# NA VNIT R. KAMANI & ORS v. R.R. KAMANI

- **Citation:** [1988] Supp. 3 S.C.R. 123
- **Court:** Supreme Court of India
- **Decided:** 1988-09-19
- **Case number:** Civil Misc. Petition.No. 22428 of 1988
- **Bench:** A.P. Sen, M.P. Thakkar, S. Natarajan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/na-vnit-r-kamani-ors-v-r-r-kamani-10020
- **Pages:** 18

## Headnote

B
Constitution of India, 1950: Articles 3 IC and 142-Sick Industrial Companies (Special Provisions) Act, 1985-Constitutional validity
of-Workers' Scheme for revival of Kamani'Tubes Limited-Directions
by Courts.
Sick Industrial Companies (Special Provisions) Act, 1985: Sections 2 and 18-Kamani Tubes Limited-Workers' Scheme for revival
of company.
A dispute between different branches of an industrialist family
culminated in the instant special leave petition. This Court, with a view
to speedily resolve the dispute between the parties, and keeping in view
the interest of the workers employed in the Kamani Tubes Ltd. (KTL).
in August 1984 persuaded a retired Judge of the Supreme Court to
mediate between the parties. In August 1985, (KTL) .stopped production. During the discussions before the Mediator on July 2, 1986 it was
decided that the different groups of the family would try to find a
willing buyer for 90% shares held by them. At the same time, the
Mediator permitted the workers to frame a scheme on their own for
restarting the factories.
In July 1987 the Kamani Employees Union (KEU) instituted a
petition seeking Court's directions for the sale of KTL shares to KEV
and for expeditious consideration of the scheme submitted by the workers for the revival of the factories. In pursuance of the directions of the
Court, the scheme was scrutinised by the Board for Industrial and
Financial Reconstruction (BIFR) constituted under the Sick Industrial
Companies (Special Provisions) Act, 1985. The Board after consultation
with various agencies including the Industrial Development Bank of
India, sanctioned the Workers' Scheme on 6th September 1988, which
was placed before the Court for further orders. At this stage one of the
parties (Shri Ashish Kamani) submitted an alternate scheme.
While stamping the Workers' Scheme with the imprimatur of the
Court, it was,
-
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124
SUPREME COURT REPORTS
[1988) Supp. 3 S.C.R.
HELD: (1) When the two Schemes are viewed in juxtaposition,
A there is no manner of doubt that the scheme presented by Shri Ashish
Kamani appears in a rather poor light. The entire scheme is wrapped in
imponderables and Is bunt on a l10ll-i!Xistant foundation, [134G; 135B, 135C)
(2) Section 18 of the Sick Industrial Compa!Jies (Special ProviB sions) Act, 1985 inter-alia provides for the reduction of the interest or
rights of the shareholders in the sick industrial company to the extent
necessary for the reconstruction, revival or rehabilitation of the sick
company, and further provides for the transfer of its shares at their face
value or Intrinsic value to the employees of the sick company. [136F-G]
(3) The provision for transferring the shares to the employees
· C ·makes manifest the Intention of the legislature to encourage the employees to take over the sick units and io clothe the competent authority
with power to direct the transfer of the shares to the employees In this
behalf. Thus the authority and competence of the BIFR to issue a direction for the transfer of the shares to the employees has the full backing
D of the benevolent legislation enacted especially in .order to restructure
or revive the sick undertakings. [137A-B]
( 4) The BIFR has rightly reached the conclusion that the intrinsic
value of the KTL share is zero and the Board was perfectly right in
directing the members of the Kamani family to transfer the shares at
E the rate of Re. I per share in order to effectuate the Scheme for revival
ofKTL. [137E-G]
( 5) Since the Scheme Is being framed under the statutory authority and directive In order to revive the Industry in the larger public
interest and inasmuch as there is a necessary declaration contained in
F
Section 2 of the Act which attracts the applicability of Art. 31C of the
Constitution, the decision rendered by the BIFR is unassailable and
unimpeachable. [1380]
(6) The Scheme has been framed as per the direction and
mandate of this Court in exercise of its inherent jurisdiction and its
G c

## Text

_Characters 0–39,879 of 42,242. This is a partial read: ask again with offset=39879 for what follows._

NA VNIT R. KAMANI & ORS.
v.
R.R. KAMANI
SEPTEMBER 19, 1988
A
[A.P. SEN, M.P. THAKKAR AND S. NATARAJAN, JJ.]
B
Constitution of India, 1950: Articles 3 IC and 142-Sick Industrial Companies (Special Provisions) Act, 1985-Constitutional validity
of-Workers' Scheme for revival of Kamani'Tubes Limited-Directions
by Courts.
Sick Industrial Companies (Special Provisions) Act, 1985: Sections 2 and 18-Kamani Tubes Limited-Workers' Scheme for revival
of company.
A dispute between different branches of an industrialist family
culminated in the instant special leave petition. This Court, with a view
to speedily resolve the dispute between the parties, and keeping in view
the interest of the workers employed in the Kamani Tubes Ltd. (KTL).
in August 1984 persuaded a retired Judge of the Supreme Court to
mediate between the parties. In August 1985, (KTL) .stopped production. During the discussions before the Mediator on July 2, 1986 it was
decided that the different groups of the family would try to find a
willing buyer for 90% shares held by them. At the same time, the
Mediator permitted the workers to frame a scheme on their own for
restarting the factories.
In July 1987 the Kamani Employees Union (KEU) instituted a
petition seeking Court's directions for the sale of KTL shares to KEV
and for expeditious consideration of the scheme submitted by the workers for the revival of the factories. In pursuance of the directions of the
Court, the scheme was scrutinised by the Board for Industrial and
Financial Reconstruction (BIFR) constituted under the Sick Industrial
Companies (Special Provisions) Act, 1985. The Board after consultation
with various agencies including the Industrial Development Bank of
India, sanctioned the Workers' Scheme on 6th September 1988, which
was placed before the Court for further orders. At this stage one of the
parties (Shri Ashish Kamani) submitted an alternate scheme.
While stamping the Workers' Scheme with the imprimatur of the
Court, it was,
-
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G
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124
SUPREME COURT REPORTS
[1988) Supp. 3 S.C.R.
HELD: (1) When the two Schemes are viewed in juxtaposition,
A there is no manner of doubt that the scheme presented by Shri Ashish
Kamani appears in a rather poor light. The entire scheme is wrapped in
imponderables and Is bunt on a l10ll-i!Xistant foundation, [134G; 135B, 135C)
(2) Section 18 of the Sick Industrial Compa!Jies (Special ProviB sions) Act, 1985 inter-alia provides for the reduction of the interest or
rights of the shareholders in the sick industrial company to the extent
necessary for the reconstruction, revival or rehabilitation of the sick
company, and further provides for the transfer of its shares at their face
value or Intrinsic value to the employees of the sick company. [136F-G]
(3) The provision for transferring the shares to the employees
· C ·makes manifest the Intention of the legislature to encourage the employees to take over the sick units and io clothe the competent authority
with power to direct the transfer of the shares to the employees In this
behalf. Thus the authority and competence of the BIFR to issue a direction for the transfer of the shares to the employees has the full backing
D of the benevolent legislation enacted especially in .order to restructure
or revive the sick undertakings. [137A-B]
( 4) The BIFR has rightly reached the conclusion that the intrinsic
value of the KTL share is zero and the Board was perfectly right in
directing the members of the Kamani family to transfer the shares at
E the rate of Re. I per share in order to effectuate the Scheme for revival
ofKTL. [137E-G]
( 5) Since the Scheme Is being framed under the statutory authority and directive In order to revive the Industry in the larger public
interest and inasmuch as there is a necessary declaration contained in
F
Section 2 of the Act which attracts the applicability of Art. 31C of the
Constitution, the decision rendered by the BIFR is unassailable and
unimpeachable. [1380]
(6) The Scheme has been framed as per the direction and
mandate of this Court in exercise of its inherent jurisdiction and its
G constitutional jurisdiction under Art. 142 of the Constitution and therefore the framing of the Scheme and the enforcement of the sanctioned
scheme does not detract from or have any impact on the obligation
incurred by the guarantors in regard to the debts incurred by KTL in
the past .. The concerned Banks were and are bound by the directives
and mandates. [138E-F]
H
N.R. KAMAN! v. R.R. KAMAN! (THAKKAR, J.]
125
(7) Notwithstanding any order that may be secured by any party
from any other forum the ·scheme shall be implemented iii obeisance to
A
the judicial command embodied in this order and that in case there Is
any problem, it may be brought to this Court for seeking appropriate
directions instead of resorting to other forums to impede the implemen·
talion of this socially and economically wholesome scheme.[139C-D]
CIVIL APPELLATE JURISDICTION: Civil Misc. Petition.No.
22428 of 1988.
IN
SPECIAL LEA VE PETITION (CIVIL) NO. 15228 OF 1983.
B
From the Judgment and Order dated 17.8.1983 of the Bombay
C
High Court in Arbitration Petn. No. 6 of 1983.
(FOR DIRECTIONS WITH CMP Nos. 22429/88 & 3805/87).
And in the matter of the scheme for revival sanctioned by the BIFR by
its decision dated 6th September, 1988 in pursuance of the directions
D
of this Court.
R.F. Nariman, D.H. Nanavati, Raian Karanjawala, Mrs. Manik
Karanjawala and Hardeep S. Anand for the Petitioners.
Dr. Y.S. Chitale, S. Ganesh, LR. Joshi, Arun Sinha, P.
E
Parmeshwaran, A.K. Sinha, Mrs. Vijayalakshmi Menon, B.R.
Agarwala, Ms. Sushma Manchanda, Ms. Urmila Kapoor, B.V. Desai,
A.K. Verma, D.N. Misra, Shri Narain, Atul Sharma, Vineet Kumar,
A.S. Bhasme, P.H. Parekh, M.K. S. Menon, K.C. Dua, H.S. Parihar,
K.J. John, A.K. Sinha, Girish Chandra, A.K. Sil, G. Joshi, Ms. Nina
Gupta, Vineet Kumar, S.K. Dogra, Harish N. Salve, Ms; Nina Kapur
F
and Manoj Swarup, for the Respondents.
N.B. Shetye, Gopal Subramaniam and Mukul Mudgal for the
Intervener.
The Order of the Court was delivered by
THAKKAR, J. More than a thousand brimming eyes are waiting
to .replace the tears of despair by tears of relief. No less than 600
wronged workers of a once prosperous industrial unit' induced or
reduced to 'sickness' are on their toes to resort to self•help to restore
I. Kamani Tubes Llmite~ (KTI.).
·G
126
SUPREME COURT REPORTS
[ 1988) Supp. 3 S.C.R.
A the lost source of their butterless bread. Their pens are quivering to
write a new chapter in the sage of workers' struggle for finding their
true 'indentity' and 'dignity'. Their dream is coming true with the
enlightened and refreshing approach of the Central and State Governments, and the concerned Nationalized Banks', coupled with prompt,
efficient and swift decision making on the part of the BIFR3 and the
B IDBI'. And with the consensus of all the parties (which is the most
heartening feature) who have risen above narrow individual interests
by not opposing the workers' scheme in order to promote the larger
National interest of reviving the industry, augmenting the National
product and providing employment to hundreds of starving workers
(three of whom became martyrs to the cause by committing suicide).
c
Internal discord gave rise to disputes and litigations between
different branches of a family headed by a pioneering and successful
industrialist' in the wake of his demise, which culminated in SLP No.
15228 of 1983 wherein all the concerned members of the family were
impleaded. When the said matter came up before this Court it was
D impressed upon the parties that the internecine conflict between the
warring factions deserved to be speedily resolved, not only in their own
interest, and for saving the name and honour of the founder, but also
to ensure that neither the industrial units nor the workers employed in
the industries which were controlled by one or the other branch of the
industrial family, were ruined. A retired Judge of the Supreme Court"
E was accordingly prevailed upon to accept the assignment of resolving
the innumerable problems in the larger interest of the warring factions
as also in order to protect the interests of the community and the
workers in August 1984. The learned Mediator has invested considerable time, effort and accumen in order to resolve the problems
presented in the course of the proceedings and has successfully disenF tangled the economic mess to a considerable extent. This is evident
from the fact that after the learned Mediator came on the scene
Income Tax and Capital Gains Tax dues to the tune of over Rs.48
lakhs and over Rs.35 lakhs respectively have been paid.
2. Bank of India, Canara, Bank and Dena Bank.
C'.J. J. Board for Industrial and Financial Reconstruction constitutecLun-der the Sick Indust·
rial Companies (Special Provisions) Act of 1985, (Act).
4. Industrial Dev!!lopment Bank of India.
5. Shri Ramjibhai Kamani.
H 6: Justice A.C. Gupta.
N.R. KAMANI v. R.R. KAMAN! (THAKKAR, J.]
In the course of the proceedings it came to light that:
;
127
( 1) KTL has stopped production and ceased working in August
i985.
(2) KTL has not resorted to closure of the unit or to retrenchment of the workers in accordance with the relevant provisions of law.
(3) While in the eye of law and in theory the workers continue
on the rolls of KTL and in employment of KTL, the workers
have not been paid wages for over 8 months since December
1984 till stoppage of work in August 1985 and ever since till
now. The arrears till August 1988 work out in the region of
Rs.6 1/2 crores.
(4) The wages due to the workers amounting to approximately
Rs.2.5 crores have remained unpaid since December 1984.
(5) Employees' contribution to Provident Fund actually deducted from the wages of the workers to the tune of approximately 31/2 lakhs had been wrongfully retained by the
management and criminal prosecutions are pending in the
Criminal Courts·.
·
(6) The starving workers who have not been paid their wages
since December 1984 have been squatting on the factory
premises which have been abandoned by the Management.
The workers have remained on the premises in order to keep
A
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day and night vigil for all these years since August 1985 in
order to protect the plant which had provided them work and
F
enabled them to earn their bread with the sweat of their
brow.
(7) Three of the starving workers have committed suicide on
. account of their inability to survive the burden of misfortune
heaped on them.
G
The plight of the workers notwithstanding, they exhibited exemplary conduct in their part, and the Kamani Employees Union (KEV)
extended its hand of cooperation to the Kanani family group .as has
been noticed by the learned Mediator. in his minutes dated July 2,
~~:
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SUPREME COURT REPORTS
[1988) Supp. 3 S.C.R.
"The bona fides of the applicant workers would be clear
from the fact that in spiie of the fact that no wages have
been paid to them for the last 14 months, yet, in order to
demonstrate their spirit of cooperation, the workers,
through their union, had offered in writing to cooperate
with the management and accept deferred payment of un·
paid wages. The applicants repeat and reiterate that offer.
The workmen always were, and still are ready and willing
to accept the arrears of unpaid wages with increase of production and creation of surplus.
I shall be happy if the authorities who have to take a
decision in this matter could find their way to accepting the
request of the workers who have not received wages for
about 16 months now.
As regards the two proposals given by the workers,
neither of them was found acceptable by any of the Kamani
family groups present; they thought that the proposals
were not feasible."
A proposal was then mooted to sell 90% of the shares of KTL. Meanwhile the workers sought leave to frame a scheme of their own for
revival of the 'sick' unit. What exactly transpired 2-1/2 years back has
E
been recorded in the Mediator's minutes dated July 2, 1986:
F
lllI
"At the end of the discussions it was decided that the different groups of the family or any of them would try to find a
buyer willing to buy the 90% shares held by the family in
Kamani Tubes Limited as it is at present. The buyer will
have to sit with the workers of the company to come to
an agreement with them with regard to .. the payment of
their dues. If the prospective buyer wishes to inspect the
factories, 'no objection would be raised either by the
workers' or the present management of the company.
Parties will report to me within six weeks any progress
made in this matter.
On behalf of the workers it was submitted that as the
search for a buyer was likely to take time, they may be
permitted in the meantime to try and frame a scheme of
their own for restarting the factories after discussing the
matter with the Bank and other authorities. They are free
to do so."
N.R. KAMAN! v. R.R. KAMAN! [THAKKAR, J.]
129
And after an exasperating waiting period of nearly one year thereafter
the workers instituted CMP No. 3805 of 1987 on July 2, 1987 inter alia
seeking the following prayers:
"(a) All appropriate orders and directions for the sale of
the shares of KTL to KEV on behalf of and representing
A
the proposed society at such price and on such valuation.
B.
as this Hon 'ble Court in its absolute discretion deems
proper and subject to such terms and conditions as may be
stipulated.
(b) appropriate orders and directions to the said Board
respondent No. 59 to take expeditious remedial and other
measure for the revival of the factories of the K. T. includC
ing directions to the said Board to consider the scheme of
the applicants fo1' the revival and rehabilitation of K. T. in
terms of Exhibits 10 and 12 hereto.
•
( c) all appropriate orders and directions for the implemenD
talion and consideration of the scheme for the revival of
the factory of K.T. as per Ex. 10 and 12 hereto including
directions for management of K. T., amendment of Articles
of K.T. and all matters connected therewith with such
modifications as may be deemed necessary."
By an order of this Court, dated October 13, 1987 in CMP
3805/87, this Court directed the BIFR to file a feasibility report with
respect to the scheme presented by the workers for the revival of KTL.
This Court also directed the BIFR to hear the workers as well as the
different groups of Kamani family before making its recommendaE
;~
lions. As per this direction the Board held a number of hearings which F
were attended inter alia, by representatives of KEV, Financial Institutions, Banks, State Government, -Central Government and different
groups of the Kamani family, IDBI, an apex institution in the field of
term lending and one of the operating agencies of BIFR, was entrusted
•
with the examination of KEV's scheme partioularly with regard to
technical health of the plant and time required to run it, various G
assumptions made in respect of the parameters of costs/prices, estimates of production pattern vis-a-vis projection of future demand,
correctness of cost of production, working capital requirement, projected operating cash surplus etc. IDBI submitted its report which was
discussed in the subsequent hearings and the views of the concerned
agencies, such as, Banks, State Government, Central Government. H
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130
SUPREME COURT REPORTS
[1988] Supp. 3 S.C.R.
and the commitments regarding reliefs and concessions that would be
available from these agencies, were obtained. On being so required
IDBI subsequently revised its projections and viability estimates.
Based on the above, BIFR prepared its Feasibility Report and submitted it to this Court. After considering the report of BIFR, and hearing
various parties and with the consent of the parties, this Court vide its
order dated 20th April, 1988 directed, inter-alia, that the matter be
placed before BIFR for consideration whether it should proceed to
pass an order in terms of the proposed scheme as revised in consultation witr. IDBI under Section 18(4) of the Sick Industrial Companies
(Special Provisions) Act, 1985. The Board was requested to arrive at a
decision after giving notice to all the concerned parties. The relevant
part of the order deserves to be quoted:
"In compliance with the Court's order dated 13th October,
1987 the Board for Industrial & Financial Reconstruction,
New Delhi, established under section 4 of the Sick Industrial Companies {Special Provisions) Act, 1985 in consultation with the Industrial Development Bank of India,
constituted under section 3 of the Industrial Development
Bank of India Act, 1964 as its operating agency within the
meaning of section 3(1) of the Act, considered in depth the
scheme submitted by the Kamani Employees Union and
has evaluated the same by its 'feasibility report' dated 12th
January, 1988. We have heard learned counsel for the
parties and they agree to the order we purpose to make.
We direct that the matter shall now be placed before
the Board for Industrial & Financial Reconstruction for
consideration as to whether it should proceed to pass an
order in terms of the proposed scheme as revised in consultation with the Industrial Development Bank of India
under section 18(4). The Board shall come to a decision
after notice to all the parties and it shall act in conformity
with the provisions of the Act. The Board may, if necessary, frame its own scheme or adopt the proposed scheme
framed by the Kamani Employees Union, with such
modifications as it deems fit. The Board shall also be at
liberty to consider ,any alternative scheme at its discretion
but the whole exercise shall be completed within eight
weeks from today. If the objections to the Kamani Employees Union ·s scheme are not sustained the said scheme
shall be dealt with according to law."
N.R. KAMAN! v. R.R. KAMAN! !THAKKAR, .LI
131
Pursuant to the 'direction of this Court, the Board afforded a hearing
to all the concerned parties on 20th May, 1988 and after having
examined the submissions made but the various groups of Kamani
family, Banks, State Government and Central Government, prepared
a Draft Scheme for revival of KTL. The said draft Scheme was
circulated to all the parties concerned and short particulars thereof
were also published in two news dailies for the information of the
shareholders, the creditors and the employees etc. in general. The
parties were given due notice for making suggestions/raising objections wfth respect to the Scheme. On receipt of various suggestions/
objections me Board held its hearing on 28.7.88 for considering the
same. After hearing all the parties, and after having examined all
the written/oral submissions made, the Board has financed, and sanctioned the scheme as per its decision dated 6th September, 1988 which
has now been placed before this Court for further orders in the light of
the submissioru. of the concerned parties
Two questions arise in the context of the Workers' Scheme which
has been sanctioned by the BIFR as per its decision dated September
6, 1988:
(1) Whether the Scheme presented by Shri Ashish Puranchand
Kamani, applicant in CMP No. 22428 of 1988, at the time of
the hearing on Uth September, 1988 (which was not
presented before BIFR) deserves to be considered having
regard to his claim that his scheme is preferable to the
Workers' Scheme already sanctioned by the BIFR on
September 6, 1988.:
(2) Whether the Workers' Scheme as sanctioned by BIFR
A
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deserves to be stamped with the imprimatur of the Court.
F
The scheme presented by Shri Ashish Kamani who claims to hold
24% of the shares of KLT, could not be presented before the BIFR,
which was seized with the matter in regard to the framing of a feasible
Scheme in pursuance to the directions of this Court, till the BIFR
rendered its decision on September 6, 1988. In the order dated April
G
20, 1988, this Court had observed that:
"The B.oard may, if necessary, frame its own scheme or
adopt the revised scheme framed by the Kamani Employees Union, with such modifications as it deems fit. The
Board shall also be at liberty to consider any alternative ij
\
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SUPREME COURT REPORTS
[1988] Supp. 3 S.C.R.
Bcheme at its discretion but the whole exercise shall be
completed within eight weeks from today."
Two points must be underscored. First, that the Court had merely
accorded "liberty" to the Board to consider any alternative scheme,
and secondly that the matter was left to the "discretion" of the Board.
It is therefore clear that no 'right' was conferred on any party to
present a new scheme. Option was given to the Board to exercise iis
discretion to consider any alternative Scheme if it was presented within
the time-frame. Learned counsel for the applicant Shri Ashish
Kamani, could not contend that any 'right' was conferred on the applicant to present a Scheme. In fact there was no obligation on the part of
the Board to consider the Scheme even if it was presented within the
time-frame. As a matter of fact the applicant did not present any
scheme before BIFR within the time-bracket specified by this Court.
And the Board has, after full and complete deliberation, rendewd a
well-considered decision sanctioning the Scheme of the workers. On
6th September, 1988, about a week before Shri Ashish Kamani, the
o applicant, was able to present his Scheme. It is not necessary to
examine the issue as to whether or not there was any justification
for not presenting the Scheme before the stipulated deadline. Even
though it is too late to examine the applicant's scheme it is not considered appropriate to shut out consideration of the scheme only on the
ground that it is being presented so late and the workers' scheme has
E already been sanctioced much earlier. In case the applicant is able to
persuade the Court that the Scheme presented by him is preferable to
the Workers' scheme in the larger interest of an concerned, the decision rendered by the BIFR could possibly be set aside and the Scheme
presented by the applicant could possibly be remitted to the BIFR for
F
considering the whole matter afresh. Of course it would cause great
hardship to all concerned more particularly because the Scheme sanctioned by BIFR on 6th September, 1988 comes into force with
'immediate effect'. It has also to be realised that the matter would be
delayed by several months at the cost of the suffering workers. These
are considerations which are more than adequate to discourage and
deter the Court fiom undertaking any such exercise. All the same we
G have heard the learned counsel for the applicant in regard to the,
Scheme presented by him even at this late stage. As indicated earlier
learned counsel for the applicant stated that while the applicant did
not oppose the Scheme presented by the workers, the applicant was
confident of persuading the Court to hold that the Scheme presented
by the applicant was by far in the larger interest of all concerned as
H compared to the Scheme presented by the workers and sanctioned by
N.R. KAMAN! v. R.R. KAMAN! [THAKKAR, J.]
133
the Board. In order to effectively deal with this question the cantours A
of the two Schemes require to be traced:
Scheme presented by the
Scheme presented by
Workers
Shri Ashish Kamani
1. It contemplates starting operaL It envisages the replacement of
B
tions with the existing machinery
the existing machiner~ by
after effecting necessary repairs
imported second-hand press
and reconditioning of the plant
and plant equipment, at an
to the extent necessary. It is
estimated cost of Rs.345 lakhs.
envisaged that the production
It is not known how much time
can be commenced within about
will elapse in replacement and
c
six months.
when operations can be commenced. There is not even a
vague idea about this factor.
2. The scheme is fully backed by
2. The Scheme does not show
the same Nationalized banks as
that there is even a tentative
D
are secured creditors of KTL.
commitment much less a firm
These banks have also made
commitment by any Banks or
firm commitments for further
financial institutions to finance
financial assistance.
the project. Nor is it shown
that the applicant himself is
investing any sizeable amounts
E
to lauch the project. The
Scheme is altogether silent as
to how the resources are to be
raised in regard to the
modernization programme
involving Rs.694 lakhs.
F
3. The Central Govt. and the State 3. Neither the Central Govt. nor
Govt. have agreed to grant tax
the State Govt. has shown its
concessions having regard to the
willingness to give any concesfact that it is the first Scheme of
sion to the applicant. In fact
its kind for reviving an industrial
there appears little likelihood
unit framed by the very workers
of such concessions having
G
rendered jobless on account of
regard to fact that the special
the sickness.
factors relating to public
interest involved fa enabling
the workers themselves to
revive the sick industrial unit
does not exist in the case of the
f:I
applicant.
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SUPREME COURT REPORTS
[1988] Supp. 3 S.C.R.
4. The workers themselves have
agreed ( 1) to make wage sacrifice of 25% for the first yearof
operations and 15% for the next
two years. In other words the
workers have agreed to forego
15% to 25% of the wages which
they would be otherwise entitled
to having regard to the fact that
it is the workers' own Scheme
calculated to benefit them atleast
in future (2) to deferment of
annual increments for two years
as also (3) to rationalisation of
the staff pattern by persuading
the workers to be retrenched on
payment of compensation in the
larger interest of the workers and
to restrict the workers to 600 ( 4)
to forego dues subsequent to
31.12.85 (5) to deferment of prestoppage dues till other dues are
paid off.
5. The secured oreditors have
agreed to convert 50% of dues
into interest free loan repayable
within 10 years and a moratorium
of one year for 50% of outstandings.
6. The Scheme has been found to
be feasible and viable by experts
and by the operating agency
viz. IDBI, which is fully equipped to form the opinion in this
behalf.
4. The workers would not agree
to forego any part of their
wages or make a wage sacrifice
to enable the applicant to take
over the unit. Nor the workers
would accept deferment of
dues or to rationalization of
staff pattern or retrenchment.
Learned counsel for KEU has
stated that they are not at all
prepared to do so.
5. There is no such commitment
on behalf of the secured
creditors. Nor is there any
liklihood of such concessions
for the benefit of the
applieant.
6. The fessibility of the applicant's claim has not been
examined by any competent or
authorised agency acceptable
totheBIFR.
When the two Schemes are viewed in juxtaposition, there is no
manner of doubt that the scheme presented by the applicant appears in
a rather poor light. In fact the said scheme suffers from some fundamental infirmities. It is not shown that there is any commitment on
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behalf of any Bank of financial institution to provide the requisite
N.R. KAMAN! v. R.R. KAMAN! [THAKKAR, J.I
135
financial resources to enable the applicant to modernize the plant and A
to run it. The applicant 'hopes' to purchase a second-hand plant from
some foreign country. It is not known whether any such second-hand
plant in working condition with reasonable life expectancy is available.
It is not known what would be the cost thereof. It is not known
whether the Central Govt. would release. foreign exchange in order to
enable the applicant to purchase the said plant. Thus the entire scheme
is wrapped in imponderables and there is no concrete basis to entertain
a reasonable belief that the 'hope' entertained by the applicant would
materialise at all in the foreseeable future. It is proposed to finance the
cost of the additional plant and machinery to the tune of Rs.694 lakhs
out of whicn it is stated that Rs.520 lakhs will be by way of term loan
assistance from banks and financial institutions. It is conceded ·that
there have been no negotiations with any Bank or financial institution
and there has not been even a tentative, not to speak of a firm commitment in this behalf. With regard to the remaining Rs. 174 lakhs it is
stated that it will be by way of promoters contribution or through issue
of share capital. Whether or not Rs.174 lakhs can be so raised is in the
realm of wishful thinking and conjecture. It merely reflects the hope of
the applicant which is not rooted in reality. It is built on a non-existant
foundation. Nor is it shown whether the applicant himself has any
sizeable financial resources of his own. Or whether he is in a position
to raise such.resources. The Scheme is a manifestation of the 'hope'
and 'desire' of the applicant and no more. There is little doubt about
the fact that no useful purpose will be served by granting tpe request of
the applicant in these circumstances. Even so we would have considered the matter further if the applicant had satisfied this Court about
his bona fides and provided an assurance that delay will not be to the
detriment or prejudice of the workers or at their cost. An enquiry was
accordingly made from the learned counsel for the applicant whether
·the applicant was prepared to deposit a sum of Rs. l crore representing
abo~t 15% of the arrears of wages which have by now become payable
to the workers to enable the Court to examine the matter notwith'
standing the aforesaid short-comings. The learned counsel for the
applicant frankly stated that the applicant was not in a position to
deposit such a sum. In fact he did not even mention that the applicant
was prepared to deposit a lesser sum in order to show his good faith
and bona fides and in order to protect the legitimate interests of the
workers. Counsel wanted the Court to consider the Scheme without
any such provision bein!L, made merely on the_ assertion th~t the
Scheme presented by the applicant was the only feasible Scheme which
appears to be an altogether ill-founded assertion for the foregoing
reasons. Under the circumstances we do not have the slightest hesitaB
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SUPREME COURT REPORTS
[1988] Supp. 3 S.C.R.
tion in refusing the applicant's prayer in this behalf.
In order to deal with the remaining question as regards stamping
the Scheme sanctioned by the BIFR on September 6, 1988 with the
imprimatur of the Court is concerned, it will be appropriate to take a
glance at the provisions of the Sick Industrial Companies (Special
Provisions) Act, 1985 under which the Board has been constituted,
before the exercise is undertaken.
The statement of objects and reasons reveals the purpose underlying the benevolent legislation as also the anxiety of the legislature to
provide for pn1ventive, ameliorative and remedial measures essential
forreviving sick or potentially sick companies and for ensuring expediC tious 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:
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1. afford maximum protection of employment;
2. optimise the use of funds of the companies etc.;
3. salvaging the production assets;
4. realising the amounts due to the Banks etc.; and
5. to replace the existing time-consuming and inadequate
machinery by efficient machinery for expeditious determiiiation
by a body of experts.
The scheme envisaged by Section 187 of the Act inter-alia provides for the reduction of the interest or rights of the shareholders in
the sick industrial companies to the extent necessary for the reconstruction, revival or rehabilitation of the sick company. There is also a
very salutory provision which contemplates transfer of the shares in
a the sick industrial company at face value or intrinsic value (which may
be discounted value or such other value as may be specified) inter-alia
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7. Section 18(2)(£): "the reduction of the interest or rights which the shareholders have
in the sick industrial company to such an extent as the Board considers necessary in
the. interests of the reconstruction, revival or rehabilitation of the sick industrial
company or for the maintenance of the business of the sick industrial company;"
If
N.R. KAMAN! v. R.R. KAMAN! [THAKKAR, J.]
137
to the employees of the sick industrial companies. 8 The provision for
transferring the shares to the employees which makes manifest the
intention of the legislature to encourage the employees to take over
the sick units and to clothe the competent authority with power to
tlirect the transfer of the shares to the employees in this behalf. Thus
the authority and competence of the Board to issue a direction for the
transfer of the shares to the employees has the full backing of the
benevolent legislation· enacted especially in order to restructure or
revive the sick undertakings. In the course of the discussion in the
earlier part of this order ~e have referred to the abortive efforts made
by the learned Mediator and the members of the different family.
groups of Kamanis for selling 90% of the shares of KTL. It however
appears that no purchaser was coming forth. The aforesaid exercise
however shows the willingness and preparedness of the concerned
members of the Kamani group to transfer their shares on \heir own
even without a directive. Theil· willingness is however irrelevant since
the BIFR is clothed with the authority and competence to reduce the
value of the shares from Rs.10 per share to Re.1 per share and direct
the transfer of the shares to the employees. A point was made before
the BIFR for the transfer of the shares as regards the order reducing
the value of the share and the direction to transfer the shares at the
reduced value of Re. l per share. BIFR has closely, carefully and dispassionately considered this dimension of the matter and has rightly
reached the conclusion that the intrinsic value of the share is zero. The
liabilities far exceed the assets and even by applying the break-up or
back-up method suggested by the members of the Kamani family the
value of the shares could be determined only at the intrinsic value of
the shares and the Board reached the firm conclusion that each share
had zero value. And even so the Board directed that the value of the ·
share be reduced to Re. 1 per share and directed them to transfer the
shares at Re.1 per share. Having given our anxious consideration to
this factor even on our own, we are fully convinced and fully satisfied
that the Board was perfectly right in directing the members of the
Kamani family to transfer the shares at the rate of Re.1 per share in
order to effectuate the Scheme for revival of KTL. We may also
mention that the BIFR was wholly right that tl>e provisions of the Act
were immune from challenge by virtue of the declaration contained in
Section 2 of the Act attracting the application of Art. 3 lC of the
Constitution. Turning to the merits of the Scheme sanctioned by
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8. Section 18(2)(1): "transfer or issue of the shares in the sick industrial company at the
face value or at the intrinsic value which may be a discounted value or such other
value as may be specified to any industrial company or any person including the
executives and employees of the sick industrial company;"
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138
SUPREME COURT REPORTS
[1988] Supp. 3 S.C.R.
A BIFR, it does not suffer from any infirmity. It has been considered to
be feasible and economically viable by experts. It envisages the
management by a Board of Directors consisting of fully qualified experts and representatives of Banks, Government and of the
employees. The Scheme has the full backing of the nationalized Banks
and the encouragement from the Central Government and the State
B Government which have made commitments for granting tax concessions. The backing and the concessions are forthcoming essentially
because it is a Scheme framed by the employees who themselves are
making tremendous wage-sacrifice and are trying to stand erect on
their feet in order to salvage the ship which has been almost wrecked
by others. It is appropriate to refer to one more important aspect. The
C Scheme envisages that the liability of the guarantors under the contract of guarantee executed in favour of the concerned Banks should
remain unaffected by the framing of the Scheme. BIFR has rightly
made a provision in this behalf and sanctioned the Scheme subject to""
the direction that the sanctioning of the Scheme will not result in the
detraction from the obligations incurred by the guarantors towards the
D Banks. Since the Scheme is being framed under the statutory authority
and directive in order to revive the same in the larger public interest
and inasmuch as there is a necessary declaration contained in Section 2
of the Act which attracts the applicability of Art. 3 lC of the Constitution, the decision rendered by the BIFR is unassailable and
unimpeachable. Besides, the. Scheme has been framed as per the direcE tion and mandate of this Court in exercise of its inherent jurisdiction
and its constitutional jurisdiction under Art. 142 of the Constitution
and therefore the framing of the Scheme and the enforcement of the
sanctioned Scheme does not detract from or have any impact on the
obligation incurred by the guarantors in regard to the debts incurred
by KTL in the past.
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The concerned Banks were and are bound by the directives and
mandates. Having given our anxious consideration to the decision
rendered by BIFR sanctioning the Scheme taking into account all the
factors we fully agree with the reasoning and conclusion of BIFR and
hereby stamp the Scheme with the imprimatur of this Court.
An apprehension has been expressed that same attempts might
be made by those who are not happy with the sanctioning of the
Workers' Scheme to throw a spanner in the wheel and to impede the
implementation of the Scheme. We do not think any such effort would
be made having regard to the fact that the Scheme has been devised as
H per the directions of this Court and that it has now been stamped with
N.R. KAMAN! v. R.R. KAMAN! (THAKKAR, J.]
139
the imprimatur of this Court pursuant to this order. It is of course true
that if the legal forum is utilised with an eye on impeding the implementation of the Scheme, it could throw everything out of gear. This
cannot be countenanced as implementation of the Scheme with expedition is of the essence of the present exercise. The Act itself has been
enacted in order to evolve a speedy. and efficient machinery so that a
sick industry could be revived with utmo$t expedition, production
could be started, locked up funds could be utilised for furthering socioeconomic development. And so that the unemployment of starving
workers could be ended before they are starved to death and they are
provided with employment to enable them to 'live' with dignity instead
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of 'existing' in humiliating conditions. We, therefore, make it clear
that notwithstanding any order that may be secured by any party from
any other forum the Scheme shall be implemented in obeisance to the C
judicial command embodied in this order and that in case there is any
problem, it may be brought to this Court for seeking appropriate
directions instead of resorting to other forums to impede the
implementation of this socially and economically wholesome Scheme.
A note of caution is required to be sounded before we conclude
this order. While the Act enacted in 1985 does envisage the revival of
sick units by the workers who had been rendered unemployed, it is (as·
far as is known) for the first time that the legislative intent reflected in
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the relevant provisions of the Act to encourage workers' schemes is
being given a concrete shape in this manner.