Notice and hearing required before implementing rehabilitation scheme directions affecting share capital and regulatory powers.

A rehabilitation scheme containing directions for reduction of share capital, conversion of loans into equity and related securities-law steps could not be implemented against affected authorities without notice and hearing. The court stressed that statutory authorities whose regulatory powers are impacted must be given an opportunity to be heard before positive directions in a sanctioned scheme are acted upon. It also noted that mandatory procedures under the Companies Act and securities law cannot be bypassed without due consideration. The matter was therefore sent back for the BIFR to consider the later communication, give notice to all affected parties and take a fresh decision on implementation of clause 10 of the scheme.

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Issues: Whether the directions contained in the rehabilitation scheme could be enforced against the concerned authorities without first hearing them, and whether the matter required reconsideration by the BIFR after notice to all affected parties.

Analysis: The dispute arose from a positive direction in the sanctioned rehabilitation scheme requiring reduction of share capital, conversion of loans into equity, and implementation of consequential listing and regulatory directions. The authorities complained that these directions affected their statutory powers and had been issued without notice or opportunity of hearing. The Court declined to adjudicate the wider question whether the BIFR could override the statutory procedures under the Companies Act and securities law at that stage. Instead, it emphasised that the authorities had not been heard before the impugned positive directions were issued, and that the later communication from the first respondent should be placed before the BIFR for consideration. The Court also relied on the principle that compliance with the procedural framework governing share capital reduction and securities-law requirements is mandatory and cannot be bypassed without hearing the affected authorities.

Conclusion: The matter was required to be taken back by the BIFR for notice, hearing, and fresh decision on the implementation of clause 10 of the sanctioned scheme. The writ petition was not allowed on merits but resulted in a direction for reconsideration, which was partly in favour of the petitioner.

Ratio Decidendi: Where a rehabilitation scheme contains directions affecting statutory authorities and their regulatory powers, those authorities must be given notice and an opportunity of hearing before such directions are implemented, and mandatory statutory procedures cannot be bypassed without due consideration.

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