Sanctioned rehabilitation scheme binds statutory creditors and bars recovery of covered ESI dues after approval.

A sanctioned rehabilitation scheme under the Sick Industrial Companies (Special Provisions) Act, 1985, once circulated under Section 19(2) and left without timely consent or objection, is treated as deemed consent and becomes binding. The scheme prevails over inconsistent legal claims by virtue of Section 32(1), including claims for statutory dues expressly covered by the rehabilitation arrangement. Where ESI dues are dealt with in the approved scheme, the authority cannot later seek recovery in a manner inconsistent with that scheme, and any recovery order contrary to the sanctioned arrangement is unsustainable.

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Issues: Whether the sanctioned rehabilitation scheme under the Sick Industrial Companies (Special Provisions) Act, 1985 bound the respondent authorities and prevented recovery of the ESI dues from the petitioner after amalgamation.

Analysis: The scheme had been circulated under Section 19(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 and no consent or objection was received within the prescribed time. In such circumstances, consent is deemed to have been given. The sanctioned scheme, once approved, operates with binding force under the Act and has overriding effect over inconsistent provisions of other laws by virtue of Section 32(1). The Court also accepted that the scheme specifically dealt with statutory dues, including ESI, and that the respondent could not later revive the discharged liability contrary to the approved rehabilitation arrangement.

Conclusion: The respondent could not recover the ESI dues from the petitioner in disregard of the sanctioned scheme; the recovery order was unsustainable.

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