BEFORE THE APPELLATE AUTHORITY FOR INDUSTRIAL, & FINANCIAL RECONSTRUCTION, NEW DELHI 

ALOK DHIR, Advocate, with Ms. PANNA KHATAU, for the appellants. 

G. G. K. MURTHY, Asst. General Manager, State Bank of India; Ms. GAYATRI SINGH and MS. APARNA BHAT, Advocates, for Girni Kamgar Sangharsh Samiti; B. P. ASAWALE, Chairman, and M. K. SATYANAND, Secretary, for Kamgar Ekta Samithi; P. N. SEWAMI, I.I., ESIC; NITIL KAMBLE, Asst. Vice President, ICICI; MS. NISHA BAGCHI, MS. NIHARIKA BAHL, Advocates, R. N. MUSALE, Treasurer, and G. J. MOHITE, V.P., for Rashtriya Mill Mazdoor Sangh. 

ORDER 

M/s. Khatau Makanji Spinning & Weaving Mills Ltd. (hereinafter referred to as 'the company') is a sick industrial company within the meaning of section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). On 27 March, 1995, BIFR sanctioned a scheme for the rehabilitation of the company. The scheme envisaged modernisation of equipment, rationalisation of labour, one-time settlement of the dues of banks/FIs/debenture-holders, payment of statutory liabilities and pressing creditors. The scheme provided for sale of freehold surplus land of the company at Borivali. Consequently, the company entered into an agreement, dated 4 November, 1995, with (RCPL) for sale of development rights for FSI of 10 lakh Rs. 80 crore out of which an advance of Rs. 10 crore was received by the company from RCPL. The exemption given by the State Government of Maharashtra in favour of the company for its industrial use of surplus land in Borivali under the provisions of the Urban Land (Ceiling and Regulation) Act, 1976 (ULCRA) expired on 14 June, 1995. The agreement between the company and RCPL Provided that the company would obtain renewal of the exemption under ULCRA at its cost, whereas other approvals for development, transfer, etc., would be obtained by RCPL. The renewal of exemption under ULCRA could be obtained by the company only by April 1997. In the meantime, the real estate prices continued to decline. The company called upon RCPL to pay the balance amount of Rs. 70 crore and complete the sale transaction and also threatened to forfeit the amount of Rs. 10 crore paid as advance by RCPL. In turn, RCPL made counter claims against the company for refund of Rs. 10 crore alongwith interest and gave notice that it would institute a suit in court for refund of the amount of Rs. 10 crore and would claim interest thereon. The company consulted their solicitors, Mansukhlal Hiralal & Co. (MHC), who advised that it is possible that the company may succeed in establishing a breach of the terms of the agreement on the part of RCPL and forfeit the earnest money, but a suit by RCPL may last for more than 20 years and normally, no developer/purchaser would come to buy the property and/or development rights unless the title is absolutely clear and would not like the suit pending in the court although technically, the company's title would be perfect, that as a consequence, the company's revival would be delayed for several years and would almost be impossible, and that, therefore, the earnest money of Rs. 10 crore be refunded if RCPL agree and the property be disposed of at the present market value at the earliest to expedite the revival of the company. ICICI got the development rights revalued and the valuers, Majumdar & Associates, valued the property/development rights at Rs.37 crore plus or minus 5%. A new party, Fateh Navnirman (I) Ltd. (FNL) offered to purchase the development rights at Rs. 37 crore provided the amount of Rs. 10 crore was refunded to RCPL or in the alternative, FNL offered to pay Rs. 27 crore to the company, and also settle the matter directly with the company's Board/Assets Sale-Cum-Management Committee (ASMC) as well as at a joint meeting convened by ICICI. At the company's Board/ASMC meeting held on 7.9.98, Shri R. C. Jain, one of the three special directors appointed by BIFR, observed that under the old agreement between the company and RCPL, the difference of Rs. 43 crore between the agreed price and the price likely to be fetched now was recoverable by legal means from RCPL, and that this was the opinion obtained from solicitors MHC. The promoter of the company pointed out that no new builder would show any interest if a legal battle continued with RCPL, that the land prices in Mumbai had further fallen and were ruling at about Rs. 250 per sq.ft. in the vicinity of the company's land, that FNL might back out if the matter was delayed, and that a tripartite agreement may be signed amongst the company and FNL and RCPL as otherwise RCPL might demand interest on the earnest money of Rs. 10 crore which would amount to about Rs. 8 crore. BIFR had asked SBI & ICICI to nominate their representatives on the company's ASMC and ICICI had appointed Mr. Justice M. L. Dudhat (retired judge of the High Court), who examined this matter at great length and gave his conclusive opinion (the last paragraph of his opinion) which is reproduced below : 

"According to me, in view of this peculiar situation, it is desirable to enter into TPA with RCPL company and FNL by asking him to deposit the consideration amount of Rs. 37 crores. If all the parties to the TPA agree that in the settlement scheme published by BIFR to insert a clause to the effect that if anybody is interested in purchase of said Borivali property for more than Rs. 37 crores and deposit 50% (Rs. 20 crores) within 2 weeks from the advertisement of publication of scheme and pay balance amount towards purchase within 15 days thereof. Then only in that event his offer will be accepted. It may also be mentioned that in the publication, if the purchaser pays 50% within the stipulated time, but fails to repay the balance payment, his deposit is liable to be forfeited. If no new developer responds to the new scheme as per the conditions, then the aforesaid TPA entered into shall be deemed to be concluded." 

A modified draft rehabilitation scheme (DRS) has been prepared by ICICI (OA). The scheme envisages sale of development rights. The DRS has not yet been circulated/published as the question of modality for the sale of development rights is still being agitated. This matter was considered by BIFR at length at the hearing on 12.8.1999. In response to a query from the Bench of BIFR, Shri Alok Dhir, counsel for the company, had stated before BIFR that the promoters were confident that if the amount of Rs. 10 crore was refunded to RCPL without interest the issue between RCPL and the company would get resolved. He had also submitted that the company would like strict transparency and had no objection to the sale of land by open advertisement. The representative of ICICI submitted before BIFR that ICICI endorsed the views expressed by Mr. Justice Dudhat and had approved the sale at Rs. 37 crore to FNL by private negotiation, foreseeing a situation of continued litigation and the likely delay if tender route was adopted. The representatives of IIBI, IFCI and SBI endorsed the views of ICICI on the issue of sale of land. The counsel for the company also proposed acceptance of the offer of FNL being in line with the valuation undertaken by Mazumdar & Associates. After hearing all the parties, BIFR concluded that sale through private negotiation at Rs. 37 crore as valued by Mazumdar & Associates lacked transparency. BIFR, therefore, directed : the company should refund Rs. 10 crore to RCPL in full and final settlement of RCPL's claim; monitoring agency would then issue advertisements for the sale of land free from all encumbrances; and Assets Sale Committee consisting of the representatives of the company, ICICI, SBI, Government of Maharashtra and BIFR would examine the bids and make recommendations for accepting agreements for the sale of land free from all encumbrances; and Assets Sale Committee consisting of the representatives of the company, ICICI, SBI, Government of Maharashtra and BIFR would examine the bids and make recommendations for accepting the most favourable offer; if the company and the FIs/banks want to accept the FNL's offer as the best offer under the circumstances and in the larger interest of the company and the secured creditors then they should place full facts including the opinions of the solicitors and views expressed by Shri R. C. Jain before their Boards of directors and obtain their approval confirming that the negotiated deal was transparent and free from doubts and the offered price of Rs. 37 crore was fair and reasonable (vide paragraph 19 of the impugned order, dated 12.8.1999). The company submitted miscellaneous application to BIFR on 24.9.1999 requesting for rectification of error in the order, dated 12.8.1999. The company pleaded that it had never agreed to refund the amount of Rs. 10 crore to RCPL, that the company had only expressed its confidence that if the amount is refunded to RCPL, the issue between the company and the RCPL would be settled, and that the company be permitted to issue an advertisement for the sale of land/development rights, inviting offers on as and where-is-basis or alternatively, offers involving settlement of dispute with RCPL. By order, dated 8.10.1999, the BIFR rejected the company's application and reiterated their orders contained in paragraph 19 of the earlier order dated 12.8.99. 

3. Appeal No. 146/99 is directed against BIFR's order, dated 12.8.99. Appeal 149/99 is directed against BIFR's order, dated 8.10.99. 

4. In paragraph 2 of our order, dated 9.11.99, we had directed that the amount of Rs. 10 crore advanced by RCPL shall be kept in an interest bearing deposit with SBI until these appeals are disposed of. Consequently, the company wrote a letter, dated 7.12.99 to SBI to transfer the amount from cash credit account to 'the interest bearing deposit account' for a period of three months. However, by a subsequent letter, dated 13.12.99, the company asked the SBI to retain the amount till further clarifications were sought from this Authority. At the hearing on 17.12.99, the learned counsel for the company requested us to recall our direction contained in paragraph 2 of our order, dated 9.11.99, praying that compliance with this direction would result in further increase in the liability of the company, because the said amount was held in the company's cash credit account with the SBI so that the company did not have to pay the interest thereon. The representative of SBI submitted a letter, dated 16.12.99 stating that in Writ Petition No. 2507/99 in the Hon'ble High Court of Bombay, the petitioner - Girni Kamgar Sangharsh Samiti (GKSS) has raised the issue of interest accrued on the amount of Rs. 10 crore held with SBI on 'no-lien basis', and that the SBI has submitted necessary clarification through their counsel that the amount held in cash credit account does not carry any interest as it was credited in the cash credit account as pier original mandate of the company vide their letter, dated 22.3.95 and by doing so, the company were not charged with interest on cash credit account for Rs. 10 crore all along, and thus saved substantial amount of interest on the borrowal accounts. 

5. It is noted from paragraph 4 of Hon'ble Bombay High Court's order, dated 28.10.99 in WP No. 2507/99 that the learned counsel for SBI had stated before the High Court that an amount of Rs. 10 crore is lying with the bank along with the interest and the said amount would not be disbursed without the leave of that court and without the directions of BIFR & AAIFR. In view of this, we do not see any need to recall or modify our direction contained in paragraph 2 of our order, dated 9.11.99. 

6. The learned counsel for Rashtriya Mill Mazdoor Sangh (RMSS) argued : RMMS is the approved union under the BIFR Act, 1946, for the cotton textile industry in the local area of Greater, Mumbai; RMMS has represented the workers of the cotton textile majority of the workers belong to RMMS; in any case, the scope of intervention by GKSS should be limited by this Authority by an order so that it does not create any precedent and hurdle in the rehabilitation of the company and the fate of nearly 5,000 workers. The learned counsel for GKSS argued that GKSS was represented before BIFR, that Bombay High Court by order, dated 28.10.99 in WP No. 2507/99 has directed BIFR and AAIFR to give an opportunity of hearing to GKSS in all matters regarding rehabilitation scheme for the company, and that, therefore, GKSS has a right to be heard by BIFR and AAIFR. 

7. At the hearing on 9.11.99, we had added GKSS as respondent No. 16 in this appeal because GKSS was present before and heard by BIFR on 12.8.99 in Case No. 135/99 pertaining to the company. In any case, GKSS is entitled to represent those workers who are its members insofar as hearings before BIFR and AAIFR are concerned. The registered and recognised union (RMMS) in this case, has a right to represent the workers insofar as any settlement between management and the workers is concerned. In any case, this appeal was being finally heard, and, therefore, the question of giving any direction in regard to the scope of GKSS's intervention did not arise, particularly, because the Hon'ble Bombay High Court have, by their order' dated 28.10.99 in WP No. 2507/99, directed BIFR and this Authority to give an opportunity of hearing to GKSS in all the matters regarding the rehabilitation scheme for the company and this Authority complies with the orders of the High Court. 

8. In regard to the modality for the sale of land, the counsel and representatives of different parties reiterated the stand taken by them at the hearing before BIFR on 12.8.99. Their submissions are summarised below - 

(a) Ms. Gayatri Singh, counsel for GKSS, suggested that the amount of Rs. 10 crore should be refunded to RCPL in full and final settlement of its claim against the company and the land/development rights should be sold by advertising as free from all encumbrances. 

(b) Shri Alok Dhir, counsel for the company, suggested : the company should not refund the amount of Rs. 10 crore to RCPL; there is neither an assurance that a bid of Rs. 37 crore or higher would be available if an advertisement is made for sale free from all encumbrances, nor an assurance that RCPL will not demand interest if the amount of Rs. 10 crore is refunded to them; the company has no contractual obligation to refund this amount; litigation with RCPL will be time-consuming and will thwart the efforts for the rehabilitation of the company; a tripartite agreement should be entered into by the company, FNL and RCPL, binding FNL to its offer of Rs. 37 crore as well as the final settlement with RCPL with the condition that if a higher bid is received, then the tripartite agreement would be void; an advertisement should also be issued inviting bids with an upset price of Rs. 37 crore and giving the details of the agreement between company and the RCPL and the advance of Rs. 10 crore given by RCPL, stipulating that the bidder would have to settle RCPL's claim against the company; if one or more bids higher than Rs. 37 crore are received, the highest bid should be accepted; otherwise, the tripartite agreement would be confirmed; in the meantime, the DRS should be circulated and published, envisaging an estimated receipt of Rs. 37 crore from the sale of land/development rights. 

(c) The counsel/representatives for RMMS/financial institutions/banks supported the stand taken by the company. 

(d) Ms. Gayatri Singh observed that if the bids are invited, mentioning the dispute between the RCPL and the company, prospective bidders may be disinclined to come up with higher offers. Shri Alok Dhir observed that the fact of agreement between RCPL and the company and the consequent dispute would have to be mentioned in the advertisement; otherwise, the company may be involved in prolonged litigation and the sale of land/development rights may not materialise. 

(e) In response to a question from the Bench as to whether there is some assurance from any prospective bidders that a bid of not less than Rs.37 crore would be forthcoming if the advertisement for sale is made free from encumbrances after settling the dispute with RCPL, there was no positive response from Ms. Gayatri Singh. 

9. The sale of land/development rights has to be arranged in a manner which is transparent and ensures maximum proceeds for the company. Our analysis and conclusions are given below : 

(a) Paragraph 19 of the agreement, dated 4.11.95 between the company and RCPL provides that if RCPL fails to pay the balance amount (i.e., Rs.70 crore) within 7 days as stipulated in the agreement, the company shall be entitled to terminate the agreement and to forfeit the earnest money of Rs. 10 crore after giving a notice to RCPL in writing in that behalf, provided that if RCPL pays the balance amount with interest within 7 days from the date of receipt of the said notice, the agreement shall not be terminated and the earnest money of Rs. 10 crore shall not be forfeited. Paragraph 22 of the said agreement further provides that if RCPL fails to pay the balance amount within 7 days as stipulated therein, the company shall be entitled to terminate the agreement and to forfeit the earnest money of Rs. 10 crore and shall also be entitled to grant the development rights to any other person(s) either by private treaty or by inviting offers from the public or in any such manner as the company deems fit and proper, and in such event, notwithstanding any other remedy the company may have, the company shall be entitled to recover from RCPL the deficiency in price, if occasioned by such resale and the costs thereof, which shall be made good by RCPL to the company with interest on the amount of deficiency and the costs thereof @ 18% p.a. compounded quarterly from the date of the default till payment. 

(b) Neither MHC (solicitors of the company) nor Justice Dudhat (ICICI's nominee on ASMC) has expressed any doubt about the company's title to land under reference. In fact, both of them have only expressed apprehension about the delay in litigation if RCPL files a suit for the recovery of the amount of Rs. 10 crore (with or without interest). Even if a suit is filed by RCPL, it will only be a money suit. The money dispute between RCPL and the company cannot be and must not be treated as land dispute. The company's title to land is undisputed. The land/development rights can, therefore, be sold free from encumbrances irrespective of the outcome of the suit/civil dispute between RCPL and the company. If a suit is filed by RCPL, the company must filed its counter claim. Even if a suit is not filed by the RCPL, the company must forfeit the earnest money of Rs. 10 crore and claim damages from RCPL, by filing 

(c) Section 2 of SICA declares that SICA is for giving effect to the policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39 of the Constitution. Section 32(1) of SICA stipulates that the provisions of SICA and of any rules and schemes made thereunder have overriding effect over all other laws except the laws relating to Foreign Exchange Regulation and Urban Land Ceiling & Regulation. Section 18(8) makes the provisions of scheme sanctioned under SICA binding on shareholders, creditors, guarantors and employees of the company. Even if the assets of a sick industrial company are encumbered, such assets can be sold free from encumbrances if so provided under a scheme sanctioned for such company under the provisions of SICA, and the encumbrances can be settled in monetary terms without any effect on the process of disposal of such assets free from encumbrances. This process is not subject to interference by civil courts. Section 26 of SICA specifically provides that no civil court shall have jurisdiction in respect of any matter which the Appellate Authority or BIFR is empowered by, or under, SICA to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under SICA. In view of these provisions of SICA, the company's land/development rights in the present case can be sold free from encumbrances without any doubts or apprehensions about the likely consequences of the notice given by RCPL to the company for refunding the earnest money of Rs. 10 crore with interest. 

(d) According to the company, FNL has offered a sum of Rs. 37 crore if the amount of Rs. 10 crore is refunded to RCPL or a sum of Rs. 27 crore if the said sum of Rs. 10 crore is not refunded to RCPL. Considering the rights of the company under its agreement, dated 4.11.95 with RCPL, there is no need for the company to enter into any understanding with RCPL directly or by way of tripartite agreement amongst the company, FNL and RCPL. It is open to the company to enter into an agreement with FNL, with the clear under-standing that the company has forfeited the amount of Rs. 10 crore given as earnest money by RCPL, entertaining FNL's offer of Rs. 27 crore for development rights of 10 lakh sq. ft. provided FNL deposits the said amount or any reasonable amount that ASMC may consider appropriate with the further understanding that the company will advertise the land/development rights for sale free from encumbrances, and if a higher offer is received, then the agreement with FNL will be null and void and the amount deposited by it will be refunded without interest. 

(e) The company must advertise the sale of land/development rights free from encumbrances. The existing ASMC must draw tender documents carefully, 9 clarifying, inter alia, that RCPL had, by an agreement, dated 4.11.95 with the company, agreed to purchase development rights for 10 lakhs sq. ft. FSI for a consideration of Rs. 80 crore and deposited earnest money of Rs. 10 crore, that RCPL failed to fulfil its obligation to pay the balance amount as stipulated under the agreement, that the company has forfeited the earnest money of Rs. 10 crore, that RCPL rescinded the agreement and has given a legal notice for the fund of Rs. 10 crore, that the company proposes to proceed against RCPL for the recovery of damages as provided under the agreement, that the company's title to the land is clear and perfect and possess on of the land company 1 is will be given free from encumbrances to the bidder whose bid for purchase of development rights is accepted, that such bidder will not be liable for the consequences of any civil dispute between RCPL and the company and that the gains/losses resulting from such dispute will be to the account of the company. 

(f) The modified DRS must be circulated and published in brief in newspapers as required under section 18(3)(a) of SICA, assuming the sale proceeds of Rs. 37 crore from the sale of land/development rights, and the steps for sale be initiated simultaneously as stated above. 

10. In conclusion, the company must forfeit the earnest money of Rs. 10 crore by taking recourse to the terms of its agreement with RCPL and sell the land/development rights (10 lakh sq. ft. FSI) free from encumbrances as stated above, and take further appropriate steps to recover the loss (if any) from RCPL. BIFR's directions in paragraph 19 of the order, dated 12.8.99 and BIFR's order, dated 8.10.99 are set aside. The appeals are disposed of.