Common Order:
W.P.No. 19325 OF 2006 1. Petitioner claims that her late husband Sri N. Bhaskar Reddy acquired shares in their name, aggregating to about 29% of the share capital in M/s Hyderabad Connectronics Limited (HCL), the 3rd respondent and became a promoter and Managing Director of the Company which was established for manufacture of professional-grade connectors. Due to limited market demand and other circumstances, the Company suffered substantial losses and was ultimately declared a sick industrial company under Sick Industrial Companies (Special Provisions) Act, 1985 (for short, ‘the Act’) by BIFR on 24.12.1996, in Case No.75 of 1996. IDBI was appointed as the Operating Agency (OA) under Section 17(3) and directed preparation of a rehabilitation scheme. A joint meeting held on 27.05.1997 concluded that an OTS of the dues of the financial institutions was necessary for revival.
1.1. In 1998, petitioner was given an opportunity to submit a comprehensive rehabilitation proposal along with a deposit of Rs.15 lacs in a no-lien account. The proposal of petitioner was considered favourably at the joint meeting and a rehabilitation scheme was ultimately sanctioned by BIFR on 17.08.1998. The scheme was subsequently set aside by AAIFR on an Appeal filed by Andhra Bank and the matter was remanded to BIFR. After remand, petitioner continued to submit revised rehabilitation proposals and requested appropriate modification of the cut-off date on account of delays in finalising the scheme.
1.2. It is stated, petitioner submitted proposal and M/s VEM Components (P) Ltd. also submitted competing proposal for takeover of the Company and settlement of the dues of the financial institutions. Though petitioner matched the OTS offer of VEM and produced commitments for promoters' contribution, BIFR ultimately considered the VEM proposal preferable on technical and financial considerations and directed preparation of a DRS based on the VEM proposal. The Company challenged the BIFR order before AAIFR which held that petitioner's proposal needed to be considered in the first instance and directed the Operating Agency to formulate a tied-up DRS based on her proposal within 60 days. Pursuant to the said order, IDBI called upon petitioner to submit a fully tied-up revival proposal.
1.3. Petitioner submitted her comprehensive proposal on 07.01.2005, providing for IDBI OTS of Rs.68 lacs, IFCI OTS of Rs.72 lacs, ICICI OTS of Rs.66 lacs, aggregating to Rs.206 lacs, capital expenditure of Rs.30 lacs, working-capital margin of Rs.166 lacs and induction of petitioner on the Board. The total cost of the proposed scheme was approximately Rs.402 lacs, to be financed through internal accruals, sale of surplus land, promoters' contribution and unsecured loans. Petitioner furnished the additional information sought by IDBI and also agreed to reimburse Rs.14 lacs towards security and insurance charges. Despite, IDBI did not prepare and forward the DRS within the time directed by AAIFR. IDBI subsequently obtained valuation of the Company's assets. From time to time, at the meetings held, the secured lenders sought improvement of the OTS and petitioner ultimately improved to Rs.206 lacs towards OTS, Rs.20 lacs towards security, purchase of institutional shareholding at Re.1 per share, bridge loan of Rs.100 lacs against sale of surplus land and Rs.14 lacs towards management fee. IDBI, by its letter dated 03.06.2006, directed petitioner to remit OTS amount into a no-lien account and sought further particulars. It is also stated, petitioner furnished the required particulars and requested IDBI to submit DRS to BIFR and confirm the OTS. Despite the above, petitioner came to know that IDBI had settled/assigned its dues in favour of Mackel Components Pvt. Ltd. (MACKEL), a third party, for Rs.68 lacs, besides recovering Rs.20 lacs towards security expenses. According to petitioner, this settlement was for an amount substantially lower than the OTS offered and fully deposited by her. The impugned letter dated 27.07.2006 issued to PRR stating that IDBI is agreeable in principle to accept their OTS proposal envisaging the payment of Rs.88 lacs in respect of term loan assistance and buy back of equity at Rs.4.49 lacs and the letter dated 29.08.2006 issued by IDBI to petitioner stating that IDBI has already assigned its debt; as regards approval of OTS by other secured creditors, she was requested to contact them individually.
2. In the counter, Respondent - IDBI contends that Writ Petition is not maintainable, as the dispute relates to a commercial One Time Settlement (OTS). Such contractual disputes, according to IDBI, cannot ordinarily be adjudicated under Article 226 and have to be pursued before the appropriate civil forum. It is stated, Respondent No.3 - HCL was promoted in the joint sector with Andhra Pradesh Industrial Development Corporation (APIDC) for establishing a plant at Patancheru for manufacture of professional-grade connectors. N. Bhasker Reddy, P. Ramakrishna Reddy and P. Narasimha Reddy were subsequently inducted as promoters of HCL. Subsequently, it was declared sick company by BIFR in December 1996, with IDBI appointed as the Operating Agency. BIFR sanctioned a Draft Rehabilitation Scheme on 17.08.1998 based on the petitioner’s proposal, involving an OTS of approximately Rs.225 lacs. However, the scheme was set aside by AAIFR on 25.01.1999. Between February 1999 and January 2001, petitioner submitted several OTS proposals ranging from Rs.225 to Rs.120.40 lacs, but none was accepted by the secured creditors.
2.1. In 2001, it is stated, M/s VEM Components offered Rs.206 lacs, whereas petitioner offered Rs.172 lacs, thus, petitioner’s proposal was initially lower than VEM’s proposal. Petitioner subsequently agreed to match VEM’s offer, but IDBI contends that this subsequent improvement did not give her any preferential right. After further proceedings before BIFR and AAIFR, the petitioner submitted a revival scheme in 2005. The secured creditors required valuation of HCL’s assets before considering the OTS. Based on the valuation, the OTS was required to be improved to at least Rs.290 lacs. But, petitioner expressed her inability to increase the OTS amount according to the valuation, though she agreed to meet certain security expenses incurred by IDBI. Meanwhile, Respondent No. 4 – Sri P. Ramakrishna Reddy (PRR) submitted an alternative OTS proposal, which was considered by the financial institutions.
2.2. IDBI further states that despite several opportunities, petitioner submitted her latest OTS proposal only on 22.04.2006; the proposals of petitioner and PRR were considered by the competent authority of IDBI in July 2006. IDBI found the proposal of PRR to be better than that of petitioner and accordingly, approved his proposal. Pursuant to the settlement, IDBI assigned its debt in favour of M/s Mackel Components Pvt. Ltd. under the Deed of Assignment dated 31.08.2006 and received Rs.103 lacs. The shares held by IDBI were also transferred in favour of PRR and Nirmala Devi upon receipt of the sale consideration.
2.3. IDBI states that its role as Operating Agency was distinct from its role as a secured creditor and that, as Operating Agency, it acted in accordance with BIFR’s directions. No complaint was made against it before BIFR by petitioner or any other party regarding its role as Operating Agency. As a secured creditor, IDBI asserts that it had the right under the loan and security documents to enter into an OTS with one of the promoters of HCL. Therefore, IDBI’s main contention is that acceptance of PRR’s proposal was a commercial decision taken by the competent authority after considering both proposals, and petitioner’s proposal was found to be inferior.
3. Respondents 3 and 4 filed counter contending that Writ Petition is not maintainable either in law or on facts. It is stated, petitioner’s late husband held only 4.6% shares in 1980 and 5.2% in 1989, whereas these respondents held 12.1% in 1989 and subsequently, acquired further shares. APIDC had inducted the co-promoters, including respondent, in 1979. After the death of N. Bhaskar Reddy in 1996, PRR was appointed as Managing Director, with the support of APIDC, Andhra Bank and Financial Institutions, being the major shareholders and secured creditors. HCL was subsequently, declared sick industrial company by BIFR on 24.12.1996. BIFR directed the Operating Agency to invite proposals for change of management and revival. Petitioner’s proposal was accepted by BIFR on 17.08.1998, subject to payment of the stipulated OTS amounts and purchase of institutional shares at Rs.4/- per share, however, she failed to comply with the conditions of the BIFR order and thereafter repeatedly sought modifications in the rehabilitation scheme. She reduced and modified the OTS amount and other conditions on several occasions, which were not accepted by the secured creditors, resulting in prolonged delay in implementation of the rehabilitation scheme. BIFR ultimately permitted consideration of other viable proposals. M/s VEM Components Pvt. Ltd. submitted a better and financially viable proposal for revival of HCL.
3.1. These respondents supported VEM’s proposal as it had technical experience, financial capability and a concrete plan for revival of the Company. PRR was the only surviving personal guarantor to the secured creditors and had continued to bear the obligations relating to HCL without receiving salary from the Company. Respondents proposed settlement of the secured creditors’ dues for Rs. 206 lacs plus security expenses and thereafter, arranged funds through a strategic partner and the debt was assigned in favour of M/s Mackel Components Pvt. Ltd. and transfer of institutional shareholding were undertaken pursuant to valid contractual arrangements with the secured creditors and were not illegal.
3.2. It is contended, petitioner’s allegations regarding discrimination, violation of natural justice and collusion with IDBI are false and unsupported. The secured creditors were entitled to consider and accept the proposal which they found more viable for revival of HCL. According to them, the impugned order was passed by the Appellate Authority after considering the material on record and providing opportunity to the parties and therefore does not warrant interference under Article 226 of the Constitution. Now, the Writ Petition has become infructuous, as the proposal accepted by the secured creditors had already been acted upon.
4. In the counter filed on behalf of the 6th respondent company (MACKEL) incorporated under the Indian Companies Act, 1956 and was engaged in the manufacture of electronic components, it is stated, the Writ Petition is not maintainable and has become infructuous, as the proposal had already been accepted and the agreed amounts had been received. It is also stated, PRR negotiated with MACKEL for taking over HCL. MACKEL agreed to take over the total debts owed by HCL to its Term Lenders/Financial Institutions, namely IDBI, IFCI and ICICI/SCB, on the assurance that the Financial Institutions had the right to deal with the debts. The agreed amounts were thereafter paid by MACKEL.
4.1. As BIFR had issued Show Cause Notice for winding up HCL, PRR negotiated with IDBI and other secured creditors in the interest of rehabilitation and revival of HCL; the debts of HCL were transferred in favour of MACKEL on One Time Settlement (OTS) basis, after payment of the agreed amounts and without any further conditions. HCL approached MACKEL for support in its rehabilitation and revival. MACKEL, being an independent juristic entity engaged in the same line of business, agreed to act as a Strategic Partner and take over HCL's assets through assignment of secured debts from IDBI and other secured creditors, including IFCI and ICICI/SCB.
4.2. It is contended that transfer of HCL's assets through assignment of debts was legally-valid and within the contractual rights of the parties. It had invested substantial funds in HCL from July 2006 for its rehabilitation. The pendency of the writ petition is alleged to be causing prejudice and irreparable loss to MACKEL and frustrating the revival of HCL. It is also contended that petitioner has failed to establish any ground for interference under Article 226 of the Constitution of India. It therefore seeks dismissal of the writ petition with costs and for such other orders as the Court may deem fit and proper.
WRIT PETITION NO. 10276 of 2007
5. The case of petitioner is that she challenged transfer of shares in Writ Petition No.19325 of 2006, in which status quo orders were passed. Despite the pending dispute regarding the shareholding, the 1st respondent, by order dated 09.04.2007 in Appeal No.152 of 2006, permitted petitioner and the 15th respondent to submit rehabilitation proposals and directed a joint meeting with the secured creditors. According to petitioner, the 1st first respondent failed to consider her status as the original promoter, her rehabilitation proposal and Rs.2.06 crores deposited by her, and wrongly relied upon the disputed shareholding pattern. It is further alleged that the 15th respondent proposed to increase the equity share capital by 36,00,000 shares pursuant to the notice dated 24.04.2007, with the intention of reducing the petitioner and her associates to minority shareholders. Petitioner therefore contends that the impugned order dated 09.04.2007 is illegal, arbitrary, discriminatory and contrary to the principles of natural justice.
6. Respondents 3 and 15 contend that Writ petition is not maintainable either in law or on facts. According to them, the claim that late Sri N. Bhasker Reddy and his family held 29% shares in HCL is denied. N. Bhasker Reddy held only 4.6% shares in 1980 and 5.2% in 1989, while the 15th respondent held 12.1% in 1989 and subsequently acquired about 68% shares in HCL. The contention that N. Bhasker Reddy was inducted in place of Sri P. Ranadhir Reddy by APIDC is denied. According to the respondents, APIDC purchased the shares of Ranadhir Reddy after he failed to invest and subsequently inducted new promoters in 1979.
6.1. After the death of N. Bhasker Reddy in 1996, Respondent No.15 states that, at the instance of APIDC and the financial institutions, he took over as Managing Director and continued to manage HCL. Petitioner’s contention that ITI, BEL, ECIL, UPTRON and KELTRON were competitors manufacturing the same products was denied. According to them, the company’s performance improved after 1989 expansion and losses were wiped out by 1992-93. The company again suffered losses during 1993-94 to 1995-96 due to liberalisation, privatisation and globalisation and was declared a sick company by BIFR on 24.12.1996.
6.2. It is also stated, BIFR directed the Operating Agency to invite proposals for change of management as the existing promoters failed to arrange the required funds. Respondent No.15 claims that he initially prepared a rehabilitation proposal and deposited Rs.15 lakhs in a no-lien account, whereas petitioner subsequently submitted her own proposal. According to him, petitioner’s proposal was substantially based on his proposal and she subsequently pursued litigation instead of complying with the conditions imposed by BIFR. BIFR had accepted petitioner’s proposal on 17.08.1998, subject to payment of the stipulated OTS amounts and purchase of institutional shares at Rs.4/- per share, but petitioner failed to comply with the conditions within the prescribed time.
6.3. The allegation that the 15th respondent mismanaged HCL after the death of petitioner’s husband is denied. The respondents state that the company’s closure in 1998 was due to stoppage of working-capital facilities by Andhra Bank, and not because of mismanagement by the 15th respondent. It is stated, on 26.08.2005, he offered an OTS of Rs.206 lacs and subsequently arranged payment to the secured creditors through the 16th respondent - M/s Mackel Components Pvt. Ltd., against assignment of debt. The 15th respondent further states that he acquired institutional shares at Rs.3/- per share, including shares held by APIDC, and thereby increased his shareholding.
6.4. The allegations that petitioner deposited Rs.2.06 crores and was deliberately denied an opportunity are disputed. According to respondents, the financial institutions considered both proposals and found the proposal of the 15th respondent to be more favourable. The 15th respondent did not submit a fresh proposal at one stage because of his relationship with the petitioner and the family circumstances following the death of N. Bhasker Reddy. He continued as Managing Director without salary after the closure of the company and incurred expenses personally in connection with the company’s affairs.
6.5. It is contended, the AAIFR order dated 09.04.2007 was passed after considering the pleadings, objections, counters, rejoinders and all relevant material and after giving due opportunity to the parties. Therefore, the impugned order does not suffer from any illegality warranting interference under Article 226 of the Constitution of India.
7. Sri Alwaikar C. Balkrishna, learned counsel for Respondent No.9 submits that HCL submitted letter to the Commissioner of Labour, Hyderabad under reference dated 26.12.1998 stating that under Rule 77-A of the Andhra Pradesh Industrial Disputes Rules, 1958, it is to inform that they had laid off all workmen and also staff employed in the establishment effective from the said date. It is also stated, such of the workmen concerned as are entitled to compensation under Section 25-C of the I.D. Act of 1947 would be paid compensation due. It is further submitted, the Labour Court-II at Hyderabad completed trial in M.P.No. 51 of 2004 and as per the point of law, had ordered the rightful claim of the workers i.e. Respondent No.9 by upholding their claim as per the applicable Acts in force which are statutory in nature and passed order dated 18.01.2019 which was also upheld by this Court in Writ Petition No. 9066 of 2019 by order dated 12.09.2025.
7.1. It is also stated, Respondent No.9 (28 workmen) also filed Petition under Reference No. MP No. 1 of 2021 for wage compensation for the period from 01.04.2004 till 30.06.2021 i.e. for 207 months making HCL as Respondent No.1, Respondent No.15 as Respondent No.2 and Respondent No.16 as Respondent No.3. M.P.No. 1 of 2021 wherein 28 petitioners submitted their claim and because the period of claim is for the further period of time i.e. beyond 31.03.2004, the cause of action is clear and been categorically made by the order on its maintainability by this order dated 27.12.2024 passed in Contempt Case No. 2059 of 2024 filed making the Presiding Officer (FAC), Labour Court-II, Hyderabad as the main Respondent No.1 and other respondents from 2-30 are the workmen.
7.2. It is also submitted that HCL and PRR secured stay order in 2008 and settled full and final settlement / compensation of 32 workers out of total 64 workers in 2010 (19 workers) and 2018 (13 workers) under the presence of the Assistant Commissioner of Labour and Deputy Commissioner of Labour, Sangareddy respectively. This was a Tripartite Agreement between the workers who willed, the officers of Labour Department and HCL authorized representative.
7.3. According to learned counsel, none of the parties to the Tripartite Agreement / settlement has informed to the Labour Court till the order was passed by the Labour Court-II on 18.01.2019, despite the stay order was in force. This callous attitude of Respondents 15 and 16 has not only violated Article 21.54 but also stay order secured by Respondent No.15 in M.P.No. 51 of 2004 and also in Writ Petition No. 9066 of 2019 respectively at different stages and frivolous grounds and this is strategically-planned abuse of the legal procedures invites heavy penalty and immediate and unconditional compensation on first priority in both the Writ Petitions and subsequently, since 1996- 98 and other various Courts including BIFR, AAIFR and labor Court and this Court only the loss of golden working life period was lost without any productivity an contribution to the Society and dignity of life was paralysed for the last 27 years and many workers have become senior citizens and got mental and physical ailments and old age problems. Respondent No.15 had also filed Writ Appeal No. 1334 of 2025 against the order dated 12.09.2025 under Clause No. 15 of Letters Patent Appeal by Respondent No.15 filed on 28.10.2025 and was registered on 25.11.2025. Stay order was granted on 27.11.2025.
7.4. Learned counsel further argued that Respondent No.15 has not followed Rule 105 as this Court passed the order dated 12.09.2025 and there was no such leave to appeal under Clause 15 of the Letters Patent Appeal was made nor it was adhered to it by RespndentNo.15 under the Writ Appeal only the Limitation period was highlighted and got the Writ Appeal admitted.
7.5. It is submitted that, Cheque Petition was filed on 20.11. 2025 in the Labour Court at Hyderabad and SR Number from 199 to 227 dated 20.11.2025 was filed wherein suspension order dated 27.11.2025 was passed which is a clear counter blast when Cheque Petitions were filed and is on the record dated 20.11.2025. Respondent No. 15's counsel stated that the matter be passed-over, meanwhile they would verify and submit to the court in the presence of the Presiding Officer of Labour Court-II; Respondent's Counsel further informed the Labour Court that she would be back after completing some other matter in another Court, as such the matter is passed-over, but the counsel did not return nor put the signature on the cheque Petitions despite the Counsel has taken into her hands, that remained in the Custody of the LC-II as the Original Cheque Petitions were received by the Court in the presence of R-15's Counsel and further SR Number were given. Intentionally not signing the Cheque Petitions copy on 20.11.2025 and filing IA No. 1 of 2025 with Prayer for suspension on 25.11. 2025 and Interim Suspension Order dated 27.11. 2025 stalling release of balance Compensation for the period computed for 26th December, 1998 till 31st March, 2004 in MP 51 of 2004.
7.6. Learned counsel for R-15 filed a MEMO dated 29.11.25 stating that interim stay of the order dated 27.11.2025 in Writ Petition No. 9066 of 2019 was passed. It is also stated, the delay and the facts, all the Respondents from R-1 to R-8 and R-10 to R-16 are all purely having commercial interests are having NON LIFE stakes but R-9 are the Workers and bread-earners having faith in the Judiciary and Justice already has entered in their 27th Year of struggle for proudly awaiting for the final complete Justice. All the Acts, Omissions, delays and derailment of the Justice delivery procedures with or without intension on everyone's part, Respondents prays the Court to grant compensation and other benefits and Respondents 10 to 16 are to be stopped from exercising any kind of rebuttal Right and Right to be heard further, till the time all the whoever be the rightful owner will be of the Hyderabad Connectronics Ltd., should submit in this Court and upon arrears computation based on the statutory rules/acts should be ensured first priority to R-9 employees are paid in full and final as per the ID Act and other Acts as on date of Order in these Writ Petitions. And the amount be deposited in the Courts Account and can be withdrawn the individual employee with the supervision of the Counsel for the R-9 only.
7.7. According to learned counsel, the balance of Power to be considered looking at the length of the Court Case and the Number of Workmen persistently made to suffer financially and mentally as on date. The partisan nature of petitioner has come to the fore and the baseless issues were incorporated only to inflict pain and take the matter on a long sojourn instead of settling on priority. Hence, this Court is requested to consider the case of Respondent No.9 and issue a direction to distribute equitable area in Sq. Yrds to the corresponding compensation computed value is arrived at as on date to each one of the workman in the total land area of Acs. 11-37 1/2 Guntas. (Details are given as hereunder i.e., Sy No. 426 Ac.1-13 Guntas, Sy.No. 427 = Ac.10-19 Guntas & Sy.No. 428 = Ac.0-05 1/2 Guntas.) in lieu of joblessness, the sufferings and injustice caused to the entire eligible Workman's since 26.12.1998 (27+ Years) eligible Workers as mentioned in this Matter.
8. The 16th respondent - M/s MACKEL Components states that following the BIFR’s Show Cause Notice for winding up HCL, the 4th respondent negotiated with IDBI and other secured creditors for the rehabilitation and revival of HCL; the debts due from HCL were transferred in favour of MACKEL after payment of the agreed amounts on an OTS basis and without any conditions. HCL approached MACKEL with its rehabilitation proposal and requested its support for revival. MACKEL, being an independent juristic person engaged in the same line of business, agreed to act as a Strategic Partner and take over HCL’s assets through assignment of secured debts.
8.1. The assignment of secured debts was carried out through the Financial Institutions, beginning with IDBI, followed by IFCI and ICICI/SCB. Transfer of HCL’s assets in favour of MACKEL through assignment of debts is stated to be legally valid and within the contractual rights and obligations of the parties. MACKEL had invested substantial funds in HCL from July 2006 for its rehabilitation and revival. According to this respondent, Writ Petition is alleged to have been filed with a mala fide intention to prolong the litigation, and its continued pendency would cause irreparable loss and prejudice to MACKEL.
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9. Learned Senior Counsel for petitioner Sri P. Niroop Reddy and Sri Shankar Narayanan assisted by Sri S. Chakrapani, learned counsel for petitioner in both the Writ Petitions submit that IDBI was appointed as the Operating Agency by BIFR and was required to act in aid of and in accordance with the directions of BIFR/AAIFR. AAIFR had specifically directed that petitioner's proposal be considered in the first instance. It is argued, having mutually agreed upon the OTS terms and having directed the petitioner to deposit the OTS amount, IDBI could not unilaterally abandon the arrangement and enter into a settlement with a third party for a lesser amount. According to the learned Senior Counsel, petitioner had a legitimate expectation that her OTS proposal would be considered and approved after she complied with the conditions imposed by IDBI, hence respondents ought not to have entered into a competing settlement after inducing her to act upon their representations and after accepting the OTS amount for the proposed settlement. It is his contention that PRR never showed interest right from 1998 and even he was not permitted to enter into the fray for giving revival proposal in 2006 by IDBI, but it is not known why he was given preference. According to him, VEM Components Ltd. was a vehicle of PRR, in which he was a Director and by this act, PRR intended to control the land belonging to HCL. PRR sold some properties of the company contrary to the provisions of the SICA for which a notice was issued to him under Section 33 of the Act. Once the matter is before BIFT, property of the company cannot be touched without permission from BIFT. It is argued, because of collusion between PRR and IDBI, IDBI acted contrary to the fiduciary capacity as Operating Agency which is a manifest arbitrariness.
9.1. According to learned Senior Counsel, once notice of winding up under Section 20(1) is issued by BIFR on 07.06.2006, settlement of dues and sale of shares is illegal under Sections 533 and 536 of the Companies Act, 1956. Learned Senior Counsel also relies upon the principles of promissory estoppel, legitimate expectation and acceptance by conduct, contending that respondent's conduct and acceptance of OTS amounts to acceptance of her proposal. According to him, acceptance of a lesser settlement from an outsider, despite her offer and deposit of the full OTS amount, amounts to arbitrary and discriminatory treatment.
10. Learned Senior Counsel Sri V. Ravinder Rao assisted by Sri Sriram Polali, learned counsel for HCL and PRR submits that by assignment of dues of the banks to MACKEL and sale of their shares, no vested right of petitioner is affected. She continues to be the shareholder and she could have still participated before the BIFR and got her proposal approved, hence, no cause of action subsists. It is argued that the propriety of the assignment of IDBI’s debt ought to be judged not from the perspective of a shareholder who wants to regain control of the company at any cost, but from the perspective of the interests of the sick company. IDBI, though Operating Agency, was not barred from assigning its debt as a Secured Creditor. Their stand is that there was no concluded OTS in favour of petitioner and her deposit was unilateral and thus refundable. In the present case, petitioner was motivated by gaining control over HCL and not on its revival. PRR though not in the fray initially, came forward to rescue HCL when it was ordered to be wound up and his settlement was more likely to revive HCL than petitioner’s proposal.
10.1. According to learned Senior Counsel, Writ Petitions are liable to be dismissed in view of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003. The SICA was repeated by the Repeal Act which came into effect on 01.12.2006 vide notification dated 25.11.2016. Section 3 of the Repeal Act provides for dissolution of BIFR and AAIFR and Section 4(b) provides for abatement of pending proceedings before BIFR & AAIFR. Since BIFR is dissolved and the proceedings before it have abated, the basis of the Writ Petitions no longer exists (See M/s Percision Fasteners Ltd. v. IDBI (2017 SCC On Line Del 8496), M/s ATV Projects India Ltd. v. UOI (2017 SCC On Line Del 12136) and M/s Gupta Synthetics Ltd. v. UOI (2017 SCC On Line Del 7493))
10.2. Learned Senior Counsel relied upon assignment of institutional dues to MACKEL, purchase of institutional shares by PRR, alleged 68% shareholding of PRR, and absence of pending dues, and seek dismissal of Writ Petitions.
10.3. In support of his contentions, learned Senior Counsel has relied upon the judgments of the Hon’ble Supreme Court in Terry Gold (India) Ltd. v. TVS Finance & Services Ltd. (2014(3) MWN (Civil) 817), UP State Sugar Corp v. UP State Sugar Corpn Karamchari ((1995) 4 SCC 276), NGEF Ltd. v. Chandra Developers (P) Ltd. ((2005) 8 SCC 219), ICICI Bank v. AP Star Industries Ltd. ((2010) 10 SCC 1), Bijnor Urban Cooperative Bank v. Bijnor ((2023) 2 SCC 805), KSIIDC v. Cavalet India Ltd. ((2005) 4 SCC 456), AP State Financial Corporation v. M/s Gar Re-Rolling Mills ((1994) 2 SCC 647), M.K. Modi v. U.K. Modi (2010 SCC On Line Del 2022)
11. In rebuttal, learned Senior Counsel for petitioner submits that even if BIFR/AAIFR proceedings have become infructuous after the repeal, Writ Petitions does not become meaningless. This Court can still examine the legality of IDBI’s conduct, assignment letters and prejudice under Article 226 of the Constitution. According to them, NCLT remedy was optional and available only to a sick company, not to petitioner individually as a Promoter or Director. PRR cannot take advantage of his own wrong and that HCL has not resumed genuine operations even after the alleged revival.
12. Heard Sri Avinash Desai, learned Senior Counsel assisted by Sri B. Harinath Rao, learned counsel for IDBI and Sri Vivek Chandra, learned counsel for MACKEL Components (P) Ltd. who reiterating the averments in their respective counters, argued almost on similar lines of Sri V. Ravinder Rao, learned Senior Counsel
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13. The bone of contention in both these Writ Petitions is between Petitioner, who is wife of Sri N. Bhaskar Reddy, former Chairman & Managing Director of M/s Hyderabad Connectronics Ltd. (HCL), (who was murdered in mysterious circumstances in Jubilee Hills, Hyderabad) and Sri P. Ramakrishna Reddy, Respondent No.4 in Writ Petition No. 19325 of 2006 and Respondent No.15 in Writ Petition No.10276 of 2007, with both of them staking their respective claims to manage the company in order to revive and rehabilitate the same, thus saving the company’s assets and protecting the jobs of the employees. HCL, a sick industrial company earlier under the jurisdiction of BIFR, and the legality of actions taken by IDBI as Operating Agency for formulation of a revival scheme, other secured lenders, and private third parties in relation to assignment of debts, transfer of shares, and frustration of the Petitioner’s revival proposal completes the entire story of the case.
14. HCL was founded in 1974, as a joint venture between the Promoter Pingle Randhir Reddy and APIDC, with a shareholding ratio of 51:49, to manufacture connectors with technical collaboration with Honda Tsushin Kogyo, a Japanese Company in what was called the industrially-backward region of Patancheru, Medak District on the outskirts of Hyderabad city. The Company reached its peak production in 1982 and thereafter, from 1991, it started dwindling and in the interregnum period, the Promoter Pingle Randhir Reddy inducted the husband of petitioner i.e. late N. Bhaskar Reddy in 1986 into the company by transferring shares (29%) to him. In the new dispensation, PRR held 19% of the shares much later over a period of time. By 1996, the net worth or the substratum of the company completely eroded and it is significant to note that after the murder of the Promoter Sri N. Bhaskar Reddy under mysterious circumstances, in October 1996, PRR was appointed as the Managing Director of HCL in December 1996 .
15. It is also pertinent to note that HCL was before BIFR as a sick industrial company and IDBI was appointed as the Operating Agency for formulation of a revival scheme. Though BIFR did sanction a revival scheme in favour of petitioner to take over the Company, the AAIFR set aside the said approval order, as Andhra Bank opposed the same. In view of the same, petitioner, being the largest shareholder and widow of the former promoter-Managing Director, once again submitted a revival/takeover proposal and was required to tie up settlement with the secured creditors as part of the process under SICA.
16. The matter was then referred to BIFR, by the Board of HCL, for revival and rehabilitation under Section 15 of 1985 Act for formulation of a Scheme under Section 17 to be prepared by the Operating Agency, IDBI before it is sanctioned by BIFR under Section 19 or in the alternative, order winding-up under Section 20. In the BIFR proceedings, IDBI was appointed as the Operating Agency to formulate a Revival Scheme even though it was one of the secured creditors to the company. So, the OA invited PRR and petitioner to submit their respective proposals for revival along with a deposit of Rs.7.5 Lakhs each, in the No-lien account (NLA) of Andhra Bank, which is again one of the creditors. This amount was subsequently raised to Rs.15 lakhs, which was paid by both the contending parties.
17. From a plain reading of the 1985 Act especially Sections 16, 17, 18, 20, & 21, it is to be seen:
“(i) Conduct enquiry (as per section 16) into the working of sick industrial companies.
(ii) Preparation of the schemes as specified in sub-section (3) and clause (b) of sub-section (4) of section 17 and sub-section (1) of Section 18.
(iii) To recommend to Board the various steps to be taken to implement the scheme and remove the impediments [Sub-section (9) of section 18].
(iv) To implement the scheme on the order of Board [Sub-section (10) of section 18].
(v) To be appointed liquidator (any of its officer) in case of winding up of the industrial company [sub-section (3) of Section 20].
(vi) To prepare a detailed inventory of any industrial company as may be required by the Board [Section 21].”
18. Thus, the onus lies on the Operating Agency of conducting enquiry, preparing scheme, implementing the scheme and getting any obstacles removed for the implementation of the said Scheme. The Operating Agency may be required to prepare the inventory of the industrial company and also act as a liquidator at the instance of BIFR. The role of Operating Agency involves the ‘doctrine of public trust’ and any negligence on its part would result in State Liability in Tort.
19. It is further to be seen that the OA required petitioner to submit a fully tied-up proposal, since BIFR could not sanction any rehabilitation scheme unless the requisite consents for reliefs and concessions under Section 19(2) of SICA were in place. Acting upon such requirement, petitioner negotiated a One Time Settlement (OTS) and ultimately, as demanded by the Operating Agency, deposited Rs.2.06 crores in the no-lien account with IDBI, apart from proposing security costs, purchase of institutional shareholding, bridge finance and management fees. IDBI ratified its acceptance of petitioner’s proposal and called upon her to remit OTS amount into the no-lien account, thereby bringing about a concluded arrangement / contract under the umbrella of the BIFR proceedings. Accordingly, petitioner deposited the said amount with IDBI, but the OA despite the deposit and quite contrary to the provisions of SICA and the RBI guidelines in this regard, took steps to enable a third party, sponsored by PRR i.e. MACKEL to make a back-door entry into the management and ownership of the Company, thereby frustrating the efforts of not only petitioner but also BIFR itself.
20. It is the case of petitioner that IDBI and the other institutions facilitated assignment of debts and transfer of shares in favour of entities linked to or acting as strategic partners of PRR even though petitioner had already matched or exceeded the financial terms and deposited the required monies. The debt was dubiously assigned by IDBI to MACKEL for Rs.68 lacs, though MACKEL was a strategic partner of HCL as per the very letter of PRR to Mr. Bajaria, CGM, IDBI, Mumbai, dated 06.07.2006. It is also recorded that several such transactions were undertaken despite the ‘status quo orders’ passed by this Court in the two Writ Petitions.
21. The structure of SICA is central to the controversy. Under Sections 16, 17 and 18, BIFR was entrusted with the enquiry into sickness, consideration of revival and formulation or sanction of a rehabilitation scheme, ordinarily through an Operating Agency. The role of the OA, as noticed above, included enquiry, preparation of schemes, implementation of the scheme, removal of impediments, and preparation of inventory, if required. A revival scheme formulated under the aegis of BIFR is thus perceived as being in larger public interest to protect company’s assets and the employment of the worker. Most importantly, Section 20(1) of SICA did not empower BIFR to liquidate a company. It empowered BIFR only to form an opinion that it was just and equitable that the sick industrial company should be wound up, and to forward such opinion to the High Court concerned. The act of ordering winding-up and undertaking liquidation belong to the High Court exercising Company Jurisdiction and not to BIFR.
22. In this context, it is pertinent to mention the judgment in Navnit R. Kamani v. R.R. Kamani ((1988) 4 SCC 387), as decided by the Full Bench of the Supreme Court, which still serves as a light house for litigation under the 1985 Act. The essence of the said Act legislated for revival and rehabilitation of sick companies, whose net worth has eroded completely, is best summed up in the words of Justice Thakkar in the above mentioned Kamani Tubes case.
“ Para 10. The statement of objects and reasons reveals the purpose underlying the benevolent legislation as also the anxiety of the legislature to provide for preventive, ameliorative and remedial measures essential for reviving sick or potentially sick companies and for ensuring expeditious enforcement of the measures devised by the competent authority under the Act. The statement of objects and reasons discloses the anxiety of the legislature at the alarming increase in the incidence of sickness of industrial companies and it also reveals that the legislation has been enacted with the end in view to :
1. afford maximum protection of employment;
2. optimize the use of funds of the companies etc.;
3. salvaging the production assets;
4. realizing the amounts due to the banks etc.;
5. to replace the existing time-consuming and inadequate machinery by efficient machinery for expeditious determination by a body of experts.”
23. Before going into the nitty-gritties of the case, it is necessary to see whether this Court under Article 226 of the Constitution is the proper Forum for agitating the present matters, since the 1985 Act and the matters thereunder have abated with the repeal of said Act and the coming into force of the Insolvency & Bankruptcy Code of 2016, which essentially protects the creditors, and the matters that were pending under the 1985 Act is now covered under Section 4(b) of SICA (Repeal Act) 2003. The 1985 Act is debtor-driven, to revive and rehabilitate the company, in order to protect the company’s assets as well as employment of workers.
24. In this context, it is submitted by learned Senior Counsel for petitioner that there was no remedy available to sick units with respect to pending proceedings before BIFR / AAIFR, as the vires of Section 4(b) of SICA (Special Provisions) Repeal Act 2003 (for brevity ‘the 2003 Act’) was challenged before the Delhi High Court in ATV Projects (India) Ltd. v. Union of India (supra), wherein the High Court upheld the validity of Section 4(b) of the 2003 Act and later on the Hon’ble Supreme Court too, upheld the Order of Delhi High Court in SLP (C) Nos. 10189/2017 and also in Spartek Ceramics India Ltd. v. Union of India ((2019) 7 Cas-OL 204 (SC)) (Civil Appeal No.7291-7292 of 2018 dated 25-10-2018) and also in PR Director General of Income Tax (Admn. & TPS) v. M/s The Indian Plywood Mfg. Co. Pvt. Ltd. (2023 SCC on line Del 4758).
25. It is apparent from above that reference to NCLT can be made by only the erstwhile sick industrial company and not its shareholder or promoter / director or any other person or entity. Further, such reference even when made by the said company is required to be dealt with in accordance with the provisions of the IB Code only. Given that petitioner does not qualify to make such reference and even otherwise 180 days have also expired, there is no question of matter being referred to NCLT as contended. Petitioner not being a creditor of the company thus far, there is no question of making any petition by her either under Section 7 or 9 of the IB Code.
26. It is further urged by learned Senior Counsel for petitioner that with the 1985 Act repealed in 2003, petitioner was left with no other alternative but to invoke the plenary power of this Court under Article 226 of the Constitution by filing the present Writ Petition. He laid reliance on South Indian Bank Ltd. v. Naveen Mathew Philip (2023 SCC on line SC 435) and Godrej Sara Lee Ltd. v. The Excise and Taxation Officer-cum- Assessing Authority ((2023) 3 SCR 871)) on the plenary power of the High Court.
27. With the issue of proper Forum being the settled matter in the light of the above judgments, one crucial question learned Senior Counsel for petitioner has raised is, as to how the shareholding of PRR increased from 19% to 68% in the Company, so as to gain complete control of the Management of the Company, to the exclusion of petitioner in the formulation of any Scheme by the Operating Agency - IDBI. Such a scenario is totally adverse to petitioner in spite of her best efforts to match the OTS offers made by PRR or the third party VEM Components Pvt. Ltd. could not have been possible, without collusion between the Operating Agency - IDBI and PRR and MACKEL to deprive petitioner to revive the company especially after she lost her husband - the original Promoter of the Company.
28. Another important question raised by learned Senior Counsel is as to how did the General Manager (Finance) of HCL who represented the Company before the BIFR on 04.01.1997, 30.05.1997 and 15.01.1998 along with PRR, come to be assigned the assets of the company much against the guidelines of the Reserve Bank of India (RBI/2005-06/54 DBOD.NO.BP.BC.16/ 21.04.048/2005-06), dated 13.07.2005, especially when M/s Mackel Components is not a Bank or a NBFC as per the judgment of the Delhi High Court in Haryana Steel and Alloys Ltd. v. IFCI Ltd. (AIR 2007 Delhi 65), paras 16, 17, 18 and 19 upheld the said RBI Guidelines.
29. It is further brought to the notice of this Court that M/s Mackel Components Pvt. Ltd. was a strategic partner of PRR, against whom proceedings for malfeasance and misfeasance were initiated under Section 33 read with Section 22A of the erstwhile 1985 Act. MACKEL was also connected to the company’s finance management set-up, thereby raising a serious question as to how the financial assets of the Company came to be assigned to a private party aligned with those seeking to wrest control from petitioner.
30. Another important question that arises in this context is as to how the General Manager (Finance) of HCL, being an employee of the Company came to be assigned the financial assets of the lenders of the Company, much against the guidelines of the Central Bank and the order of the Delhi High Court in Haryana Steel and Alloys Ltd. vs. IFCI Ltd.
31. Thus both the Writ Petitions arise from the same grievance that, despite Petitioner’s bona fide efforts to work out the revival proposal and deposit of Rs.206 lacs towards OTS, IDBI and other Respondents favoured PRR and MACKEL through debt assignment and share transfers. Petitioner challenges the AAIFR order dated 09.04.2007, IDBI letters dated 27.07.2006 and 29.08.2006, and consequential change in management as illegal, arbitrary, mala fide and contrary to the BIFR/SICA rehabilitation framework.
32. From the conspectus of facts as drawn from the Writ Pleadings and submissions made by both the parties, the issues that fall for consideration of this Court seeking directions can be broadly put under three major heads namely:
(a) ILLEGALITY OF SHARE TRANSFERS:
33. The share transfers are equally open to serious challenge. The crucial question is, as to how P.Rama Krishna Reddi’s shareholding rose dramatically so as to acquire effective control of the Company and exclude petitioner from the revival process. The material placed before this Court attributes the same to collusive action between the OA and entities aligned with PRR, including transfer of institutional shareholding without fair notice to petitioner and in frustration of the BIFR process. It is further stated that transfer of shares by institutions during pendency of proceedings before BIFR, without due regard to the framework governing change of management and while efforts were underway for a revival proposal from petitioner, was impermissible and was designed to defeat the statutory process initiated by BIFR to bring about change in the management of the Company. Petitioner’s challenge is therefore, not to an ordinary market transaction, but to a series of transfers that allegedly subverted the BIFR-supervised revival mechanism and prejudiced petitioner’s pre-emptive and other rights.
34. If those transfers were brought about through abuse of the OA’s position, violation of public duty or disregard of the status quo orders passed by this Court, the High Court is empowered to declare them void and restore the legal position prospectively, so as to prevent PRR and the third-party transferees from retaining any advantage from an unlawful process.
35. In furtherance of his submissions, learned Senior Counsel for petitioner submits that with PRR vide letter dated 22.07.1998 to BIFR stated that he is no longer interested in taking over the company and instead asked for return of Rs.15 lacs lying in No-lien A/c, which the BIFR has noted in its order which states that –
“The new group of promoters headed by Shri P.Ramakrishna Reddy are no longer interested in bidding for takeover of the company and accordingly have not submitted any proposal to the OA. Sri P.Ramakrishna Reddy had once again requested the Hon’ble Bench vide his letter dt. April 29, 1998 to advice Andhra Bank to release the ‘No Lien’ Deposit of Rs.15 lakhs along with interest.”
36. While so, petitioner continued with her deposit of Rs. 15 lacs in No-lien A/c, while PRR withdrew the amount without the approval of the Board for which he was issued a contempt notice along with the Andhra Bank with whom the deposit was lying. While PRR himself withdrew from the bid for takeover of the management, but brought in VEM Components Pvt. Ltd, who quoted a much higher OTS amount than petitioner, but subsequently, AAIFR rejected the proposal of VEM Components Pvt. Ltd. in favour of petitioner, since she was the wife of the original promoter and should be given preference to match the OTS amount of VEM Components Pvt. Ltd., as already deposits are lying with the OA towards earlier OTS offers.
37. It is vehemently contended by learned Senior Counsel that when PRR failed to push VEM Components Pvt. Ltd. in collusion with the Operating Agency, called for a meeting on 06.03.2006 without notice to petitioner, at which meeting, IDBI handed over the management to PRR and the shares of the financial institutions was now picked up by himself as well as by M/s MACKEL Components as a strategic partner of PRR. So, by the end of the day, petitioner had deposited Rs.206 lacs as on 05.08.2006 into No-lien A/c of IDBI - OA, even then the O.A. wrote to petitioner, that its debts have already been assigned to a third party, and henceforth she should approach the other creditors. Against this action of IDBI, petitioner filed Writ Petition No. 19325 of 2006 and this Court granted ‘status quo order’ on 29.09.2006. Subsequently another Writ Petition No. 10276 of 2007 was filed challenging the order of AAIFR, which called for a fresh rehabilitation scheme and in that matter too, ‘status quo’ was ordered by this Court on 09.05.2007.
(b) OPERATING AGENCY AND PUBLIC TRUST:
38. It is the specific case of petitioner that the function of the OA is imbued with the doctrine of public trust. IDBI was not acting merely as one private contracting party among many, but was acting as the OA appointed in the BIFR proceedings and was expected to facilitate fair consideration of the rival revival proposals, obtain the tie-ups required under Section 19(2), and act in furtherance of the statutory object of revival and rehabilitation.
39. The material on record discloses several departures from that role. PRR was allegedly allowed to withdraw the initial no-lien deposit without BIFR approval; third-party entities were brought in to outmaneuver petitioner; meetings were held without notice to petitioner and even after petitioner deposited the OTS monies, IDBI proceeded in a manner which frustrated her proposal and enabled transfer of debts and shares to entities aligned with PRR. Therefore, the conduct of the OA is not immune from writ scrutiny merely because it occurred in a commercial setting. Where a public or statutory role is abused so as to destroy fair process under a special statute, judicial review would certainly lie to declare the resultant acts unlawful and to fashion relief which neutralises the benefit derived from such unlawful conduct. Reference may be made to the order passed by the Delhi High Court dated 09.08.2023 in WP.(C) 4876/2017 & CM APPL. 21131/2017 in Pr. Director General of Income Tax v. Indian Plywood Mfg. Co. Ltd. (2023 SCC OnLine Del 4758)
(c) ILLEGALITY OF DEBT ASSIGNMENT:
40. The principal grievance of petitioner against the debt assignment is that IDBI accepted petitioner’s OTS framework, called upon her to deposit the monies, and thereafter, contrary to its own stand, assigned its debt to MACKEL Components Pvt. Ltd. for Rs.68 lakhs, while also recovering security charges, despite petitioner’s superior and already funded proposal. This assignment is attacked on more than one ground. Firstly, it was in breach of the concluded contractual arrangement with petitioner, under which she had deposited the monies in no-lien account in order to enable formal OTS approval and the tied-up scheme. Secondly, it amounted to the OA rendering petitioner’s revival proposal impossible after having itself insisted that petitioner secure those very settlements.
41. From the above narration, it is very clear that petitioner was not given a fair chance to manage the company in spite of depositing the monies so as the match the amounts brought in by the investors at the instance of PRR.
42. Whereas, learned counsel for IDBI submits that IDBI acted in all fairness, ever since it was appointed as Operating Agency (OA) to handover the company for revival and rehabilitation to any party, which discharges the debts of the financial institution, including that of IDBI with a viable Rehabilitation Scheme. This statement is betrayed by the way the rehabilitation proceedings were conducted by the Operating Agency (OA), which smacks of collusion with IDBI; thus making them guilty of Malfeasance and Misfeasance, in denying petitioner an opportunity to come up with a scheme for reviving and rehabilitating the company, of which her late husband was Chairman and Managing Director and whose sudden death has been the cause of this litigation.
43. The meaning of the above said terms has been explained in P.Ramanatha Aiyar's Law Lexicon as follows:
" Malfeasance: Evil doing; ill conduct; the doing of what one ought not to do; the commission of some act which is positively unlawful; the doing of an act which is wholly wrongful; the unjust performance of some act which the party had no right to do, or which he had contracted not to do.
Misfeasance: The improper doing of an act which a person might lawfully do; a wrongful and injurious exercise of lawful authority, or the doing of the lawful act in an unlawful manner"
44. Firstly, from the above facts, it is abundantly clear that it was a lax on the part of IDBI for being a mute spectator when PRR withdrew his initial deposit of Rs.15 lacs without the due permission of BIFR. That apart, in spite of PRR writing to IDBI that it was no longer interested in the management of the company after the withdrawal of his initial amount, he was not relieved, but instead, allowed to bring in other investors to bid for the management. For instance, he brought in VEM Components, which offered a higher OTS than petitioner; even then, on Appeal, AAIFR rejected their proposal in the following words:
“…….we find that the appellant (HLD) has submitted a proposal containing a financially tied up scheme. The appellant has also stated in terms that the necessary and latest technical input will be available with the return of her son working in Bell Laboratories Ltd., USA……. In this aforesaid context and further considering the facts that she is the wife of the majority owner (deceased) of the concerned company and that her revival proposals has been approved earlier by the BIFR though they could not be implemented for reasons not entirely within her control, that her proposal needs to be considered in the first instance.”
45. Thereafter, IDBI proposed to transfer its own shares to PRR at a meeting held on 27.07.2006, even when it had received Rs. 75 lacs from petitioner on 07.07.2006. Notice of the said meeting was not given to petitioner which is against the principles of ‘The Law of Meetings’ and subsequently, when she wrote to them, IDBI replied on 29.08.2006 that she should deal with other creditors separately, since their debts are assigned to a third party.
46. Another glaring act of betraying the ‘doctrine of public trust’ by the OA, which should otherwise have acted in a fiduciary capacity ie. when even after the earlier transfer of shares of IDBI to PRR was challenged in Writ Petition No. 19325 of 2007, in which an order of ‘status quo’ granted on 29.09.2006 and subsequently, AAIFR order of 09.04.2006 suspending the BIFR order of winding up notice and calling for fresh rehabilitation scheme and proposal was challenged in Writ Petition No. 10276 of 2007 in which again an order of ‘status quo’ was granted on 09.05.2007, the OA went ahead and took steps without the permission of the Court to hand over the debts of other financial institutions to a third party.
47. Even in the face of ‘status quo’ order, transactions have taken place between M/s MACKEL Components, strategic partner of PRR in settling the dues on 04.10.2006 and with ICICI ventures on 11.10.2006 and further M/s MACKEL Components (P) Ltd., the strategic partner of PRR settled with Standard Chartered bank on 28.05.2007 in the face of the AAIFR order dated 09.04.2007 and ‘status quo’ order dated 09.05.2007. All this goes to show that petitioner did not get a fair chance to take over the management due to the partisan attitude of the Operating Agency (OA) towards PRR, who failed to show his credibility in reviving the company by withdrawing his initial deposit and thereafter, bringing in third parties such as VEM Components (rejected by AAIFR) and subsequently M/s MACKEL Components (P) Ltd. as his strategic partner, for settling the dues of the financial institutions, while the Operating Agency was holding the monies of petitioner to the tune of Rs.206 lacs even by 05.08.2006.
48. The one other issue which was brought to the notice of the Court by learned Senior Counsel for Petitioner is that the present case is directly hit by the concept of ‘legitimate expectation', which is not a legal right but flows from expectation of benefit. He relied on GVK Industries Limited v. UOI ((2004) 1 ALD 676).
49. Learned counsel for IDBI as well as learned Senior Counsel for HCL and PRR has placed reliance on the judgment of the Hon’ble Supreme Court in Hindon River Mills Ltd. v. IFCI Ltd. ((2011) SCC Online, Delhi 5274). In this case, though the facts run parallel to the case on hand, they does not have a direct bearing on the present case. That apart, reliance has also been placed on M/s ATV Projects India Ltd. vs. Union of India, which, once again, has no bearing on the issue on hand. Properly appreciated, petitioner’s case does not call upon this Court to revive the repealed SICA regime or to assume the statutory functions which were earlier exercised by BIFR or AAIFR. The case calls for a judicial review of illegal, arbitrary, collusive and court defeating acts committed during and around the BIFR process, and for restitutive relief to restore petitioner to the legal position she would have occupied but for those collusive illegal acts. Thus, this Court is inclined to allow both the Writ Petitions in terms of the following declarations in response to the said prayers.
50. As regards the debt assignment, in answer to the first prayer, it is declared that the assignment of debts to the third party is illegal, null and void. A direction is now given to the effect that the said debts stand reassigned to petitioner or to her nominee (s) / assignee (s). This relief is sustainable as it merely undoes an assignment alleged to be contrary to the RBI norms, in breach of a concluded OTS arrangement, in abuse of OA powers, and as part of a collusive design to deprive petitioner of the fruits of her revival proposal. Grant of such relief would not require this Court to revive SICA or to act as BIFR. It would only restore the debt position, to what it ought to have been in law, had IDBI and the other institutions acted fairly and lawfully.
51. As regards the effective date and limitation for reassignment, which is the second prayer, it seeks value dating, i.e., reassignment be made effective from the same date on which the debts were originally assigned to the third party, while limitation for enforcement may run prospectively from the date of this Court’s order. This formulation addresses the obvious inequity that would arise if petitioner is denied the benefit of retrospective correction only because of prolonged litigation and the wrongful acts of others.
52. The retrospective dating is tied to ownership and legal correction, while the prospective commencement of limitation is tied to fairness in enforcement. This is an equitable moulding of relief, fully within the writ power of this Court, where the Court is undoing a void or voidable assignment, without prejudicing procedural fairness to the debtor company.
53. As regards share assignment, the third prayer herein, it is hereby declared that assignment of shares in favour of the third party is null and void and shares stand reassigned so that petitioner’s preemptive and other rights are restored prospectively from the date of the Court’s order. This relief is anchored in the allegation that control of the Company was altered through collusive and unlawful transfers engineered during the BIFR process and, in part, during the operation of status quo orders of this Court.
54. Restoration of the share position does not amount to Court supervised rehabilitation. It only removes an illegality created in the shareholding structure and restores petitioner’s legal rights to participate in any subsequent lawful process, whether corporate, insolvency-related, or otherwise.
55. As regards the fourth prayer for a direction for payment of the accrued interest, it is hereby directed that the said accrued interest on the OTS amount deposited with IDBI, including the periods covered by repeated requests after interest be paid, which was initially credited, and later stopped doing so, even though the monies had been deposited in furtherance of the OTS, for ensuring a fully tied-up scheme under the umbrella of BIFR.
56. This Court therefore, finds that this prayer is independently maintainable. Even assuming arguendo that debt reassignment is not immediately granted, the bank cannot retain petitioner’s money and deny the contractual or equitable incidents of such retention. A direction for payment of accrued interest is therefore, the minimum restitutive relief warranted on the admitted holding of funds.
57. That apart, Section 8 of the Indian Contract Act binds IDBI. Section 8 – Acceptance by performing conditions, or receiving consideration. It provides that:
“ Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.
This means, when an offer is made and the offeree accepts it by performing the required act (rather than communicating acceptance in words), a binding contract comes into existence. This is commonly referred to as acceptance by conduct or performance.
RELEVANCE OF ABATEMENT UNDER THE REPEAL ACT:
58. Before this Court parts with the judgment, it is necessary to say that –
Abatement of pending BIFR/AAIFR proceedings has created a remedial vacuum for persons such as petitioner, who cannot now seek statutory relief under the old regime and who may not independently qualify to invoke the IBC in the capacity of a financial creditor until the illegal assignments are undone. That is why the writ reliefs are framed not as revival reliefs under SICA, but as reliefs designed to set aside unlawful antecedent transactions and restore Petitioner to a legally-recognisable position.
59. Quite apart from the rival claims of petitioner and PRR to control and manage HCL, this Court takes note of the position of Respondent No.9 in Writ Petition No.10276 of 2007, namely, The President, Hyderabad Connectronics Employees Union, who represents the workmen of the Company. The factory has remained closed since December 1998 and the workmen, though they are at no fault, have borne the brunt of a boardroom and institutional battle that has continued for well over two decades.
60. The statement of objects and reasons of the SIC (Special Provisions) Act, 1985, extracted hereinabove, discloses that the legislation was enacted, amongst other things, to “afford maximum protection of employment” [Kamani Tubes, supra]. The welfare of labour was thus never intended to be incidental to, or a casualty of, the contest between rival claimants for control of a sick company; if anything, it was intended to be one of the central concerns of the revival process itself.
61. Therefore, petitioner is ultimately held entitled by this Court to control and manage HCL, such party shall remain duty-bound to secure the welfare of the labour. Both the parties ie. petitioner and PRR, in their respective pleadings before this Court and previously before the BIFR/AAIFR, professed their intention to revive and rehabilitate the Company and thereby protect the jobs of its employees. Hence, petitioner shall not be permitted to treat that professed concern as a mere convenience of litigation, to be disowned once control of the Company is secured.
62. The welfare of labour, in the present context, would necessarily include: (i) settlement of arrears of wages and other legitimate dues owed to the workmen; (ii) clearance of the Company’s outstanding statutory dues towards the Regional Provident Fund Commissioner, Respondent No.10, and the Director General, ESIC, Respondent No.12, referable to the period of closure and thereafter; (iii) payment of gratuity and other terminal/retiral benefits wherever due; and (iv) consideration, to the extent operationally feasible, of re-engagement of the existing workmen represented by Respondent No.9 in the event of resumption of the Company’s manufacturing operations.
63. This obligation does not depend upon, and does not require, revival of the repealed SICA machinery. It flows independently from the fact that the Company’s workmen, represented by Respondent No.9, are neither privies to, nor beneficiaries of, the disputes between the petitioner, PRR, IDBI and the other financial institutions regarding OTS, debt assignment and share transfer, and ought not to be made to suffer on account of a contest not of their making.
64. Therefore, as part of the final relief in these Writ Petitions, petitioner shall take care of and secure the welfare of the labour represented by Respondent No.9, including discharge of the dues referred to hereinabove, within two months from the date of receipt of a copy of this order and shall file a compliance affidavit before this Court, evidencing the steps taken in that behalf. Such a direction would be consonant with the “doctrine of public trust” already invoked in relation to the Operating Agency (discussed supra), and would ensure that the welfare of the labour is not rendered illusory merely by reason of change of hands in the management of the Company.
65. For the reasons given hereinabove, both the Writ Petitions are allowed. No costs.
66. Consequently, the miscellaneous applications, if any shall stand closed.
