TMI Blog2023 (3) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough liquidation of those companies. 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. As observed and held by this Court in the case of Tata Motors Limited [ 2008 (5) TMI 423 - SUPREME COURT ], 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 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 - 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 revival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 2.2 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the Division Bench of the High Court of Delhi at 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 Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 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 3rd 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditors 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned 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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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- -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 on a same footing with respect to the power of the Board to sanction a scheme. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority 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 under section 18 of SICA. 6.3 It 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company. If the sick company is wound up, then the unsecured creditors would get nothing. Hence is the 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 beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed 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 remained outstanding. Thereafter in the year 1996 the answering respondent filed a Civil Suit No. 172B/1996 for recovery of Rs 7,76,138/- alongwith interest @ 25%. 8.1.2 That on 24.02.2000 the money decree was passed by the Trial court, in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 amount with the Registry of the Hon'ble Supreme Court. The Court upon such statement directed the appellant to deposit the entire decretal amount on or before 11.07.2022. 8.1.17 That it appears that the appellant has dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect 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. 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 industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 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. Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction 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 industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 scheme certified in writing by an officer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 anything. However, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose 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 revival of the si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 scaled ..... X X X X Extracts X X X X X X X X Extracts X X X X
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