Revival scheme notice and locus rules: a rival's acquiescence and limited tax impact saved the merger approval.

A trade rival that had abandoned its own revival proposal, failed to pursue a stand-alone scheme, and acquiesced in the proceedings was not entitled to notice or hearing as an interested person, so the merger scheme was not invalid on that ground. Absence of notice to the Central Government and the CBDT did not vitiate approval of the scheme where the company had given up the principal tax benefit under section 72A and the revenue impact was materially reduced. A shareholder's challenge to the rehabilitation order was found not bona fide because it did not dispute the earlier sickness declaration and appeared aimed at obstructing revival. The merger-based revival scheme was upheld and the objections were rejected.

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Issues: (i) Whether Garware was an interested person entitled to notice and hearing before approval of the merger scheme for revival of the sick company. (ii) Whether absence of notice to the Central Government and the Central Board of Direct Taxes vitiated approval of the merger scheme in view of the proposed tax concessions. (iii) Whether the shareholder's challenge to the rehabilitation order was bona fide and maintainable.

Issue (i): Whether Garware was an interested person entitled to notice and hearing before approval of the merger scheme for revival of the sick company.

Analysis: Garware had been given repeated opportunities to submit a revised revival proposal but did not do so. It failed to appear on several dates, did not pursue a stand-alone scheme, and instead entered into an arrangement with another bidder to assist that bidder. Its conduct showed that it had ceased to pursue revival on its own and had acquiesced in the proceedings. In such circumstances, it could not claim the status of an interested person with a continuing right to be heard before the merger scheme was accepted.

Conclusion: Garware was not entitled to notice or hearing as an interested person, and the approval of the merger scheme was not invalid on that ground.

Issue (ii): Whether absence of notice to the Central Government and the Central Board of Direct Taxes vitiated approval of the merger scheme in view of the proposed tax concessions.

Analysis: A merger scheme that invokes tax concessions and reliefs affecting the public exchequer ordinarily requires notice to the Central Government and the tax authorities before finalisation. Here, however, the company had expressly given up the principal benefit under section 72A, and the merger was to operate from a later date, thereby substantially reducing any revenue impact. In the facts of the case, the tax consequence did not furnish a ground to invalidate the approved scheme or the appellate order.

Conclusion: The omission to issue notice to the Central Government and the Central Board of Direct Taxes did not vitiate the approval in the facts of this case.

Issue (iii): Whether the shareholder's challenge to the rehabilitation order was bona fide and maintainable.

Analysis: The shareholder did not question the earlier declaration that the company was sick, and his conduct showed alignment with the rival's attempt to stall revival. The challenge was treated as lacking bona fides and as an attempt to obstruct rehabilitation rather than support it.

Conclusion: The shareholder's challenge was not bona fide and did not warrant interference.

Final Conclusion: The revival scheme based on merger was upheld, the objections to notice and locus were rejected, and the orders of the appellate authority and the Board were restored.

Ratio Decidendi: A trade rival that has abandoned its own revival proposal and has acquiesced in the proceedings cannot claim a continuing right to notice, while a merger scheme under the sick-company regime will not be invalidated merely for want of notice to tax authorities where the material tax concession is expressly relinquished and the revenue impact is otherwise marginal.

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