REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 375 OF 2017

Modi Rubber Limited …Appellant(s)

Versus

Continental Carbon India Ltd. …Respondent(s)

WITH

CIVIL APPEAL NO. 377 OF 2017

OCL India Limited …Appellant(s)

Versus

Andrew Yule & Co. Ltd. & Ors. …Respondent(s)

WITH

CIVIL APPEAL NO. 379 OF 2017

TVS Sewing Needles Ltd. …Appellant(s)

Versus

Singer India Ltd. & Ors. …Respondent(s)

1

WITH

TRANSFER PETITION (C) NO. 543 OF 2016

TVS Sewing Needles Ltd. …Appellant(s)

Versus

Singer India Ltd. & Ors. …Respondent(s)

AND

CIVIL APPEAL NO. 1755 OF 2023

(@ SLP (C) No. 4282 of 2020)

M/s. Titagarh Wagons Limited …Appellant(s)

Versus

M/s. Amar Forging Pvt. Ltd. & Ors. …Respondent(s)

J U D G M E N T

M.R. SHAH, J.

1.As common question of law and facts arise in these group of

appeals, they are being disposed of by this common judgment and order.

Civil Appeal No. 375 of 2017 - (To be treated as the lead matter)

2.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. 4854 of 2011 by which the Division Bench of the High

Court has allowed the said writ petition preferred by the respondent No.

1 herein – Continental Carbon India Ltd. (unsecured creditor) and has

2

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

2.1Feeling 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) has preferred the present Civil Appeal No. 377 of 2017.

Civil Appeal No. 379 of 2017

2.2Feeling aggrieved and dissatisfied with the impugned judgment

and order passed by the Division Bench of the High Court of Delhi at

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New Delhi dated 02.03.2016 passed in Writ Petition (C) No. 832 of 2016

by which the Division Bench of the High Court has doubted the

correctness of the judgment and order passed by the High Court of Delhi

in the case of Continental Carbon India Ltd. Vs. Modi Rubber Ltd.,

2012 (131) DRJ 294 (DB), which is the subject matter of Civil Appeal No.

375 of 2017 before this Court and has referred the matter to the Larger

Bench, the original respondent – TVS Sewing Needles Ltd. has

preferred the present Civil Appeal No. 379 of 2017.

TRANSFER PETITION (C) NO. 543 OF 2016

2.3Present Transfer Petition has been preferred by the petitioner –

TVS Sewing Needles Ltd. to transfer the pending Writ Petition (C) No.

832 of 2016 pending before the Delhi High Court, which is also the

subject matter of Civil Appeal No. 379 of 2017 as the issue involved in

the writ petition is the same arising in Civil appeal No. 375 of 2017 as the

correctness of the said decision, which is the subject matter of Civil

Appeal No. 375 of 2017 is doubted in Writ Petition (C) No. 832 of 2016.

Civil Appeal No. 1755 of 2023 (@ SLP (C) No. 4282 of 2020)

Leave granted.

2.4Feeling aggrieved and dissatisfied with the impugned judgment

and order passed by the High Court of Madhya Pradesh Bench at

Gwalior passed in Civil Revision No. 96 of 2018 by which the High Court

has dismissed the said revision application relying upon the decision of

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the Delhi High Court in the case of Continental Carbon India Ltd.

(supra), which is the subject matter of Civil Appeal No. 375 of 2017, the

original revisionist – M/s. Titagarh Wagons Limited, the judgment debtor

has preferred the present appeal.

3.Following question of law arise in the present group of appeals:-

Whether on approval of a scheme by the BIFR under the

Sick Industrial Companies (Special Provisions) Act, 1985

(hereinafter referred to as the ‘SICA’), an unsecured

creditor has the option not to accept the scaled down

value of its dues, and to wait till the scheme for

rehabilitation of the respondent – Company has worked

itself out, with an option to recover the debt with interest

post such rehabilitation?

4.For the 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:-

4.1That 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)

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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 months of the sanction of the Scheme by

the BIFR

c)To accept 50% of the principal outstanding as full

and final payment. The payment shall be made in

one go at the end of 3

rd

year from the sanction of

the Scheme by the BIFR.

Raw-material Suppliers: MRL has already entered

into Memorandum of Understanding with 30

Suppliers out of total 36 Pressing Raw Material

suppliers They have accepted for payment as per

option (a). Discussions with others are underway by

the company management.

Acceptances: MRL has already received

acceptance from PNB about their Hundi

acceptances settlement as per option (a). Efforts

are being made to settle with other banks namely

Federal Bank, Dhanlakshmi Bank, etc in respect of

Hundi Acceptances. The negotiations are at

advance stage.”

4.2Clause 5.1.4 provides for payment to other unsecured creditors as

under:-

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“5.1.4 OTHER unsecured creditors (Rs. 1840.42 lacs)

To accept 20% of the principal outstanding as full and

final payment. The payment shall be made at the end of

3

rd

year from the sanction of the Scheme by the BIFR.”

4.3That the respondent herein was an unsecured creditor – a carbon

black supplier, who did not accept the amount offered under the

rehabilitation scheme sanctioned under SICA. According to the original

writ petitioner – respondent No. 1 herein, the debts recovered in the

scheme due to it were much less than the actual debts. Therefore,

aggrieved by the rehabilitation scheme, the respondent No. 1 –

unsecured creditor preferred an appeal before the AAIFR to the extent it

provided a dispensation for payment of unsecured creditors.

4.4The AAIFR dismissed the appeal vide order dated 23.06.2011.

The order passed by the AAIFR was the subject matter of writ petition

before the High Court.

4.5By the impugned judgment and order, the Division Bench of the

High Court has allowed the writ petition and has set aside the order

passe by the AAIFR dated 23.06.2011 by holding that the respondent

No. 1 – original writ petitioner as an unsecured creditor has the option

not to accept the scaled down value of its dues and wait till the scheme

of rehabilitation of the respondent company has worked itself out with an

option to recover its debt post such rehabilitation. Holding so, the

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Division Bench was of the view that the contract inter se the parties

arrived at whereafter the 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 read with

Section 32 of SICA, thus, putting at naught the very purpose,

rationale and scheme of SICA;

8

(ii)The schemes whether under the Companies Act or under

specific insolvency legislations like, SICA are binding on all the

creditors including the decree holders / arbitration award

holders / industrial award holders covered by the scheme. No

creditor including decree holders etc. covered by a scheme can

opt out of the scheme once the statutory requirements are

complied with. It is submitted that even the binding effect of a

scheme is based on the statutory provisions. It is submitted

that under such statutory provisions enabling framing and

sanction of schemes and their binding effect is founded upon

larger public interest. Reliance is placed upon the decision of

this Court in the case of Navnit R. Kamani Vs. R.R. Kamani,

(1988) 4 SCC 387. It is submitted that once the rehabilitation

scheme is sanctioned under the statutory provisions of the

SICA, the concerned insolvent companies can lead a debt free

future life and can use this as a second chance / fresh start to

succeed;

(iii)That no creditor including the decree holders / arbitration award

holders / industrial award holders can claim super priority of

their claims specially when the prescribed entities mentioned in

Section 19(1) may be required to take severe cuts to help revive

sick companies, the other creditors including the decree holders

9

/ arbitration award holders / industrial award holders cannot

claim to have better rights;

(iv)Learned senior counsel appearing on behalf of the appellant

has taken us to the object and purpose of SICA, 1985. He has

also taken us to the procedure to be followed under the SICA

while considering and/or sanctioning the rehabilitation scheme

under Section 18(4) read with Section 32 of SICA. It is

submitted that SICA has done away with classification of

creditors and shareholders, separate meetings of classes of

creditors and shareholders. It submitted that done away with

the vexed distinctions in law between composition,

arrangements, reconstruction etc. The SICA has also done

away with individual notices to and separate meetings of

unsecured creditors and shareholders. It is submitted that SICA

treats all creditors including decree holders / arbitration award

holders / industrial award holders as one class so as to avoid

giving veto power 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

10

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 usually

involuntary. It is submitted that the Parliaments of different

countries recognized the need to have separate insolvency

legislations as the fallout of insolvency and eventual winding up

leading to dissolution of companies was having serious

economic and social implications for the society at large;

(vii)It is further submitted that the commercial laws have two types

of laws, one, mandatory laws and second, permissive opting out

laws. Insolvency/bankruptcy laws are mandatory laws and not

permissive opting out laws. Insolvency/ bankruptcy laws

11

provides a mandatory system wherein creditors’ bargain take

place within a common collection pool;

(viii)It is further submitted that a sanctioned scheme whether under

Companies Act or under specific insolvency laws like SICA or

IBC, 2013 is to operate as a discharge of debt / liability owed by

the insolvent company to all creditors including decree holders /

arbitration award holders / industrial award holders. All

creditors are entitled to collect the amount of debt as provided

in the scheme and not the full amount of debt. It is submitted

that a decree or an award does not confer any superior right to

a creditor holding such a decree or an award. Decree holders

or award holders do not form a separate class;

(ix)On the scheme of SICA, more particularly, the rehabilitation

scheme, it is submitted as under :-

a)Section 18(1) deals with the measures that a scheme with

respect to a sick industrial company can provide for. The

scheme under section 18(1)(a) and 18(2)(h) can provide for

"financial reconstruction of the sick industrial company"

Section 18(1)(e) enable a scheme to provide for such other

preventive, ameliorative and remedial measures as may be

appropriate". Financial reconstruction would normally entail

reduction / sacrifice of portion of debts as otherwise, no

financial reconstruction of a financially distressed company

12

would be possible. Section 18(1)(f) is the residuary clause

dealing with incidental, consequential or supplemental

measures that may be necessary or expedient in connection

with or for the purposes of the measures specified in clauses

(a) to (e) of Section 18(1). Section 18(2) delineates various

aspects that the scheme may provide for to fully and

effectively carry out reconstruction, amalgamation or other

measures mentioned therein.

b)The 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

13

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 within such further

period not exceeding 60 days, as allowed by BIFR. It is

imperative that the consent is given within the prescribed

period of 60 days or within such further period not exceeding

60 days, as allowed by BIFR. Otherwise, this sub-section

mandatorily provides that the consent will be deemed to

have been given.

f)Section 32 of the SICA provides that the provisions of the

scheme framed under the SICA, i.e., the sanctioned

scheme, shall override all other laws except the Foreign

Exchange Regulations Act, 1973 and the Urban Land

(Ceiling and Regulations) Act, 1976. The section states that

a scheme framed under the SICA will override also the

memorandum and articles of association of a sick industrial

company or any other instrument having effect by virtue of

any law other than this Act.

14

g)After amendments made in SICA in 1994 (w.e.f. 1.2.1994), in

particular, in section 18(1)(a), 18(3)(a), 18(8) it becomes

amply clear that BIFR has the power to scale down/ vary the

dues of the creditors including decree holders/ arbitration

award holders/industrial award holders.

(x)It is further submitted that as such in the case of winding up, the

ordinary creditors including decree holders etc. normally do not

get anything. Thus, when the BIFR scales down the dues owed

to the creditors including the unsecured creditors, in effect,

there is no confiscation of property. Rather, if the sick company

becomes healthy, the unsecured creditors including decree

holders / arbitration award holders / industrial award holders

can do business with the healthy company.

(xi)It is further submitted that Section 22(1) does not provide for

any period of the implementation of scheme. The protective

umbrella of Section 22 is not terminable on networth becoming

positive. The scheme is binding on all covered and creditors

including decree holders etc., who cannot have the option of

opting out.

(xii)It is further submitted that Section 22(5) of SICA dealing with

exclusion of limitation period cannot be relied upon to argue

that it indicates that the dues of the creditors can be deferred to

15

a period when the company’s networth becomes positive or

when the scheme is fully implemented. It is submitted that if

such an argument is accepted, no creditor will like to give

financial assistance or make sacrifices. The resultant effect

may be that 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

16

18(3)(a) including publication of draft rehabilitation scheme

inviting objections and suggestions, as the same is done by

authority of law i.e., SICA. It is submitted that SICA has been

enacted to secure the principles specified in Article 39(a) and

(b). It is submitted that in reality, there is no real property or

interest in favour of creditors which get affected. In the case of

winding up of a sick industrial company whose networth is

eroded, the ordinary creditors including decree holders do not

normally get anything.

(xv)It is submitted that the High Court has interpreted the provisions

of SICA by juxtaposing them with the provisions of Companies

Act, 1956 in a way which is contrary to the general principle that

no person can stay out of insolvency regime. The High Court

has by its interpretation allowed the creditors to stay out of the

insolvency regime, which is impermissible. The High Court has

failed to appreciate the full import of various provisions of

Sections 18(3)(a), 18(4), 18(8), 19(1), 19(2) etc. The purpose of

SICA is to expeditiously rehabilitate a sick company by framing

and sanctioning a scheme of rehabilitation and the timeline

fixed to complete the process is 90 days. The Parliament in its

wisdom provided for public notice rather than individual notices

as the same was neither practical nor of commercial utility.

17

(xvi)It is submitted that in the case of Tata Motors Limited Vs.

Pharmaceutical Products of India Limited and Anr., (2008) 7

SCC 619, it is specifically observed and held by this Court that

the provisions of a special Act will override the provisions of a

general act. It is observed that SICA is a special statute and is

a self-contained code. The Companies Act, 1956 is a general

act. Therefore, wherever any inconsistency is seen between

the provisions of the two Acts, SICA would prevail. It is further

submitted that in the said decision, it is also further observed

that the SICA has been enacted to secure the principles

specified in Article 39 of the Constitution. It seeks to give effect

to the larger public interest and it should be given primacy

because of its higher public purpose.

(xvii)It is further submitted that in the case of Raheja Universal

Limited Vs. NRC Limited and Ors., (2012) 4 SCC 148 taking

into consideration the object and purpose and nature of SICA

and its provisions, it is observed and held by this Court that the

matters connected 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

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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 High Court, which have been distinguished by the

Division Bench in Modi Rubber Ltd. (supra) with a simple

observation that the point therein was on a slightly different

question. It is submitted that in the case of Singer India Ltd.

(supra) while not agreeing with the view taken in the case of

Modi Rubber Ltd. (supra), it is observed that there is no

distinction between secured and unsecured creditors except

those creditors, who have given financial assistance under a

scheme to a sick company. In other words, every creditor stand

19

on a same footing with respect to the power of the Board to

sanction a scheme. It is further observed that those creditors,

which have to provide financial assistance would form a sub-

category and their consent alone would be necessary with

respect to the financial assistance to be provided.

(xix) Making above submissions and relying upon the above decisions,

it prayed to allow the present appeals and set aside the impugned

judgment and order taking the view that an unsecured creditor

has the option not to accept the scaled down value of its dues and

wait till the scheme of rehabilitation of the appellant company has

worked itself out with an option to recover its debt post such

rehabilitation.

6.Shri C.U. Singh, learned Senior Advocate, appearing on behalf of

the appellant / petitioner in Civil Appeal arising out of SLP (C) No. 4282

of 2020 has vehemently submitted that the Hon’ble Madhya Pradesh

High Court has erred in treating the judgment of the Delhi High Court in

the case of Continental Carbon India Ltd. (supra) as a binding

precedent and even the said judgment was contrary to the several

earlier and later judgments of the Delhi High Court and, therefore, the

Madhya Pradesh High Court ought to have independently examined the

issue.

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6.1It is further submitted by Shri C.U. Singh, learned Senior Advocate

that the sanction accorded by the BIFR under section 18(4) is under

section 18(7) treated as conclusive evidence that all requirements

relating to reconstruction or amalgamation or any other measure

specified therein have been complied with, and a certified copy thereof

shall in all legal proceedings be admitted as evidence. Further, on and

from the date of sanction, the scheme and every provision thereof shall

be binding on the sick industrial company, and, inter alia, its

shareholders, creditors, guarantors, and 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.

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6.2Shri 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 effect thereof would

be to completely negate the purpose for which a Scheme has been

framed by BIFR. It is submitted that it is no longer res integra that the

provisions of SICA did not envisage any prior consent being obtained

from unsecured creditors, yet dues of such unsecured creditors could be

completely or partially written off under a revival scheme framed under

section 18 of SICA.

6.3It is further submitted that under Section 18 of SICA, the operating

agency prepares a scheme with respect to the sick company and the

scheme can provide any of the measures specified in Section 18(1) and

18(2). The provisions of 18(1) and 18(2) are extremely broad and there

is power to provide for such incidental and consequential measures as

are necessary. Specifically, Section 18(2)(f) and (m) provide:

(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;

(m) such incidental, consequential and supplemental

matters as may be necessary to secure that the

reconstruction or amalgamation or other measures

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mentioned in the scheme are fully and effectively carried

out.

6.4It is further submitted that the draft Scheme is examined by the

Board and then published in daily newspapers for suggestions and

objections [Section 18(3)(a)]. Thereafter, the Board makes such

modifications as considered necessary in light of the suggestions and

objections received [Section 18:31(b)]. Thereafter the scheme is

sanctioned by the Board [Section 18(4)].

6.5It is submitted that SICA being a special statute, the provisions

thereof, shall prevail over the general law for recovery of money in

respect of price of goods sold and delivered. SICA provides for a special

mechanism for revival of a company declared sick, and the fate of such

a scheme cannot be upset by the refusal of one creditor, secured or

unsecured, to adhere to the provisions of the scheme.

6.6It is submitted that the scheme framed by the BIFR in terms of the

provisions of SICA is binding on all creditors of the sick company and it

is not open to any creditor to contend that the scheme framed shall not

bind such creditor irrespective of whether 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

23

person providing financial assistance "for his consent”. However, the

scheme under Section 18 envisages no such "consent.

6.7Further, 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.

6.8It is further submitted that SICA, being a special Act, the provisions

thereof and the scheme sanctioned thereunder, would prevail over any

other obligation that may have arisen against a sick company under any

other law for the time being in force. Section 32 of SICA clearly provides

that a scheme framed by the BIFR shall prevail and have effect over any

other law for the time being in force notwithstanding the same.

6.9It is submitted that the entire purpose of formulating a scheme

under SICA is to rehabilitate the sick company. If the sick company is

wound up, then the unsecured creditors would get nothing. Hence is the

24

very scheme that ensures that all creditors get some of their property,

albeit to a reduced extent.

7.Shri P.S. Sudheer, learned counsel appearing on behalf of the

respondent – Continental Carbon India Ltd. – unsecured creditor has

vehemently submitted that the Hon’ble High Court after examining

various provisions of the SICA, 1985 and various judgments has

answered the question and has held that the unsecured creditor has the

option not to accept the scaled down value of its dues and may wait till

the scheme of rehabilitation of the sick company has worked itself out

with the option to recover its debt post such rehabilitation, which is not

required to be interfered with by this Court.

7.1It is submitted that there is no provision under the SICA to compel

an unsecured creditor to accept the scaled down value of its dues. In

absence of any such provision, the unsecured creditor – respondent

cannot be compelled to accept a lesser amount, which would tantamount

to taking the right to property in the goods without appropriate

consideration and would be violative of Article 300A of the Constitution of

India.

7.2It is submitted that the scheme under the SICA, 1985 provides for

preparation and sanction of the scheme for rehabilitation under Section

18. It is submitted that sub-clause (e) of sub-section (1) of Section 18 of

25

the SICA provides for preventive, ameliorative and remedial measures

as may be appropriate, while Section 19 of the SICA deals with

rehabilitation by giving financial assistance qua such preventive,

ameliorative and remedial measures. The same would apply to a class

of creditors which did not include unsecured creditors and, therefore,

there is no specific provision in the SICA which authorized the BIFR to

deprive the unsecured creditor of its full value of unsecured debt.

7.3It is submitted that even if Section 18/19 are interpreted as the

provisions 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.

7.4It 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

26

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 very same scheme contemplated the networth of the

petitioner company turning positive by 2007-2008 and the loss

completely wiped off by 2008-2009. It is submitted that therefore the

petitioner company ceased to be a Sick Industrial Undertaking as per its

Balance Sheet of 31.03.2009.

7.5It is further submitted that even otherwise, the BIFR had no

authority to scale down the debts of an unsecured creditor without their

consent. It is submitted that in absence of any provision permitting BIFR

to scale down the debts of the unsecured creditor without its consent

would be violative of Article 300A of the Constitution. It is submitted that

Article 300A of the Constitution provides that no person shall be

deprived of his property save by authority of law. It is submitted that

money is undoubtedly property and, therefore, the right to a sum of

money is also a property. It is submitted that hence, the aforesaid right

of the respondent – unsecured creditor to receive the sum of money is a

Constitutional Right and, further, the said Constitutional Right to property

can be taken away / deprived only by authority of law.

7.6It is submitted that the expression ‘law’ in Article 300A would mean

a Parliamentary Act or an Act of State Legislature or Statutory having the

27

force of law. It is submitted that while enacting such a law, Parliament

cannot be presumed to have taken away a right in property. It is

submitted that the provision taking away such right to property has to be

provided explicitly.

7.7It is further submitted that so far as the Insolvency and Bankruptcy

Code, 2016 is concerned, it contains the definition of the term 'Creditor'

and the same includes an 'Unsecured Creditor’. It is submitted that

therefore, the regime under the SICA, 1985 and the Insolvency and

Bankruptcy Code, 2016 are completely different. It is submitted that the

Insolvency and Bankruptcy Code, 2016 specifically provides for

distribution of assets under Section 53. Thus, the Insolvency and

Bankruptcy Code, 2016 specifically provides for provisions for dealing

with 'Unsecured Creditors' whereas in the SICA, 1985, there is no

provision to deal with ‘Unsecured Creditors' without their consent.

7.8Making above submissions, it is prayed not to interfere with the

impugned judgment and order passed by the Division Bench of the High

Court.

8.While supporting 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

28

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.

8.1It 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 cannot take shelter under any of the provisions of SICA, 1985.

Shri Shrivastava, learned senior counsel appearing on behalf of the

respondent in Civil Appeal arising out of SLP (C) No. 4282 of 2020 has

prayed to consider the following factual background:-

8.1.1That the answering respondent raised invoices in the 1991-

92 for supply of goods and services provided to the foundry

unit of petitioner at Gwalior which remained outstanding.

Thereafter in the year 1996 the answering respondent filed a

29

Civil Suit No. 172B/1996 for recovery of Rs 7,76,138/-

alongwith interest @ 25%.

8.1.2That on 24.02.2000 the money decree was passed by the

Trial court, in favour of the answering respondent and

against the petitioner vide judgement dated 24.02.2000.

8.1.3That the petitioner thereafter challenged the decree dated

21.02.2000 in First Appeal No. 65/2000 before the Hon'ble

High Court of Madhya Pradesh. The said First Appeal was

dismissed on 19-10-2005 and the order of High Court

became final as it was not assailed before this Court.

8.1.4That the petitioner subsequently filed reference under

Section 15(1) of SICA in June 2000. Subsequently the BIFR

on 21.08.2000 declared the petitioner to be a sick company

under Section 3(1)(0) of SICA, 1985 and appointed IDBI as

operating agency. That the petitioner did not disclose about

the BIFR proceedings in the appeal preferred by them before

the High Court. The BIFR also did not pass any order under

Section 22(2) of the SICA for suspension of pending legal

proceedings.

8.1.5That the Hon'ble High Court dismissed the First Appeal No.

65/2000 vide order dated 10.10.2005 and hence the

judgement and decree dated 24.02.2000 was affirmed and

30

order dated 10.10.2005 attained finality as the petitioner

never challenged the order dated 10.10.2005.

8.1.6That thereafter the proceedings continued before the BIFR

for revival of the petitioner. That on 07.12.2010, the petitioner

company was declared revived and was discharged from the

purview of the SICA.

8.1.7That after the revival of the appellant company the answering

respondent filed execution petition on 03.11.2011.

8.1.8That the petitioner thereafter filed an application seeking

direction to the respondent to accept the cheque for a

meager amount of Rs 70,452/- in terms of the scheme which

is the scaled down value 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.

8.1.9That 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.

31

8.1.10That the answering respondent filed reply to the written

objections filed by the petitioner.

8.1.11That the Learned Executing Court again vide detailed order

dated 06.11.2017 rejected the objections raised by the

petitioner.

8.1.12That 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.

8.1.13That 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.

8.1.14That the Hon'ble High Court vide impugned order dated

18.10,2019 dismissed the Civil Revision field by the

petitioner.

8.1.15That the petitioner thereafter had fled SLP(C) No.

42822/2020 before the Hon'ble Supreme Court. The Hon'ble

Supreme Court vide order dated 20.02.2020 issued notice

and granted interim protection till the next date of hearing.

8.1.16That thereafter the matter came up for hearing on

20.05.2022, the petitioner stated that they are willing to

deposit the entire decretal amount with the Registry of the

Hon'ble Supreme Court. The Court upon such statement

32

directed the appellant to deposit the entire decretal amount

on or before 11.07.2022.

8.1.17That it appears that the appellant has deposited an amount

of Rs 61,31,490/- stating it to be the decretal amount. The

answering respondent most respectfully submits that the

correct decretal amount is Rs 68,21,918/ as on 11.07.2022.

Therefore, the answering respondents disputes the amount

of Rs 61,31,490 to be the entire decretal amount.

8.1.18That the Hon'ble Supreme Court on 11.07.2022, in view of

the above deposit made by the appellant, directed release of

the attached property,

8.2 It is submitted that in view of the above factual background there

is no infirmity in the orders passed by the High Court, which is passed

following the decision of the Delhi High Court in the case of Continental

Carbon India Ltd. (supra), which still holds the field and it is prayed to

release the entire decretal amount in favour of the respondent.

9.Heard, the learned counsel for the respective parties at length.

10.The short question, which is posed for the consideration of this

Court is :-

“Whether on approval of a scheme by the BIFR under the

Sick Industrial Companies (Special Provisions) Act, 1985,

33

an unsecured creditor has the option not to accept the

scaled down value of its dues, and to wait till the scheme

for rehabilitation of the respondent – sick company has

worked itself out, with an option to recover the debt with

interest post such rehabilitation?”

11.While appreciating the submissions made on behalf of the

respective parties on the aforesaid issue, few decisions of this Court and

the legislative scheme of the SICA, 1985 are required to be referred to:-

Legislative Scheme of SICA, 1985

11.1The framers of law 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.

11.2The 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

34

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, to the extent possible, the

amounts due to the banks and financial institutions from non-viable sick

industrial debtor companies by liquidation of those companies or through

formulation of rehabilitation schemes.

11.3With these objects, the Bill was introduced with the salient features

inter alia of identification of sickness in the industrial companies, on the

basis of symptomatic indices of cash losses for the specified periods.

Wherever the Government or Reserve Bank were satisfied that an

industrial company has become sick, they were required to make a

reference to BIFR. BIFR consists of experts, in various relevant fields,

with powers to inquire into and determine the incidences of sickness in

the industrial companies and devise suitable measures through

appropriate schemes to revive them. An appeal lies from the order of

BIFR to an appellate authority (Aaifr) consisting of members selected

from amongst Supreme Court or High Court Judges or Secretaries to the

Government of India.

11.4With this background, objects and reasons, this Bill was passed by

the Indian Parliament and it received the assent of the President of India

35

on 8-1-1986. Thus, it became an Act of Parliament intended to

revolutionise the mechanism of revival or liquidation of sick industrial

units and channelisation of the complete administrative-cum-quasi-

judicial process within the framework of SICA 1985.

11.5The statement of Objects and Reasons for enactment of SICA,

1985 is as under:-

“Statement of Objects and Reasons.—The ill effects of

sickness in industrial companies such as loss of

production, loss of employment, loss of revenue to the

Central and State Governments and locking up of

investible funds of banks and financial institutions are of

serious concern to the Government and the society at

large. The concern of the Government is accentuated by

the alarming increase in the incidence of sickness in

industrial companies. It has been recognised that in order

to fully utilise the productive industrial assets; afford

maximum protection of employment and optimize the use

of the funds of the banks and financial institutions, it

would be imperative to revive and rehabilitate the

potentially viable sick industrial companies as quickly as

possible. It would also be equally imperative to salvage

the productive assets and realise the amounts due to the

banks and financial 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

36

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.”

11.6Thus, 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 the productive assets and realise the amounts due

to the banks and financial institutions, to the extent possible, from the

non-viable sick industrial companies through liquidation of those

companies.

11.7Now, let us consider the scheme under the BIFR and the relevant

provisions of SICA, 1985, which are relevant for our consideration:-

“35. Section 15 of SICA 1985 places an obligation

upon an industrial company, which has become sick in

terms of that provision, to make a reference to BIFR

established under Section 4 of SICA 1985 within the

period of limitation prescribed. While under Section 15(2)

where the Central Government or Reserve Bank of India

or a State Government or a public financial institution has

sufficient reasons to believe that any industrial company

has become, for the purpose of SICA 1985, a sick

industrial company, would also make a reference of such

company to the Board for determination of the measures

which may be adopted with regard to such company.

36. Section 16 of SICA 1985 deals with the conduct

of an inquiry by BIFR and the manner in which BIFR is

expected to deal with the matter upon receipt of a

37

reference under Section 15 of SICA 1985. Section 16

vests BIFR with very wide powers of inquiry and passing

appropriate orders. Section 16(2) empowers BIFR to pass

an order, in its discretion, directing any operating agency

to inquire into and to make a report with regard to the

matters as may be specified in the order. Such operating

agency is expected to complete the inquiry expeditiously

and preferably within 60 days from the date of

commencement of inquiry. BIFR is vested with powers

such as appointing special Directors for the sick company

and issuing directions to the special Directors in relation

to discharge of their duties and to improve the

performance of any or all of the functions postulated

under Section 16(6) of SICA 1985.

37. After the inquiry by BIFR or by the operating

agency is completed, BIFR if satisfied that the company

has become sick and upon considering all relevant facts

and circumstances of the case in exercise of its powers

under Section 17 of SICA 1985, may pass orders

requiring the company to make its net worth exceed the

accumulated losses within a reasonable time and for that

purpose it may impose such restrictions or conditions as

may be specified in the order in terms of Section 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

38

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 scheme with respect to such

company providing for any one or more of the measures

stated under clauses (a) to (f) of Section 18(1) of SICA

1985. The scheme so framed may provide for any one or

more of the measures stated under clauses (a) to (m) of

Section 18(2) of SICA 1985.

39. The scheme which has been prepared in

consonance with the provisions of Sections 18(1) and

18(2) then has to be examined by BIFR in terms of

Section 18(3) of SICA 1985 and if BIFR makes any

modifications to the scheme, the same draft scheme, in

brief, shall be published or caused to be published in such

daily newspapers as BIFR may consider necessary, for

receipt of suggestions and objections, if any. In the light of

the suggestions and objections received in response to

such publication, BIFR may still make further

modifications. Also, where the scheme relates to

amalgamation of the companies, the procedures specified

therein shall be followed. In such cases, the shareholders

of the company, other than the sick industrial company,

are expected to pass a resolution of approval of the

scheme.

40. The scheme thereafter shall be sanctioned by

BIFR and shall come into force on such date as BIFR

may specify in this behalf and in exercise of the powers

vested in it under Section 18(4) of SICA 1985. This

scheme does not attain finality which is unalterable. Once

the scheme is sanctioned and comes into force even

then, on the recommendation of the operating agency,

BIFR can consider further modifications or even prepare a

fresh scheme providing for such measures as the

operating agency may consider it necessary and

recommended in terms of Section 18(5) of SICA 1985.

39

41. Section 18(7) of SICA 1985 is an important

provision which provides that the sanction accorded by

BIFR shall be conclusive evidence that all the

requirements of the scheme relating to reconstruction or

amalgamation or any measure specified therein have

been complied with and a copy of the sanctioned scheme

certified in writing by an officer of BIFR to be a true copy

thereof shall be admissible as evidence in all legal

proceedings. To resolve the difficulties that may arise in

giving effect to the provisions to the sanctioned scheme,

BIFR may, on the recommendation of the operating

agency or otherwise, by order do anything, not

inconsistent with such provisions, which appears to it to

be necessary 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 future and that it is just and equitable that the company

should be wound up, it may record and forward its opinion

to the High Court concerned as per the provisions of

Section 20 of SICA 1985 whereafter the company shall be

40

wound up in accordance with the provisions of the

Companies Act, 1956. The High Court may even appoint

any officer of the operating agency as the liquidator of the

sick industrial company. Section 21 of SICA 1985 requires

the operating agency to prepare an inventory, if so

directed by BIFR.”

11.8Thus, the primary concern of the Board would be the revival of the

sick company and to save the sick company from winding up. That is

why with a view to see that there is no impediment in framing the

rehabilitation scheme and to get out the sick company from sickness.

Section 22 provides for suspension of legal proceedings, contracts etc.

On a bare reading of Section 22 and Section 22A of SICA, it appears

that these two provisions primarily ensure that the scheme prepared by

BIFR does not get frustrated because of certain other legal proceedings

and to prevent untimely and unwarranted disposal of the assets of the

sick industrial company. These sections clearly state certain restrictions

which will impact upon the implementation of the scheme as well as on

the assets of the company.

11.9As observed and held by this Court in the case of Tata Motors

Limited (supra), SICA, 1985 has been enacted to secure the principles

specified in Article 39 of the Constitution of India. It seeks to give effect

to the larger public interest and, therefore, it should be given primacy

over other laws because of its higher public purpose.

41

11.10 In the case of Raheja Universal Limited (supra), it is observed

and held that the SICA, 1985 is a special law, giving overriding effect vis-

à-vis other laws and the provisions of general laws like Companies Act

for regulation, incorporation, winding up etc. of the companies would

have still been overridden to the extent of inconsistency. In the case of

NGEF Ltd. Vs. Chandra Developers (P) Ltd., (2005) 8 SCC 219, it is

specifically observed by this Court that the SICA, 1985 is a special

statute, which is a complete code in itself.

11.11 As observed and held by this Court in the aforesaid decisions, the

provisions of SICA, 1985 shall normally override other laws except the

laws, which have been specifically excluded 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:-

42

“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 of the sick industrial company;

(c) the amalgamation of—

(i) the sick industrial company with any other

company; or

(ii) any other company with the sick industrial

company;

(hereafter in this section, in the case of

sub-clause (i), the other company, and in

the case of sub-clause (ii), the sick

industrial company, referred to as

“transferee company”;

(d) the sale or lease of a part or whole of any

industrial undertaking of the sick industrial

company;

(da) the rationalisation of managerial personnel,

supervisory staff and workmen in accordance with

law;

(e) such other preventive, ameliorative and

remedial measures as may be appropriate;

(f) such incidental, consequential or supplemental

measures as may be necessary or expedient in

connection with or for the purposes of the

measures specified in clauses (a) to (e).

(2) The scheme referred to in sub-section (1) may provide

for any one or more of the following, namely:—

(a) the constitution, name and registered office,

the capital, assets, powers, rights, interest,

43

authorities and privileges, duties and obligations of

the sick industrial company or, as the case may

be, of the transferee company;

(b) the transfer to the transferee company of the

business, properties, assets, and liabilities of the

sick industrial company on such terms and

conditions as may be specified in the scheme;

(c) any change in the Board of Directors, or the

appointment of a new Board of Directors, of the

sick industrial company and the authority by

whom, the manner in which and the other terms

and conditions on which, such change or

appointment shall be made and in the case of

appointment of a new Board of Directors or of any

director, the period for which such appointment

shall be made;

(d) the alteration of the memorandum or articles of

association of the sick industrial company or as

the case may be, of the transferee company for

the purpose of altering the capital structure thereof

or for such other purposes as may be necessary

to give effect to the reconstruction or

amalgamation;

(e) the continuation by, or against, the sick

industrial company or, as the case may be,

the transferee company of any action or other

legal proceeding pending against the sick

industrial company immediately before the date of

the order 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

44

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

industrial company free from all encumbrances

and all liabilities of the company or other such

encumbrances and liabilities as may be specified,

to any person, including a cooperative society

formed by the employees of such undertaking and

fixing of reserve price for such sale;

(j) lease of the industrial undertaking of the sick

industrial company to any person, including a

cooperative society formed by the employees of

such undertaking;

(k) method of sale of the assets of the industrial

undertaking of the sick industrial company such as

by public auction or by inviting tenders or in any

other manner as may be specified and for the

manner of publicity therefor;

(l) transfer or issue of the shares in the sick

industrial company at the face value or at the

intrinsic value which may be at discount value or

such other value as may be specified to any

industrial company or any person including the

executives and employees of the sick industrial

company;

(m) such incidental, consequential and

supplemental matters as may be necessary to

secure that the reconstruction or amalgamation or

other measures mentioned in the scheme are fully

and effectively carried out.

45

(3) (a) The scheme prepared by the operating agency

shall be examined by the Board and a copy of the

scheme with modification, if any, made by the Board shall

be sent, in draft, to the sick industrial company and the

operating agency and in the case of amalgamation, also

to any other company concerned, and the Board shall

publish or cause to be published the draft scheme in brief

in such daily newspapers as the Board may consider

necessary, for suggestions and objections, if any, within

such period as the Board may specify.

(b) The Board may make such modifications, if any,

in the draft scheme as it may consider necessary in the

light of the suggestions and objections received from the

sick industrial company and the operating agency and

also from the transferee industrial company and any

other company concerned in the amalgamation and from

any shareholder or any creditors or employees of

such companies:

Provided that where the scheme relates to

amalgamation 33[* * *] the said scheme shall be laid

before [the company other than the sick industrial

company]34 in the general meeting for the approval of the

scheme by its shareholders and no such scheme shall 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

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providing for such measures as the operating agency may

consider necessary.

(6) When a fresh scheme is prepared under sub-

section (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 of any property or liability of the sick industrial

company in favour of any other company or person or

where such scheme provides for the transfer of any

property or liability of any other company or person in

favour of the sick industrial company, then, by virtue of,

and to the extent provided in the scheme, on and from the

date of coming into operation of the sanctioned scheme

or any provision thereof, the property shall be transferred

to, and vest in, and the liability shall become the liability

of, such other company or person or, as the case may be,

the sick industrial company.

(7) The sanction accorded by the Board under sub-

section (4) shall be conclusive evidence that all the

requirements of this scheme relating to the reconstruction

or amalgamation, or any other measure specified therein

have been complied with and a copy of the sanctioned

scheme certified in writing by an officer of the Board to be

a true copy thereof, shall, in all legal proceedings

(whether in appeal or otherwise) be admitted as evidence.

(8) On and from the date of the coming into

operation of the sanctioned scheme or any provision

thereof, the scheme or such provision shall be binding on

the sick industrial company and the transferee company

or, as the case may be, the other company and also on

the shareholders, creditors and guarantors and

employees of the said companies.

(9) If any difficulty arises in giving effect to the

provisions of the sanctioned scheme, the Board may, on

the recommendation of the operating agency 38[or

otherwise], by order do anything, not inconsistent with

such provisions, which appears to it to be necessary or

expedient for the purpose of removing the difficulty.

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(10) The Board may, if it deems necessary or

expedient so to do, by order in writing, direct any

operating agency specified in the order to implement a

sanctioned scheme with such terms and conditions and in

relation to such sick industrial company as may be

specified in the order.

(11) Where the whole of the undertaking of the sick

industrial company is sold under a sanctioned scheme,

the Board may distribute the sale proceeds to the parties

entitled thereto in accordance with the provisions of

Section 529-A and other provisions of the Companies Act,

1956 (1 of 1956).

(12) The Board may monitor periodically the

implementation of the sanctioned 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.

11.14.1The 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

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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 the BIFR, which may include the

scaling down the value of dues of the unsecured creditors, the same

shall bind all, otherwise the rehabilitation scheme shall not be workable

at all and the object and purpose of enactment of the SICA, 1985 will be

frustrated. If some persons / unsecured creditors and/or even the

labourers are permitted to get out of the purview of the scheme and

thereafter permitting such or some of the unsecured creditors to wait till

the scheme for rehabilitation of the sick company has worked itself out,

in that case, the scheme shall not be workable at all. To make the

company viable, the concerned persons including the unsecured

creditors have to sacrifice to some extent otherwise the revival efforts

shall fail.

11.14.2At this stage, it is required to be noted that if a sick company

is ordered to be wind up, in that case, the unsecured creditors otherwise

may not get anything. However, on the other hand on sanctioning the

rehabilitation scheme under Section 18, the unsecured creditors may get

part of their dues /debts, which otherwise, they may not get. At this

stage, it is required to be noted that as per Section 18(8) of SICA, 1985,

which has been substituted by Act 12 of 1994, on and from the date of

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the coming into operation of the sanctioned scheme or any provision

thereof, the scheme or such provision shall be binding on the sick

industrial company and the transferee company or, as the case may be,

the other company and also on the shareholders, creditors and

guarantors and even the employees of the said companies.

11.15 Thus, the intention of the legislature is very clear. Creditors

includes unsecured creditors. The submission on behalf of the

unsecured creditors that the word “creditors” is not defined like IBC,

2016 and therefore, the scheme shall not bind the unsecured creditors,

cannot be accepted. Looking to the object and purpose of the SICA,

1985 and the provisions of Sections 18 and 19 of the SICA, 1985, the

word “creditors” shall have to be construed in a broad manner and is not

required to be construed narrowly, otherwise, the object and purpose of

rehabilitation scheme shall be frustrated. If the scheme binds the

creditors, including other creditors like financial institutions etc., who may

have a better claim than the unsecured creditors, there is no reason to

treat the unsecured creditors separately and not to treat 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

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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 only to the

Government but also to the society at large. Therefore, it was found

that there is a need to fully utilise the productive industrial assets; afford

maximum protection of employment and optimize the use of the funds of

the banks and financial institutions and it is imperative to revive and

rehabilitate the potentially viable sick industrial companies. Considering

Section 20 of the Act it becomes clear that winding up of a company is

only resorted to as a last resort and only when it is just and equitable to

wind up the sick industrial company.

11.18 Thus, minority creditors and that too some unsecured creditors

cannot be permitted to stall the rehabilitation of the sick company by not

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accepting the scaled down value of its dues. Unless and until there is a

sacrifice by all concerned, including the creditors, financial institutions,

unsecured creditors, labourers, there shall not be any revival of the sick

industrial company / company.

12.Now, so far as the submission on behalf of the unsecured creditors

that the unsecured creditors should have an option not to accept the

scaled down value of its dues and to 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 concerned, the same has no substance

and cannot be accepted. It is required to be noted that in a given case,

because of the scaling down of the value of the dues of the creditors, the

company survives. The company has survived in view of the

rehabilitation scheme because of the sacrifice / scaling down the value

of the dues of the creditors including the financial institutions. How such

a benefit can be permitted to be given to the unsecured creditors, who

does not accept the scaled down value of its dues. Such an unsecured

creditor cannot be permitted to take the benefit of the revival scheme,

which is at the cost of other creditors including the financial institutions

and even the labourers.

13.Now, so far as the view taken by the High Court that the unsecured

creditor had an option not to accept the scaled down value of its dues

and can wait till the scheme for rehabilitation of the company has

52

worked itself out with an option to recover the debt with interest post

such rehabilitation is accepted, in a given case, the sick company, which

has been able to revive because of the scaling down 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 Constitution of India as submitted on

behalf of the unsecured creditors.

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15.In view of the above and for the reasons stated above, the view

taken by the High Court of Delhi in Continental Carbon India Ltd.

(supra) that on approval of a scheme by the BIFR under the Sick

Industrial Companies (Special Provisions) Act, 1985, the unsecured

creditors has an option not to accept the scaling down value of its dues

and to wait till the rehabilitation scheme of the sick company has worked

itself out with an option to recover the debt with interest post such

rehabilitation is erroneous and contrary to the scheme of SICA, 1985

and the same deserves to be quashed and set aside and is accordingly

quashed and set aside.

It is observed and held that the rehabilitation scheme under

Section 18 of the SICA, 1985 shall bind all the creditors including the

unsecured creditors and the unsecured creditors have to accept the

scaled down value of its dues provided under the rehabilitation scheme.

Conclusion:-

(i)Civil Appeal No. 375 of 2017 is accordingly allowed. No costs.

(ii)The transfer petition being Transfer Petition (C) No. 543 of 2016 is

allowed and is ordered to be transferred to this Court.

(iii)Civil Appeal No. 1755 of 2023 (arising out of SLP (C) No. 4282 of

2020) is allowed and the impugned judgment and order passed by

the Madhya Pradesh High Court relying upon the decision of the

54

Delhi High Court in the case of Continental Carbon India Ltd.

(supra), which has been set aside by the present order also

deserves to be allowed and the impugned judgment and order

passed by the High Court of Madhya Pradesh in Civil Revision No.

96 of 2018 is hereby quashed and set aside.

(iv) On being set aside the judgment and order passed by the High

Court of Delhi in the case of Continental Carbon India Ltd.

(supra), Civil Appeal No. 377 of 2017 stands dismissed.

(v) In view of the above and for the reasons stated above and

quashing and setting aside the judgment and order passed by the

High Court of Delhi in the case of Continental Carbon India Ltd.

(supra), Civil Appeal No. 379 of 2017 and Transfer Petition (C) No.

543 of 2016 stands disposed of and consequently the writ petition

before the High Court being Writ Petition (C) No. 832 of 2016

stands dismissed.

………………………………….J.

[M.R. SHAH]

NEW DELHI; ………………………………….J.

MARCH 17, 2023. [SUDHANSHU DHULIA]

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