- (1.) SUNIL Ambawani, J. U. P. State Cement Corporation Ltd. (UPSCCL) was declared as a Sick Industrial Company by Board for Industrial and Financial Reconstruction (BIFR) on 7-10-1992, and IDBI was appointed as the Operating Agency. Cemtech India was appointed by UPSCCL to prepare a techno viability report which was submitted in July, 1994. As on 31-3-1994, the accumulated losses of UPSCCL were Rs. 319. 81 crores as against the share capital and reserves of Rs. 68. 29 crores company did not submit any rehabilitation proposal or comments on the report submitted by Cemtech and thus BIFR directed the company to submit an alternative revival plan to the Operating Agency. The workers were also directed to submit rehabilitation proposal with the help of Tata Consultants within two months indicating the means of finance. No proposal was received by the Board within the time indicated. By the same order of the BIFR dated 28-12-1993 the State Bank of India, Allahabad Bank a and IDBI were directed under Section 21 of the Sick Industrial Companies (Special Provisions) Act, 1985, to prepare a complete inventory of all assets and liabilities and lists of registers/records/ documents of shareholders and creditors and to get valuation done and to report the matter to the Board. Since no proposal were received the Operating Agency issued an advertisement for change in management on 7/8-3-1995. Four offers were received in response to the advertisement. The Operating Agency was required to examine the relative merits of the proposals. The State Government was also required to indicate their views regarding their equity of Rs. 68 lacs, and loans of Rs. 50 crores to UPSCCL in the event of privatization. Out of the four proposals, M/s Gujrat Ambuja Cements Ltd. informed that they are not interested in the take-over and Dalmia Industries Ltd. did not submit any proposal. Dalla Shramik Sangthan and U. P. State Cement Corporation Workers Industrial Corporative Society submitted proposals. The operating Agency did not consider these proposals to be support worthy. In view of the employment of about 6000 workers, on the request of State Government, the Operating Agency was required to issue a fresh advertisement and to approach the resourceful parties to make reasonable efforts to locate resourceful parties to submit offers. Fresh advertisement was issued on 24-11-1995. The Operating Agency also approached about fifteen major cement companies, but no concrete proposal was received. Dalmia Industries Ltd. , H. B. group and Khandelwal Cement Ltd. sought time to submit proposals. They sought waiver of entire interest in term loans of financial institutions and bank which was not acceptable to them. Both the bidders erected to deposit a sum of Rs. 5 crores each in an interest bearing 'no-Lien' account with the lead Bank by 15-2-1996, and the Operating Agency was directed to examine the proposals. H. B. Group submitted a proposal requested for some information and visit to unit. Opportunity was given to visit the units and to have a meeting with the State Government to settle the terms and conditions. No agreed comprehensive proposal came forward for consideration. The proposals of H. B. Group did not inform to any norms of one time settelement. The financial institutions and banks were also not prepared to enter into a fresh term loan agreement. The proposals required the State Government to induct fresh funds on which the State Government did not give its views. The workers union did not agree to enter into any kind of agreement with H. B. Group. After giving opportunity to the State Government to convey their views in the matter, the Board directed that if no comprehensive rehabilitation proposal was received from the State Government by 7-11-1996, an opinion to wind up the company would be issued. Since the State Government requested for further time to constitute a committee whose Chairman was to be nominated by the State Government, the Board looking into the circumstances in which accumulated loss had increased to Rs. 380 crores and four years time had been spent in finding out and exploring all possibility of rehabilitation, formed a prima facie opinion that the company was not likely to make its net worth positive within a reasonable time, while meting all its financial obligations, and was not likely to become viable in future, and that it was thus just equitable, and in public interest that it should be wound up under Section 20 (1) of the Act. A show cause notice was issued on 18-11-1996.
(2.) ON 6-2-1997 the Board found that H. B. Group had withdrawn their proposal and obtained refund of the amount. It gave a further opportunity to the company, State Government and Workers to submit a comprehensive rehabilitation proposal. ON the request of Government time was extended twice. A revival proposal was submitted on 26-3-1997 for closure of two production lines, modernization/expansion of existing facilities, OTS of the dues of financial institution and banks, VRS as well as various concessions from the State Government including of induction of fresh funds for OTS, waiver of interest and conversion of their loans into equity. Operating Agency reported that the corporation will require interest free funds of order of about Rs. 250 crores for two years of implementation of Scheme and that the State Government has not communicated their commitment to induct requisite interest-free funds in the corporation for its revival. Subsequently the Operating Agency by its letter dated 17-6-1997 informed that even during the extended period they have not received any communication from the Government of U. P. and thus Board concluded that the promoters were not serious about rehabilitating the company and that there was no rehabilitation proposal with means of finance fully tied up before the Board for consideration despite ample opportunities having been given to all concerned. The Board, thereafter confirmed this prima facie opinion that the company is not likely to make its net-worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations, and that the company as a result thereof is not likely to become viable in future, and hence it should be wound up under Section 20 (1) of the Act. This opinion of the Board in its order dated 2-7-1997 was forwarded by the Registrar of BIFR vide its letter No. 60792-B-III dated 9-7-1997 to this Court which was received on 14-7-1997 in the Registry and on 17-7-1997 in the Company Section, and was registered as Company Application No. 4 of 1997. Aggrieved by the aforesaid order of the BIFR the company filed an appeal No. 169 of 1997 before the AAIFR on 8-8-1997 which was admitted and the operation of the order of BIFR was stayed. The company moved an application No. 62817 dated 24-9-1997 on 25-9-1997 for staying the proceedings before this Court. Appeal was dismissed on 19th February, 1998 upon which the Chief Standing Counsel for State of U. P. , file an application No. 40402 of 1998 (A-8) under Section 20 (2) of the Sick Industrial Company (Special Provisions) Act, 1985 dated 14-7-1998 filed on 15-7-1998 informing the Court that the appeal has been dismissed on 19th February, 1998 praying that the Court may order winding up of the UPCCL, and appointed an officer as official Liquidator of UPCCL having all the powers of official Liquidator under the Act. This application was supported by the affidavit of Sri Vishwa Nath Dubey, Upper Division Assistant in Industrial Development Department, U. P. Lucknow. Thereafter an application No. 43683 of 1998 was filed by the State Government through Chief Standing Counsel on 24-7-1998 for listing the matter for orders for appointment of Liquidator. An application No. 44062 of 1998 was filed by the Company on 27-7-1998 through its Counsel Sri Shiv Nath Singh for winding up of the company and to appoint official Liquidator as Liquidator of the company along with affidavit of Padam Singh, Managing Director of U. P. C. C. L. , Churk, Mirzapur. Cement Workers Union (CITU) and 13 other trade unions filed a writ petition No. 15134 of 1998 challenging the order dated 19-2-1998 passed by AAIFR and the order dated 2-7-1997 passed by the BIFR. They filed an affidavit (A-12) in this company application to keep the proceedings in abeyance till the disposal of the writ petition. The State Government filed a reply to the aforesaid application filed by the Cement Workers Union in the form of affidavit of Sri K. L. Meena, Special Secretary, Government of U. P. Industrial Development Departments, Lucknow, for rejecting the application to keep the winding up proceeding in abeyance, on the ground that UPSCCL is incurring recurring losses. In detailed objections, in the form of affidavit he gave reasons for losses suffered by the company. In para 9 it was stated that UPSCCL has on its rolls, including casual muster roll 5300 workers and that the major reason for the sickness of the Sick Company were financial, productive, technical, raw material, managerial and marketing problems. In paragraphs 10 to 35 he spelled out the reasons of financial losses which included the old and completely worn out factory of Churk plant. The second plant of the sick company at Dalla Cement Factory was installed and commissioned in the year 1970-71. It was stated that dry process cement plant established by the company for clinker production at Dalla and Grinding unit commissioned in 1982, could never produce/manufacture to its full capacity. The maximum production was achieved only in the year 1986-87 of 10-34 lacs metric tonne against the installed capacity of 16. 80 lacs tonnes, which over the year have come down to approximately 2. 2 lacs metric tonnes per year. The dry process plant was set up after taking huge amount of loan from financial institutions which the corporation failed to pay and that the bank and financial institutions have refused to give any further financial assistance to the company. The company was unable to meet competition from private sector which manufacture about 90% of the installed capacity of cement. In paragraph 36 to 45 Sri K. L. Meena mentioned about the steps taken by the BIFR to explore the possibilities of rehabilitation. He stated that the workers union had given exaggerated statement of surplus assets based on the report of Chartered Accountant in pursuance of the orders of this Court in July, 1998 claiming Rs. 151 crores as surplus assets which is self contradictory to the stand of the workers union before the Board as well as before the High Court in the writ petition in which the workers union have claimed surplus assets to be not more than five crores. In the writ petition the workers union filed a fresh rehabilitation scheme in which the surplus assets were shown to be of 25 crores. In para 46 he stated that as the 3 units of the company were not able to comply with the prescribed standard of emission norms in its various sectors on which the Central Pollution Control Board on 16-6-1997 has issued directions under Section 5 of the Environment (Protection) Act, 1986, and directed the company to stop their operation in all their three units. In the same paragraph it was stated that the continuous running of the company is causing disastrous effect on the natural vegetation/inhabitants of the area. In paragraph 59 he referred to the case of Rohtas Industries Ltd. , Dalmia Nagar in District Rohtas, Bihar reported in 1986 (86) Company Cases, page 1, in which the Apex Court entertained the writ petition during the pendency of the winding up before the Patna High Court and experimented with adopting various alternative schemes for rehabilitation of that industry with the help of the BIFR and after keeping the winding up proceeding in abeyance for years together, concluded that inspite of the best efforts the object to revive the company does not appear feasible and held that in these circumstances the future course of action and while bringing end to the proceedings directed, the winding up proceedings before Patna High Court be resumed. Sri Meena concluded that in view of the facts and circumstances enumerated by him and in view of Rohtas Industries experiment, the Court may order winding up of UPSCCL rather than entertaining similar rehabilitation scheme, as were submitted before the Board and were not found viable by the Board.
(3.) IN his aforesaid affidavit Sri K. L. Meena also submitted that since 1992 the State Government has directed sales tax deferment to the sick company for a period of 5 years with a benefit of approximately 50 crores as financial assistance which did not include latest payment of Rs. 11. 25 crores given to the corporation as an aid for payment of wages/salaries to employees for a period of 4-1/4 months. The company is not paying the taxes, royalties and that no measure whatsoever has been taken by the State to recover the same. It has been provided electricity and other facilities, for which the company is not making payment for the last several months. It was categorically mentioned that the State Government is neither in a position to invest hundred of crores rupees in the present sick company, and thus experiment without surety of rehabilitation of the company. He stated that the State Government had communicated to BIFR about the State Government's decision of not being in a position to invest huge amount of hundred of crores of rupees which was proposed by the Operating Agency; that the decision of the State Government was never reversed and that the State Government has not been in a position to further invest huge amount as required by the Operating Agency. At present there are no assets whatsoever, what to say about the surplus assets free from encumbrances of the company and all assets of the company are mortgaged with the financial institution and banks, including the INdustrial Development Bank of INdia, against the loans taken by the sick company. Neither the Corporation nor the State Government has control whatsoever on the realization arising out of the assets, as first charge on these assets vests with financial INstitutions, banks. He thereafter submitted that fallacy in the report of Chartered Accountant on the valuation of report of M/s. S. K. Ahuja and Associates, Kanpur and valuation Report of M/s. S. A. F. Fargusan and Company, in which the findings were contradictory. It was mentioned that M/s. S. N. Singh and Company has further estimated figures of the assets and the justification to calculate value of the school building which are to run as Government institutions and valuation of land are high in the backward area. This affidavit running into 113 paragraphs given by Sri K. L. Meena, Special Secretary, INdustrial Development, Government of U. P. , summarized the position of the State Government and its objection to the rehabilitation proposals of the Cement Corporation Unit. Writ Petition No. 15134 of 1998, was dismissed by this Court on 8-12-1999 with observations that in case the assets of company are sold, the workers will be given first priority in payment. The operative portion of the order is quoted as below: "in the last, the learned Counsel for the petitioner submitted that the workmen had been working in the sick unit. They are entitled to wages till the winding up order is passed. This submission was also raised before the Board it noted the submission in its meetings held on 26-9-1996 and observed as follows: In case the State Government decide to wind up the Corporation they should do so and pay all the dues of the labour. The present Government has different policy regarding sick P. S. Us as compared to the previous Government and the workers are hopeful that a favourable view will be taken in this case. " There is no reason why the workers be not paid their salary. In view of the above discussion the writ petition is dismissed against the recommendation of the Board dated 6-2-1997, and the order of the Appellate Authority dated 19-2-1998. The writ petition, in so far as the direction in the nature of mandamus commanding Respondent No. 4 to make payment of all dues to the workmen for the period till today, is allowed, In case Respondent No. 4 is not able to pay the amount, on winding up of the Corporation, the payment shall be made to the workers prior to making any payment to any person in accordance with Section 539-A of the Companies Act, 1956. The writ petition, as against the other reliefs claimed in the writ petition is hereby dismissed. ";