Substantial implementation of a rehabilitation scheme justified setting aside a premature failure declaration and pursuing modification

A rehabilitation scheme under the Sick Industrial Companies Act, 1985 was treated as substantially implemented where bank and financial institution dues had been cleared and only limited residual liabilities remained. In those circumstances, the Delhi HC set aside BIFR's declaration that the scheme had failed and its consequential direction for change of management, noting the promoters' undertaking to clear the outstanding amounts. The Court also noted that a modification application under section 18(5) was pending before BIFR and should be considered expeditiously. No opinion was expressed on the merits of that modification request, which was left to BIFR to decide independently.

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Issues: Whether the order of the BIFR declaring the sanctioned rehabilitation scheme as failed and directing consequential steps for change of management should be set aside in light of the subsequent implementation of the scheme and the pending request for modification of the scheme under section 18(5) of the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: The Court noted that, on the material placed by the petitioner and not disputed by the operating agency, the scheme sanctioned by the AAIFR had been substantially implemented. The dues of banks and financial institutions had been cleared, and the remaining liabilities were confined to certain statutory dues, MSTC and leasing companies. The existing promoters gave an undertaking to clear the outstanding amounts in terms of the sanctioned scheme. In these circumstances, the Court considered it expedient to afford one opportunity to the promoters to revive the company. The Court also noted that an application seeking modification of the sanctioned scheme under section 18(5) was pending before the BIFR and warranted early consideration.

Conclusion: The impugned order was set aside, and the BIFR was requested to consider the modification application expeditiously. The Court did not express any opinion on the merits of that application, leaving it to be decided independently by the BIFR.

Final Conclusion: The writ petition succeeded to the extent that the adverse BIFR order was annulled and the matter was left for prompt consideration of the modification request, enabling the sanctioned scheme to be worked out further.

Ratio Decidendi: Where a rehabilitation scheme has been substantially implemented and the remaining dues can be addressed under a pending modification request, the Court may set aside a premature declaration of failure and permit the statutory authority to consider the modification on its own merits.

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