2012 (7) TMI 980 - HC - Companies Law

Summary

Issues Involved:
1. Acceptance of scaled-down dues by unsecured creditors post BIFR scheme approval.
2. Legal provisions under SICA regarding unsecured creditors' consent.
3. Suspension of legal proceedings and contracts under Section 22 of SICA.
4. Applicability of Section 391 of the Companies Act in BIFR schemes.

Summary:

1. Acceptance of Scaled-Down Dues by Unsecured Creditors:
The primary issue was whether an unsecured creditor must accept the scaled-down value of its dues under a BIFR-approved rehabilitation scheme or can wait until the company is rehabilitated to recover the full debt. The court concluded that the petitioner, an unsecured creditor, has the option to wait until the scheme has worked itself out and recover the debt post such rehabilitation.

2. Legal Provisions under SICA Regarding Unsecured Creditors' Consent:
The petitioner argued that BIFR does not have the power to compel unsecured creditors to accept reduced dues as no such provision exists u/s 19 of SICA. The AAIFR negated this plea, stating that while SICA does not explicitly require unsecured creditors' consent, the scheme is binding on all creditors once approved. However, the court disagreed, emphasizing that BIFR cannot mandate debt write-offs without the creditor's consent, as this would rewrite the contract without legal provision.

3. Suspension of Legal Proceedings and Contracts under Section 22 of SICA:
Section 22 of SICA allows for the suspension of legal proceedings and contracts during the preparation and implementation of a rehabilitation scheme. The court noted that this suspension could last up to seven years, during which the creditor's rights are on hold. This provision ensures that creditors cannot enforce their claims until the scheme is fully implemented.

4. Applicability of Section 391 of the Companies Act in BIFR Schemes:
The respondents referenced Section 391 of the Companies Act, which requires creditor consent for schemes of arrangement. The court clarified that BIFR does not follow this procedure, and there is no collective decision-making by creditors. Therefore, Section 391 does not apply to BIFR schemes, and unsecured creditors are not compelled to accept reduced dues.

Conclusion:
The court unequivocally held that an unsecured creditor has the option not to accept the scaled-down value of its dues and can wait until the rehabilitation scheme is completed to claim the full debt. The impugned order of AAIFR was set aside, and the petitioner was not required to choose from the three options provided in the sanctioned scheme. The writ petition was allowed, with parties bearing their own costs.