TaxTMI 
TaxTMI 
2023 (3) TMI 828
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....r) and has held that the original writ petitioner is an unsecured creditor and has the option not to accept the scaled down value of its dues and may wait till the scheme of rehabilitation of the appellant company [company before the BIFR under Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "SICA")] has worked itself out with an option to recover its debt post such rehabilitation, the original respondent No. 1 - Modi Rubber Ltd. has preferred the present Civil Appeal No. 375 of 2017. Civil Appeal No. 377 of 2017 2.1 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court of Delhi at New Delhi passed in Writ Petition (C) No. 8154 of 2010 by which the Division Bench of the High Court has dismissed the said writ petition preferred by the appellant herein confirming the orders passed by BIFR and AAIFR taking the view that the appellant herein, on obtaining the decree in its favour has to stand in the queue alongwith other unsecured creditors, who were to be given 54 paisa in a rupee as per the scheme of revival sanctioned under the SICA, the original writ petitioner - OCL India Ltd. (unsecured creditor....
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....sake of convenience Civil Appeal No. 375 of 2017 is treated as the lead matter. The facts leading to the Civil Appeal No. 375 of 2017 are as under:- 4.1 That the scheme of rehabilitation of the respondent - company was approved on 08.04.2008 under the SICA. The dues of the unsecured creditors was dealt with in para 5.1.3 of the sanctioned scheme, under which the payment to the unsecured creditors was to be made as under:- "5.1.3. UNSECURED PRESSING CREDITOR (RS. 7390.20 LACS) Pressing creditors have been identified as under:- Raw Material Suppliers : 2690.50 Acceptances : 3908.37 Dealers and C & F : 289.33 Inter corporate deposits : 500.00 The above creditors shall accept their outstanding dues as per one of the following three options: a) To accept 30% of the principal outstanding as full and final payment. The payment shall be made within 3 months of the sanction of the scheme by the BIFR. Or b) To accept 40% of the principal outstanding as full the final payment. The payment shall be made in 3 equal annual installments from the cut off date (i.e. 31.3.2008). The first installment shall be payable within 3 mo....
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.... company has become sick, cannot be compulsorily overridden by the provisions of the SICA if the creditor is willing to wait till such time as the company is financially rehabilitated to claim its dues. The High Court is of the opinion that there would be only suspension of legal proceedings as envisaged under Section 22 of the SICA and the enforcement of the remedy remains suspended and that is why even in computing period of limitation, the period is excluded as per sub-section (5) of Section 22 of the SICA. The impugned judgment and order passed by the Division Bench of the High Court is the subject matter of present Civil Appeal No. 375 of 2017. 5. Shri Jayant Bhushan, learned senior counsel appearing on behalf of the appellant - Modi Rubber Limited in Civil Appeal No. 375 of 2017 while assailing the impugned judgment and order passed by the High Court has submitted as under:- (i) That in the instant case, notwithstanding the mandatory provisions of Section 18(8) of SICA read with Section 32 of SICA, the High Court by the impugned judgment and order has allowed the unsecured creditor to stay outside the rigours of the scheme sanctioned under Section 18(4) of SICA re....
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....to the minority creditors in value. It is further submitted that the rehabilitation scheme under SICA discharges debt by operation of law. It is submitted that SICA, 1985 was not a consent based regime rather it was an operation by law based regime; (v) It is further submitted by learned senior counsel appearing on behalf of the appellant that in case of insolvent company, from practical and commercial point of view, there is in effect, no scaling down of debt of ordinary creditors - unsecured creditors as the real market value of debts owed to the ordinary creditors including the decree holders / arbitration award holders / industrial award holders covered by the scheme is nothing. The nominal value of debt may appear to have been scaled down, however, in reality, the unsecured creditors normally do not get anything; (vi) It is submitted that subsequently, legislatures in response to societal and economic changes have enacted separate insolvency legislations providing a mandatory system to reorganize business which shielded the insolvent companies with automatic stay against recovery of the debts. It is submitted that invocation of insolvency legislations are usu....
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....words financial reconstruction provided in section 18(1) (a) are of widest amplitude. Under this sub-section the BIFR can reorganize, modify, vary, reduce, defer the dues of creditors. c) Section 18(3)(a) provides for publication of draft scheme in daily newspapers for suggestions and objections. Section 18(3)(b) specifically provides that BIFR may modify draft scheme in the light of suggestions and objections received from creditors, amongst others, of sick company. d) Section 18(8) of SICA provides that a sanctioned scheme shall be binding on the sick industrial company, shareholders, creditors, guarantors and employees of the company. e) Section 19(1) deals with financial assistance, sacrifices to he provided by central and state governments, scheduled banks or other bank, public financial institutions, state level institution or any institution or other authority. Section 19(2) provides that only in the case of above mentioned prescribed entities that their consent is imperative as they may be required to give financial assistance. This sub-section requires the consent to be given within a span of 60 days from the date of circulation of scheme or with....
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....the company whose networth has turned positive with the assistance of financial assistance and sacrifices may again become sick making the whole effort of taking a company out of sickness futile. (xiii) It is submitted that such a submission / argument would be against the foundational principle of SICA and, in general, other insolvency legislations that their purpose is to rescue the sick companies from the throes of their inevitable death / liquidation and are not mechanisms for recovery of debts of creditors. (xiv) Now, so far as the submission on behalf of the respondents that the scaling down/reduction/waiver of dues of creditors is violative of Article 300A of the Constitution of India is concerned, it is submitted that Article 300A of the Constitution of India shall have no application to a rehabilitation scheme sanctioned by BIFR under the framework of SICA. It is submitted that there is no deprivation of and/or confiscation of property when the dues owed to a creditor other than prescribed entities under Section 19(1) of SICA, is unilaterally reduced after complying with the procedure stated in Section 18(3)(a) including publication of draft rehabilitatio....
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....d with sanctioning and implementation of rehabilitation / restructuring scheme from the date of its presentation or date of its coming into effect, whichever is earlier, fall exclusively within the jurisdiction of BIFR. It is further observed that in such a case of creditors' demand, even if not made part of the scheme, would not merely for that reasons stand executed from BIFR's jurisdiction, which extends to making changes in instruments, documents etc., which create rights and liabilities vis-à-vis sick industrial company and its properties. It is observed that any other view would defeat the very purpose of SICA. It is submitted that it is further observed and held in the said decision that the SICA is a special law vis-à-vis Transfer of Property Act, which is a general law. (xviii) It is further submitted by the learned senior counsel appearing on behalf of the appellant - Modi Rubber Ltd. that even subsequently, the Division Bench of the High Court has doubted the correctness of the present impugned decision by observing that prima facie the view taken in Modi Rubber Ltd. (supra) is not in sync with the view taken by the various Division Benches of the ....
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.... employees, in terms of section 18(8) of SICA. Reliance is placed on the decisions of this Court as well as the decision of the Bombay and Delhi High Court in the case of : (i) Raheja Universal Limited Vs. NRC Limited and Ors., (2012) 4 SCC 148; (ii) Kanpur Fertilizers and Cement Limited Vs. State of Uttar Pradesh and Anr., (2018) 17 SCC 309; (iii) Kotak Mahindra Finance Ltd. Vs. Mafatlal Industries Ltd., (2004) 5 Bom. CR 792 (Bom.); (iv) Nasik People's Co-operative Bank Ltd. Vs. Datar Switchgear and Anr., 2007 SCC Online Del 2067(DB); (v) Oman International Bank S.A.O.G. Vs. Appellate Authority for Industrial and Financial Reconstruction, (2010) 169 DLT 618 (DB); (vi) International Finance Corporation, Washington Vs. Bihar Sponge & Iron Ltd. & Ors., AIR 2010 Del 142 (DB); and (vii) Union of India Vs. Cimmco Ltd. and Ors. reported in 2014 SCC OnLine Del 909. 6.2 Shri C.U. Singh, learned Senior Advocate has further submitted that the judgment in the case of Continental Carbon India Ltd. (supra) has made a complete departure from all prior decisions as to the scope and effect and Sections 18 and 22 of SICA and the ....
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....ther such consent of such unsecured creditor was not taken prior to sanction of the scheme. The provisions of SICA do not provide for the creditors' consent white framing of the scheme under Section 18 or its implementation. In section 19(2), the scheme under Section 19(1) is required to be circulated to every person providing financial assistance "for his consent". However, the scheme under Section 18 envisages no such "consent. 6.7 Further, the Scheme under Section 18 remains binding even after revival of the company. Here, it is necessary to contrast the provisions of Section 22, which provide that legal proceedings, contracts, etc., in respect of a sick company against whom an inquiry is pending under Section 16, or a scheme is under preparation or implementation, etc., shall remain suspended in terms of a declaration of the Board under Section 22(3), and would revive upon the declaration ceasing to have effect [Section 22(4)]. However, the scheme under Section 18 does not lose its finality/efficacy upon revival of the company. 6.8 It is further submitted that SICA, being a special Act, the provisions thereof and the scheme sanctioned thereunder, would prevail over an....
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....rovisions providing for deprivation of property of an unsecured creditor in the form of sacrifices and that no consent for said sacrifice is required, then also there is no provision in the SICA, 1985 which provides for making an unsecured creditor, in the first place, to be a part of the scheme without his consent. It is submitted that in other words, once an unsecured creditor is ready to be part of the scheme then even if no consent of his is required before asking him to sacrifice does not mean that he has to be forced to become a part of the scheme. 7.4 It is submitted that as such the interpretation to the scheme of the SICA, 1985 as given by the High Court would, in fact, render the provisions of the Act more workable and reasonable. It is further submitted that the fact that an unsecured creditor is permitted to stand outside the scheme, in no manner can cause prejudice to the rehabilitation of a Sick Company. This is also clear from the fact that the period of the scheme is completely independent from the net worth of the Sick Company turning positive. It is submitted that in the present case, the period of the rehabilitation scheme is to continue till 2013, whereas the....
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....g the view taken by the Delhi High Court followed by the Madhya Pradesh High Court, it is submitted by Shri A.K. Shrivastava, learned senior counsel appearing on behalf of the unsecured creditor - decree holders that in the present case, the scheme sanctioned for revival of the company has been substantially implemented and the net worth of the company has turned positive substantially by Rs. 31 crores. 8.1 It is submitted that in the present case, the appellant company moved an application before the BIFR for discharging the company from the purview of SICA as its net worth has turned positive. It is submitted that the BIFR thereafter has allowed the said application vide order dated 07.12.2010 and the applicant company has been discharged from the provisions of SICA. It is submitted that therefore, the execution application filed by the respondent shall have to be proceeded further and there would not be any bar under Section 22 of the SICA, 1985 as contended on behalf of the appellant before the High Court. It is submitted that once the appellant on its own motion got discharged from the purview of SICA and such relief having been granted, the appellant thereafter canno....
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....alue of the claim amount and further prayed for closing the execution proceedings. The learned executing court dismissed the application of the appellant vide order dated 13.03.2014. This order was never challenged by the petitioner and hence attained finality. 8.1.9 That the appellant thereafter again filed written objection to the execution proceedings on the same grounds as were earlier raised by them. Such objections are barred by the principles of res-judicata as vide earlier order the identical pleas of the petitioner was rejected by the Learned Executing Court on 13.03.2014. 8.1.10 That the answering respondent filed reply to the written objections filed by the petitioner. 8.1.11 That the Learned Executing Court again vide detailed order dated 06.11.2017 rejected the objections raised by the petitioner. 8.1.12 That in Feb 2018 the petitioner filed Civil Revision No. 96/2018 under Section 115 of CPC before the Hon'ble High Court of Madhya Pradesh at Gwalior. 8.1.13 That on 17.08.2019 in the pending execution proceedings, part of the land of petitioner admeasuring 4.025 hectares was attached by the Executing Court. 8.1.....
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.... felt that the existing institutional arrangements and procedure for revival and rehabilitation of potentially viable sick industrial companies are both inadequate and time consuming. Multiplicity of law and the regulatory agencies makes the adoption of a coordinated approach for dealing with sick industrial companies difficult. Thus, a need was felt to enact, in public interest, a legislation to provide for timely determination, by a body of experts, of the preventive, ameliorative, remedial and other measures that would be needed to be adopted with respect to such companies and for enforcement of the appropriate measures with utmost practicable dispatch. 11.2 The ill effects of sickness in industrial companies, such as cessation of production, loss of employment, loss of revenue to the Central and State Governments and blocking up of investible funds of the banks and financial institutions, were of serious concern to the Government as well as the society at large. It had repercussions on the industrial growth of the country. With the passage of time the number of sick industrial units increased rapidly. Therefore, it was imperative to salvage the productive assets and release,....
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....al institutions, to the extent possible, from the non-viable sick industrial companies through liquidation of those companies. It has been the experience that the existing institutional arrangements and procedures for revival and rehabilitation of potentially viable sick industrial companies are both inadequate and time-consuming. A multiplicity of laws and agencies makes the adoption of a co-ordinated approach for dealing with sick industrial companies difficult. A need has, therefore, been felt to enact in public interest a legislation to provide for timely detection of sickness in industrial companies and for expeditious determination by a body of experts of the preventive, ameliorative, remedial and other measures that would need to be adopted with respect to such companies and for enforcement of the measures considered appropriate with utmost practicable despatch." 11.6 Thus, the SICA, 1985 basically and predominantly is a remedial and ameliorative enactment, insofar as it empowers a quasi-judicial Body - BIFR to take appropriate measures for revival and rehabilitation of the potentially viable sick industrial companies as quickly as possible and also to salvage th....
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....on 17(2) of SICA 1985. Further, where BIFR decides that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time and that it is otherwise necessary or expedient in public interest to adopt all or any of the measures specified in Section 18 of SICA 1985 in relation to the said company, it may, having regard to the guidelines, as may be specified, pass an order formulating a scheme providing for such measures in relation to the sick industrial company. In the event of non-compliance with the restrictions or conditions specified in the order of BIFR or where the company fails to revive itself in pursuance to the order, BIFR can pass any of the directions/orders as required under Section 17(4) of SICA 1985. 38. Section 18 of SICA 1985 again is a remedial provision which contains specified guidelines for the preparation and sanction of the schemes for the revival of the sick industrial company. Where an order is made under Section 17(3) in relation to a sick industrial company, the operating agency is required to prepare, as expeditiously as possible, ordinarily within 90 days from the date of such order, a....
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....or expedient for the purpose of removing difficulty in terms of Section 18(9) of SICA 1985. 42. The role of BIFR does not end here and it may even periodically monitor the implementation of the scheme. Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees from the Government or financial institutions. Before any financial institution is called upon to proceed to release the financial assistance to the sick industrial company in fulfilment of the requirements in that regard, the procedure contemplated under the provisions of Section 19 of SICA 1985 has to be followed. 43. Where BIFR, after making inquiry under Section 16 of SICA 1985, considering all relevant facts and circumstances and giving an opportunity of being heard to all parties concerned, is of the opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in fu....
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....luded by the legislature under Section 32 of SICA, 1985. 11.12 Keeping in mind the statement of objects and reasons for enactment of SICA, 1985 and the powers exercised by the BIFR and the primary concern to revive the sick industry for which the rehabilitation scheme is to be framed under Section 18, the question posed is required to be considered. 11.13 As per the statutory provisions under SICA, 1985, the rehabilitation scheme is provided under Section 18 of the SICA, 1985, which shall be made after making the inquiry under Section 16 by the Board. Section 18 reads as under:- "18. Preparation and sanction of schemes.-(1) Where an order is made under sub-section (3) of Section 17 in relation to any sick industrial company, the operating agency specified in the order shall prepare, as expeditiously as possible and ordinarily within a period of ninety days from the date of such order, a scheme with respect to such company providing for any one or more of the following measures, namely:- (a) the financial reconstruction of the sick industrial company; (b) the proper management of the sick industrial company by change in, or take over of, management o....
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....er made under sub-section (3) of Section 17; (f) the reduction of the interest or rights which the shareholders have in the sick industrial company to such extent as the Board considers necessary in the interests of the reconstruction, revival or rehabilitation of the sick industrial company or for the maintenance of the business of the sick industrial company; (g) the allotment to the shareholders of the sick industrial company of shares in the sick industrial company or, as the case may be, in the 29[transferee company] and where any shareholder claims payment in cash and not allotment of shares, or where it is not possible to allot shares to any shareholder the payment of cash to those shareholders in full satisfaction of their claims- (i) in respect of their interest in shares in the sick industrial company before its reconstruction or amalgamation; or (ii) where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced; (h) any other terms and conditions for the reconstruction or amalgamation of the sick industrial company; (i) sale of the industrial undertaking of the sick industr....
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....all be proceeded with unless it has been approved, with or without modification, by a special resolution passed by the shareholders of [the company other than the sick industrial company]35. (4) The scheme shall thereafter be sanctioned as soon as may be, by the Board (hereinafter referred to as the 'sanctioned scheme') and shall come into force on such date as the Board may specify in this behalf: Provided that different dates may be specified for different provisions of the scheme. (5) The Board may on the recommendations of the operating agency or otherwise, review any sanctioned scheme and make such modifications as it may deem fit or may by order in writing direct any operating agency specified in the order, having regard to such guidelines as may be specified in the order, to prepare a fresh scheme providing for such measures as the operating agency may consider necessary. (6) When a fresh scheme is prepared under subsection (5), the provisions of sub-sections (3) and (4) shall apply in relation thereto as they apply to in relation to a scheme prepared under sub-section (1). (6-A) Where a sanctioned scheme provides for the transfer....
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....tioned scheme." 11.14 Under Section 18 of the SICA, 1985, it is the operating agency to prepare a scheme with respect to the sick company providing for any one or more of the measures mentioned in Section 18, which include : - (i) the financial reconstruction of the sick industrial company; (ii) such other preventive, ameliorative and remedial measures as may be appropriate. 11.14.1 The operating agency is defined under Section 3(i) and it means any public financial institution, State-level institution, scheduled bank or any other person as may be specified by general or special order as its agency by the Board. No other persons including the unsecured creditors comes into picture like preparing the scheme under Section 18. Section 18 of the SICA does not provide that at the time of preparing of the scheme under Section 18 or when it is sanctioned by the Board, the unsecured creditors are required to be heard. The only provision for the consent required is Section 19 and the agency/person, who is required to give the financial assistance, its consent is required. Once the rehabilitation scheme / scheme under Section 18 prepared by the operating agency is sanctioned by t....
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....reat them as creditors. Therefore, even as per Section 18(8), the scheme shall bind all the creditors and guarantors and even the employees of the sick company, for whose revival the scheme is sanctioned. 11.16 If the submission on behalf of the unsecured creditors, which has been accepted by the High Court in the case of Continental Carbon India Ltd. (supra) that an unsecured creditor can opt out of the scheme sanctioned by the BIFR under the SICA, 1985 and is allowed not to accept the scaled down value of its dues and may wait till the scheme for rehabilitation of the sick company has worked itself out, with an option to recover the debt post such rehabilitation is accepted / allowed, in that case, the minority creditors may frustrate the rehabilitation scheme, which may frustrate the object and purpose of enactment of SICA, 1985. 11.17 At the cost of repetition, it is observed that the primary object and purpose of SICA, 1985 is revival of a sick industrial company even by providing rehabilitation scheme under Section 18. A reading of the statement of objects and reasons says that the effect of the ill effects of sickness in industrial companies was a serious concern not o....
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....n the value of the dues, may again become sick, if the entire dues of the unsecured creditors are to be paid thereafter. It may again lead to becoming such a revived company again as a sick company. If such a thing is permitted, in that case, it will again frustrate the object and purpose of enactment of the SICA, 1985. 14. Now, so far as the submission on behalf of the unsecured creditors that to compel the unsecured creditors to accept the scaled down value of its dues would tantamount to and would be violative of Article 300A of the Constitution of India is concerned, the same has also no substance. Scaling down the value of the dues is under the rehabilitation scheme prepared under Section 18 of the SICA, which has a binding effect on all the creditors. Therefore, the same cannot be said to be violative of Article 300A of the Constitution of India. The law permits framing of the scheme taking into consideration and to provide the measures contemplated under Section 18, therefore, the rehabilitation scheme which provides for scaling down the value of dues of the creditors /unsecured creditors and even that of the labourers cannot be said to be violative of Article 300A of the....