M.L.PENDSE - (1.) By this petition filed under Article. 226 of the Constitution of India, the petitioners are seeking a writ of mandamus directing the Bank of Baroda-the respondent No. 1-to take petitioner No. 1 Company into the nursing/rehabilitation programme for viable sick units in accordance with the guidelines and directions contained in the Circular dated Nov. 5, 1985 issued by the Reserve Bank of India.To appreciate the claim of the petitioners, it is necessary to set out the relevant facts which led to the filing of the present petition. The petitioner No. 1 is a Public Limited company and carries on business of manufacturing dyes, dyes intermediates and auxiliaries at its two plants situated at Ambarnath and Tarapore. Petitioner No. 2 is the Managing Director of the Company. The respondent No. 1-Bank of Baroda, respondent No. 7 Andhra Bank and respondent No. 8-Corporation Bank are Nationalised Banks and had advanced large amounts to the petitioner from time to time. The petitioner No. 1 Company was incorporated in the year 1960 and enjoyed credit facilities from the inception from Bank of Baroda. The petitioner No. 1 Company has employed about 500 workmen. The production capacity at Ambarnath is 720 metric tonnes per annum and that at Tarapore is 300 metric tonnes per annum and the products manufactured by the petitioners are principally used in the textile industry. Between April and June 1980, the Company suspended its work and in the year 1980-81, the Company sufferred considerable losses. The labourers went on strike for a period of eight months in the year 1981-82 and ultimately on March 5, 1983, the Company was declared as a sick unit. From the year 1980 onwards, the Company has been continuously incurring losses.The sickness of the Company has been attributed by the petitioners mainly to the textile strike in Bombay, labour strike in the Company, competition from small scale units enjoying special excise reliefs and also lack of supply of adequate working capital in time. On Oct. 13, 1983, the petitioner No. 1 Company was declared as a Relief Undertaking under the Bombay Relief Undertakings (Special Provisions) Act, 1958 by the Government of Maharashtra.
(2.) The petitioner No. 1 Company had a Cash Credit account in addition to the working capital term loan account with the Bank of Baroda and availed of the facilities to the extent of Rs. 4 crores. The Company after being declared as a sick unit, approached Bank of Baroda for more financial assistance and the Bank noticed that the Company had continuously incurred losses from the year 1980-81 onwards and the irregularities in the account had increased. As on June 30, 1983, the total excess withdrawals and the interest there on came to about Rs. 250 lakhs. The Bank of Baroda, therefore, thought it wise to secure a viability report about the petitioner No. 1 Company from one Gami Consultants on July 22, 1983. Gami Consultants made a preliminary report on September 20, 1983 and in pursuance of that report, the petitioner Company submitted an application to the Bank under the Credit Authorised Scheme for additional funds of Rs. 265 lakhs. The Bank decided to regularise the irregularity in respect of an amount of Rs. 250 lakhs by converting the same into a working capital term loan in addition to the existing working capital term loan of Rs. 30 lakhs. Between March 22, 1984 and August 1984 Bank of Baroda entered into correspondence with Reserve Bank of India seeking approval for enhancement of working capital. The Reserve Bank of India initialy sanctioned the amount which was less than sought by Bank of Baroda, but after follow up, ultimately, the Reserve Bank of India gave authorisation in January 1985 for working capital of Rs. 307 lakhs and working Capital Term Loan of Rs. 360 lakhs. The Reserve Bank of India gave authorisation on condition that no further irregularity is developed in the account either by debit of interest or by allowing excess withdrawals. The Reserve Bank of India gave authorisation only for a period of one year. In January 1985, Gami Consultants made their final report about the viability of petitioner No. 1 Company and the report was favourable to petitioner No. 1 Company. In July 1985, the General Manager of Bank of Baroda advised the financial expert Shri Mody who is an officer of the Bank, to study the report and make a note. Shri Mody forwarded his note on August 3, 1985 pointing out that the report made by Gami Consultants was too optimistic and it is unlikely that the company would be rescued by pouring of more funds by the Banks and financial institutions. On August 26, 1985, Maharashtra State Financial Corporation which had advanced Rs. 12.71 lakhs to petitioner No. 1 Company served notice of recovery of the balance.
(3.) On Novemer 5, 1985, the Reserve Bank of India issued Circular to Scheduled Commercial Banks prescribing parameters for provision of reliefs/concessions by Banks under rehabilitation packages evolved for sick units considered as potentially viable. The Circular, inter alia, recites that in absence of guidelines regarding the concept of viability as well as the extent of reliefs/concessions which could be extended by the Banks, much time is lost in arriving at mutually acceptable packages and the packages are drawn up on an ad hoc basis resulting into disparities between one case and another and inequitable sharing of sacrifices amongst the concerned agencies. Some uniformity in the matter of concession extended within a broad framework was felt essential. The Circular also sounds warning that availability of large concessions from the Banks and term lending institutions has often tempted the borrowers to demand excessive concessions with practically no contribution on their part in the rehabilitation measures. The Circular then sets out that viability on a commercial basis should be the main criterion for undertaking the rehabilitation of a sick unit. The viability is defined as under : "A unit may be regarded as viable if it would be in a position, after implementing a relief package spread over a period not exceeding seven years from the commencement of the package from Banks, financial institutions, Government (Central/State) Government agencies, shareholders, suppliers of goods and services and other creditors, as may be necessary, to continue to service its repayment obligations as agreed upon including those forming part of the package, without the help of the concessions after the aforesaid period the repayment period for restructured debts should not exceed ten years from the date of implementation of the package." The Circular also sets out that the details of packages evolved should be reported to the Reserve Bank where the units enjoy working capital of Rs. 1 crore and above from the Banking system. It further prescribes that in the case of borrowers coming under the purview of the Credit Authorisation Scheme, enhancements in the credit limits sanctioned by the Banks should be referred to the Reserve Bank for prior authorisation. The Reserve Bank of India is also required to be associated in the joint meetings convened for finalising the packages. The circular makes it clear that it should be ensured that the burden of relief and concessions is not borne by the Banks and term lending institutions alone but is shared in an equitable manner by the various agencies interested in the revival of the units. In pursuance of the guidelines issued by the Reserve Bank of India, on Dec. 26, 1985, Bank of Baroda advised petitioner No. 1 Company to submit fresh proposals to establish that the company is a viable Unit in accordance with the guidelines. On Dec. 30, 1985, petitioner No.1 Company furnished the requisite details and thereafter on Jan. 22, 1986, a joint meeting of the Officers of the Bank and the financial institutions and the Reserve Bank was held. The summary of the decisions reached in the meeting was as under :- (a) The respondent No. 3 Industrial Reconstruction Bank of India will undertake a detailed viability study and in case the report is favourable then may consider granting of loan to provide margin money for the additional working capital of Rs. 150 lakhs by Bank of Baroda, provided the promoters contribute at least 20% thereof . (b) Consortium consisting of three Nationalised Banks and the State Industrial and Investment Corporation of Maharashtra Limited and Maharashtra State Financial Corporation agreed to consider the following package to the Company, subject to approval of the higher authority of respective Bank/financial institution : (i) Bank of Baroda will assess the working capital requirements of the Company on receipt of the complete data from the Company. (ii) Interest on cash credit and loans will be funded from April 1, 1980 to June 30, 1986 which will bear interest at 10% per annum. (iii) Irregular portion in the Cash Credit Account with Bank of Baroda will be funded which will bear interest at 13.5% per annum, and (iv) Banks and Financial Institutions will re-schedule repayment of loans and funded interest which shall be repaid within a period of seven years with one year moratorium. In pursuance of the tentative decision reached in this meeting, Bank of Baroda advised the Company on February 25, 1986, to furnish details about the working of the Company. On April 17, 1986, Bank of Baroda informed the Government of Maharashtra to continue to treat the petitioner No. 1 Company as Relief Undertaking as the Bank was considering nursing the Unit. In the meanwhile, Bank of Baroda examined the viability report forwarded by Gami Consultants and the note prepared by Shri Mody. Thereafter, the General Manager prepared his own note on May 2, 1986 and felt that the petitioner No. 1 Company was not a viable Unit and it would not be advisable to nurse such Unit as it would not be able to repay the loan within the framework of the guidelines laid down by the Reserve Bank of India. The note prepared by the General Manager was approved by the Managing Director and the Chairman and the decision was subsequently confirmed by the Board of Directors in the meeting dated May 8, 1986. The Board decided to recall the advances made to the Company and, accordingly, on May 14, 1986, Bank of Baroda served notice on the petitioners to repay the amount. The petitioner thereupon filed the present petition on May 16, 1986 and the petition was admitted on May 21, 1986 and certain interim orders were passed. Thereafter on June 16, 1986, Bank of Baroda instituted suit in this Court against petitioner No. 1 Company for recovery of an amount of Rs. 868.25 Lakhs inclusive of interest calculated upto May 31, 1986.;