Rehabilitation scheme powers include equity reduction and capital restructuring, while shareholder consent is not needed for dilution alone.

Under the Sick Industrial Companies (Special Provisions) Act, 1985, a rehabilitation scheme may expressly provide for capital restructuring, including reduction of equity and dilution of shareholding, and the Board's special powers operate with overriding effect over the Companies Act, 1956 procedures. Consent under section 19 is required only where the scheme seeks financial assistance in the form contemplated by that provision; it does not apply to mere reduction of shareholder equity under a sanctioned restructuring. A defect in publication of the draft scheme was treated as technical and non-fatal where the scheme had been substantially implemented and no useful purpose would be served by unsettling the completed restructuring.

---

---

Issues: (i) Whether the Board for Industrial and Financial Reconstruction could direct reduction of equity and capital restructuring under the Sick Industrial Companies (Special Provisions) Act, 1985 without following the procedure under the Companies Act, 1956; (ii) whether the shareholder was entitled to consent under section 19 of the Sick Industrial Companies (Special Provisions) Act, 1985 before dilution of its equity; (iii) whether non-publication of the draft scheme in the manner directed by the Board invalidated the rehabilitation scheme.

Issue (i): Whether the Board for Industrial and Financial Reconstruction could direct reduction of equity and capital restructuring under the Sick Industrial Companies (Special Provisions) Act, 1985 without following the procedure under the Companies Act, 1956.

Analysis: The rehabilitation scheme expressly contemplated capital restructuring, including reduction of existing equity share capital and consolidation of shares. Section 18(2)(f) of the Sick Industrial Companies (Special Provisions) Act, 1985 specifically empowers the Board to reduce shareholders' rights to the extent necessary for reconstruction, revival or rehabilitation. That power operates with overriding effect by virtue of section 32 of the Act. In that statutory setting, the procedures under sections 81 and 100 to 103 of the Companies Act, 1956 do not control the exercise of power under the special enactment.

Conclusion: The Board was competent to order dilution and capital reduction without resort to the Companies Act procedure, against the assessee.

Issue (ii): Whether the shareholder was entitled to consent under section 19 of the Sick Industrial Companies (Special Provisions) Act, 1985 before dilution of its equity.

Analysis: Section 19 applies where the scheme provides financial assistance by way of loans, advances, guarantees, reliefs, concessions or sacrifices from specified persons. A shareholder whose equity is reduced through a rehabilitation scheme is not thereby converted into a person required to provide financial assistance within the meaning of that provision. Dilution of shareholding is legally distinct from the giving of financial assistance contemplated by section 19(1), and the consent mechanism under section 19(2) is therefore inapplicable to such capital restructuring.

Conclusion: The shareholder's consent was not required under section 19, against the assessee.

Issue (iii): Whether non-publication of the draft scheme in the manner directed by the Board invalidated the rehabilitation scheme.

Analysis: The draft scheme was published, but not exactly in accordance with the Board's direction regarding the newspapers in which publication was to be made. That amounted to a technical defect. However, the shareholder had an opportunity to participate in the annual general meeting, did not do so, and the scheme had already been substantially implemented with altered positions of the stakeholders. In those circumstances, setting aside the scheme on the basis of the publication defect would serve no useful purpose and would disrupt the completed restructuring.

Conclusion: The publication defect did not invalidate the scheme, against the assessee.

Final Conclusion: The writ petition failed, and the challenge to the rehabilitation scheme and the consequential dilution of shareholding was rejected.

Ratio Decidendi: Under the Sick Industrial Companies (Special Provisions) Act, 1985, the Board's rehabilitation powers include capital reduction and dilution of equity with overriding effect over the Companies Act, 1956, and a shareholder's consent under section 19 is required only for financial assistance of the kind specified in that provision, not for reduction of shareholding under a sanctioned scheme.

---