Binding rehabilitation scheme under sick company law requires unsecured creditors to accept scaled down dues and cannot opt out.

A sanctioned rehabilitation scheme under the Sick Industrial Companies (Special Provisions) Act, 1985 binds all creditors, including unsecured creditors, because Section 18 authorises collective financial reconstruction and Section 18(8) makes the scheme binding on the sick company, shareholders, creditors, guarantors and employees. An unsecured creditor cannot treat the scheme as optional or wait to recover the full debt after revival, as that would undermine the statutory restructuring process and the revival of the sick company. Section 32 gives the scheme overriding effect, and the reduction of dues under the scheme is by authority of law, so the Article 300A objection fails. The creditor must accept the scaled down value of its dues.

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Issues: Whether, on approval of a rehabilitation scheme by the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985, an unsecured creditor can refuse to accept the scaled down value of its dues and wait to recover the full debt after the scheme has worked itself out.

Analysis: The statutory scheme of the Sick Industrial Companies (Special Provisions) Act, 1985 is remedial and intended to revive sick industrial companies through a binding rehabilitation scheme. Section 18 empowers preparation and sanction of a scheme providing for financial reconstruction and other preventive, ameliorative and remedial measures, while Section 18(8) makes the sanctioned scheme binding on the sick company, its transferee, shareholders, creditors, guarantors and employees. The scheme cannot be treated as optional for unsecured creditors, because that would defeat the collective restructuring process and permit minority creditors to frustrate revival. Section 32 gives overriding effect to the scheme, and the contention based on Article 300A was rejected because the reduction of dues occurs by authority of law under the statutory rehabilitation framework.

Conclusion: An unsecured creditor has no option to stay outside the sanctioned rehabilitation scheme and must accept the scaled down value of its dues.

Ratio Decidendi: A rehabilitation scheme sanctioned under Section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 binds all creditors, including unsecured creditors, and they cannot opt out to claim their full dues after revival.

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