SICA rehabilitation scheme and operational debt dispute defeated insolvency admission where default was not proved on record.

A sanctioned SICA rehabilitation scheme already monitored under the BIFR/AAIFR framework could not be redirected into the insolvency process by granting liberty to proceed under section 33(3) of the IBC; that liberty was held erroneous. The workers also failed to establish a clear operational debt due and payable by the corporate debtor, and the record did not prove default for admission of the section 9 application. The materials showed disputed dues, continuing efforts to pay ex-workers, and no proven unpaid balance attributable to the corporate debtor. The impugned order was set aside in entirety.

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Issues: (i) Whether the Adjudicating Authority was right in granting liberty to the operational creditors to proceed under section 33(3) of the Insolvency and Bankruptcy Code, 2016 in relation to the earlier SICA rehabilitation scheme. (ii) Whether the workers had established an operational debt due and payable by the corporate debtor, together with default, so as to justify admission of the section 9 application.

Issue (i): Whether the Adjudicating Authority was right in granting liberty to the operational creditors to proceed under section 33(3) of the Insolvency and Bankruptcy Code, 2016 in relation to the earlier SICA rehabilitation scheme.

Analysis: The sanctioned rehabilitation scheme under the erstwhile SICA had already been monitored and implemented through the BIFR and AAIFR framework. The decision relied on the settled position that the Supreme Court in Spartek Ceramics India Ltd. had held the 24.05.2017 notification to be beyond the removal-of-difficulties power, and that matters relating to a sanctioned SICA rehabilitation scheme are not to be treated as though they can be pursued under the insolvency regime in the manner indicated by the Adjudicating Authority.

Conclusion: The liberty granted to file an application under section 33(3) of the Insolvency and Bankruptcy Code, 2016 was erroneous and unsustainable.

Issue (ii): Whether the workers had established an operational debt due and payable by the corporate debtor, together with default, so as to justify admission of the section 9 application.

Analysis: The record showed continuing efforts to pay the ex-workers, including payments made under the supervision of the State Government-appointed caretaker and public notices inviting claimants to receive dues. The materials did not establish any clear unpaid balance attributable to the corporate debtor, nor did they show that coercive steps were taken with the requisite permission under the SICA framework. On the facts, the alleged dues were found to be seriously disputed and default was not proved.

Conclusion: The section 9 application was not maintainable on the footing of proved operational debt and default.

Final Conclusion: The impugned order was set aside in entirety, and no costs were awarded.

Ratio Decidendi: A section 9 insolvency proceeding cannot be sustained where the alleged operational debt and default are not established on the record, and issues concerning implementation of a sanctioned SICA rehabilitation scheme cannot be redirected into the insolvency process by granting liberty under section 33(3) of the Code.

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