Unapproved change in management of a sick company cannot be recognised outside the BIFR rehabilitation process.

During BIFR proceedings, any change in control or management of a sick company had to conform to the statutory rehabilitation process and obtain prior Board approval. An arrangement made outside that process was inconsistent with the Sick Industrial Companies (Special Provisions) Act, 1985, especially where it generated disputes and parallel proceedings. The Court held that such an unapproved management change could not be recognised in the BIFR proceedings, and the Board was justified in declining to accept it. The writ petition therefore failed, with no interference required in the orders rejecting recognition of the management change.

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Issues: Whether a change in management of a sick company, arranged during pendency of proceedings before the Board for Industrial and Financial Reconstruction without prior approval, could be recognised under the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: The statutory framework governing a sick industrial company requires the formulation, examination, sanction and implementation of a rehabilitation scheme under the supervision of the Board. An arrangement affecting control and management of the company, if entered into without the Board's approval and outside the sanctioned statutory process, is inconsistent with the scheme and purpose of the Act. The Court also noted that the arrangement had given rise to disputes and parallel proceedings, reinforcing the impropriety of recognising it in BIFR proceedings.

Conclusion: The unapproved arrangement changing management could not be recognised, and the Board was justified in rejecting it.

Final Conclusion: The writ petition failed, and no interference was called for with the orders declining to recognise the management change.

Ratio Decidendi: During BIFR proceedings, any arrangement for change in control or management of a sick company must conform to the statutory rehabilitation process and cannot be validated if made without prior approval of the Board.

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