SICA protection is unavailable without a pending rehabilitation scheme; section 17(2) directions do not bar DRT or SARFAESI action.
An order made at the section 17(2) stage of SICA, assessing whether revival was practicable and allowing the company time to improve its net worth, does not become a sanctioned rehabilitation scheme under section 18 unless a draft scheme is circulated, considered, revised and finally approved. On that basis, the BIFR order dated 27.12.1999 was not a section 18 scheme. Section 22 protection applies only where a reference or sanctioned rehabilitation scheme is actually pending under SICA; once the company had ceased to be sick and no scheme was operative, DRT proceedings and SARFAESI measures were not stayed. The creditors were therefore free to pursue independent statutory remedies.
Issues: (i) Whether the BIFR order dated 27.12.1999 constituted a rehabilitation scheme under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985, or only an order under section 17(2); (ii) Whether proceedings before the DRT and measures under the SARFAESI Act could be stayed on the basis of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
Issue (i): Whether the BIFR order dated 27.12.1999 constituted a rehabilitation scheme under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985, or only an order under section 17(2).
Analysis: The order of 27.12.1999 was treated as an order made while examining whether revival was practicable and permitting the company to make its net worth exceed accumulated losses within a reasonable time. The later order dated 4.10.2001 recorded that the company had ceased to be a sick industrial company and that the case was no longer required to be dealt with under SICA. No draft rehabilitation scheme was circulated, considered, revised, or finally sanctioned in the manner contemplated by section 18. The earlier directions were therefore held to be part of the section 17(2) stage and not a section 18(1) scheme.
Conclusion: The order dated 27.12.1999 was not a sanctioned rehabilitation scheme under section 18; it was an order under section 17(2).
Issue (ii): Whether proceedings before the DRT and measures under the SARFAESI Act could be stayed on the basis of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
Analysis: The protection under section 22 was held to depend on the existence of a pending reference or a sanctioned scheme under SICA. Since the company had ceased to be sick and no rehabilitation scheme under section 18 was pending, the statutory embargo under section 22 did not operate. The court also held that the argument based on the third proviso to section 15(1) did not arise once the foundational requirement for invoking SICA protection was absent.
Conclusion: The proceedings before the DRT and the measures under SARFAESI were not barred by section 22.
Final Conclusion: The challenge failed because the company was no longer under an operative SICA rehabilitation process and the creditors were free to pursue their independent statutory remedies.
Ratio Decidendi: Section 22 of SICA applies only when a reference or sanctioned rehabilitation scheme is pending under the Act; an order made at the section 17(2) stage does not amount to a section 18 scheme.
TaxTMI 
AI Drafter ✕
TaxTMI 
