creditor and had expressed its expectation from the creditors in case of re-commencement of business activities, the company would get cash flow from the normal A.W.C. 127 business activities, which would further enable the company to repay the agreed amount to creditors, and that after recording a finding that the company has potential of rehabilitation and it could be revived, it cannot be said that it has lost its substratum. The Court did not accept the opinion of B.I.F.R. and dismissed the petition.
15. In the present case, with the sale of unproductive assets with the permission of Court and depositing a part of sale consideration with Official liquidator, repayment made to the Bank and U.P.F.C. under one time settlements, the liability of secured creditor has been taken care off. The net worth of the company has become positive and thus taking into account these subsequent developments, the opinion of B.I.F.R. cannot be confirmed. The object of Sick Industrial Companies (Special Provisions) Act, 1985, is to timely detect industrial sickness, as well as preventive, ameliorative and other measures with respect thereto as also expeditious enforcement thereof. Section 15(1) of the Act provides for a reference by Board of Directors of the Company, which had become sick industrial company, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year and Sub-section (2) provides for a reference by Central Government or Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank, if it has sufficient reasons to believe that any industrial company has become, for the purpose of this Act, a sick industrial company for determination of measures which may be adopted with respect to such company. Without going into the causes of sickness of respondent-company and merits of opinion of the B.I.F.R, recorded in the circumstances which existed at the time of making reference as well as at the time of making opinion for winding up, the Court finds that taking into account the subsequent developments, in which the winding up order of the company was kept in abeyance and measures were taken for payment of debts, with the permission of the Court, winding up of the company no longer is in the interest of shareholders, creditors or in public interest, and that it is just and equitable that reference may not be accepted and the company petition be disposed off.
16. In the facts and circumstances of the case as well as for the reasons stated above, the company petition is disposed off with following directions :'
(1) The Official Liquidator shall retain a sum of Rs. 23,32,424 claimed by UCO bank towards interest, for which its application was rejected by order dated 6th January, 2002 ; against which a special appeal is pending ; the amount shall be kept in fixed deposit in a interest bearing account for six months at a time to abide by decision of special appeal.
(2) The amount in deposit with . Official Liquidator after deducting Rs. 23,32,424 as above, shall be returned to respondent company, after obtaining receipt, after accounting for and deducting valid expenses incurred by Official Liquidator, in relation to respondent company.
(3) The decision of this company application shall not affect the rights of unsecured creditors, workmen. State Government and others to recover their dues from respondent company in accordance with law, as well as the right of respondent company to raise legal and valid defence against them.
17. For the aforesaid reasons, the writ petition is also disposed off with the reasons and directions given as above. There shall be no order as to costs.