Special recovery statute prevails over compromise scheme, preserving pending tribunal proceedings while allowing modified sanction for consenting creditors.

A company court cannot sanction a compromise or arrangement under the Companies Act, 1956 in a manner that impairs a secured creditor's debt or pending recovery proceedings before the Debt Recovery Tribunal under the special recovery statute. The tribunal's jurisdiction over adjudication, execution and priorities is exclusive and overriding, so an arrangement cannot foreclose proceedings already lawfully pending there. At the same time, where the requisite majority of secured creditors approves the scheme, it may still be sanctioned with modification excluding the objecting secured creditor and preserving its recovery action unaffected. The scheme was therefore approved only for consenting creditors.

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Issues: (i) Whether a scheme of compromise and arrangement under the Companies Act, 1956 could be sanctioned so as to affect the debt and pending recovery proceedings of a secured creditor before the Debt Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. (ii) Whether the scheme, as supported by the requisite majority of secured creditors, should otherwise be sanctioned with modification excluding the objecting secured creditor.

Issue (i): Whether a scheme of compromise and arrangement under the Companies Act, 1956 could be sanctioned so as to affect the debt and pending recovery proceedings of a secured creditor before the Debt Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

Analysis: The recovery statute confers exclusive jurisdiction on the Tribunal in matters of adjudication, execution and working out priorities, and contains an overriding provision. A scheme under sections 391 and 394 cannot be used to dilute that jurisdiction or to foreclose an adjudication already pending before the Tribunal. The company court's power to sanction an arrangement cannot curtail proceedings lawfully instituted under the special recovery statute.

Conclusion: The scheme could not be sanctioned to the extent it affected the objecting secured creditor's debt and pending proceedings before the Debt Recovery Tribunal.

Issue (ii): Whether the scheme, as supported by the requisite majority of secured creditors, should otherwise be sanctioned with modification excluding the objecting secured creditor.

Analysis: The remaining secured creditors, representing the requisite majority in value, had approved the scheme on commercial considerations. The objection was confined to the secured creditor pursuing recovery before the Tribunal, and the scheme could be preserved by deleting any reference to that creditor while leaving its recovery proceedings unaffected. The regional director raised no objection.

Conclusion: The scheme was sanctioned with modification excluding the objecting secured creditor and preserving the pending recovery proceedings.

Final Conclusion: The company petition succeeded with modification, the scheme being approved for the consenting creditors while the objecting secured creditor's recovery action remained unaffected.

Ratio Decidendi: Where a special recovery statute confers exclusive and overriding jurisdiction on a tribunal, a company court cannot sanction a scheme of arrangement so as to impair or pre-empt pending recovery proceedings before that tribunal.

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