Vijender Jain, J.
1. Aggrieved by the order passed by the AAIFR dated 17.4.2001 the petitioner has filed the present writ petition. It was contended before us that the AAIFR has not taken into consideration the Report of M/s Radbin Consultants who were appointed to conduct Techno-Economic study pursuant to the order passed by the BIFR on 23.6.2000. It was contended that the Report of M/s Radbin Consultants was relevant and would have shown that the company has become sick on account of various unavoidable circumstances beyond the control of the petitioner. It was also contended that the finding of the AAIFR that the accounts by the petitioner were doctored and manipulated was without any basis and was not on the basis of material produced before the AAIFR. It was contended by Mr. Nigum, learned counsel appearing for the petitioner that in the absence of any finding with regard to the concoction or manipulation of the account by the BIFR, the finding of the Appellate Tribunal without any further material to show to the contrary, was illegal and perverse. It was contended that the financial institutions and OA owe duty pursuant to the objectives and in consonance with the spirit of enactment of SICA to be just and fair and withholding of the Report of M/s Radbin Consultants from the AAIFR was not keeping in consonance with the object of the said Act and was detrimental to the case of petitioner. It was on the basis of M/s Radbin Consultants Report it was highlighted that the industrial sickness and the losses suffered by the petitioner was not on account of anything which was under the control of the petitioner but was on account of a general power shortage, a sagging outlook in the steel industry, lack of working capital etc., which was unequivocally highlighted in the said Report.
2. On the other hand learned counsel appearing for the Operative Agency Mr. Batra had contended that there was no relevance of M/s Radbin Consultants Report as that could not have been the basis for declaring the petitioner company as a sick company. Learned counsel for the Operative Agency contended that once the BIFR has passed an order under Section 16 declaring the company as a sick company, assessment of M/s Radbin Consultants pursuant to the power vested under Section 17 of the Act, it was not necessary that the Report of M/s Radbin Consultants for the purposes of determining industrial sickness ought to have been taken into consideration. It was contended that after the BIFR has declared the company sick pursuant to its order dated 23.6.2000 the two banks State Bank of India, respondent No.2 and Punjab National Bank, respondent No.3 preferred an appeal before the Appellate Authority i.e. AAIFR and the AAIFR has rightly passed the order setting aside the order of BIFR declaring that the company was not a sick company. Somewhat similar arguments were advanced by learned counsel appearing for the SBI, Ms. Manisha Dhir. She has also contended that once the AAIFR has come to the conclusion that the accounts were doctored and company has made efforts to get itself declared sick and the company has not come to this court with clean hands this court should not exercise its power of judicial review under Article 226 of the Constitution of India. She vehemently contended that when there is a finding of fact as returned by the AAIFR that company was not sick, there was no relevancy of taking M/s Radbin Consultants Report into consideration. She also contended that pursuant to the order passed by this Court on 5.2.2003 all the financial institutions as well as the OA has considered M/s Radbin Consultants Report and they have rejected the same. thereforee no useful purpose would be served by sending the matter back to the BIFR to take into consideration the M/s Radbin Consultants Report. In support of the submission, the learned counsel for the respondent cited M/s Bir Industrial Ltd. v. Appellate Authority for financial Reconstruction & others in WP (C)3010/2002 dated 23.10.2003 where it was observed that the principal object of SICA is to rehabilitate genuinely sick companies which become sick because of factors beyond their control and not for companies who have doctored or manipulated their account and claim sickness with ulterior motives or who have doctored sickness. It was also contended by Ms. Dhir that M/s Radbin Consultants may not have analysed various factors of the company as at some places material from Directors' Reports have been quoted. thereforee no useful purpose would be served by directing the BIFR to consider afresh M/s Radbin Consultants Report. She tried to persuade us that there is a difference between the sickness and viability. To put it more simply, she want us to lay down that once a company has been declared sick, the question of viability of its revival or rehabilitation should not be gone into. If the company is not sick then there is no question of going into viability of its reliability because the company is not sick. On similar lines Mr. Rakesh Kumar, learned counsel appearing for respondent No.3/Punjab National Bank has also contended. He also contended that in the given circumstances this court would be reluctant to interfere and set aside the order of AAIFR which is well reasoned and while exercising judicial review, the High court will not take up the question which has been indisputably determined by AAIFR. According to Mr. Kumar, learned counsel appearing for Punjab National Bank, this court would not consider the question of rehabilitation or sickness which has been determined by the Appellate Authority i.e. AAIFR.
3. We have given our careful consideration to the arguments advanced by learned counsel for the parties. Needless to say that the objective of incorporation of SICA was put in its aims and objectives which incorporates:
''The ill effect of sickness in industrial companies such as loss of production, loss of employment, loss of revenue to the Central and State Governments and locking up of funds of banks and financial institutions are of serious concern to the Government and the society at large. The concern of the Government is accentuated by the alarming increase of sickness in industrial companies. It has been recognised that in order to fully utilise the productive industrial assets, award maximum production of employment and optimize the use of funds of the banks and financial institutions it would be imperative to revive and rehabilitate the potentially viable sick industrial companies as quickly as possible.'
4. It is in this background, we at the outset at hearing of this matter had asked the parties particularly the financial institutions and the OA that in order to being just and fair and in order to draw correct inferences and to form a right opinion in consonance with the aims and objects of the Act, whether opinion of M/s Radbin Consultants Report should be considered by the BIFR. In view of the arguments advanced, respondents did not agree for such consideration. To our mind, reasons are based on narrow technical perception about the individual provisions of Act rather than the aims and objects and functions of the Act. Respondents have not agreed for consideration despite our observation to them that anything said on these aspects of the matter which has been argued before us for considerable long time, any expression of opinion by us would affect the case of either party. But the respondents want us to deliver our judgment on the various aspects which has been raised before us. In the circumstances we would like to first refer to the order of BIFR. The BIFR after holding that the petitioner company was sick, directed OA in following terms:
'OA would simultaneously and independently examine the techno-economic viability of the company by using in-house technical expertise or by engaging the services of a competent technical consultant at reasonable rates, if adequate in-house expertise is not available.'
5. Two choices were left to the OA, either to adopt in-house mechanism to have a study of techno-economic viability of the company or to engage an expert technical consultant. In this case the Operative Agency opted for the latter and appointed M/s Radbin Consultants. It will be pertinent and relevant to mention some of the findings of M/s Radbin Consultants :
'Contemporary state of affairs in steel industry:
The Indian Steel Industry has been passing through difficult, reversionary period in recent times. The period from fiscal year (FY) 1997 to FY 1999 was particularly bad as steel demand stagnated even as supplied increased, exports fell, input cost rose, and price increased due to threat of imports following the South East Asian crisis. But, since mid 1999, some initial signs of recovery are apparent with steel production increasing by 11% and exports by 25% in the first 8 months of FY 2000 over the same period of the previous year. Internationally the prices of hot rolled coils have recovered from a low of USD 180 per ton to over USD 300 per ton during this period. The outlook for the global steel industry is bullish, but it would take some time for the current surpluses to get absorbed by the increased demand. While the domestic prices remained stagnant for most part of FY 2000 they have also started recovering in the last quarter of the fiscal year. We expect the current firm trend in steel prices to continue, but at a slow pace over the next 2 to 3 years. The demand is likely to receive a boost with the recovery in the engineering, automobile and consumer durable sectors. But a lot would depend on government policy of infra structure spending.
The genesis of the current problem in the steel industry lies in the optimistic demand projections (which were based on the significant growth in the steel demand in 1980s and early 1990s) that never materialised. Especially after the delicensing of the steel industry in 1991 and capital market boom in 1992, many new private players set up new capacities. India's production of HR coils, strips and kelps grew significantly from 1.95 million tons (MT) in FY 1993 to 4.17 MT in FY 1996, making a compound annual growth rates 9CAGR) of 29%. But in the 3 years till FY 1999, it grew at a slower rate of 9% to 5.4 MT. The international prices also tumbled during the 3 years till FY 1999 even as global steel supplies outstripped demand, particularly in the aftermath of the South East Asian crisis. Thus, the global over supply of steel coupled with low demand has been the reason for severe pressure on steel prices, internationally as well as in India.
In the one year till FY 1999, the customs duty on certain items like coking and non coking coals and certain Ferro alloys went up. Besides, the prices for most of the inputs of steel like power and coal were administered, and rose remarkable. As a result, the contribution margin kept on declining. The falling operating margins were, to a limited extent, arrested by the cost cutting measures undertaken by the steel manufacturers and the anti dumping floor price imposed by the Indian Government. In addition, the interest cost and capital charges increased significantly. As a result except for TISCO which posted a modest profit in FY 1999 most of the major HR producers either slipped into or stayed in the red. The debt gearing increased the debt repayment capacity declined for majority of players both in larger and medium sized industries. The Steel Authority of India Ltd. (SAIL) registered a net loss of 13.48 billion during the first six months of FY 2000, i.e., a cumulative loss of Rs. 29.65 billion. In July 1999, ESSAR Steel defaulted on its 250 million dollar FRN obligation.
There was certain fallout of the competitive pressures faced by the Indian market players. First, the players started reducing their operating cost. The steel industry witnessed reduction and redeployment of manpower, improvement in techno-economic efficiency to reduce consumption of raw materials, closure of non-performing units nd setting up of joint ventures. Second, steel began its shift from being commodities to being a branded product. The brands of ''ESSAR 24 cart steel'', ''Salem Steel'' and ''SAIL super value steel'' were introduced as tools of aggressive marketing. The industry also focussed on the development newer products and adaptation of newer processes to meet customers' specification. During 1999, the concept of service centres came up which would supply ready to use processed steel of desired dimension to mainly automotive and consumer durable segments. Last, the industry has recognised the need to integrate itself with the end user, i.e., customer gained importance. Concept of ''built to stop'' was replaced with ''built to items'' and ''built to forecast'' which cater to item wise demand forecast and specific customer needs. A number of companies both in larger and medium sized steel industries are exploring the possibilities of routing its supply chain management and steel trade through e-commerce. This initiative should result in the Indian Steel industries getting leaner and more efficient.
Position of Steel Industry in the Indian Economy:
The steel industry is the single largest significant contributor to the revenue collected by both the central and state governments through excise and sales taxes. For instance if we look at the excise revenue collected by the governments from the industrial sectors, we see that the steel industry has consistently figured among the top 5 commodities that includes cement, iron & steel, cigarettes, motor spirit and R.D. Oil. The varying average percentage is about 8 to 9.5%.
Performance of Indian Steel Industry:
The production of crude steel increased to 12 million (Mt) in April-September, 1999, as against 11.4 Mt in the same period last year, a growth of over 5.5%. The production of crude steel in India was much above the world average of 4.31% for Asia during this six month period. While total world production increased from 382.65 Mt to 384.91 Mt, the Asian countries on the whole increased their production by 4.31%.
Steel is the basic raw material for a majority of the important economic sectors, in particular, the construction industry, the capital goods and engineering goods industry as also the auto nd white goods sectors. One of the major reasons for the industry performing badly in the last few years was that construction activity being down, where the intensity of steel consumption is high. Besides, other user sectors like automobiles, electrical, consumer durables also showed low growth rates. thereforee, demand for steel has remained low.
Due to decline in sales realisations and capacity utilisations, the gross margin for the steel industry has declined from FY 1997 to FY 1999. Besides, the increase in interest costs and depreciation due to additions in capacities in early 1990s contributed to the decline in net profit margin.
Average profitability of the steel companies - Declining Trends
FY 1997
FY 1998
FY 1999
Gross Margin
15.10%
13.50%
10.50%
Net Margin
1.90%
-1.80%
-7.90%
PAT/Total Assets
1.02%
-0.84%
-3.55%
PAT/Net-Worth
3.63%
-3.13%
-16.36%
No. of companies (for which data was available)
123
96
50
However, the situation seems to be gradually changing now, particularly after the global pick up in demand.'
6. The said Report also inter alias observed that the sale products available in India were being imported at cheaper rates by getting around the low price mechanism.
'Net Worth
The initial paid up share capital of the company in 1993 was Rs.13.16 crores which was increased to Rs.15.26 crores in 1994 to Rs.22.07 crores in 1995 & to Rs.23.71 crores during the period ended on 30.09.1996. The company's Net Worth was fully eroded during the period ended on 30.09.1996 due to heavy losses suffered. Thereafter the company inducted further capital of Rs.54 lacs approximately into the business.'
7. The said Report after considering entire gamut of the circumstances gave reasons for sickness and also gave opinion about the viability of rehabilitation. The reasons of sickness as deciphered in the report and strategy of rehabilitation are as under :-
'a) Inadequate working capital is one of major reasons of the sickness. It appeared that the company was provided only 50% of the need-based working capital by the banks affecting KIAL's projected level of operation resulting in poor plant capacity utilisation. SBI, IFB Branch, Indore which is KIAL's lead banker has appraised the working limit on 35% utilisation which append to be non-realistic in this type of industry.
b) The ever-rising cost on inputs especially power, coupled with imports of Raw Materials at cheaper rates added to further problems of the unit.
c) The company came under severe pressure due to the continued reversionary conditions in the steel industry since late 1996. Till late in the year automobile and tractor industry has also been affected by the reversionary trend affecting the sales of the company adversely. This has resulted in a huge blockage of receivables and inventories causing heavy interest burden.
d) The devaluation of INR against US dollars lead to higher cost of scrap which resulted in higher total cost of production by 60%. The same increase could not be passed on to the end users as these industries, mostly engineering/automobile industry, are also under recession.
e) KIAL installed and commissioned VD/VOD (imported from Germany) in March 1996, and initial teething problem could not be maneuvered effectively by the management of the company, due to lack of knowledge in managing technology producing hi-tech qualitative products. The unstable process initially resulted in under quality produce fetching no good price and took much time in streamlining process & quality products.
f) Since January 1994 onwards, the power situation in Madhya Pradesh had deteriorated to that extent that the industries were supplied with rationed power supply, linked by unscheduled power cut and power tripping. The intermittent power cuts resulted in production loss as well as poor quality production. As a result, the company had to restrict the manufacturing of alloy steel grades between B and C, which ultimately resulted in poor sales realisation.
g) Increase in input prices of power, ferro alloys, scrap, transportation, etc., could not be passed on to the end users by way of increasing the selling price, which affected the bottom line adversely.
h) Lack of professional management both technical and financial, which reflects in managing business' style in a continuously changing business environment, during the post implementation period.
The cumulative effect of inadequate working capital from Bank, poor power supply from MPEB, ever increasing rise of all input costs, the devaluation of INR against US Dollars resulting higher cost of scrap, coupled with continued reversionary trend in the overall steel industry & poor growth & sluggish conditions of the user industries, put the company into financial crisis. The crisis arising out of the above couldn't be tackled by KIAL's management professionally.
11.05 STRATEGY OF REHABILITATION
The rehabilitation scheme of KIAL needs to adopt a ''select and focus'' policy based on strategic analysis on various current issues related to KIAL in particular and Steel/Alloy Steel industry in general. For the purpose of viability study, KIAL has been focussed in two distinctly separate division/cost centres, as for example, Steel Melting Division (SMD) and Rolling Mill Division (RMD). These two divisions are separately housed having availability of all adequate state of the art facilities for their operations, independently.
11.06 Economic viability mainly depends on the profitability of these two divisions either independently or combined operations and we have studied the profitability of each division independently and combined, for our realistic assessment of ultimate profitability, of the unit. A study of comparative profitability of the combined divisions and independent divisions is given below:
COMBINED (MINI STEEL MILL & ROLLING MILL
2001-02
2002-03
2003-04
2004-05
Capacity Utilisation
Carbon Steel, Alloy Steel
60.00%
65.00%
70.00%
80.00%
Stainless Steel
60.00%
65.00%
70.00%
80.00%
Raw Materials
8417
9119
9820
11223
Transportation
401
467
534
534
Power
2151
2330
2509
2868
Stores
122
132
142
162
Wages & Salary
231
242
254
267
Repair & Maintenance
100
102
104
106
Cost of Production
11421
12392
13364
15160
Cost/MT (Rs.)
21150
21183
21244
21056
Net Sales
10320
11176
12033
13768
Op. Profit/(Loss)
1101
1216
1331
1392
Therefore, from the above we can infer that the average cost of producing billets (Alloy and Stainless Steel) is around Rs. 19,000/- per MT, whereas, in the market it is available at a much cheaper rate. thereforee, this yields negative contribution. The details cost structure for the above calculation is detailed in Annexure 13, 13A, 13B, 13C, 13D and 13E.
11.10 thereforee, our suggestion is that all stakeholders should form a consensus opinion for a conclusive decision of closing down the (unviable Steel Melting division) while, allowing the Rolling Mill division only to operate by way of processing alloy/stainless steel billets procured from either overseas or domestic open market at much lesser price. In the process, KIAL is left for value additions to the purchased billets in a variety of product mix while processing the billets into semi-finished steel products at different specifications of the end users, with whom KIAL had already established a business relationship.
11.11 In the above perspective, KIAL should opt to exit from production of alloy steel billets and dispose off its Steel Melting Division, which is more strategic in nature. The adaptation of the above policy, will allow the company to curtail the investment up to the limit of the disposal value, (realisable price) which has been estimated by us at Rs. 30.00 Crores (approx.) based on our physical study of the plant and machinery, which are fairly good in condition, having more than 15 years residual life. Besides, the financial aspect, our consideration and guidelines should also address the issue of rehabilitation measures, which will allow the existing promoters to remain in the company and they should be made to feel most wanted. The promoters' participation is to be sought in the scheme, where their past experiences and expertise can be put back to the gainful use for the benefit of the unit. If KIAL gets leaner, its business value will go up. The present management of KIAL will be then in a better moral position towards re-establishing trustworthiness with the financial institutions and banks in particular and other creditors in general. It can also help re-asserting the company's business value for putting the promoters back in original role.
11.12 The proceeds of the disposal of KIAL's Steel Mill will be kept in an Escrow Fund wherefrom it will be disbursed to the institutions and banks as per our proposed schedule of repayment. The KIAL management has to give them consensus to this policy & the lead Financial Institution should take initiative jointly with the promoter to make the rehabilitation package implementation successful.
11.13 Out of the total fixed assets (Plant & Machinery and electrical Installations/utilities), 60% reduction in gross block has been considered for the Steel Mill disposal. And accordingly, the sale proceeds is utilised in repayment of the principal dues of Financial Institutions and banks in proportionate to their outstanding dues. The balance of the dues is restructured and proposed to be paid off in installments in the scheme (Refer Annexure 11).
11.17 PACKAGE OF REHABILITATION
Keeping the above points in view, our rehabilitation package has been made most realistically and logistically. Under the purview of the various current issues and options as stated in the foregoing paragraphs, and having identified the reasons of sickness, a comprehensive rehabilitation plant has been designed to take care of most of the causes of sickness, and keeping in mind the future needs of the industry and the consumers.
The main features of the rehabilitation scheme contains the followings :
(1)The scheme has a consequential matter of curtailing the Capital investment by way of disposal of the steel mill, which is not a viable unit at the present juncture of Indian Steel Industry.
(2) A full and in depth Techno-Economic Viability Study and observations of our team of experts.
(3) The study is covered a complete picture of Reliefs and concessions as per RBI parameters and guidelines.
(4) The extent of interest free funds required to meet the shortfall if any, is the promoters responsibility, so as to achieve the desired DSCR at comfortable level which has been assessed and quantified.
(5) The scheme also clearly indicates the reliefs and concessions requiring from the Financial Institutions, Banks, State Govt., M.P.Electricity Board, Govt. of India, Promoters and others separately, and the same has also been quantified.
(6) The period of rehabilitation has been considered and kept in the minimal range of 6-7 years.
(7) The date of sanction of the scheme/package by BIFR would be as per guidelines and final sanction of the package by BIFR.
(8) The net worth of the company will become positive by the end of 2008.
(9) The cut off date has been considered as on 30.06.2001 for the purpose of projection.
(10) The outstanding dues of financial institution and banks are envisaged to be settled as per RBI guidelines.
(11) The scheme is proposed to be implemented within a period of 3 years.
(12) The cost of the scheme and the means of Finance as envisaged in the package of the rehabilitation scheme as on 30.6.2001.'
And finally the recommendations to the following effect :
19.1 Synopsis of Assessment
Technical
The unit is having an economically sized mini steel plant, with state of the art facilities for production of alloy & stainless steel billets.
The unit is also having well-laid rolling mill for forward integration of the alloy & stainless billets.
The Plant & Machinery as procured for the unit are from reputed suppliers, found in good condition having residual life of more than 15 years.
Discontinuance of the plant maintenance & upkeep of the plant & machinery & equipment since December 1996.
Immediate measures are to be taken for maintenance of the plant, if not, the residual life will decrease at a greater pace, affecting the realisable value.
The unit, after the setting up of the VD/VOD plant in 1995-96 came under severe financial crisis due to the continued reversionary conditions in the steel industry as a whole till late 1999.
Since 1996-97, automobile and engineering industries which are the major consumers of KIAL's steel products were also affected due to domestic and global recession, and added to the misery of KIAL, further.
Under the prevailing industrial scenario & heavy debt burden, the combined operation of the steel mill & rolling mill is not viable. As a result downsizing & having of the steel mill, is an unavoidable necessity for revisable of the scheme.
The availability of raw material and other utilities are considered to be 'No Problem areas'.
To set up a similar size of industry as a Green field project, will cost approx. Rs.120.00 Crores.
The estimated value of the existing unit is approx. Rs.80.00 Crores.
Financial
Desirable leverage and promoters contribution levels are observed to be practical and realistic.
The average DSCR for the proposed scheme at 1.52 is considered satisfactory.
The profitability parameters of the scheme are satisfactory.
The rehabilitation scheme stands the test of sensitivity.
The scheme, if implemented is likely to generate employment for around 115 workers, both direct and indirect.
In view of the foregoing paragraphs, the Rolling unit is considered both techno-economically and commercially viable. However, the whole unit including the Steel Mill and the Rolling Mill, though technically viable, is not economically and commercially viable.
8. It is a comprehensive report. We have incorporated some of the relevant aspect of the report which deals with sickness as well as rehabilitation. The question before us is whether this report which was obtained by OA pursuant to order of BIFR has any relevance and needs consideration or has to be thrown in a dustbin and has to be completely ignored to ascertain sickness and rehabilitation of the company. We are not for a moment expressing any opinion as to what should be the outcome of such consideration and what should weigh in the minds of an expert body like BIFR about this report, which had directed the Operative Agency to appoint a consultant to study techno-economic viability of the petitioner company. Whether the findings in report would stand the test of logic, reasonableness and relevance has to be considered by BIFR. If an opinion of a consultant is not even brought before the BIFR or AAIFR and OA and other secured creditors' opinion that it is not relevant, on the basis of narrow and pedantic comprehension of provisions of SICA, is not comprehensible to us nor can get our approval considering the aims and objects of the Act. Before BIFR it could not have been brought because the decision of the BIFR was delivered on 23.6.2000. The Operative Agency withheld this Report from the AAIFR although the Report was tendered by M/s Radbin Consultants on 8.1.2001 and AAIFR rendered the judgment setting aside the order of BIFR dated 17.4.2001. The respondents are not in a position to explain as to why the report was not produced before AAIFR even if it was not relevant in their opinion, for the opinion of AAIFR whether it was relevant or not. Alleged consideration of report by the respondents can not be the consideration by AAIFR and BIFR.
9. The argument raised was that there was no relevance of this Report and it was not to be brought to the notice of AAIFR because the accounts produced by petitioner were doctored and fictitious and as the petitioner has not come before this court and before the Appellate Authority with clean hands, AAIFR observation in this regard has been brought to our notice. To our mind it is also an after thought. We have perused the order passed by the BIFR. As a matter of fact, in view of the allegations of accounts being not properly maintained, sickness not being genuine M/s Ray and Ray were appointed by BIFR to go into the allegations of doctoring the accounts. M/s Ray & Ray, Chartered Accountants went into the allegations as would be evident from chapter X of their report which is reproduced :-
10.0 BANK'S ALLEGATIONS
10.1 The State Bank of India (SBI) has alleged that KIAL has adopted certain means to show losses in the 18 months ended 30.9.96. The major allegations made by the bank are dealt with as under:
10.1 SUPPRESSING SUNDRY DEBtorS
10.1.1 According to SBI Sundry debtors have been reduced from Rs. 2970 lacs (as submitted in QIS-II) to Rs. 2271 lacs as at 30.9.96 (as per audited accounts). On our review of the submission by KIAL to us dated 31.10.1997 we observed that the figure of sundry debtors amounting to Rs. 2970 lacs submitted in the QIS-II includes debit notes to the tune of Rs. 700 lacs raised by KIAL on account of increase in sales price as per the discussion they had with Alloy Steel Producers Association. However, no minutes/papers of this were shown to us.
10.1.2. No entries of these debit notes for Rs. 700 lacs were passed in the books of account.
10.1.3. A bill or debit notes can be raised on a customer when the prices are mutually agreed upon. Any unilateral decision of raising Debit Notes are not acceptable in the eye of law.
10.1.4 It appears that the debit notes of Rs. 700 lacs were raised and shown in the QIS-II to get some undue advantage from the Banks.
10.2 INFLATING SUNDRY CREDITORS/OTHER CURRENT LIABILITIES
10.2.1 SBI has alleged that sundry creditors/other current liabilities have been inflated to record bogus purchases/transactions. They have stated that the mini-steel plants, as per industry trend, hardly get any credit on purchases except under L/Cs.
Our review of the current liabilities revealed the following.
i)With regards to Sundry Creditors we observed that KIAL was also making direct purchases from parties other than the purchases through L/Cs which remained outstanding as on 30.9.1996. On our enquiry, KIAL has made the following submission in this regard:
Submission to us dated 31.10.1997
''The figure of sundry creditors as mentioned in Stock Statement/QIS represented the L/C liability accepted by the company till 9.10.1996 for materials received up to 30.9.96 only. Accordingly, even if material received up to 30.9.96 but Hundies not received by bank under L/C and not submitted to us for acceptance are not included. The L/C bills for materials received up to 30.9.96 amounted to Rs. 888.04 lacs which are included in the figure of sundry creditors which stands at Rs. 1618.86 lacs. Balance creditors, other than L/C relates to direct purchases. The outstanding L/Cs and invoices for goods will support our contention.
As a matter of fact, Sundry Creditors in QIS and Balance Sheet have different dimensions and strictly non-comparable. In QIS creditors are normally limited to creditors for goods so as to exclude it from borrowing power. Bank is normally not concerned with other creditors like capital goods, etc., which becomes part of it in terms of Schedule VI requirements and year end provisions.
''The sundry creditors and other liabilities are often interchangeable. Normally, since the bankers reduce the liabilities on its face value without analyzing the nature and scope of liability, in QIS the figures are given to ensure that proper credit facilities are available. In any case, QIS is with the limited purpose of giving the bank interim information from time to time and should not be construed as final figures because they are unaudited provisional figures without reconciliation and subject to adjustments.''
ii) Regarding other current liabilities amounting to Rs. 2065.08 lacs we observed that KIAL did not show the group company liabilities in QIS-II for the quarter ended 30.9.96 submitted to the bank. As on 30.9.96 total group company outstanding was Rs. 1186.67 lacs which was shown under ''other current liabilities'' instead of unsecured loans since the outstanding involved transactions in the nature of loans..
Further the following submission has been made by KIAL, in this regard.
Submission to us dated 31.10.97
''The figure of other liabilities of Rs. 798 lacs shown in QIS does not included the amount outstanding to Group companies aggregating to Rs. 1186.67 lacs. Company have never added the liability of group companies in QIS. The bankers were well aware at all the times of sizable liability to group companies. Also the lead Bank for group companies is same. Since the credit from the group companies is more in the form of promoter' contribution for the on going projects and was temporarily extended to keep the unit running. In any case, all these amounts were routed through consortia banks and the bankers were fully aware of the fact as this was only with the consent of the bankers to protect the interest of everybody including bank.''
10.3 POWER CHARGES:
The allegation of the bank about power charges has already been commented upon in paragraph 9.7 of Chapter IX.'
From the perusal of the same we find that :
'12.0 CONCLUSION
12.4 It is difficult to pinpoint the motive behind the omissions and commissions committed by KIAL, but the fact remains that the Balance Sheet and the Profit and loss account of the company was not drawn up properly to give a true & fair view of the affairs of the company as on 30th September, 1996 and the loss for the period ended on that date.'
10. We have reproduced the report of the internal auditor of the financial institution in detail as lengthy arguments were advanced that accounts were doctored. And the total discrepancy to this account which is rendered at page 119 of the Report is of about only Rs.30 lacs. This discrepancy was considered by BIFR when this was pointed out before the BIFR and the BIFR on the basis of the aforesaid Report had opined :
'The Bench noted that in terms of para 5.5 of the SIA report the share capital of the company as on 30.9.96 was Rs.2371.04 lacs and reserve and surplus were Rs.508.77 lacs after excluding the capital subsidy). Thus the net worth of the company as on that date of its reference to BIFR was Rs.2879.81 lacs. The SIA in para 12.7 of their report had made the necessary adjustments in the accumulated losses taking into account the amounts of vouchers not available, trial run expenses, loss on account of the standard grade, excess charge of depreciation, purchase accounted for in the current year and not verified by the Auditors and purchase of raw materials without any support/invoice. The total amount of adjustments was Rs.1071.33 lacs and after adjusting this amount in Rs.3972.05 lacs, the figure of losses had been arrived at Rs.2900.72 lacs. The SIA had further added power charges not provided for earlier amounting to Rs.1041.98 lacs and arriving at revised figure of loss of Rs.3942.70 lacs. On being specifically asked on each item of losses relating to expenses for which vouchers were not available (Rs.300 lacs); trial run expenses (Rs.547 lacs); Loss on account of sub-standard grade and sale thereof (Rs. 302 lacs); excess charge of depreciation (Rs. 1.60 lacs); purchases accounted for in current year not verified (Rs. 13.32 lacs); and purchase of raw material without any support/invoice (Rs. 6.41 lacs); totalling to Rs. 1071.33 lacs which had been disallowed in SIA Report vide para 12.7 thereof, all the secured creditors agreed in that regard. SBI had not been able to establish that the power charges not provided for amounting to Rs. 1041.98 lacs were to be treated as contingent liability in the light of company's submission in today's hearing. The company had stated that carry forward profits of Rs. 840.95 lacs had to be adjusted against the accumulated losses as on 30.9.1996. Thus, after making all the adjustments pointed out by the SIA and also during the course of the hearing about all items affecting revenue/expenditure which would have a bearing on P&L; a/c and accumulated losses, the Bench noted that against net worth of Rs. 2879.81 lacs the company's accumulated losses as on 30.9.96 were Rs. 3101.75 lacs. The company satisfied all the other criteria of a sick industrial company.''
11. There is no finding on the basis of the Report of the Chartered Accountants appointed by the Operative Agency that the accounts were doctored or manipulated. A statement with regard to the provisions made by the petitioner was admitted by the financial institutions which is reflected from para 13 as above. In the circumstances, on what basis AAIFR has come to the conclusion that accounts were manipulated or doctored. AAIFR was not justified in coming to the finding that the accounts were doctored or manipulated said observation reflects sheer non-application of mind, reversal of the finding of BIFR that accounts were not doctored and fictitious and only had a discrepancy make the finding of AAIFR on the matter perverse and illegal. The law is well-settled. The Appellate Authority could not come to its own conclusion bereft of material before the BIFR and considerations of the record of the court of first instance. In the absence of any finding on the basis of the Report of the Chartered Accountants appointed by the OA itself that the petitioner's accounts were manipulated or doctored, the finding of the AAIFR that the accounts were manipulated, cannot be sustained in the facts and circumstances and in law. To that extent the order of AAIFR is bad in law and is set aside. We quash the order with regard to the finding about manipulation in accounts by AAIFR which was without taking into consideration the entire and relevant portion of the Report of Chartered Accountants M/s Ray & Ray Company. The report of M/s Radbin Consultants has to be considered by BIFR. We remand the matter back to the BIFR to decide in accordance with law, after taking into consideration M/s Radbin Consultants Report. In view of the stand of the respondent that pursuant to the order passed by this Court, the financial institutions have considered the report and rejected the same cannot stand to reason on the basis of arguments advanced before us. We held that consideration of the M/s.Radbin Consultants report on the basis of finding of AAIFR regarding doctored documents by financial institution was not proper consideration. The contention of the respondents that M/s.Radbin Consultants report which was obtained by OA itself pursuant to the order of the BIFR, which in the opinion of the respondents is not material, is specifically rejected as question of sickness and the unit's feasibility for rehabilitation and revival are the objectives of SICA. Section 16 and Section 17 cannot be read in a compartmentalised manner and they have to be read to achieve the main object of the Act that if an industrial unit is sick and whether it is possible to rehabilitate it or not. BIFR shall be entitled to consider the reasons of sickness as expounded in that report. We also make it clear that any expression on the merit of the case will not come in the way of BIFR to pass any order in the facts and circumstances and in accordance with law.
With these directions, the writ petition is allowed.