MODI RUBBER LIMITED versus CONTINENTAL CARBON INDIA LTD. on 17 March 2023

SUPREME COURT REPORTS

[2023] 3 S.C.R.

A

MODI RUBBER LIMITED

v.

CONTINENTAL CARBON INDIA LTD.

(Civil Appeal No. 375 of 2017)

B

MARCH 17, 2023

[M. R. SHAH AND SUDHANSHU DHULIA, JJ.]

Sick Industrial Companies (Special Provisions) Act, 1985 –ss.18, 19 – Approval of a scheme by the BIFR under the 1985 Act,unsecured creditor if has the option not to accept the scaled downCvalue of its dues – Held: No – Rehabilitation scheme u/s.18 shallbind all the creditors including the unsecured creditors and theunsecured creditors have to accept the scaled down value of itsdues provided under the rehabilitation scheme – To make thecompany viable, the concerned persons including the unsecuredDcreditors have to sacrifice to some extent otherwise the revivalefforts shall fail – Looking to the object and purpose of the SICA,1985 and the provisions of ss.18 and 19, the word “creditors” shallhave to be construed in a broad manner and is not required to beconstrued narrowly – Creditors include unsecured creditors – Thus,if the scheme binds the creditors, including other creditors likeEfinancial institutions etc., who may have a better claim than theunsecured creditors, there is no reason to treat the unsecuredcreditors separately and not to treat them as creditors – Minoritycreditors and that too some unsecured creditors cannot be permittedto stall the rehabilitation of the sick company by not accepting theFscaled down value of its dues – View taken by the Delhi High Courtin Continental Carbon India Ltd. case that on approval of a schemeby the BIFR, the unsecured creditor has an option not to accept thescaling down value of its dues and to wait till the rehabilitationscheme of the sick company has worked itself out with an option torecover the debt with interest post such rehabilitation, is erroneousGand contrary to the scheme of SICA, 1985 and is set aside.

Sick Industrial Companies (Special Provisions) Act, 1985 –Scheme of the Act – Discussed – Constitution of India – Article 39.

Constitution of India – Article 300A – Plea of the unsecuredHcreditors that to compel them to accept the scaled down value of its dues would be violative of Article 300A – Held: Has no substance –Scaling down the value of the dues is under the rehabilitationscheme prepared u/s.18 of the SICA, which has a binding effect onall the creditors – It cannot be said to be violative of Article 300A –Sick Industrial Companies (Special Provisions) Act, 1985 – s.18.

Disposing of the appeals, the Court

HELD: 1.1 The SICA, 1985 basically and predominantly isa remedial and ameliorative enactment, insofar as it empowers aquasi-judicial Body - BIFR to take appropriate measures forrevival and rehabilitation of the potentially viable sick industrialcompanies as quickly as possible and also to salvage theproductive assets and realise the amounts due to the banks andfinancial institutions, to the extent possible, from the non-viablesick industrial companies through liquidation of those companies.The primary concern of the Board would be the revival of thesick company and to save the sick company from winding up.That is why with a view to see that there is no impediment inframing the rehabilitation scheme and to get out the sick companyfrom sickness. Section 22 provides for suspension of legalproceedings, contracts etc. On a bare reading of Section 22 andSection 22A of SICA, it appears that these two provisionsprimarily ensure that the scheme prepared by BIFR does notget frustrated because of certain other legal proceedings and toprevent untimely and unwarranted disposal of the assets of thesick industrial company. These sections clearly state certainrestrictions which will impact upon the implementation of thescheme as well as on the assets of the company. [Paras 11.6,11.8][1054-G; 1058-B-C]

Tata Motors Limited vs. Pharmaceutical Products ofIndia Limited and Anr. (2008) 7 SCC 619 : [2008] 9SCR 267; Raheja Universal Limited vs. NRC Limitedand Ors. (2012) 4 SCC 148 : [2012] 3 SCR 388; NGEFLtd. vs. Chandra Developers (P) Ltd. (2005) 8 SCC219 : [2005] 3 Suppl. SCR 747 – relied on.

1.2 Under Section 18 of the SICA, 1985, it is the operatingagency to prepare a scheme with respect to the sick companyproviding for any one or more of the measures mentioned in A

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ASection 18, which include:- (i) the financial reconstruction of thesick industrial company; (ii) such other preventive, ameliorativeand remedial measures as may be appropriate. The operatingagency is defined under Section 3(i) and it means any publicfinancial institution, State-level institution, scheduled bank or anyother person as may be specified by general or special order asBits agency by the Board. No other persons including the unsecuredcreditors comes into picture like preparing the scheme underSection 18. Section 18 of the SICA does not provide that at thetime of preparing of the scheme under Section 18 or when it issanctioned by the Board, the unsecured creditors are requiredCto be heard. The only provision for the consent required is Section19 and the agency/person, who is required to give the financialassistance, its consent is required. Once the rehabilitation scheme/ scheme under Section 18 prepared by the operating agency issanctioned by the BIFR, which may include the scaling down thevalue of dues of the unsecured creditors, the same shall bind all,Dotherwise the rehabilitation scheme shall not be workable at alland the object and purpose of enactment of the SICA, 1985 willbe frustrated. If some persons / unsecured creditors and/or eventhe labourers are permitted to get out of the purview of the schemeand thereafter permitting such or some of the unsecured creditorsEto wait till the scheme for rehabilitation of the sick company hasworked itself out, in that case, the scheme shall not be workableat all. To make the company viable, the concerned personsincluding the unsecured creditors have to sacrifice to some extentotherwise the revival efforts shall fail. At this stage, it is requiredto be noted that if a sick company is ordered to be wind up, inFthat case, the unsecured creditors otherwise may not get anything.However, on the other hand on sanctioning the rehabilitationscheme under Section 18, the unsecured creditors may get partof their dues /debts, which otherwise, they may not get. At thisstage, it is required to be noted that as per Section 18(8) of SICA,G1985, which has been substituted by Act 12 of 1994, on and fromthe date of the coming into operation of the sanctioned schemeor any provision thereof, the scheme or such provision shall bebinding on the sick industrial company and the transfereecompany or, as the case may be, the other company and also on H

the shareholders, creditorsand guarantors and even theemployees of the said companies. [Paras 11.14, 11.14.1,11.14.2][1064-B-H; 1065-A-B]

1.3 The intention of the legislature is very clear. Creditorsincludes unsecured creditors. The submission on behalf of theunsecured creditors that the word “creditors” is not defined likeIBC, 2016 and therefore, the scheme shall not bind the unsecuredcreditors, cannot be accepted. Looking to the object and purposeof the SICA, 1985 and the provisions of Sections 18 and 19 of theSICA, 1985, the word “creditors” shall have to be construed in abroad manner and is not required to be construed narrowly,otherwise, the object and purpose of rehabilitation scheme shallbe frustrated. If the scheme binds the creditors, including othercreditors like financial institutions etc., who may have a betterclaim than the unsecured creditors, there is no reason to treatthe unsecured creditors separately and not to treat them ascreditors. Therefore, even as per Section 18(8), the scheme shallbind all the creditors and guarantors and even the employees ofthe sick company, for whose revival the scheme is sanctioned. Ifthe submission on behalf of the unsecured creditors, which hasbeen accepted by the High Court in the case of Continental CarbonIndia Ltd. that an unsecured creditor can opt out of the schemesanctioned by the BIFR under the SICA, 1985 and is allowed notto accept the scaled down value of its dues and may wait till thescheme for rehabilitation of the sick company has worked itselfout, with an option to recover the debt post such rehabilitation isaccepted / allowed, in that case, the minority creditors mayfrustrate the rehabilitation scheme, which may frustrate the objectand purpose of enactment of SICA, 1985. Thus, minority creditorsand that too some unsecured creditors cannot be permitted tostall the rehabilitation of the sick company by not 51 acceptingthe scaled down value of its dues. Unless and until there is asacrifice by all concerned, including the creditors, financialinstitutions, unsecured creditors, labourers, there shall not beany revival of the sick industrial company / company. [Para 11.15,11.16][1065-B-F]

1.4 Now, so far as the submission on behalf of the unsecuredcreditors that the unsecured creditors should have an option notto accept the scaled down value of its dues and to wait till the A

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Ascheme for rehabilitation of the sick company has worked itselfout, with an option to recover the debt post such rehabilitation isconcerned, the same has no substance and cannot be accepted.It is required to be noted that in a given case, because of thescaling down of the value of the dues of the creditors, the companysurvives. The company has survived in view of the rehabilitationBscheme because of the sacrifice/scaling down the value of thedues of the creditors including the financial institutions. How sucha benefit can be permitted to be given to the unsecured creditors,who does not accept the scaled down value of its dues. Such anunsecured creditor cannot be permitted to take the benefit ofCthe revival scheme, which is at the cost of other creditors includingthe financial institutions and even the labourers. [Para 12][1066-C-E]

1.5 Now, so far as the view taken by the High Court thatthe unsecured creditor had an option not to accept the scaledDdown value of its dues and can wait till the scheme forrehabilitation of the company has worked itself out with an optionto recover the debt with interest post such rehabilitation isaccepted, in a given case, the sick company, which has been ableto revive because of the scaling down the value of the dues, mayagain become sick, if the entire dues of the unsecured creditorsEare to be paid thereafter. It may again lead to becoming such arevived company again as a sick company. If such a thing ispermitted, in that case, it will again frustrate the object andpurpose of enactment of the SICA, 1985. [Para 13][1066-F-H]

1.6 Scaling down the value of the dues is under theFrehabilitation scheme prepared under Section 18 of the SICA,which has a binding effect on all the creditors. Therefore, thesame cannot be said to be violative of Article 300A of theConstitution of India. The law permits framing of the schemetaking into consideration and to provide the measuresGcontemplated under Section 18, therefore, the rehabilitationscheme which provides for scaling down the value of dues of thecreditors /unsecured creditors and even that of the labourerscannot be said to be violative of Article 300A of the Constitutionof India as submitted on behalf of the unsecured creditors. [Para14][1067-B-C]H

1.7 The view taken by the High Court of Delhi in ContinentalCarbon India Ltd. that on approval of a scheme by the BIFR underthe Sick Industrial Companies (Special Provisions) Act, 1985,the unsecured creditors has an option not to accept the scalingdown value of its dues and to wait till the rehabilitation scheme ofthe sick company has worked itself out with an option to recoverthe debt with interest post such rehabilitation is erroneous andcontrary to the scheme of SICA, 1985 and the same deserves tobe quashed and set aside and is accordingly quashed and set aside.The rehabilitation scheme under Section 18 of the SICA, 1985shall bind all the creditors including the unsecured creditors andthe unsecured creditors have to accept the scaled down value ofits dues provided under the rehabilitation scheme. The impugnedjudgment and order passed by the Madhya Pradesh High Courtrelying upon the decision of the Delhi High Court in the case ofContinental Carbon India Ltd. is quashed and set aside. [Paras15, 16][1067-D-F; 1068-A]

Navnit R. Kamani vs. R.R. Kamani (1988) 4 SCC 387;Kanpur Fertilizers and Cement Limited vs. State of UttarPradesh and Anr. (2018) 17 SCC 309 – referred to.

Kotak Mahindra Finance Ltd. vs. Mafatlal IndustriesLtd. (2004) 5 Bom. CR 792 (Bom.); Nasik People’sCo-operative Bank Ltd. vs. Datar Switchgear and Anr.,2007 SCC Online Del 2067(DB); Oman InternationalBank S.A.O.G. vs. Appellate Authority for Industrial andFinancial Reconstruction, (2010) 169 DLT 618 (DB);International Finance Corporation, Washington vs.Bihar Sponge & Iron Ltd. & Ors. AIR 2010 Del 142(DB); Union of India vs. Cimmco Ltd. and Ors. 2014SCC OnLine Del 909 – referred to.

Case Law Reference

(1988) 4 SCC 387[2008] 9 SCR 267[2012] 3 SCR 388(2018) 17 SCC 309[2005] 3 Suppl. SCR 747

referred torelied onrelied onreferred torelied on para 5para 5para 5 & 6para 6para 11

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ACIVIL APPELLATE JURISDICTION : Civil Appeal No.375 of2017.

From the Judgment and Order dated 31.07.2012 of the High Courtof Delhi at New Delhi in WP No.4854 of 2011.

WithB

Civil appeal nos.377, 379 of 2017, transfer petition (c) no.543 of2016 and civil appeal no.1755 of 2023.

Jayant Bhushan, Chander Uday Singh, Santosh Paul, Sr. Advs.,Atishi Dipankar, A.K. Jain, Amartya Bhushan, Keta Paul, TusharCBhushan, Ms. Uttara Babbar, Ms. Shipra Jain, Amjid Maqbool, Ms.Viddusshi, Zubin Mammen John, Aman Jha, Ms. Riya Kalra, E.R. Kumar,D.P. Mohanty, Aditya Sharma, Maithreya Shetty, Vedant Mishra for M/s. Parekh & Co., Atul Shanker Mathur, Shubhankar for M/s. Khaitan &Co., Advs. for the Appellant.

DBalbir Singh, ASG, Nalin Kohli, Sr. AAG, A.K. Shrivastava, GopalJain, Arijit Prasad, Sr. Advs., P. S. Sudheer, Rishi Maheshwari, Ms. AnneMathew, Bharat Sood, Ms. Shruti Jose, Kamal Kant, P. N. Puri, AkshatShrivastava, Satvic Mathur, Amar Gupta, Pranav Tanwar, DivyamAgarwal, Deepak Goel, Arun Aggarwal, Ms. Anshika Agarwal, B.Krishna Prasad, M/s. Mitter & Mitter Co., Upender Thakur, Yatin Grover,EMs. Nandini Tomar, A. V. Rangam, Buddy A. Ranganadhan, M. YogeshKanna, Ms. Aparna Bhat, Ms. Karishma Maria, Ms. Nimisha Menon,Aastik Dhingra, Shuvodeep Roy, Shahshank Bajpai, Ms. Gargi Khanna,Manish Pushkarna, Prashant Singh, Shyam Gopal, Ms. Preeti Rani, G.S.Makker, Prashant Singh II, Raj Bahadur Yadav, M.K. Maroria, Advs.Ffor the Respondent.

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The Judgment of the Court was delivered by

M. R. SHAH, J.

1. As common question of law and facts arise in these group ofappeals, they are being disposed of by this common judgment and order.G

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

2. Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court of Delhi at New Delhi passed inHWrit Petition (C) No. 4854 of 2011 by which the Division Bench of the High Court has allowed the said writ petition preferred by the respondentNo. 1 herein – Continental Carbon India Ltd. (unsecured creditor) andhas held that the original writ petitioner is an unsecured creditor and hasthe option not to accept the scaled down value of its dues and may waittill the scheme of rehabilitation of the appellant company [company beforethe BIFR under Sick Industrial Companies (Special Provisions) Act, 1985(hereinafter referred to as “SICA”)] has worked itself out with an optionto recover its debt post such rehabilitation, the original respondent No. 1– Modi Rubber Ltd. has preferred the present Civil Appeal No. 375 of2017.

Civil Appeal No. 377 of 2017

2.1 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court of Delhi at New Delhi passed inWrit Petition (C) No. 8154 of 2010 by which the Division Bench of theHigh Court has dismissed the said writ petition preferred by the appellantherein confirming the orders passed by BIFR and AAIFR taking theview that the appellant herein, on obtaining the decree in its favour hasto stand in the queue alongwith other unsecured creditors, who were tobe given 54 paisa in a rupee as per the scheme of revival sanctionedunder the SICA, the original writ petitioner – OCL India Ltd. (unsecuredcreditor) 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 judgmentand order passed by the Division Bench of the High Court of Delhi atNew Delhi dated 02.03.2016 passed in Writ Petition (C) No. 832 of2016 by which the Division Bench of the High Court has doubted thecorrectness of the judgment and order passed by the High Court ofDelhi in the case of Continental Carbon India Ltd. Vs. Modi RubberLtd., 2012 (131) DRJ 294 (DB), which is the subject matter of CivilAppeal No. 375 of 2017 before this Court and has referred the matter tothe 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

2.3 Present 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 thesubject matter of Civil Appeal No. 379 of 2017 as the issue involved in AB

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Athe writ petition is the same arising in Civil appeal No. 375 of 2017 as thecorrectness of the said decision, which is the subject matter of CivilAppeal 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.B

B2.4 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court of Madhya Pradesh Bench at Gwaliorpassed in Civil Revision No. 96 of 2018 by which the High Court hasdismissed the said revision application relying upon the decision of theDelhi High Court in the case of Continental Carbon India Ltd. (supra),Cwhich is the subject matter of Civil Appeal No. 375 of 2017, the originalrevisionist – M/s. Titagarh Wagons Limited, the judgment debtor haspreferred the present appeal.

Issues

3. Following question of law arise in the present group ofappeals:- Whether on approval of a scheme by the BIFRunder the Sick Industrial Companies (Special Provisions)DAct, 1985 (hereinafter referred to as the ‘SICA’), anunsecured creditor has the option not to accept the scaleddown value of its dues, and to wait till the scheme forrehabilitation of the respondent – Company has workeditself out, with an option to recover the debt with interestEpost such rehabilitation?4. For the sake of convenience Civil Appeal No. 375 of 2017 istreated as the lead matter. The facts leading to the Civil Appeal No. 375of 2017 are as under:- 4.1 That the scheme of rehabilitation of the respondent – companyFwas approved on 08.04.2008 under the SICA. The dues of the unsecuredcreditors was dealt with in para 5.1.3 of the sanctioned scheme, underwhich the payment to the unsecured creditors was to be made as under:-“5.1.3. UNSECURED PRESSING CREDITOR (RS. 7390.20LACS)

GPressing creditors have been identified as under:- H

LTD. [M. R. SHAH, J.]

The above creditors shall accept their outstanding dues as perone of the following three options:

a)To accept 30% of the principal outstanding as full and finalpayment. The payment shall be made within 3 months ofthe sanction of the scheme by the BIFR. Or b)To accept 40% of the principal outstanding as full the finalpayment. The payment shall be made in 3 equal annualinstallments from the cut off date (i.e. 31.3.2008). The firstinstallment shall be payable within 3 months of the sanctionof the Scheme by the BIFR

c)To accept 50% of the principal outstanding as full and finalpayment. The payment shall be made in one go at the endof 3[rd] year from the sanction of the Scheme by the BIFR.

Raw-material Suppliers: MRL has already entered intoMemorandum of Understanding with 30 Suppliers out oftotal 36 Pressing Raw Material suppliers They haveaccepted for payment as per option (a). Discussions withothers are underway by the company management.

Acceptances: MRL has already received acceptance fromPNB about their Hundi acceptances settlement as per option(a). Efforts are being made to settle with other banksnamely Federal Bank, Dhanlakshmi Bank, etc in respect ofHundi Acceptances. The negotiations are at advancestage.”

4.2 Clause 5.1.4 provides for payment to other unsecured creditorsas under:- “5.1.4 OTHER unsecured creditors (Rs. 1840.42 lacs)

To accept 20% of the principal outstanding as full and finalpayment. The payment shall be made at the end of 3[rd] year fromthe sanction of the Scheme by the BIFR.”

4.3 That the respondent herein was an unsecured creditor – acarbon black supplier, who did not accept the amount offered under therehabilitation scheme sanctioned under SICA. According to the originalwrit petitioner – respondent No. 1 herein, the debts recovered in thescheme due to it were much less than the actual debts. Therefore, A

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Aaggrieved by the rehabilitation scheme, the respondent No. 1– unsecuredcreditor preferred an appeal before the AAIFR to the extent it provideda dispensation for payment of unsecured creditors.

4.4 The AAIFR dismissed the appeal vide order dated 23.06.2011.The order passed by the AAIFR was the subject matter of writ petitionBbefore the High Court.

4.5 By the impugned judgment and order, the Division Bench ofthe High Court has allowed the writ petition and has set aside the orderpasse by the AAIFR dated 23.06.2011 by holding that the respondentNo. 1 – original writ petitioner as an unsecured creditor has the optionCnot to accept the scaled down value of its dues and wait till the schemeof rehabilitation of the respondent company has worked itself out withan option to recover its debt post such rehabilitation. Holding so, theDivision Bench was of the view that the contract inter se the partiesarrived at whereafter the company has become sick, cannot becompulsorily overridden by the provisions of the SICA if the creditor isDwilling to wait till such time as the company is financially rehabilitated toclaim its dues. The High Court is of the opinion that there would be onlysuspension of legal proceedings as envisaged under Section 22 of theSICA and the enforcement of the remedy remains suspended and that iswhy even in computing period of limitation, the period is excluded as perEsub-section (5) of Section 22 of the SICA. The impugned judgment andorder passed by the Division Bench of the High Court is the subjectmatter of present Civil Appeal No. 375 of 2017.

5. Shri Jayant Bhushan, learned senior counsel appearing on behalfof the appellant - Modi Rubber Limited in Civil Appeal No. 375 of 2017Fwhile assailing the impugned judgment and order passed by the HighCourt has submitted as under:-

(i) That in the instant case, notwithstanding the mandatoryprovisions of Section 18(8) of SICA read with Section 32of SICA, the High Court by the impugned judgment andGorder has allowed the unsecured creditor to stay outsidethe rigours of the scheme sanctioned under Section 18(4)of SICA read with Section 32 of SICA, thus, putting atnaught the very purpose, rationale and scheme of SICA;

(ii) The schemes whether under the Companies Act or underspecific insolvency legislations like, SICA are binding on allH

the creditors including the decree holders / arbitration awardholders / industrial award holders covered by the scheme.No creditor including decree holders etc. covered by ascheme can opt out of the scheme once the statutoryrequirements are complied with. It is submitted that eventhe binding effect of a scheme is based on the statutoryprovisions. It is submitted that under such statutoryprovisions enabling framing and sanction of schemes andtheir binding effect is founded upon larger public interest.Reliance is placed upon the decision of this Court in thecase of Navnit R. Kamani Vs. R.R. Kamani, (1988) 4SCC 387. It is submitted that once the rehabilitation schemeis sanctioned under the statutory provisions of the SICA,the concerned insolvent companies can lead a debt freefuture life and can use this as a second chance / fresh startto succeed;

(iii) That no creditor including the decree holders / arbitrationaward holders / industrial award holders can claim superpriority of their claims specially when the prescribed entitiesmentioned in Section 19(1) may be required to take severecuts to help revive sick companies, the other creditorsincluding the decree holders / arbitration award holders /industrial award holders cannot claim to have better rights;

(iv) Learned senior counsel appearing on behalf of the appellanthas taken us to the object and purpose of SICA, 1985. Hehas also taken us to the procedure to be followed under theSICA while considering and/or sanctioning the rehabilitationscheme under Section 18(4) read with Section 32 of SICA.It is submitted that SICA has done away with classificationof creditors and shareholders, separate meetings of classesof creditors and shareholders. It submitted that done awaywith the vexed distinctions in law between composition,arrangements, reconstruction etc. The SICA has also doneaway with individual notices to and separate meetings ofunsecured creditors and shareholders. It is submitted thatSICA treats all creditors including decree holders /arbitration award holders / industrial award holders as oneclass so as to avoid giving veto power to the minority A

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creditors in value. It is further submitted that therehabilitation scheme under SICA discharges debt byoperation of law. It is submitted that SICA, 1985 was not aconsent based regime rather it was an operation by lawbased regime; B(v)It is further submitted by learned senior counsel appearingon behalf of the appellant that in case of insolvent company,from practical and commercial point of view, there is ineffect, no scaling down of debt of ordinary creditors –unsecured creditors as the real market value of debts owedto the ordinary creditors including the decree holders /Carbitration award holders / industrial award holders coveredby the scheme is nothing. The nominal value of debt mayappear to have been scaled down, however, in reality, theunsecured creditors normally do not get anything;

(vi) It is submitted that subsequently, legislatures in response toDsocietal and economic changes have enacted separateinsolvency legislations providing a mandatory system toreorganize business which shielded the insolvent companieswith automatic stay against recovery of the debts. It issubmitted that invocation of insolvency legislations areEusually involuntary. It is submitted that the Parliaments ofdifferent countries recognized the need to have separateinsolvency legislations as the fallout of insolvency andeventual winding up leading to dissolution of companies washaving serious economic and social implications for thesociety at large;F

(vii) It is further submitted that the commercial laws have twotypes of laws, one, mandatory laws and second, permissiveopting out laws. Insolvency/bankruptcy laws are mandatorylaws and not permissive opting out laws. Insolvency/bankruptcy laws provides a mandatory system whereinGcreditors’ bargain take place within a common collectionpool;

(viii) It is further submitted that a sanctioned scheme whetherunder Companies Act or under specific insolvency lawslike SICA or IBC, 2013 is to operate as a discharge of debt H

MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIALTD. [M. R. SHAH, J.]

/ liability owed by the insolvent company to all creditorsincluding decree holders / arbitration award holders /industrial award holders. All creditors are entitled to collectthe amount of debt as provided in the scheme and not thefull amount of debt. It is submitted that a decree or an awarddoes not confer any superior right to a creditor holding sucha decree or an award. Decree holders or award holders donot form a separate class; A

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(ix) On the scheme of SICA, more particularly, the rehabilitationscheme, it is submitted as under :-

a)Section 18(1) deals with the measures that a schemeCwith respect to a sick industrial company can providefor. The scheme under section 18(1)(a) and 18(2)(h)can provide for “financial reconstruction of the sickindustrial company” Section 18(1)(e) enable ascheme to provide for such other preventive,Dameliorative and remedial measures as may beappropriate”. Financial reconstruction would normallyentail reduction / sacrifice of portion of debts asotherwise, no financial reconstruction of a financiallydistressed company would be possible. Section18(1)(f) is the residuary clause dealing with incidental,Econsequential or supplemental measures that may benecessary or expedient in connection with or for thepurposes of the measures specified in clauses (a) to(e) of Section 18(1). Section 18(2) delineates variousaspects that the scheme may provide for to fully andFeffectively carry out reconstruction, amalgamationor other measures mentioned therein.

b)The words financial reconstruction provided in section18(1) (a) are of widest amplitude. Under this sub-section the BIFR can reorganize, modify, vary,reduce, defer the dues of creditors.

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c)Section 18(3)(a) provides for publication of draftscheme in daily newspapers for suggestions andobjections. Section 18(3)(b) specifically provides thatBIFR may modify draft scheme in the light of H

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suggestions and objections received from creditors,amongst others, of sick company.

d)Section 18(8) of SICA provides that a sanctionedscheme shall be binding on the sick industrialcompany, shareholders, creditors, guarantors andemployees of the company.

e)Section 19(1) deals with financial assistance,sacrifices to he provided by central and stategovernments, scheduled banks or other bank, publicfinancial institutions, state level institution or anyinstitution or other authority. Section 19(2) providesthat only in the case of above mentioned prescribedentities that their consent is imperative as they maybe required to give financial assistance. This sub-section requires the consent to be given within a spanof 60 days from the date of circulation of scheme orwithin such further period not exceeding 60 days, asallowed by BIFR. It is imperative that the consent isgiven within the prescribed period of 60 days or withinsuch further period not exceeding 60 days, as allowedby BIFR. Otherwise, this sub-section mandatorilyprovides that the consent will be deemed to havebeen given.

f)Section 32 of the SICA provides that the provisionsof the scheme framed under the SICA, i.e., thesanctioned scheme, shall override all other laws exceptthe Foreign Exchange Regulations Act, 1973 and theUrban Land (Ceiling and Regulations) Act, 1976. Thesection states that a scheme framed under the SICAwill override also the memorandum and articles ofassociation of a sick industrial company or any otherinstrument having effect by virtue of any law otherthan this Act.

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 powerto scale down/ vary the dues of the creditors including decree holders/ arbitration award holders/industrialaward holders.

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(x) It is further submitted that as such in the case of windingup, the ordinary creditors including decree holders etc.normally do not get anything. Thus, when the BIFR scalesdown the dues owed to the creditors including the unsecuredBcreditors, in effect, there is no confiscation of property.Rather, if the sick company becomes healthy, the unsecuredcreditors including decree holders / arbitration award holders/ industrial award holders can do business with the healthycompany.

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(xi) It is further submitted that Section 22(1) does not providefor any period of the implementation of scheme. Theprotective umbrella of Section 22 is not terminable onnetworth becoming positive. The scheme is binding on allcovered and creditors including decree holders etc., whocannot have the option of opting out.

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(xii) It is further submitted that Section 22(5) of SICA dealingwith exclusion of limitation period cannot be relied upon toargue that it indicates that the dues of the creditors can bedeferred to a period when the company’s networth becomespositive or when the scheme is fully implemented. It issubmitted that if such an argument is accepted, no creditorwill like to give financial assistance or make sacrifices. Theresultant effect may be that the company whose networthhas turned positive with the assistance of financial assistanceand sacrifices may again become sick making the wholeeffort of taking a company out of sickness futile.

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(xiii) It is submitted that such a submission / argument would beagainst the foundational principle of SICA and, in general,other insolvency legislations that their purpose is to rescuethe sick companies from the throes of their inevitable death/ liquidation and are not mechanisms for recovery of debtsof creditors.

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(xiv) Now, so far as the submission on behalf of the respondentsthat the scaling down/reduction/waiver of dues of creditorsis violative of Article 300A of the Constitution of India is H

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concerned, it is submitted that Article 300A of theConstitution of India shall have no application to arehabilitation scheme sanctioned by BIFR under theframework of SICA. It is submitted that there is nodeprivation of and/or confiscation of property when the duesowed to a creditor other than prescribed entities underSection 19(1) of SICA, is unilaterally reduced aftercomplying with the procedure stated in Section 18(3)(a)including publication of draft rehabilitation scheme invitingobjections and suggestions, as the same is done by authorityof law i.e., SICA. It is submitted that SICA has been enactedto secure the principles specified in Article 39(a) and (b). Itis submitted that in reality, there is no real property or interestin favour of creditors which get affected. In the case ofwinding up of a sick industrial company whose networth iseroded, the ordinary creditors including decree holders donot normally get anything.

(xv) It is submitted that the High Court has interpreted theprovisions of SICA by juxtaposing them with the provisionsof Companies Act, 1956 in a way which is contrary to thegeneral principle that no person can stay out of insolvencyregime. The High Court has by its interpretation allowedthe creditors to stay out of the insolvency regime, which isimpermissible. The High Court has failed to appreciate thefull import of various provisions of Sections 18(3)(a), 18(4),18(8), 19(1), 19(2) etc. The purpose of SICA is toexpeditiously rehabilitate a sick company by framing andsanctioning a scheme of rehabilitation and the timeline fixedto complete the process is 90 days. The Parliament in itswisdom provided for public notice rather than individualnotices as the same was neither practical nor of commercialutility.

(xvi) It is submitted that in the case of Tata Motors LimitedVs. Pharmaceutical Products of India Limited and Anr.,(2008) 7 SCC 619, it is specifically observed and held bythis Court that the provisions of a special Act will overridethe provisions of a general act. It is observed that SICA isa special statute and is a self-contained code. The Companies Act, 1956 is a general act. Therefore, whereverany inconsistency is seen between the provisions of thetwo Acts, SICA would prevail. It is further submitted thatin the said decision, it is also further observed that the SICAhas been enacted to secure the principles specified in Article39 of the Constitution. It seeks to give effect to the largerpublic interest and it should be given primacy because of itshigher public purpose.

(xvii) It is further submitted that in the case of Raheja UniversalLimited Vs. NRC Limited and Ors., (2012) 4 SCC148 taking into consideration the object and purpose andnature of SICA and its provisions, it is observed and heldby this Court that the matters connected with sanctioningand implementation of rehabilitation / restructuring schemefrom the date of its presentation or date of its coming intoeffect, whichever is earlier, fall exclusively within thejurisdiction of BIFR. It is further observed that in such acase of creditors’ demand, even if not made part of thescheme, would not merely for that reasons stand executedfrom BIFR’s jurisdiction, which extends to making changesin instruments, documents etc., which create rights andliabilities vis-à-vis sick industrial company and its properties.It is observed that any other view would defeat the verypurpose of SICA. It is submitted that it is further observedand held in the said decision that the SICA is a special lawvis-à-vis Transfer of Property Act, which is a general law.

(xviii) It is further submitted by the learned senior counsel appearingon behalf of the appellant – Modi Rubber Ltd. that evensubsequently, the Division Bench of the High Court hasdoubted the correctness of the present impugned decisionby observing that prima facie the view taken in ModiRubber Ltd. (supra) is not in sync with the view taken bythe various Division Benches of the High Court, which havebeen distinguished by the Division Bench in Modi RubberLtd. (supra) with a simple observation that the point thereinwas on a slightly different question. It is submitted that inthe case of Singer India Ltd. (supra) while not agreeingwith the view taken in the case of Modi Rubber Ltd.

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A(supra), it is observed that there is no distinction betweensecured and unsecured creditors except those creditors, whohave given financial assistance under a scheme to a sickcompany. In other words, every creditor stand on a samefooting with respect to the power of the Board to sanctiona scheme. It is further observed that those creditors, whichBhave to provide financial assistance would form a sub-category and their consent alone would be necessary withrespect to the financial assistance to be provided.

(xix) Making above submissions and relying upon the abovedecisions, it prayed to allow the present appeals and setCaside the impugned judgment and order taking the view thatan unsecured creditor has the option not to accept the scaleddown value of its dues and wait till the scheme ofrehabilitation of the appellant company has worked itselfout with an option to recover its debt post such rehabilitation.

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6. Shri C.U. Singh, learned Senior Advocate, appearing on behalfof the appellant / petitioner in Civil Appeal arising out of SLP (C) No.4282 of 2020 has vehemently submitted that the Hon’ble MadhyaPradesh High Court has erred in treating the judgment of the Delhi HighCourt in the case of Continental Carbon India Ltd. (supra) as aEbinding precedent and even the said judgment was contrary to the severalearlier and later judgments of the Delhi High Court and, therefore, theMadhya Pradesh High Court ought to have independently examined theissue.

6.1 It is further submitted by Shri C.U. Singh, learned SeniorFAdvocate that the sanction accorded by the BIFR under section 18(4) isunder section 18(7) treated as conclusive evidence that all requirementsrelating to reconstruction or amalgamation or any other measure specifiedtherein have been complied with, and a certified copy thereof shall in alllegal proceedings be admitted as evidence. Further, on and from thedate of sanction, the scheme and every provision thereof shall be bindingGon the sick industrial company, and, inter alia, its shareholders, creditors,guarantors, and employees, in terms of section 18(8) of SICA. Relianceis placed on the decisions of this Court as well as the decision of theBombay and Delhi High Court in the case of :

(i) Raheja Universal Limited Vs. NRC Limited and Ors.,H(2012) 4 SCC 148; LTD. [M. R. SHAH, J.]

(ii) Kanpur Fertilizers and Cement Limited Vs. State ofAUttar Pradesh and Anr., (2018) 17 SCC 309;

(iii) Kotak Mahindra Finance Ltd. Vs. Mafatlal IndustriesLtd., (2004) 5 Bom. CR 792 (Bom.);

(iv) Nasik People’s Co-operative Bank Ltd. Vs. DatarBSwitchgear and Anr., 2007 SCC Online Del 2067(DB);

(v) Oman International Bank S.A.O.G. Vs. AppellateAuthority 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 C

(vii) Union of India Vs. Cimmco Ltd. and Ors. reported in2014 SCC OnLine Del 909.

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6.2 Shri C.U. Singh, learned Senior Advocate has further submittedthat the judgment in the case of Continental Carbon India Ltd. (supra)has made a complete departure from all prior decisions as to the scopeand effect and Sections 18 and 22 of SICA and the effect thereof wouldbe to completely negate the purpose for which a Scheme has been framedby BIFR. It is submitted that it is no longer res integra that the provisionsof SICA did not envisage any prior consent being obtained fromunsecured creditors, yet dues of such unsecured creditors could becompletely or partially written off under a revival scheme framed undersection 18 of SICA.

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6.3 It is further submitted that under Section 18 of SICA, theoperating agency prepares a scheme with respect to the sick companyand the scheme can provide any of the measures specified in Section18(1) and 18(2). The provisions of 18(1) and 18(2) are extremely broadand there is power to provide for such incidental and consequentialmeasures as are necessary. Specifically, Section 18(2)(f) and (m) provide:

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(f) the reduction of the interest or rights which the shareholdershave in the sick industrial company to such extent as the Boardconsiders necessary in the interests of the reconstruction, revivalor rehabilitation of the sick industrial company or for themaintenance of the business of the sick industrial company; H

A(m) such incidental, consequential and supplemental matters asmay be necessary to secure that the reconstruction oramalgamation or other measures mentioned in the scheme arefully and effectively carried out.

6.4 It is further submitted that the draft Scheme is examined byBthe Board and then published in daily newspapers for suggestions andobjections [Section 18(3)(a)]. Thereafter, the Board makes suchmodifications as considered necessary in light of the suggestions andobjections received [Section 18:31(b)]. Thereafter the scheme issanctioned by the Board [Section 18(4)].

C6.5 It is submitted that SICA being a special statute, the provisionsthereof, shall prevail over the general law for recovery of money inrespect of price of goods sold and delivered. SICA provides for a specialmechanism for revival of a company declared sick, and the fate of sucha scheme cannot be upset by the refusal of one creditor, secured orunsecured, to adhere to the provisions of the scheme.D

6.6 It is submitted that the scheme framed by the BIFR in termsof the provisions of SICA is binding on all creditors of the sick companyand it is not open to any creditor to contend that the scheme framed shallnot bind such creditor irrespective of whether such consent of suchunsecured creditor was not taken prior to sanction of the scheme. TheEprovisions of SICA do not provide for the creditors’ consent white framingof the scheme under Section 18 or its implementation. In section 19(2),the scheme under Section 19(1) is required to be circulated to everyperson providing financial assistance “for his consent”. However, thescheme under Section 18 envisages no such “consent.

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6.7 Further, the Scheme under Section 18 remains binding evenafter revival of the company. Here, it is necessary to contrast theprovisions of Section 22, which provide that legal proceedings, contracts,etc., in respect of a sick company against whom an inquiry is pendingunder Section 16, or a scheme is under preparation or implementation,Getc., shall remain suspended in terms of a declaration of the Board underSection 22(3), and would revive upon the declaration ceasing to haveeffect [Section 22(4)]. However, the scheme under Section 18 does notlose its finality/efficacy upon revival of the company.

6.8 It is further submitted that SICA, being a special Act, theprovisions thereof and the scheme sanctioned thereunder, would prevailH

over any other obligation that may have arisen against a sick companyunder any other law for the time being in force. Section 32 of SICAclearly provides that a scheme framed by the BIFR shall prevail andhave effect over any other law for the time being in force notwithstandingthe same.

6.9 It is submitted that the entire purpose of formulating a schemeunder SICA is to rehabilitate the sick company. If the sick company iswound up, then the unsecured creditors would get nothing. Hence is thevery 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 therespondent – Continental Carbon India Ltd. – unsecured creditor hasvehemently submitted that the Hon’ble High Court after examiningvarious provisions of the SICA, 1985 and various judgments has answeredthe question and has held that the unsecured creditor has the option notto accept the scaled down value of its dues and may wait till the schemeof rehabilitation of the sick company has worked itself out with the optionto recover its debt post such rehabilitation, which is not required to beinterfered with by this Court.

7.1 It is submitted that there is no provision under the SICA tocompel an unsecured creditor to accept the scaled down value of itsdues. In absence of any such provision, the unsecured creditor –respondent cannot be compelled to accept a lesser amount, which wouldtantamount to taking the right to property in the goods without appropriateconsideration and would be violative of Article 300A of the Constitutionof India.

7.2 It is submitted that the scheme under the SICA, 1985 providesfor preparation and sanction of the scheme for rehabilitation under Section18. It is submitted that sub-clause (e) of sub-section (1) of Section 18 ofthe SICA provides for preventive, ameliorative and remedial measuresas may be appropriate, while Section 19 of the SICA deals withrehabilitation by giving financial assistance qua such preventive,ameliorative and remedial measures. The same would apply to a classof creditors which did not include unsecured creditors and, therefore,there is no specific provision in the SICA which authorized the BIFR todeprive the unsecured creditor of its full value of unsecured debt.

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A7.3 It is submitted that even if Section 18/19 are interpreted as theprovisions providing for deprivation of property of an unsecured creditorin 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 formaking an unsecured creditor, in the first place, to be a part of the schemewithout his consent. It is submitted that in other words, once an unsecuredBcreditor is ready to be part of the scheme then even if no consent of hisis required before asking him to sacrifice does not mean that he has tobe forced to become a part of the scheme.

7.4 It is submitted that as such the interpretation to the scheme ofthe SICA, 1985 as given by the High Court would, in fact, render theCprovisions of the Act more workable and reasonable. It is furthersubmitted that the fact that an unsecured creditor is permitted to standoutside the scheme, in no manner can cause prejudice to the rehabilitationof a Sick Company. This is also clear from the fact that the period of thescheme is completely independent from the net worth of the SickDCompany turning positive. It is submitted that in the present case, theperiod of the rehabilitation scheme is to continue till 2013, whereas thevery same scheme contemplated the networth of the petitioner companyturning positive by 2007-2008 and the loss completely wiped off by 2008-2009. It is submitted that therefore the petitioner company ceased to bea Sick Industrial Undertaking as per its Balance Sheet of 31.03.2009.E

7.5 It is further submitted that even otherwise, the BIFR had noauthority to scale down the debts of an unsecured creditor without theirconsent. It is submitted that in absence of any provision permitting BIFRto scale down the debts of the unsecured creditor without its consentwould be violative of Article 300A of the Constitution. It is submittedFthat Article 300A of the Constitution provides that no person shall bedeprived of his property save by authority of law. It is submitted thatmoney is undoubtedly property and, therefore, the right to a sum of moneyis also a property. It is submitted that hence, the aforesaid right of therespondent – unsecured creditor to receive the sum of money is aGConstitutional Right and, further, the said Constitutional Right to propertycan be taken away / deprived only by authority of law.

7.6 It is submitted that the expression ‘law’ in Article 300A wouldmean a Parliamentary Act or an Act of State Legislature or Statutoryhaving the force of law. It is submitted that while enacting such a law,HParliament cannot be presumed to have taken away a right in property.

It is submitted that the provision taking away such right to property hasto be provided explicitly.

7.7 It is further submitted that so far as the Insolvency andBankruptcy Code, 2016 is concerned, it contains the definition of theterm ‘Creditor’ and the same includes an ‘Unsecured Creditor’. It issubmitted that therefore, the regime under the SICA, 1985 and theInsolvency and Bankruptcy Code, 2016 are completely different. It issubmitted that the Insolvency and Bankruptcy Code, 2016 specificallyprovides for distribution of assets under Section 53. Thus, the Insolvencyand Bankruptcy Code, 2016 specifically provides for provisions for dealingwith ‘Unsecured Creditors’ whereas in the SICA, 1985, there is noprovision to deal with ‘Unsecured Creditors’ without their consent.

7.8 Making above submissions, it is prayed not to interfere withthe impugned judgment and order passed by the Division Bench of theHigh Court.

8. While supporting the view taken by the Delhi High Courtfollowed by the Madhya Pradesh High Court, it is submitted by ShriA.K. Shrivastava, learned senior counsel appearing on behalf of theunsecured creditor – decree holders that in the present case, the schemesanctioned for revival of the company has been substantially implementedand the net worth of the company has turned positive substantially byRs. 31 crores.

8.1 It is submitted that in the present case, the appellant companymoved an application before the BIFR for discharging the company fromthe purview of SICA as its net worth has turned positive. It is submittedthat the BIFR thereafter has allowed the said application vide orderdated 07.12.2010 and the applicant company has been discharged fromthe provisions of SICA. It is submitted that therefore, the executionapplication filed by the respondent shall have to be proceeded furtherand there would not be any bar under Section 22 of the SICA, 1985 ascontended on behalf of the appellant before the High Court. It is submittedthat once the appellant on its own motion got discharged from the purviewof SICA and such relief having been granted, the appellant thereaftercannot take shelter under any of the provisions of SICA, 1985. ShriShrivastava, learned senior counsel appearing on behalf of the respondentin Civil Appeal arising out of SLP (C) No. 4282 of 2020 has prayed toconsider the following factual background:- A

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A8.1.1That the answering respondent raised invoices in the 1991-92 for supply of goods and services provided to thefoundry unit of petitioner at Gwalior which remainedoutstanding. Thereafter in the year 1996 the answeringrespondent filed a Civil Suit No. 172B/1996 for recoveryof Rs 7,76,138/- alongwith interest @ 25%.B

8.1.2That on 24.02.2000 the money decree was passed by theTrial court, in favour of the answering respondent andagainst the petitioner vide judgement dated 24.02.2000.

8.1.3That the petitioner thereafter challenged the decree datedC21.02.2000 in First Appeal No. 65/2000 before the Hon’bleHigh Court of Madhya Pradesh. The said First Appealwas dismissed on 19-10-2005 and the order of High Courtbecame final as it was not assailed before this Court.

8.1.4That the petitioner subsequently filed reference underDSection 15(1) of SICA in June 2000. Subsequently theBIFR on 21.08.2000 declared the petitioner to be a sickcompany under Section 3(1)(0) of SICA, 1985 andappointed IDBI as operating agency. That the petitionerdid not disclose about the BIFR proceedings in the appealpreferred by them before the High Court. The BIFR alsoEdid not pass any order under Section 22(2) of the SICAfor suspension of pending legal proceedings.

8.1.5That the Hon’ble High Court dismissed the First AppealNo. 65/2000 vide order dated 10.10.2005 and hence thejudgement and decree dated 24.02.2000 was affirmedFand order dated 10.10.2005 attained finality as thepetitioner never challenged the order dated 10.10.2005.

8.1.6That thereafter the proceedings continued before theBIFR for revival of the petitioner. That on 07.12.2010,the petitioner company was declared revived and wasGdischarged from the purview of the SICA.

8.1.7That after the revival of the appellant company theanswering respondent filed execution petition on03.11.2011.

8.1.8That the petitioner thereafter filed an application seekingH

MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIALTD. [M. R. SHAH, J.]

direction to the respondent to accept the cheque for ameager amount of Rs 70,452/- in terms of the schemewhich is the scaled down value of the claim amount andfurther prayed for closing the execution proceedings. Thelearned executing court dismissed the application of theappellant vide order dated 13.03.2014. This order wasnever challenged by the petitioner and hence attainedfinality.

8.1.9That the appellant thereafter again filed written objectionto the execution proceedings on the same grounds as wereearlier raised by them. Such objections are barred by theprinciples of res-judicata as vide earlier order the identicalpleas of the petitioner was rejected by the LearnedExecuting Court on 13.03.2014.

8.1.10That the answering respondent filed reply to the writtenobjections filed by the petitioner.

8.1.11That the Learned Executing Court again vide detailedorder dated 06.11.2017 rejected the objections raised bythe petitioner.

8.1.12That in Feb 2018 the petitioner filed Civil Revision No.96/2018 under Section 115 of CPC before the Hon’bleHigh 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 hectareswas attached by the Executing Court.

8.1.14That the Hon’ble High Court vide impugned order dated18.10,2019 dismissed the Civil Revision field by thepetitioner.

8.1.15That the petitioner thereafter had fled SLP(C) No. 42822/2020 before the Hon’ble Supreme Court. The Hon’bleSupreme Court vide order dated 20.02.2020 issued noticeand granted interim protection till the next date of hearing.

8.1.16That thereafter the matter came up for hearing on20.05.2022, the petitioner stated that they are willing todeposit the entire decretal amount with the Registry ofthe Hon’ble Supreme Court. The Court upon such A

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statement directed the appellant to deposit the entiredecretal amount on or before 11.07.2022.

8.1.17That it appears that the appellant has deposited an amountof Rs 61,31,490/- stating it to be the decretal amount.The answering respondent most respectfully submits thatthe correct decretal amount is Rs 68,21,918/ as on11.07.2022. Therefore, the answering respondentsdisputes the amount of Rs 61,31,490 to be the entiredecretal amount.

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8.1.18That the Hon’ble Supreme Court on 11.07.2022, in viewof the above deposit made by the appellant, directedrelease of the attached property, C

8.2 It is submitted that in view of the above factual backgroundthere is no infirmity in the orders passed by the High Court, which ispassed following the decision of the Delhi High Court in the case ofDContinental Carbon India Ltd. (supra), which still holds the field andit is prayed to release the entire decretal amount in favour of therespondent.

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

10. The short question, which is posed for the consideration ofEthis Court is :- “Whether on approval of a scheme by the BIFR under the SickIndustrial Companies (Special Provisions) Act, 1985, an unsecuredcreditor has the option not to accept the scaled down value of itsdues, and to wait till the scheme for rehabilitation of the respondent– sick company has worked itself out, with an option to recoverthe debt with interest post such rehabilitation?”

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11. While appreciating the submissions made on behalf of therespective parties on the aforesaid issue, few decisions of this Court andthe legislative scheme of the SICA, 1985 are required to be referred to:

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Legislative Scheme of SICA, 1985

11.1 The framers of law felt that the existing institutionalarrangements and procedure for revival and rehabilitation of potentiallyviable sick industrial companies are both inadequate and time consuming.Multiplicity of law and the regulatory agencies makes the adoption of a H

coordinated approach for dealing with sick industrial companies difficult.Thus, a need was felt to enact, in public interest, a legislation to providefor timely determination, by a body of experts, of the preventive,ameliorative, remedial and other measures that would be needed to beadopted with respect to such companies and for enforcement of theappropriate measures with utmost practicable dispatch.

11.2. The ill effects of sickness in industrial companies, such ascessation of production, loss of employment, loss of revenue to the Centraland State Governments and blocking up of investible funds of the banksand financial institutions, were of serious concern to the Government aswell as the society at large. It had repercussions on the industrial growthof the country. With the passage of time the number of sick industrialunits increased rapidly. Therefore, it was imperative to salvage theproductive assets and release, to the extent possible, the amounts due tothe banks and financial institutions from non-viable sick industrial debtorcompanies by liquidation of those companies or through formulation ofrehabilitation schemes.

11.3. With these objects, the Bill was introduced with the salientfeatures inter alia of identification of sickness in the industrial companies,on the basis of symptomatic indices of cash losses for the specifiedperiods. Wherever the Government or Reserve Bank were satisfiedthat an industrial company has become sick, they were required to makea reference to BIFR. BIFR consists of experts, in various relevant fields,with powers to inquire into and determine the incidences of sickness inthe industrial companies and devise suitable measures through appropriateschemes to revive them. An appeal lies from the order of BIFR to anappellate authority (Aaifr) consisting of members selected from amongstSupreme Court or High Court Judges or Secretaries to the Governmentof India.

11.4 With this background, objects and reasons, this Bill was passedby the Indian Parliament and it received the assent of the President ofIndia on 8-1-1986. Thus, it became an Act of Parliament intended torevolutionise the mechanism of revival or liquidation of sick industrialunits and channelisation of the complete administrative-cum-quasi- judicialprocess within the framework of SICA 1985.

11.5 The statement of Objects and Reasons for enactment ofSICA, 1985 is as under:- A

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“Statement of Objects and Reasons.—The ill effects ofsickness in industrial companies such as loss of production, lossof employment, loss of revenue to the Central and StateGovernments and locking up of investible funds of banks andfinancial institutions are of serious concern to the Governmentand the society at large. The concern of the Government isaccentuated by the alarming increase in the incidence of sicknessin industrial companies. It has been recognised that in order tofully utilise the productive industrial assets; afford maximumprotection of employment and optimize the use of the funds of thebanks and financial institutions, it would be imperative to reviveand rehabilitate the potentially viable sick industrial companies asquickly as possible. It would also be equally imperative to salvagethe productive assets and realise the amounts due to the banksand financial institutions, to the extent possible, from the non-viablesick industrial companies through liquidation of those companies.

It has been the experience that the existing institutionalarrangements and procedures for revival and rehabilitation ofpotentially viable sick industrial companies are both inadequateand time-consuming. A multiplicity of laws and agencies makesthe adoption of a co-ordinated approach for dealing with sickindustrial companies difficult. A need has, therefore, been felt toenact in public interest a legislation to provide for timely detectionof sickness in industrial companies and for expeditiousdetermination by a body of experts of the preventive, ameliorative,remedial and other measures that would need to be adopted withrespect to such companies and for enforcement of the measuresconsidered appropriate with utmost practicable despatch.”

11.6 Thus, the SICA, 1985 basically and predominantly is a remedialand ameliorative enactment, insofar as it empowers a quasi-judicial Body- BIFR to take appropriate measures for revival and rehabilitation of thepotentially viable sick industrial companies as quickly as possible andalso to salvage the productive assets and realise the amounts due to thebanks 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 therelevant provisions of SICA, 1985, which are relevant for ourconsideration:- “35. Section 15 of SICA 1985 places an obligation upon anindustrial company, which has become sick in terms of thatprovision, to make a reference to BIFR established under Section4 of SICA 1985 within the period of limitation prescribed. Whileunder Section 15(2) where the Central Government or ReserveBank of India or a State Government or a public financial institutionhas sufficient reasons to believe that any industrial company hasbecome, for the purpose of SICA 1985, a sick industrial company,would also make a reference of such company to the Board fordetermination of the measures which may be adopted with regardto such company.

36. Section 16 of SICA 1985 deals with the conduct of aninquiry by BIFR and the manner in which BIFR is expected todeal with the matter upon receipt of a reference under Section 15of SICA 1985. Section 16 vests BIFR with very wide powers ofinquiry and passing appropriate orders. Section 16(2) empowersBIFR to pass an order, in its discretion, directing any operatingagency to inquire into and to make a report with regard to thematters as may be specified in the order. Such operating agencyis expected to complete the inquiry expeditiously and preferablywithin 60 days from the date of commencement of inquiry. BIFRis vested with powers such as appointing special Directors for thesick company and issuing directions to the special Directors inrelation to discharge of their duties and to improve the performanceof any or all of the functions postulated under Section 16(6) ofSICA 1985.

37. After the inquiry by BIFR or by the operating agency iscompleted, BIFR if satisfied that the company has become sickand upon considering all relevant facts and circumstances of thecase in exercise of its powers under Section 17 of SICA 1985,may pass orders requiring the company to make its net worthexceed the accumulated losses within a reasonable time and forthat purpose it may impose such restrictions or conditions as maybe specified in the order in terms of Section 17(2) of SICA 1985.Further, where BIFR decides that it is not practicable for a sickindustrial company to make its net worth exceed the accumulatedlosses within a reasonable time and that it is otherwise necessaryor expedient in public interest to adopt all or any of the measures A

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specified in Section 18 of SICA 1985 in relation to the said company,it may, having regard to the guidelines, as may be specified, passan order formulating a scheme providing for such measures inrelation to the sick industrial company. In the event of non-compliance with the restrictions or conditions specified in the orderof BIFR or where the company fails to revive itself in pursuanceto the order, BIFR can pass any of the directions/orders as requiredunder Section 17(4) of SICA 1985.

38. Section 18 of SICA 1985 again is a remedial provisionwhich contains specified guidelines for the preparation and sanctionof the schemes for the revival of the sick industrial company.Where an order is made under Section 17(3) in relation to a sickindustrial company, the operating agency is required to prepare,as expeditiously as possible, ordinarily within 90 days from thedate of such order, a scheme with respect to such companyproviding for any one or more of the measures stated under clauses(a) to (f) of Section 18(1) of SICA 1985. The scheme so framedmay provide for any one or more of the measures stated underclauses (a) to (m) of Section 18(2) of SICA 1985.

39. The scheme which has been prepared in consonancewith the provisions of Sections 18(1) and 18(2) then has to beexamined by BIFR in terms of Section 18(3) of SICA 1985 and ifBIFR makes any modifications to the scheme, the same draftscheme, in brief, shall be published or caused to be published insuch daily newspapers as BIFR may consider necessary, forreceipt of suggestions and objections, if any. In the light of thesuggestions and objections received in response to such publication,BIFR may still make further modifications. Also, where the schemerelates to amalgamation of the companies, the procedures specifiedtherein shall be followed. In such cases, the shareholders of thecompany, other than the sick industrial company, are expected topass a resolution of approval of the scheme.

40. The scheme thereafter shall be sanctioned by BIFRand shall come into force on such date as BIFR may specify inthis behalf and in exercise of the powers vested in it under Section18(4) of SICA 1985. This scheme does not attain finality which isunalterable. Once the scheme is sanctioned and comes into forceeven then, on the recommendation of the operating agency, BIFR

can consider further modifications or even prepare a fresh schemeproviding for such measures as the operating agency may considerit necessary and recommended in terms of Section 18(5) of SICA1985.

41. Section 18(7) of SICA 1985 is an important provisionwhich provides that the sanction accorded by BIFR shall beconclusive evidence that all the requirements of the scheme relatingto reconstruction or amalgamation or any measure specified thereinhave been complied with and a copy of the sanctioned schemecertified in writing by an officer of BIFR to be a true copy thereofshall be admissible as evidence in all legal proceedings. To resolvethe difficulties that may arise in giving effect to the provisions tothe sanctioned scheme, BIFR may, on the recommendation of theoperating agency or otherwise, by order do anything, notinconsistent with such provisions, which appears to it to benecessary or expedient for the purpose of removing difficulty interms of Section 18(9) of SICA 1985.

42. The role of BIFR does not end here and it may evenperiodically monitor the implementation of the scheme. Wherethe scheme relates to preventive, ameliorative, remedial and othermeasures with respect to any sick industrial company, the schememay provide for financial assistance by way of loans, advancesor guarantees from the Government or financial institutions. Beforeany financial institution is called upon to proceed to release thefinancial assistance to the sick industrial company in fulfilment ofthe requirements in that regard, the procedure contemplated underthe provisions of Section 19 of SICA 1985 has to be followed.

43. Where BIFR, after making inquiry under Section 16 ofSICA 1985, considering all relevant facts and circumstances andgiving an opportunity of being heard to all parties concerned, is ofthe opinion that the sick industrial company is not likely to makeits net worth exceed the accumulated losses within a reasonabletime while meeting all its financial obligations and that the companyas a result thereof is not likely to become viable in future and thatit is just and equitable that the company should be wound up, itmay record and forward its opinion to the High Court concernedas per the provisions of Section 20 of SICA 1985 whereafter thecompany shall be wound up in accordance with the provisions of A

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Athe Companies Act, 1956. The High Court may even appoint anyofficer of the operating agency as the liquidator of the sick industrialcompany. Section 21 of SICA 1985 requires the operating agencyto prepare an inventory, if so directed by BIFR.”

11.8 Thus, the primary concern of the Board would be the revivalBof 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 therehabilitation 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 appearsthat these two provisions primarily ensure that the scheme prepared byCBIFR does not get frustrated because of certain other legal proceedingsand to prevent untimely and unwarranted disposal of the assets of thesick industrial company. These sections clearly state certain restrictionswhich will impact upon the implementation of the scheme as well as onthe assets of the company.

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11.9 As observed and held by this Court in the case of Tata MotorsLimited (supra), SICA, 1985 has been enacted to secure the principlesspecified in Article 39 of the Constitution of India. It seeks to give effectto the larger public interest and, therefore, it should be given primacyover other laws because of its higher public purpose.

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11.10 In the case of Raheja Universal Limited (supra), it isobserved and held that the SICA, 1985 is a special law, giving overridingeffect vis-à-vis other laws and the provisions of general laws likeCompanies Act for regulation, incorporation, winding up etc. of thecompanies would have still been overridden to the extent of inconsistency.FIn the case of NGEF Ltd. Vs. Chandra Developers (P) Ltd., (2005)8 SCC 219, it is specifically observed by this Court that the SICA, 1985is 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 exceptGthe laws, which have been specifically excluded by the legislature underSection 32 of SICA, 1985.

11.12 Keeping in mind the statement of objects and reasons forenactment of SICA, 1985 and the powers exercised by the BIFR andthe primary concern to revive the sick industry for which the rehabilitation H

scheme is to be framed under Section 18, the question posed is requiredto be considered.

11.13 As per the statutory provisions under SICA, 1985, therehabilitation scheme is provided under Section 18 of the SICA, 1985,which shall be made after making the inquiry under Section 16 by theBoard. Section 18 reads as under:- “18. Preparation and sanction of schemes.—(1) Where anorder is made under sub-section (3) of Section 17 in relation toany sick industrial company, the operating agency specified in theorder shall prepare, as expeditiously as possible and ordinarilywithin a period of ninety days from the date of such order, a schemewith respect to such company providing for any one or more ofthe following measures, namely:—

(a) the financial reconstruction of the sick industrial company; (b) the proper management of the sick industrial company bychange in, or take over of, management of the sick industrialcompany;

(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 industrialundertaking of the sick industrial company; (da) the rationalisation of managerial personnel, supervisorystaff and workmen in accordance with law; (e) such other preventive, ameliorative and remedial measuresas may be appropriate; (f) such incidental, consequential or supplemental measuresas may be necessary or expedient in connection with or forthe purposes of the measures specified in clauses (a) to (e).

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(2) The scheme referred to in sub-section (1) may provide forany one or more of the following, namely:—

(a) the constitution, name and registered office, the capital,assets, powers, rights, interest, authorities and privileges, dutiesand obligations of the sick industrial company or, as the casemay be, of the transferee company; (b) the transfer to the transferee company of the business,properties, assets, and liabilities of the sick industrial companyon such terms and conditions as may be specified in the scheme;

(c) any change in the Board of Directors, or the appointmentof a new Board of Directors, of the sick industrial companyand the authority by whom, the manner in which and the otherterms and conditions on which, such change or appointmentshall be made and in the case of appointment of a new Boardof Directors or of any director, the period for which suchappointment shall be made;

(d) the alteration of the memorandum or articles of associationof the sick industrial company or as the case may be, of thetransferee company for the purpose of altering the capitalstructure thereof or for such other purposes as may benecessary to give effect to the reconstruction or amalgamation; (e) the continuation by, or against, the sick industrial companyor, as the case may be, the transferee company of any actionor other legal proceeding pending against the sick industrialcompany immediately before the date of the order made undersub-section (3) of Section 17; (f) the reduction of the interest or rights which the shareholdershave in the sick industrial company to such extent as the Boardconsiders necessary in the interests of the reconstruction,revival or rehabilitation of the sick industrial company or forthe maintenance of the business of the sick industrial company; (g) the allotment to the shareholders of the sick industrialcompany of shares in the sick industrial company or, as thecase may be, in the 29[transferee company] and where anyshareholder claims payment in cash and not allotment of shares,or where it is not possible to allot shares to any shareholder the payment of cash to those shareholders in full satisfaction oftheir claims—

(i) in respect of their interest in shares in the sick industrialcompany 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 oramalgamation of the sick industrial company;

(i) sale of the industrial undertaking of the sick industrialcompany free from all encumbrances and all liabilities of thecompany or other such encumbrances and liabilities as may bespecified, to any person, including a cooperative society formedby the employees of such undertaking and fixing of reserveprice for such sale; (j) lease of the industrial undertaking of the sick industrialcompany to any person, including a cooperative society formedby the employees of such undertaking; (k) method of sale of the assets of the industrial undertaking ofthe sick industrial company such as by public auction or byinviting tenders or in any other manner as may be specifiedand for the manner of publicity therefor;

(l) transfer or issue of the shares in the sick industrial companyat the face value or at the intrinsic value which may be atdiscount value or such other value as may be specified to anyindustrial company or any person including the executives andemployees of the sick industrial company; (m) such incidental, consequential and supplemental mattersas may be necessary to secure that the reconstruction oramalgamation or other measures mentioned in the scheme arefully and effectively carried out.

(3) (a) The scheme prepared by the operating agency shall beexamined by the Board and a copy of the scheme withmodification, if any, made by the Board shall be sent, in draft, tothe sick industrial company and the operating agency and in thecase of amalgamation, also to any other company concerned, and A

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the Board shall publish or cause to be published the draft schemein brief in such daily newspapers as the Board may considernecessary, for suggestions and objections, if any, within such periodas the Board may specify.

(b) The Board may make such modifications, if any, in thedraft scheme as it may consider necessary in the light of thesuggestions and objections received from the sick industrialcompany and the operating agency and also from the transfereeindustrial company and any other company concerned in theamalgamation and from any shareholder or any creditors oremployees of such companies:

Provided that where the scheme relates to amalgamation33[* * *] the said scheme shall be laid before [the company otherthan the sick industrial company]34in the general meeting for theapproval of the scheme by its shareholders and no such schemeshall be proceeded with unless it has been approved, with or withoutmodification, by a special resolution passed by the shareholdersof [the company other than the sick industrial company]35.

(4) The scheme shall thereafter be sanctioned as soon asmay be, by the Board (hereinafter referred to as the ‘sanctionedscheme’) and shall come into force on such date as the Boardmay specify in this behalf:

Provided that different dates may be specified for differentprovisions of the scheme.

(5) The Board may on the recommendations of the operatingagency or otherwise, review any sanctioned scheme and makesuch modifications as it may deem fit or may by order in writingdirect any operating agency specified in the order, having regardto such guidelines as may be specified in the order, to prepare afresh scheme providing for such measures as the operating agencymay consider necessary.

(6) When a fresh scheme is prepared under sub- section(5), the provisions of sub-sections (3) and (4) shall apply in relationthereto as they apply to in relation to a scheme prepared undersub-section (1).

(6-A) Where a sanctioned scheme provides for the transferof any property or liability of the sick industrial company in favour of any other company or person or where such scheme providesfor the transfer of any property or liability of any other companyor person in favour of the sick industrial company, then, by virtueof, and to the extent provided in the scheme, on and from the dateof coming into operation of the sanctioned scheme or any provisionthereof, the property shall be transferred to, and vest in, and theliability shall become the liability of, such other company or personor, 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 thisscheme relating to the reconstruction or amalgamation, or anyother measure specified therein have been complied with and acopy of the sanctioned scheme certified in writing by an officerof 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 ofthe sanctioned scheme or any provision thereof, the scheme orsuch provision shall be binding on the sick industrial company andthe transferee company or, as the case may be, the other companyand also on the shareholders, creditors and guarantors andemployees of the said companies.

(9) If any difficulty arises in giving effect to the provisionsof the sanctioned scheme, the Board may, on the recommendationof the operating agency 38[or otherwise], by order do anything,not inconsistent with such provisions, which appears to it to benecessary or expedient for the purpose of removing the difficulty.

(10) The Board may, if it deems necessary or expedient soto do, by order in writing, direct any operating agency specified inthe order to implement a sanctioned scheme with such terms andconditions and in relation to such sick industrial company as maybe specified in the order.

(11) Where the whole of the undertaking of the sickindustrial company is sold under a sanctioned scheme, the Boardmay distribute the sale proceeds to the parties entitled thereto inaccordance with the provisions of Section 529-A and otherprovisions of the Companies Act, 1956 (1 of 1956).

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A(12) The Board may monitor periodically the implementationof the sanctioned scheme.”

11.14 Under Section 18 of the SICA, 1985, it is the operatingagency to prepare a scheme with respect to the sick company providingfor any one or more of the measures mentioned in Section 18, whichBinclude:-

(i) the financial reconstruction of the sick industrial company;(ii) such other preventive, ameliorative and remedial measures asmay be appropriate.

C11.14.1 The operating agency is defined under Section 3(i) and itmeans any public financial institution, State-level institution, scheduledbank or any other person as may be specified by general or specialorder as its agency by the Board. No other persons including theunsecured creditors comes into picture like preparing the scheme underSection 18. Section 18 of the SICA does not provide that at the time ofDpreparing of the scheme under Section 18 or when it is sanctioned bythe Board, the unsecured creditors are required to be heard. The onlyprovision 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 byEthe operating agency is sanctioned by the BIFR, which may include thescaling down the value of dues of the unsecured creditors, the sameshall bind all, otherwise the rehabilitation scheme shall not be workableat all and the object and purpose of enactment of the SICA, 1985 will befrustrated. If some persons / unsecured creditors and/or even thelabourers are permitted to get out of the purview of the scheme andFthereafter permitting such or some of the unsecured creditors to wait tillthe scheme for rehabilitation of the sick company has worked itself out,in that case, the scheme shall not be workable at all. To make thecompany viable, the concerned persons including the unsecured creditorshave to sacrifice to some extent otherwise the revival efforts shall fail.G11.14.2 At this stage, it is required to be noted that if a sick company G11.14.2 At this stage, it is required to be noted that if a sick companyis ordered to be wind up, in that case, the unsecured creditors otherwisemay not get anything. However, on the other hand on sanctioning therehabilitation scheme under Section 18, the unsecured creditors may getpart of their dues /debts, which otherwise, they may not get. At thisstage, it is required to be noted that as per Section 18(8) of SICA, 1985,H

which has been substituted by Act 12 of 1994, on and from the date ofthe coming into operation of the sanctioned scheme or any provisionthereof, the scheme or such provision shall be binding on the sick industrialcompany and the transferee company or, as the case may be, the othercompany and also on the shareholders, creditorsand guarantors andeven the employees of the said companies.

11.15 Thus, the intention of the legislature is very clear. Creditorsincludes unsecured creditors. The submission on behalf of the unsecuredcreditors that the word “creditors” is not defined like IBC, 2016 andtherefore, the scheme shall not bind the unsecured creditors, cannot beaccepted. Looking to the object and purpose of the SICA, 1985 and theprovisions 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 beconstrued narrowly, otherwise, the object and purpose of rehabilitationscheme shall be frustrated. If the scheme binds the creditors, includingother creditors like financial institutions etc., who may have a betterclaim than the unsecured creditors, there is no reason to treat theunsecured creditors separately and not to treat them as creditors.Therefore, even as per Section 18(8), the scheme shall bind all thecreditors 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, whichhas been accepted by the High Court in the case of Continental CarbonIndia Ltd. (supra) that an unsecured creditor can opt out of the schemesanctioned by the BIFR under the SICA, 1985 and is allowed not toaccept the scaled down value of its dues and may wait till the schemefor rehabilitation of the sick company has worked itself out, with anoption 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 primaryobject and purpose of SICA, 1985 is revival of a sick industrial companyeven by providing rehabilitation scheme under Section 18. A reading ofthe statement of objects and reasons says that the effect of the ill effectsof sickness in industrial companies was a serious concern not only to theGovernment but also to the society at large. Therefore, it was found thatthere is a need to fully utilise the productive industrial assets; affordmaximum protection of employment and optimize the use of the funds of A

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Athe banks and financial institutions and it is imperative to revive andrehabilitate the potentially viable sick industrial companies. ConsideringSection 20 of the Act it becomes clear that winding up of a company isonly resorted to as a last resort and only when it is just and equitable towind up the sick industrial company.

B11.18 Thus, minority creditors and that too some unsecured creditorscannot be permitted to stall the rehabilitation of the sick company by notaccepting the scaled down value of its dues. Unless and until there is asacrifice by all concerned, including the creditors, financial institutions,unsecured creditors, labourers, there shall not be any revival of the sickindustrial company / company.C

12. Now, so far as the submission on behalf of the unsecuredcreditors that the unsecured creditors should have an option not to acceptthe scaled down value of its dues and to wait till the scheme forrehabilitation of the sick company has worked itself out, with an optionto recover the debt post such rehabilitation is concerned, the same hasDno substance and cannot be accepted. It is required to be noted that in agiven case, because of the scaling down of the value of the dues of thecreditors, the company survives. The company has survived in view ofthe rehabilitation scheme because of the sacrifice / scaling down thevalue of the dues of the creditors including the financial institutions. HowEsuch 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 unsecuredcreditor cannot be permitted to take the benefit of the revival scheme,which is at the cost of other creditors including the financial institutionsand even the labourers.

F13. Now, so far as the view taken by the High Court that theunsecured creditor had an option not to accept the scaled down value ofits dues and can wait till the scheme for rehabilitation of the companyhas worked itself out with an option to recover the debt with interestpost such rehabilitation is accepted, in a given case, the sick company,which has been able to revive because of the scaling down the value ofGthe dues, may again become sick, if the entire dues of the unsecuredcreditors are to be paid thereafter. It may again lead to becoming such arevived company again as a sick company. If such a thing is permitted,in that case, it will again frustrate the object and purpose of enactmentof the SICA, 1985.

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14. Now, so far as the submission on behalf of the unsecuredcreditors that to compel the unsecured creditors to accept the scaleddown value of its dues would tantamount to and would be violative ofArticle 300A of the Constitution of India is concerned, the same has alsono substance. Scaling down the value of the dues is under the rehabilitationscheme prepared under Section 18 of the SICA, which has a bindingeffect on all the creditors. Therefore, the same cannot be said to beviolative of Article 300A of the Constitution of India. The law permitsframing of the scheme taking into consideration and to provide themeasures contemplated under Section 18, therefore, the rehabilitationscheme which provides for scaling down the value of dues of the creditors/unsecured creditors and even that of the labourers cannot be said to beviolative of Article 300A of the Constitution of India as submitted onbehalf of the unsecured creditors.

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15. In view of the above and for the reasons stated above, theview taken by the High Court of Delhi in Continental Carbon IndiaLtd. (supra) that on approval of a scheme by the BIFR under the SickIndustrial Companies (Special Provisions) Act, 1985, the unsecuredcreditors has an option not to accept the scaling down value of its duesand to wait till the rehabilitation scheme of the sick company has workeditself out with an option to recover the debt with interest post suchrehabilitation is erroneous and contrary to the scheme of SICA, 1985and the same deserves to be quashed and set aside and is accordinglyquashed and set aside.

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It is observed and held that the rehabilitation scheme under Section18 of the SICA, 1985 shall bind all the creditors including the unsecuredcreditors and the unsecured creditors have to accept the scaled downvalue of its dues provided under the rehabilitation scheme.

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Conclusion:-

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

Conclusion

(ii) The transfer petition being Transfer Petition (C) No. 543Gof 2016 is allowed and is ordered to be transferred to thisCourt.

(iii) Civil Appeal No. 1755 of 2023 (arising out of SLP (C) No.4282 of 2020) is allowed and the impugned judgment and Aorder passed by the Madhya Pradesh High Court relyingupon the decision of the Delhi High Court in the case ofContinental Carbon India Ltd. (supra), which has beenset aside by the present order also deserves to be allowedand the impugned judgment and order passed by the HighCourt of Madhya Pradesh in Civil Revision No. 96 of 2018Bis hereby quashed and set aside.

(iv) On being set aside the judgment and order passed by theHigh Court of Delhi in the case of Continental CarbonIndia Ltd. (supra), Civil Appeal No. 377 of 2017 standsdismissed.

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(v) In view of the above and for the reasons stated above andquashing and setting aside the judgment and order passedby the High Court of Delhi in the case of ContinentalCarbon India Ltd. (supra), Civil Appeal No. 379 of 2017and Transfer Petition (C) No. 543 of 2016 stands disposedDof and consequently the writ petition before the High Courtbeing Writ Petition (C) No. 832 of 2016 stands dismissed.

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Divya Pandey

(Assisted by : Abhishek Agnihotri and Roopanshi Virang, LCRAs)

Appeals disposed of.

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