SICA protection over insurance proceeds barred unilateral appropriation by a secured creditor without BIFR consent.

Delhi HC held that a secured creditor could not unilaterally appropriate insurance proceeds relating to hypothecated goods when the borrower was a sick industrial company under SICA and BIFR proceedings were pending. The insurance money was treated as company property for the purposes of section 22(1), so any recovery or appropriation against those assets required prior BIFR consent. Section 22(3) was found inapplicable because the dispute did not concern suspension of a contract, settlement, award, or similar instrument under a specific BIFR declaration. The bank, as only one secured creditor, could not take the full amount to the exclusion of others or bypass the rehabilitation process; keeping the amount in a no-lien account was upheld.

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Issues: Whether the petitioner bank could unilaterally appropriate the insurance compensation received in respect of hypothecated goods without obtaining the prior permission of the BIFR under the SICA.

Analysis: The company was a sick industrial company and proceedings under the SICA were pending before the BIFR. Section 22(1) protected the company's properties from coercive recovery and required the BIFR's consent before any recovery action against its assets. The insurance proceeds, though payable directly to the bank under the security arrangement, represented monies arising from the company's insured goods and were therefore monies of the company for the purposes of the sick-company proceedings. Section 22(3) was held to be inapplicable because the case did not involve suspension of contracts, settlements, awards or similar instruments by a specific BIFR declaration. The bank, being only one of the secured creditors and also the operating agency, could not take the entire amount to the exclusion of the other secured creditor or bypass the statutory rehabilitation process.

Conclusion: The petitioner bank could not lawfully appropriate the insurance amount without prior BIFR permission and the direction to keep the amount in a no-lien account was upheld, against the petitioner bank and in favour of the respondent.

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