BIFR rehabilitation prevails over Companies Act compromise procedure when a sick company is already under statutory rehabilitation.

A sick industrial company already under BIFR rehabilitation could not be taken through a parallel scheme of arrangement under the Companies Act, 1956. The Court held that the proposed deferral and restructuring of payments to first charge holders fell within the remedial rehabilitation measures contemplated by sections 18 and 19 of the Sick Industrial Companies (Special Provisions) Act, 1985, and that section 32 gave that Act overriding effect over any inconsistent procedure. As the Board was already seized of the matter and had appointed an operating agency under section 17(3), the company court could not direct convening of a creditors' meeting under sections 391 to 394 at that stage.

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Issues: Whether, after the Board for Industrial and Financial Reconstruction has declared the company sick and appointed an operating agency to prepare a rehabilitation scheme under the Sick Industrial Companies (Special Provisions) Act, 1985, the company court can direct a meeting of creditors under sections 391 to 394 of the Companies Act, 1956 for a proposed arrangement with first charge holders.

Analysis: The sick industrial company had already been brought within the statutory framework of the Sick Industrial Companies (Special Provisions) Act, 1985, and the Board had appointed an operating agency under section 17(3) to prepare a scheme for rehabilitation. The proposed arrangement with first charge holders, which involved deferring and restructuring payments, was held to fall within the kind of preventive, ameliorative and remedial measures contemplated by sections 18 and 19 of the Sick Industrial Companies (Special Provisions) Act, 1985. The Court held that section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985 gives that enactment overriding effect over any inconsistent provision of other laws, and that the mechanism under section 391 of the Companies Act, 1956 could not be invoked in a manner inconsistent with the rehabilitation process already pending before the Board. The Court declined to accept the view that the company court retained concurrent jurisdiction in the face of the Board's continuing seisin of the matter.

Conclusion: The company court could not direct convening of the meeting of the first charge holders while the rehabilitation proceedings were pending before the Board for Industrial and Financial Reconstruction.

Final Conclusion: The petition failed because the statutory rehabilitation regime under the Sick Industrial Companies (Special Provisions) Act, 1985 was held to prevail over the proposed compromise procedure under the Companies Act, 1956 at that stage.

Ratio Decidendi: Where a sick industrial company is already subject to a rehabilitation process before the Board for Industrial and Financial Reconstruction, the overriding effect of the Sick Industrial Companies (Special Provisions) Act, 1985 excludes resort to an inconsistent scheme of arrangement under the Companies Act, 1956 until the Board's process is complete.

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