Case Study: Amalgamation / Merger of a Sort

To, Date: 25th June 2011
The Hon'ble Chairman,
Appellate Authority for Industrial
and Financial Reconstruction (AAIFR)
Jeevan Prakash Building,
Kasturba Gandhi Marg,
New Delhi – 110001.


Ground for the Letter Appeal

The Order passed by Hon'ble Board (Hereinafter referred to as BIFR) dated 30.09.2010 in the Case No. 08 of 2006 of India Foils Limited, sanctioned the scheme of amalgamation of Sick M/s India Foils Limited, the Transferor Company (Hereinafter referred to as IFL) with M/s Ess Dee Aluminium Limited, the Transferee Company (Hereinafter referred to as EDAL ), is ultra vires the statute (Sick Industrial Companies (Special Provision) Act 1985) [Hereinafter referred to as SIC Act 1985], for, the said Amalgamation is beyond the contemplation of the SIC Act 1985.

There is a “Legal Impossibility” of the Amalgamation of IFL, the Transferor Company with EDAL, the Transferee Company, in the light of section 17(1) read with section 18 of the SIC Act 1985; and Section 18(3)(a) of SIC Act 1985 read with Regulation 30 of BIFR Regulations 1987.

The Hon'ble Chairman of the AAIFR,

(1) I am writing to you, under instructions and on behalf of my Client Mrs Laxmi Girish Jalan, residing at 56 C Amba Jyoti Apartment, flat no.303, near SBI, Trimurti Nagar, Nagpur. The said Client also happens to be my Sister-in-law. Mrs Laxmi Girish Jalan was the shareholder of referred herein the Sick Industrial Company M/s India Foils Ltd, holding 17,300 equity shares. I am annexing herewith the copy to prove the said shareholding, as Ex-A.

(2) The Hon'ble AAIFR may quite object and may even outright reject my this letter appeal but I may kindly be allowed to explain as why I am impressing by way of letter appeal instead of conventionally filing an appeal as provided under section 25 of the SIC Act 1985. It is humbly stated that due  to  great  diffusion  of  stock, individual / retail shareholders  are  ill  equipped  to  venture into court litigation because the stakes involved in the litigation is quite small in comparison to time and money involved in the conventional litigations before Court of law. It is very difficult for a retail investor to engage himself in conventional time consuming, procedurally complex and extremely expensive court litigations.

(3) I kindly invite the attention of Hon’ble AAIFR to wordings employed, in their experienced wisdom, by the Parliament of India, in Section 13(1)(a)&(b) of SIC Act 1985. It reads as – Subject to the provisions of this Act, the Board or, as the case may be, the Appellate Authority, shall have powers to regulate – (a) the procedure and conduct of the business; (b) the procedure of the Benches, including the places at which the sittings of the Benches shall be held; (Emphasis supplied).

In my respectful submission, in appropriate cases, it is within the powers of Hon’ble AAIFR, to do complete justice, can take cognizance of letter Appeal, in lieu of conventional appeal, having consideration of two factors – (1) individual/retail shareholders are ill equipped to venture into conventional litigation; (2) Section 13(1)(a)&(b) of SIC Act 1985 empowers the Hon’ble AAIFR to adapt such procedure so as to do complete justice.

Therefore, I humbly request the Hon'ble AAIFR to look into the submissions made herein in respect to illegality involved in the sanctioned scheme of amalgamation and humbly request the Hon'ble AAIFR to dwell upon the issues raised in this appeal letter. The Hon’ble AAIFR may in its wisdom may not “Stay” the order passed by the Hon’ble BIFR, until it reaches the conclusion that the said Order of BIFR is illegal per se. I take the responsibility of informing the EDAL about this letter Appeal and they will have all the opportunity to have their say in the case.

(4) It may also be informed to the Hon'ble AAIFR that it is not that we have suddenly woken up after a gap of nearly nine months since the passing of order by Hon’ble BIFR dated 30.09.2010. During these last nine months, we have recorded letters to –
SEBI, dated – 22-11-2010, 27-11-2010, 26-02-2011
BIFR, dated 21-03-2011
India Foils Ltd dated 21-03-2011
Regional Directors, Eastern Region, dated 21-03-2011
Ministry of Corporate Affairs, dated 21-03-2011.

The SEBI, vide its letter dated 29-12-2010, forwarded our complaint to Hon’ble BIFR and requested the Hon’ble BIFR to examine the said complaint. The Regional Directors and Ministry of Corporate Affairs have advised us to adopt appropriate proceedings by way of Appeal as provided under the SIC Act. Similarly, the Hon’ble BIFR, vide its letter dated 10-05-2011, advised us to adopt appropriate proceedings by way of Appeal as provided under the SIC Act. The EDAL, vide their letter dated 04-03-2011, replied to our letter, but of no avail.

(5) With the leave of the Hon’ble AAIFR, I present the brief facts of the case –

(a) India Foils Limited (IFL), was incorporated on 8th November 1960. IFL was engaged in the business of designing, developing manufacturing, producing, processing, distributing, selling and dealing in foils and foil products of all kind, including smelting, semi fabricating casting, drawing, cutting, rolling, extruding, forging, fabrication, and manufacturing aluminium and other metals and alloys, including buying, selling exporting, importing and dealing in metals and minerals of all kinds and materials and goods made from the.

IFL, a part of British Aluminium Group, set up converting facilities with printing and lamination in 1962. In 1981, in a global arrangement, Alcan took over British Aluminium and IFL became part of Alcan Group. Williamson Magor Group, promoted by Mr. B M Khaitan, acquired management control of IFL in 1982, In 2000, the Vedanta Group, through its group company, viz the Madras Aluminium took over the management control of the company from Williamson Magor Group.

However, the Net worth of India Foils completely eroded as per financial results as at 31-03-2005, and thus Board of Directors of IFL filed a reference under section 15(1) of SIC Act 1985. The said Reference was registered as Case No.08/2006.

(b) On 19-05-2006, IFL has informed the Bombay Stock Exchange that the Company has been registered as Sick Company with The Board for Industrial and Financial Reconstruction under Case No.08/2006 and after hearing, the Bench of BIFR was satisfied that the Company fulfilled the various criteria for sickness under the ACT and have become a sick industrial company in terms of section 3(1)(o) of the Act and accordingly declared it to be sick company. The Bench of BIFR has further appointed ICICI as the Operating Agency (OA) with directions to prepare a viability study report and revival scheme for Company.

(c) On 20-11-2008, IFL has informed the Bombay Stock Exchange that: "In terms of the rehabilitation scheme sanctioned by Hon'ble BIFR dated August 18,2008 (Hereinafter Sanctioned Schemes is referred to as SS-08), the Board of Directors of IFL in their meeting held on November 19, 2008, has altered its Authorized Equity Share Capital by splitting the un-issued equity shares of Rs.10/- each into equity shares of Re.1/-each.

(i) Pursuant to Scheme mentioned herein above, the Board of Directors have issued and allotted the following equity and equity linked instruments. 13,60,00,000 equity shares of face value Rs.1/- each fully paid up to EDAL and 1250000, 0.01% optionally convertible redeemable non-cumulative preference shares of face value Rs.100/- each fully paid up to Sterlite Industries (India) Limited, an affiliate of Madras Aluminium Company Limited.

(ii) Further the Board has also issued and allotted 13953423, 0.01% redeemable non-cumulative non-convertible preference shares of face value Rs.100/- each fully paid up and 9628115, 0.01% redeemable non-cumulative non-convertible preference shares of face value Rs.100/- each fully paid up to Sterlite Industries (India) Limited and EDAL respectively.

(iii) With the issue of above shares, EDAL has become the majority stakeholder in IFL and thereby it has became the subsidiary of EDAL. As on 31.03.2009 EDAL were holding about 89.45 shareholding of IFL.

(d) Among other things in the said sanctioned scheme by Hon’ble BIFR, EDAL acquired about 90% of shares of IFL and thus acquired the complete management control over the IFL. Thus, the ownership of IFL, by virtue of said sanctioned scheme of Hon’ble BIFR, “changed hands” from Vedanta Group Company, viz Madras Aluminium to EDAL.

(e) It was submitted on behalf of EDAL that many of the provisions of SS-08 have been implemented by IFL’s new management. However due to number of factors, it was submitted that IFL was not in a position to achieve the profitability projections on its own and thus IFL, the said Sick industrial Company proposes to merge itself with EDAL.

(f) The Hon'ble BIFR, in the exercise of its powers under section 18(5) read with 19(3), vide its Order dated 30.09.2010, inter alia, sanctioned and approved the merger of IFL, the Transferor Company EDAL, the Transferee Company, in terms of the modified Rehabilitation Scheme. I am annexing herewith the copy to BIFR order dated 30-09-2010 as Ex-B.

(6) I now take leave to state the relevant provisions of law:

(a) The SIC Act 1985 is a unique piece of legislation passed by the Parliament of India with a view to securing timely detection of Sick Industrial undertakings and speedy determination through preventive, ameliorative, remedial and other measures which need to be taken with respect to such Industrial undertakings. The pith and substance of the Act is contained in section 18, 19, 20 and 22 of the Act.

The Board, i.e. BIFR, constituted under section 4 of the Act 1985, is the heart and soul of the Act. The principal role of BIFR is essentially to formulate measures for reconstruction, revival and rehabilitation of Sick industrial undertakings.

The powers conferred under the Act upon the BIFR are vast and they have thus large potential for doing harm as well as doing good and therefore it is necessary that these powers should be exercised with great care and circumspection.

The very object of SIC Act 1985 is to bring, “out of sickness” the ailing industrial company, by administering measures contemplated under the Act, more particularly laid down in section 18.

(b) The Role of BIFR or Board comes into play once a reference is made to it or a information is received by it under section 15 of the SIC Act 1985.

(c) Section 16 contemplates, among other things, Inquiry into the working of the Sick Industrial Company by the Board. When a reference is made to a Board, the Board makes such inquiry to determine whether the referred Industrial Company has really become a Sick Industrial Company within the meaning of this Act of 1985.

(d) Section 16(4) stipulates the appointment of a Special Director by the Board. This sub section 4 of section 16 is pressed into by the Parliament to safeguard the interest of the Company from the likely ill-doings of the present management, the incompetent management / Board of Directors who have made the Company Sick and were forced to refer the Company to the Board. According to information available, Shri K. Raghuraman was appointed as the Special Director under Section 16(4) of the SIC Act, 1985 on the Board of IFL.

(e) The journey towards amalgamation, (the amalgamation being one of the measure contemplated under section 18 of the SIC Act 1985), begins from section 17 and section 18(3) and BIFR Regulation 30 forms the critical junction to any such proposed measure of amalgamation.

(f) Section 17 outlines the Powers of the BIFR or Board to make suitable order on the completion of the inquiry. The section says- after making an inquiry under section 16, if the BIFR or Board is satisfied that the referred Company has become the Sick Industrial Company within the meaning of this Act of 1985, then, after taking into consideration all relevant facts and circumstances of the referred Sick Industrial Company, the BIFR or Board proceeds to decide whether or not the said Sick Industrial Company can make its net worth exceed the accumulated losses within a reasonable time.

(g) Here the section 17 makes it obligatory on the part of BIFR or Board to take into consideration all relevant facts and circumstances of the referred sick industrial company before reaching to the decision as whether the said Sick Industrial Company can make its net worth exceed the accumulated losses within a reasonable time.

(h) When the BIFR or Board considers all relevant facts & existing circumstances of the referred Sick Industrial company and decides that the said Sick Industrial company cannot make its net worth exceed the accumulated losses within a reasonable time, it may undertake to adopt all or any measures specified in section 18 of the SIC Act 1985. Briefly stated they are –
(a) Financial reconstruction of the Sick Company;
(b) Its proper management through a management change or management takeover;
(c) Its amalgamation with another company or vice versa;
(d) Sale or lease of its undertaking;
(da) Rationalisation of its staff;
(e) Any other preventive or remedial measures; and
(f) Incidental or consequential measures.

(i) The BIFR apparently has wide ranging powers to decide on the contents of the scheme, nevertheless, the scope of section 18 seems to be limited to such acts, deeds or things as are necessary to make the Sick Company viable. That is to say, the BIFR may not exercise any power of discretion which is not necessary.

(j) While section 18 of the SIC Act 1985 contains provisions dealing with preparation and sanction of schemes, the precise modality for this purpose has not been specified there. This is understandable as the intention seems to be to allow the BIFR wide freedom of action in this regard. There is however, little doubt that in exercising this freedom, BIFR has to act on the basis of well settled principles. These are essential jurisdictional parameters of the Board and beyond these it cannot and need not travel.

(k) It is a moot point as to whether, at the time of passing an order under section 17(3) and laying down the guidelines for the operating agency to follow, it is obvious to say that the BIFR in selecting any of the measures referred to in clauses (a) to (f) of section 18(1), shall adopt the least drastic alternative.

(l) Section 18(2) provides the measures which may be undertaken under the “scheme” contemplated under section 18(1) of the SIC Act 1985.

(m) Section 18(3)(a) provides for circulation of the draft scheme to Sick company, operating agency, to transferee company (if amalgamation is contemplated) and any other company concerned in the proposed amalgamation. It is implicit in the very nature of powers conferred under section 17 & 18 of the Act that the rules of natural justice must be complied with. Section 18(3)(a) embodies the principle of natural justice.

(n) As far as procedure for preparation and sanction of the scheme under section 18 is concerned, Regulation 27 to 33 are also extremely relevant. Among other things, they provide for inviting suggestions and objections from the shareholders, creditors and employees of the Industrial Company and where there is an amalgamation, also from the transferee company.

(o) Regulation 30 contemplates the consideration by the Board / BIFR of the suggestions and objections that it may receive from the Sick Industrial Company or from the Transferee company or from the Operating Agency or from any other company concerned, in the proposed scheme of amalgamation.

(7) Application of law to facts of the present case-

(a) I say that there is “Legal Impossibility” of the Amalgamation of M/s India Foils Limited (IFL Transferor Company) with M/s Ess Dee Aluminium Limited (EDAL Transferee Company) as provided vide BIFR Order dated 30.09.2010, in the light of section 17(1) read with section 18 of the SIC Act 1985; and Section 18(3)(a) of SIC Act 1985 read with Regulation 30 of BIFR Regulations 1987

(b) Before I advance argument in support of my above contention, I crave leave of Hon’ble AAIFR to allow my submissions in respect of sanctioned scheme of Hon’ble BIFR dated 18-08-2006. I say that the Sanctioned Scheme of BIFR dated 18-08-2006 was itself illegal, ultra vires the statute and was passed by Hon’ble BIFR beyond its mandate prescribed under section 18 of the SIC Act.

(c) In the said sanctioned scheme dated 18-08-2008, by Hon’ble BIFR, EDAL acquired about 90% of shares of IFL and thus acquired the complete management control over the IFL. Thus, the ownership of IFL, by virtue of said sanctioned scheme of Hon’ble BIFR, “changed hands” from Vedanta Group company Madras Aluminium to M/s Ess Dee Aluminium Ltd (EDAL).

(d) According to Section 18 of the Act, among other things, the proposed scheme may provide for financial reconstruction, change or appointment of new Board of Directors etc. While looking at, all the provisions of section 18 of SIC Act 1985, it is nowhere provided that the ownership of the Sick Industrial Company can be changed, save, by way of Amalgamation.

(e) I call upon the EDAL and OA to show a legal provision in the SIC Act 1985 which allows “change in ownership of a Sick company, other than by way of amalgamation.

(f) Nevertheless, the Hon’ble BIFR, travelled beyond its mandate, due to misunderstanding of law, but in their wisdom, and in the best interest of the Sick Industrial Company IFL, in the pretence of financial reconstruction of the Sick Industrial Company IFL, sanctioned a scheme which allowed the change in the ownership of IFL.

(g) The Hon’ble BIFR handed over the management of Sick IFL to a very strong and financially sound Company EDAL, which is managed by highly qualified and experienced individuals, and by virtue of said sanctioned scheme, the same highly qualified and experienced individual Board of Directors, will also manage the affairs of the Sick IFL.

(h) However, it is again submitted that change in ownership of Sick Industrial Company can only be effected by way of “measure of Amalgamation”, but the Hon’ble BIFR, by way of “financial reconstruction” may have allowed the change in ownership of Sick IFL, in the best interest of IFL. Nevertheless, the illegality remains that the Hon’ble BIFR sanctioned a scheme which it cannot lawfully sanction.

(i) Now I come to the element of illegality which exists in the Hon’ble BIFR order dated 30-09-2010. I have two sets of argument to say that the said sanctioned scheme of amalgamation was illegal.

(j) My first argument is that the said Amalgamation was absolutely unwarranted and there was no “Cause of action” for the Hon’ble BIFR to exercise its jurisdiction; and my second argument is that the scheme of SIC Act 1985 does not contemplate the nature of amalgamation effected between Sick IFL and EDAL and the said Amalgamation, in particularly frustrate the mandate of Section 18(3)(a) of the SIC Act 1985 and Regulation 30 of BIFR Regulations 1987.

(k) To prove my first argument, I respectfully take the Hon’ble AAIFR to Para 15.1 of the Modified Rehabilitation Scheme (page number 26),

15.1 – Merger of IFL with EDAL

JUSTIFICATION OF MERGER

(a) Operational synergy – Both the companies relate to the aluminium foil / foil packaging industry. Therefore merger of the two companies would result in integration of operations, enhanced capacity utilization of the existing facilities and an increase in the installed capacity in the future year of operation. This would result in realizing the economies of scale of the merged company and would improve its profitability and cash flows.

(b) Locational synergy – EDAL has strong presence in the Pan India. Merging of IFL with EDAL will strengthen its presence in Eastern part of the country.

(c) Financial Assistance to IFL – IFL is currently in BIFR and is incurring losses on an on-going basis. The Company is unable to adequately meet requirement of funds for incurring the required capital expenditure and its working capital requirements. On the other hand, EDAL has sound financial background, commands credit in the market for its operations and has the capability to raise and invest the funds as may be required for meeting the requirements of IFL towards capital expenditure, working capital and other financial requirements.

(d) Administrative Cost savings – Merger of two companies (IFL and EDAL) will result in saving in administrative cost.

(e) Sharing of experience and expertise of Strong Management Team of EDAL – EDAL has a strong and experienced management team. After the merger of IFL with EDAL, the Management of IFL shall benefit from the expertise and experience of strong ,management team, which the EDAL is having.

(f) Merger of IFL with EDAL shall also enable the latter to get benefit of brought forward income-tax losses of IFL and the resultant savings can be used for revival of IFL.

(l) In construing the Modified Rehabilitation Scheme as a whole, the principal reason / justification put forwarded to justify Amalgamation of Sick IFL with EDAL was that the IFL was unable to adequately meet requirement of funds for its capital expenditure and meeting its working capital needs and that EDAL has sound financial background, commands credit in the market and has the capability to raise and invest funds as may be required for meeting the requirements of IFL towards capital expenditure and working capital requirements.

(m) I take the Hon’ble AAIFR to Para 15.2 of the Modified Rehabilitation Scheme – which reads as: 15.2 Infusion of fresh funds by EDAL – EDAL is a financially strong company. It will be able to make the necessary investments or arrange for funds as may be required by IFL to meet its requirements of funds in future. Therefore, it may be noted that it is the own case of the Hon’ble BIFR that EDAL will be able to make the necessary investments or arrange for funds as may be required by IFL to meet its requirements of funds in future.
(n) In this respect, I can safely argue that the Board of Directors of a Company are the most important people of the Company. I say that a corporation is an artificial being, exists only in contemplation of law and it acts through living persons. And thus Directors comes into the picture. They are professional man hired by company to direct its affairs. The Board of Directors are recognized as a principal organ of the company. Moreover, as observed in Justice NEVILLE in Bath versus Standard Land Co., “the Board of Directors are the only brain of the company and the company can and does act only through them. In fact they are the people who are the driving force behind the success or failure of the Company. They are the people who make the Company Sick and take the Company to BIFR. The success or failure of a company entirely depends on the competence and integrity of its directors.

(o) Thus, when the Hon’ble BIFR sanctioned the scheme of rehabilitation on 18-08-2008, caused the change in the ownership of Sick IFL and handed over the overall management of Sick IFL to a very strong and financially sound Company EDAL, which is managed by highly qualified and experienced individuals, presupposes that EDAL will adequately take care of requirement of funds of Sick IFL for its capital expenditure and its working capital needs.

(p) I say that when the overall management of IFL vests in highly qualified and experienced Board of Directors EDAL, it is well within the wisdom and competence of present IFL management to raise the required funds needed towards capital expenditure and working capital needs. No “measure of amalgamation” was warranted to therefore.

(q) A reason / justification was also put forwarded that by this merger, the Management of IFL shall benefit from the expertise and experience of strong management team, which the EDAL is having. I say that when the overall management of IFL already vests in highly qualified and experienced Board of Directors of EDAL, IFL already has the benefit from the expertise and experience of strong management team, which the EDAL is having. No “measure of amalgamation” was warranted to therefore.

(r) Some other reasons / justifications were also put forwarded, like benefit of operational synergy, locational synergy, savings of administrative cost, savings due to taking forward the income tax losses of IFL. The above reasons were founded on the premise that the proposed amalgamation will benefit both the transferor and transferee Companies.

It is interesting to observe that –
By virtue of amalgamation, the EDAL will get the benefit of “brought forward income-tax losses of IFL and the resultant savings can be used for revival of IFL”.
The operational synergy would result in realizing the economies of scale of the merged company, (EDAL) and would improve its (EDAL) profitability and cash flows.

(s) I, in my limited wisdom, say that the Hon’ble BIFR, by the “measure of amalgamation” of “Sick industrial company” with “any other Company”, is not concerned with the benefit that will accrue to “any other Company”. The “any other Company” will adequately take care of its own interest. The Hon’ble BIFR should concern itself with the “Welfare” of the Sick Industrial Company; and the grounds on which a “measure of amalgamation” is contemplated to revive the Sick company must substantially, though may not be exclusively, benefit the Sick Industrial Company.

(t) The justification of “benefit of savings in administrative cost” is quite insignificant to warrant the amalgamation of companies.

(u) I further say that when any reasons / factors applied to justify the sanctioned scheme of amalgamation, presupposes the non existence of said reasons / factors, for if they exist there is no need for amalgamation. If the said reasons/ factors were already existing before amalgamation, it can safely be argued that the sick industrial company does not need the dose of “any measure” as contemplated under the SIC Act.

(v) I further say that the reasons / factors which justify the scheme of amalgamation are specific medicine which needs to be administered, failing which the said Sick industrial Company may have the danger of collapsing into aggravated sickness. If the “to be administered medicinal elements” already exists in the person of the Sick industrial Company, we should not inject which already exist.

(w) In the instant case of amalgamation of Sick IFL with EDAL, the main and principal grounds on which the Amalgamation was founded was to raise the funds for the Sick IFL, which the EDAL could easily do it. I say that, it is well within the competence of EDAL to quite easily raise funds for IFL even if there is no amalgamation, for IFL is already under the financially sound and strong management and in control of highly qualified and experienced Board of Directors of EDAL.

(x) I, now, take the Hon’ble AAIFR to Para 19. Viability of the Modified Rehabilitation Scheme (page 43), which reads as – The rehabilitation strategy envisages relief and concessions from the Central and State Govts. Financial projections of the company as per the rehabilitation scheme are enclosed herewith. A merger of IFL with the company will enable the revival of the units of IFL, while giving sufficient liquidity to shareholders of IFL and adequate security to the Bankers. Upon merger, the accumulated losses of IFL will be wiped out. Thus, the Modified Rehabilitation Scheme is considered to be technically feasible and economically viable.

(y) I say that the above proposition sound quite attractive, but it is not so. Upon merger, when the IFL itself will be wiped out, where is the question of its accumulated losses standing alone. I say that, had there been a scheme wherein the accumulated losses of IFL have been wiped out, and IFL is still in existence, the scheme could have been said to be “worthwhile”. Moreover, as claimed that the said scheme of amalgamation will give liquidity to shareholders of IFL, does the Hon’ble BIFR suggesting that there was no liquidity to IFL shareholders pre-merger ? It is not so, and IFL shareholders had the liquidity pre-merger as well.

(z) I say that, the net result of above discussion is that the grounds on which the scheme of amalgamation was founded, were no grounds to warrant the measure of amalgamation and there was no “Cause of action” for the Hon’ble BIFR to assume and exercise its jurisdiction by sanctioning the scheme of amalgamation.

(za) Now I advance my argument in support of my second argument that the scheme of SIC Act 1985 does not contemplate the nature of amalgamation effected between Sick IFL and EDAL, and in particularly frustrate the mandate of Section 18(3)(a) of the SIC act 1985 and Regulation 30 of BIFR Regulations 1987.

(zb) It is my grand argument that a measure stipulated under Section 18(1)(c) contemplates a new management for the sick industrial company. Amalgamation under section 18(1)(c) of SIC Act 1985 presupposes the change of Management. The words in the statute “any other company” contemplates other company, a different management.

(zc) And, therefore, it is imperative to understand how this section 18(1)(c) has evolved.
(i) Section 18(1)(c) comes in the backdrop of section 17(3). Section 17(3) is the off-shoot of section 17(1).
(ii) Section 17(1) speaks about consideration of all relevant facts and circumstances by the Board before adopting the course of measures contemplated under section 18.

(zd) Thus, it can safely be submitted that all measures sought to be undertaken by the BIFR or Board under section 18 is based on its consideration under section 17(1) of relevant facts and circumstances of the case.

(ze) To illustrate this--
(i) I say that, when the BIFR or Board under section 17(1) considers “all relevant facts and circumstances” of the Sick Industrial company, can we take a pause to ponder for a while as what could be the relevant facts & circumstances which the Board may be considering to reach to the decision that the said Sick Industrial company can or cannot make its net worth exceed the accumulated losses within a reasonable time.

(ii) In this respect, I repeat that the Board of Directors of a Company are the most important people of the Company. I say that a corporation is an artificial being, exists only in contemplation of law and it acts through living persons. And thus Directors comes into the picture. They are professional man hired by company to direct its affairs. The Board of Directors are recognized as a principal organ of the company. Moreover, as observed in Justice NEVILLE in Bath versus Standard Land Co., “the Board of Directors are the only brain of the company and the company can and does act only through them. In fact they are the people who are the driving force behind the success or failure of the Company. They are the people who make the Company Sick and take the Company to BIFR. The success or failure of a company entirely depends on the competence and integrity of its directors.

(iii) Again, I can safely argue that-- “Who are the persons in the Board of Directors of a sick industrial Company” is the principal & paramount fact of consideration of the BIFR or Board in reaching to the decision that whether the said Sick Industrial company can or cannot make its net worth exceed the accumulated losses within a reasonable time.

(iv) Therefore, when the Board decides that the said Sick Industrial company cannot make its net worth exceed the accumulated losses within a reasonable time, it actively takes into account the competence of the present Board of Directors of the sick industrial company.

(zf) If for a moment, it is presumed that section 18(1)(c) can be invoked for the amalgamation of companies which are run by the same management, then we reach to this absurd proposition, i.e. --“The BIFR or Board, on the date of the passing of the Order of amalgamation, having duly considered the competence of management of the sick industrial company as on that date, and comes to the conclusion that the said Sick Industrial company cannot make its net worth exceed the accumulated losses within a reasonable time and therefore passes the Order that the sick industrial company, under section 18(1)(c) should be amalgamated with another company. The Management of that another company will be the same management of that sick industrial company.”

(zg) Now, I invite the attention of the Board to Regulation 30 of BIFR Regulations 1987. In the scheme of things in Amalgamation provided and contemplated u/s 18 of the Act, a very valuable, intelligent and purposeful provision is designed in our law books to protect the interest of the Sick Industrial Company. Regulation 30 of the BIFR Regulations 1987 provides that the Sick Industrial Company may raise objections to the scheme of amalgamation, if the Sick Industrial Company views that the scheme of Amalgamation is not in the interest of the Company. The Regulation 30 of the of BIFR Regulations 1987 contemplates the consideration by the Board / BIFR of the suggestions and objections that it may receive from the Sick Industrial Company or from the Transferee company or from the Operating Agency or from any other company concerned in the proposed amalgamation. Regulation 31 envisage approval by the shareholders of the transferee company.

Attention is also invited to similar provision contained in section 18(3)(a) which provides that, among other things, that any scheme of rehabilitation shall be sent to Sick industrial company and the Hon’ble BIFR will consider the suggestions and objections, if any received from the Sick industrial company.

(zh) In the present case, whilst the shareholders EDAL approves the amalgamation / merger scheme, the rights of the India Foils Ltd to object the scheme of amalgamation becomes redundant / meaningless because the majority stake of IFL is owned by transferee company i.e. EDAL, for, the same company cannot assent and object to the proposed scheme of amalgamation, inasmuch, as when the transferee company EDAL gives assent to the scheme of amalgamation, there is an automatic assent of the Sick industrial company IFL to the proposed amalgamation scheme, for majority stake of Sick Industrial company IFL is being held by the transferee company EDAL.

(zi) Now I respectfully take the Hon’ble AAAIFR to some of the clauses of SCHEME OF MERGER between Sick IFL and EDAL (page 45 onwards)

SCHEME OF MERGER
PART I – GENERAL
1.3 The Transferor Company and the Transferee Company have proposed merger of the Transferor Company with the Transferee Company to facilitate the revival of the business of the Transferor Company.

8.6 The Transferor Company shall be dissolved without being wound up. The Board of Directors (or any Committee thereof) of the Transferor Company shall without any further act, instrument or deed be and stand dissolved and the shares of the Transferor Company shall be deemed to have been cancelled and delisted from the BSE, the NSE and the Calcutta Stock Exchange.

PART VI – GENERAL TERMS AND CONDITIONS

12. The Transferor Company, without the prior consent of the Board of Directors of the Transferee Company, shall not be entitled to restructure capital or declare and pay dividends, whether interim or final, to their shareholders in respect of the accounting period after the Appointed date and prior to the Effective date.

14. The Transferee Company and the Transferor Company shall make necessary application before BIFR for the sanction of this Scheme under the provisions of SICA.

15. The Transferor Company and the Transferee Company through their respective Board of Directors or a Committee thereof in their full and absolute discretion may at any time assent on behalf of all persons concerned to any modification(s) or amendment(s) to the scheme which the BIFR, shareholders of Transferee Company and/or any other competent authority or person, may deem fit to approve/impose; and/or effect any other modification or amendment which the Boards of Transferor Company or Transferee Company may consider necessary or desirable and give such directions as they may consider necessary or desirable.

20. The Transferor Company (by its Directors) and the Transferee Company (by its Directors) may assent to any modification(s) or amendment(s) in this scheme which the BIFR, or any other authorities may deem fit to direct or impose or which may otherwise be considered necessary or desirable…..

(zj) I say that all the clauses above contemplates proposal of merger by respective Board of Directors of Transferor and Transferee Company, contemplates serious prejudice to the transferor company post merger, contemplates consent of the respective Board of Directors of Transferor and Transferee Company, contemplates assent or modification to the scheme of amalgamation by the respective Board of Directors of Transferor and Transferee Company. If the amalgamating companies are run by the same Board of Directors, then all these contemplation becomes meaningless. There will be prima facie conflict of interest of Board of Directors of Transferee Company who also happens to manage the affairs of Transferor Company.

(zk) It must be remembered that the rehabilitation scheme ("Scheme") sanctioned by Hon'ble BIFR or Board dated August 18, 2008 wherein, among other things, Ess Dee Aluminium has become the majority stakeholder in the India Foils Limited and thereby the India Foils Limited has became the subsidiary of Ess Dee Aluminium Limited". At present, India Foils is already under the active management of Ess Dee Aluminium Limited.

(zl) And, therefore, it can be safely argued that measure contemplated under section 18(1)(c) of Amalgamation pre-supposes two entirely distinct entities, being run by different management and they should not be standing in the nature of Holding and subsidiary company.

(zm) Thus, it is my case and argument that under the provisions and mandate of SIC Act 1985, the scheme for amalgamation contemplated u/s 18 presupposes amalgamation of two distinct corporate entities which have distinct management.

(8) Legal Expectation: Two PRINCIPAL issues emerge in this Appeal at hand for this Hon'ble AAIFR to dwell upon:

(A) The issue of law: Whether the scheme of SIC Act 1985 allows a rehabilitation scheme which causes change in ownership of a Sick company without the aid of amalgamation.

(B) The mixed issue of fact and law: (i) Whether sanctioned scheme of Hon’ble BIFR dated 30-09-2010 frustrates Section 18(3)(a) of the SIC Act 1985 and Regulation 30 of BIFR Regulation 1987; and (ii) whether there exists a “Cause of action” for the Hon’ble BIFR to exercise its jurisdiction and sanctioned amalgamation scheme.

In this background, I humbly request the Hon’ble AAIFR to, in the exercise of powers vested to it under the SIC Act 1985, in all seriousness, look into the matter of this amalgamation / Merger.

(9) I submit that my Client has a very good case on law point and serious prejudice will occasion to my Client and to many other shareholders of India Foils Limited. Moreover, by allowing this Amalgamation, a wrong precedent has set in, which may encourage such illegal mergers in future.

(10) I again submit that due to great diffusion of stock, individual shareholders are ill equipped to venture into Court litigation because the stakes involved in the litigation is quite small in comparison to time and money involved in the conventional litigations before Court of law.

(11) Prayers:
(1) The Hon’ble AAIFR may call for all records of the above case from the Hon’ble BIFR;
(2) The Hon’ble AAIFR to decide the two issues that have been framed hereinbefore.
Thanking you.
With Regards,

Encl: Ex-A referred in Para 1; and Ex-B referred in Para 5(f)
Copy to: EDAL.

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