SICA rehabilitation: operating agency may be changed and surplus assets sold, if sale proceeds stay within the sanctioned scheme.
Under SICA, where rehabilitation has been delayed and earlier revival efforts have failed, the operating agency may be substituted to support effective implementation of the sanctioned scheme; here, IDBI was appointed in place of PNB. The Board was also held entitled to permit sale of surplus assets as part of the revival process, provided the sale was transparent and the proceeds remained under the control of the operating agency for use under the rehabilitation scheme. Settlement of unsecured creditors had to proceed without discrimination and within the framework of the sanctioned revival plan.
Issues: (i) Whether the Board should continue with PNB as operating agency or appoint IDBI in its place. (ii) Whether the company could be permitted to sell its surplus assets and whether the sale proceeds and settlement of creditors had to be regulated through the rehabilitation process.
Issue (i): Whether the Board should continue with PNB as operating agency or appoint IDBI in its place.
Analysis: The appeal arose in the backdrop of a long-pending revival exercise under SICA, where earlier rehabilitation attempts had failed and the matter had reached a second round of consideration. Since the object of the statute is revival of the sick company and not prolonged protection through repeated procedural disputes, the choice of operating agency had to support an effective and timely rehabilitation exercise. In that context, and having regard to the specialization of IDBI in textile matters, the change of operating agency was considered appropriate to avoid further delay.
Conclusion: The direction reappointing PNB was set aside and IDBI was directed to be appointed as operating agency in place of PNB.
Issue (ii): Whether the company could be permitted to sell its surplus assets and whether the sale proceeds and settlement of creditors had to be regulated through the rehabilitation process.
Analysis: The company had resumed operations, but the revival process had remained pending for many years and the secured creditor sought realization through the surplus properties. The Board was held entitled to permit sale of surplus assets in aid of rehabilitation, provided the process was transparent and the proceeds were kept under control of the operating agency for utilization under the sanctioned scheme. The Court also accepted that settlement among unsecured creditors should not be discriminatory and that the sale exercise had to proceed as part of the revival plan.
Conclusion: Permission to sell the surplus assets was upheld, subject to sale through a transparent process and utilization of proceeds under the sanctioned rehabilitation scheme, with no discrimination in settlement among unsecured creditors.
Final Conclusion: The appeal succeeded in part by substituting the operating agency and by allowing sale of surplus assets for rehabilitation, while leaving the revival process under the control of the BIFR in accordance with the sanctioned scheme.
Ratio Decidendi: Under SICA, where revival has been unduly delayed and the company's rehabilitation requires effective implementation, the forum may substitute the operating agency and permit sale of surplus assets through a transparent process, provided the proceeds are applied only in accordance with the sanctioned rehabilitation scheme.
TaxTMI 
AI Drafter ✕
TaxTMI 
