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2010 (5) TMI 382 - HC - Companies LawInterpretation of section 19(4) of the Sick Industrial Companies (Special Provisions) Act 1985 consent is refused by one of the secured creditors then the Board (BIFR) is thrown to section 19(4) however as already discussed above section 19(4) allows various alternatives to BIFR to adopt one or more measures as per section 18(1) and section 18(3)(b) of the Act. The last line of the above para of Ashok Organic Industries Ltd. s case (2008 (1) TMI 617 - HIGH COURT OF BOMBAY) only deals with the issue of minority dissenting creditors being not overridden and which can take place while approving a scheme strictly in accordance with sections 391 and 394 of the Companies Act but this cannot have a bearing on the interpretation of section 19(4) when dealt with in the context of options available to BIFR when a minority secured creditor opposes a draft scheme. As already stated above in such circumstances various options under SICA including those mentioned in section 18 can then be resorted to and Board is not limited to superseding a scheme of revival merely because of the objection of one minority secured creditor. We dismiss the petition challenging the impugned orders of BIFR and AAIFR.
Issues Involved:
1. Interpretation of Section 19(4) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). 2. Validity of a sanctioned scheme when one secured creditor refuses consent. 3. The role and power of the Board for Industrial and Financial Reconstruction (BIFR) under SICA. Issue-Wise Detailed Analysis: 1. Interpretation of Section 19(4) of SICA: The petitioner raised a question regarding the interpretation of Section 19(4) of SICA, arguing that if even one secured creditor refuses to consent to a scheme providing financial assistance to a sick company, the scheme cannot be sanctioned and other measures under Section 18 must be resorted to. The court analyzed the provisions of SICA, emphasizing the need to harmonize Section 19(4) with Section 18 to further the Act's objectives. The court concluded that the expression "one or more" in Section 18 indicates that BIFR can adopt multiple measures, including financial concessions, to rehabilitate a sick company. The court held that Section 19(4) should not be interpreted to allow a single creditor to frustrate the rehabilitation process. 2. Validity of a Sanctioned Scheme When One Secured Creditor Refuses Consent: The petitioner contended that BIFR could not sanction a scheme without the consent of all secured creditors. The court referred to the Statement of Objects and Reasons of SICA, which highlights the importance of reviving sick companies to protect employment and prevent the adverse effects of industrial sickness. The court noted that the legislative intent is to prioritize the revival of sick companies, and a single creditor's refusal should not derail this process. The court also referenced the third proviso to Section 15(1) of SICA, which requires the consent of at least 75% of secured creditors for proceedings to abate, reinforcing the idea that a minority creditor cannot obstruct the rehabilitation scheme. 3. The Role and Power of BIFR Under SICA: The court examined BIFR's role in sanctioning schemes for the revival of sick companies. It emphasized that BIFR has the authority to modify schemes in light of objections from creditors but cannot be prevented from implementing a sanctioned scheme by a minority creditor. The court highlighted that BIFR must balance the interests of all stakeholders, including secured creditors, employees, and the government, to achieve the Act's objectives. The court also pointed out that similar principles apply under Sections 391 to 394 of the Companies Act, 1956, where the majority of secured creditors prevail in composition and settlement schemes. Conclusion: The court dismissed the petition, upholding the orders of BIFR and AAIFR. It reaffirmed that BIFR has the power to sanction schemes for the revival of sick companies even if a minority secured creditor refuses consent, provided the scheme is fair and non-discriminatory. The court emphasized the importance of interpreting SICA in a manner that furthers its objectives of reviving sick companies, protecting employment, and preventing industrial sickness.
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