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TMI Blog2023 (3) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) has preferred the present Civil Appeal N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 months of the sanction of the Scheme by the BIFR c) To accept 50% of the principal outstanding as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; (ii) The schemes whether under the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 eventua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme 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 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. 6.9 It is submitted that the entire purpose of formulating a scheme under SICA is to rehabilitate the sick ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 7.5 It is further submitted that even otherwise, the BIFR had no authority to scale down the debts of an unsecured cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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:- 8.1.1 That 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 remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide 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. 8.1.14 That the Hon'ble High Court vide impugned order dated 18.10,2019 dismissed the Civil Revision field by the petitioner. 8.1.15 That 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. 8.1.16 That thereafter the matter came up for hearing on 20.05.2022, the petitioner stated that they are willing to deposit the entire decretal amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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, 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. 11.3 With 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 11.7 Now, 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. Whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 BI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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." 11.8 Thus, the primary concern of the Board would be the revival of the sick company and to save the sick company from windi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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) ..... 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(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 subsection (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 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 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. 11.14.2 At 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 anyth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 reviv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration 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. 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 scal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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