# MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA LTD

- **Citation:** [2023] 3 S.C.R. 1026
- **Court:** Supreme Court of India
- **Decided:** 2023-03-17
- **Case number:** Civil Appeal No. 375 of 2017
- **Bench:** M. R. Shah, Sudhanshu Dhulia
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/modi-rubber-limited-v-continental-carbon-india-ltd-36938
- **Pages:** 43

## Headnote

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 down
value of its dues - Held: No - Rehabilitation scheme u/s.18 shall
bind all the creditors including the unsecured creditors and the
unsecured creditors have to accept the scaled down value of its
dues provided under the rehabilitation scheme - To make the
company viable, the concerned persons including the unsecured
creditors have to sacrifice to some extent otherwise the revival
efforts shall fail - Looking to the object and purpose of the SICA,
1985 and the provisions of ss.18 and 19, the word "creditors" shall
have to be construed in a broad manner and is not required to be
construed narrowly - Creditors include unsecured creditors - Thus,
if the scheme binds the creditors, including other creditors like
financial institutions etc., who may have a better claim than the
unsecured creditors, there is no reason to treat the unsecured
creditors separately and not to treat them as creditors - Minority
creditors and that too some unsecured creditors cannot be permitted
to stall the rehabilitation of the sick company by not accepting the
scaled down value of its dues - View taken by the Delhi High Court
in Continental Carbon India Ltd. case that on approval of a scheme
by the BIFR, the unsecured creditor has an option not to accept the
scaling down value of its dues and to wait till the rehabilitation
scheme of the sick company has worked itself out with an option to
recover the debt with interest post such rehabilitation, is erroneous
and contrary to the scheme of SICA, 1985 and 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 unsecured
creditors that to compel them to accept the scaled down value of its
 [2023] 3 S.C.R. 1026
1026
A
B
C
D
E
F
G
H
1027
dues would be violative of Article 300A - Held: Has no substance -
Scaling down the value of the dues is under the rehabilitation
scheme prepared u/s.18 of the SICA, which has a binding effect on
all 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 is
a remedial and ameliorative enactment, insofar as it empowers a
quasi-judicial Body - BIFR to take appropriate measures for
revival and rehabilitation of the potentially viable sick industrial
companies as quickly as possible and also to salvage the
productive assets and realise the amounts due to the banks and
financial institutions, to the extent possible, from the non-viable
sick industrial companies through liquidation of those companies.
The primary concern of the Board would be the revival of the
sick company and to save the sick company from winding up.
That is why with a view to see that there is no impediment in
framing the rehabilitation scheme and to get out the sick company
from sickness. Section 22 provides for suspension of legal
proceedings, contracts etc. On a bare reading of Section 22 and
Section 22A of SICA, it appears that these two provisions
primarily ensure that the scheme prepared by BIFR does not
get frustrated because of certain other legal proceedings and to
prevent untimely and unwarranted disposal of the assets of the
sick industrial company. These sections clearly state certain
restrictions which will impact upon the implementation of the
scheme as well as on the assets of the company. [Paras 11.6,
11.8][1054-G; 1058-B-C]
Tata Motors Limited vs. Pharmaceutical Products of
India Limited and Anr. (2008) 7 SCC 619 : [2008] 9
SCR 267; Raheja Universal Limited vs. NRC Limited
and Ors. (2012) 4 SCC 148 : [2012] 3 SCR 388; NGEF
Ltd. vs. Chandra Developers (P) Ltd. (2005) 8 SCC
219 : [2005] 3 Suppl. SCR 747 - relie

## Text

_Characters 0–39,653 of 96,249. This is a partial read: ask again with offset=39653 for what follows._

A
B
C
D
E
F
G
H
1026
SUPREME COURT REPORTS
[2023] 3 S.C.R.
MODI RUBBER LIMITED
v.
CONTINENTAL CARBON INDIA LTD.
(Civil Appeal No. 375 of 2017)
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 down
value of its dues - Held: No - Rehabilitation scheme u/s.18 shall
bind all the creditors including the unsecured creditors and the
unsecured creditors have to accept the scaled down value of its
dues provided under the rehabilitation scheme - To make the
company viable, the concerned persons including the unsecured
creditors have to sacrifice to some extent otherwise the revival
efforts shall fail - Looking to the object and purpose of the SICA,
1985 and the provisions of ss.18 and 19, the word "creditors" shall
have to be construed in a broad manner and is not required to be
construed narrowly - Creditors include unsecured creditors - Thus,
if the scheme binds the creditors, including other creditors like
financial institutions etc., who may have a better claim than the
unsecured creditors, there is no reason to treat the unsecured
creditors separately and not to treat them as creditors - Minority
creditors and that too some unsecured creditors cannot be permitted
to stall the rehabilitation of the sick company by not accepting the
scaled down value of its dues - View taken by the Delhi High Court
in Continental Carbon India Ltd. case that on approval of a scheme
by the BIFR, the unsecured creditor has an option not to accept the
scaling down value of its dues and to wait till the rehabilitation
scheme of the sick company has worked itself out with an option to
recover the debt with interest post such rehabilitation, is erroneous
and contrary to the scheme of SICA, 1985 and 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 unsecured
creditors that to compel them to accept the scaled down value of its
 [2023] 3 S.C.R. 1026
1026
A
B
C
D
E
F
G
H
1027
dues would be violative of Article 300A - Held: Has no substance -
Scaling down the value of the dues is under the rehabilitation
scheme prepared u/s.18 of the SICA, which has a binding effect on
all 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 is
a remedial and ameliorative enactment, insofar as it empowers a
quasi-judicial Body - BIFR to take appropriate measures for
revival and rehabilitation of the potentially viable sick industrial
companies as quickly as possible and also to salvage the
productive assets and realise the amounts due to the banks and
financial institutions, to the extent possible, from the non-viable
sick industrial companies through liquidation of those companies.
The primary concern of the Board would be the revival of the
sick company and to save the sick company from winding up.
That is why with a view to see that there is no impediment in
framing the rehabilitation scheme and to get out the sick company
from sickness. Section 22 provides for suspension of legal
proceedings, contracts etc. On a bare reading of Section 22 and
Section 22A of SICA, it appears that these two provisions
primarily ensure that the scheme prepared by BIFR does not
get frustrated because of certain other legal proceedings and to
prevent untimely and unwarranted disposal of the assets of the
sick industrial company. These sections clearly state certain
restrictions which will impact upon the implementation of the
scheme as well as on the assets of the company. [Paras 11.6,
11.8][1054-G; 1058-B-C]
Tata Motors Limited vs. Pharmaceutical Products of
India Limited and Anr. (2008) 7 SCC 619 : [2008] 9
SCR 267; Raheja Universal Limited vs. NRC Limited
and Ors. (2012) 4 SCC 148 : [2012] 3 SCR 388; NGEF
Ltd. vs. Chandra Developers (P) Ltd. (2005) 8 SCC
219 : [2005] 3 Suppl. SCR 747 - relied on.
1.2 Under Section 18 of the SICA, 1985, it is the operating
agency to prepare a scheme with respect to the sick company
providing for any one or more of the measures mentioned in
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA
LTD.
A
B
C
D
E
F
G
H
1028
SUPREME COURT REPORTS
[2023] 3 S.C.R.
Section 18, which include:- (i) the financial reconstruction of the
sick industrial company; (ii) such other preventive, ameliorative
and remedial measures as may be appropriate. The operating
agency is defined under Section 3(i) and it means any public
financial institution, State-level institution, scheduled bank or any
other person as may be specified by general or special order as
its agency by the Board. No other persons including the unsecured
creditors comes into picture like preparing the scheme under
Section 18. Section 18 of the SICA does not provide that at the
time of preparing of the scheme under Section 18 or when it is
sanctioned by the Board, the unsecured creditors are required
to be heard. The only provision for the consent required is Section
19 and the agency/person, who is required to give the financial
assistance, its consent is required. Once the rehabilitation scheme
/ scheme under Section 18 prepared by the operating agency is
sanctioned by the BIFR, which may include the scaling down the
value of dues of the unsecured creditors, the same shall bind all,
otherwise the rehabilitation scheme shall not be workable at all
and the object and purpose of enactment of the SICA, 1985 will
be frustrated. If some persons / unsecured creditors and/or even
the labourers are permitted to get out of the purview of the scheme
and thereafter permitting such or some of the unsecured creditors
to wait till the scheme for rehabilitation of the sick company has
worked itself out, in that case, the scheme shall not be workable
at all. To make the company viable, the concerned persons
including the unsecured creditors have to sacrifice to some extent
otherwise the revival efforts shall fail. At this stage, it is required
to be noted that if a sick company is ordered to be wind up, in
that case, the unsecured creditors otherwise may not get anything.
However, on the other hand on sanctioning the rehabilitation
scheme under Section 18, the unsecured creditors may get part
of their dues /debts, which otherwise, they may not get. At this
stage, it is required to be noted that as per Section 18(8) of SICA,
1985, which has been substituted by Act 12 of 1994, on and from
the date of the coming into operation of the sanctioned scheme
or any provision thereof, the scheme or such provision shall be
binding on the sick industrial company and the transferee
company or, as the case may be, the other company and also on
A
B
C
D
E
F
G
H
1029
the shareholders, creditors and guarantors and even the
employees 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. Creditors
includes unsecured creditors. The submission on behalf of the
unsecured creditors that the word "creditors" is not defined like
IBC, 2016 and therefore, the scheme shall not bind the unsecured
creditors, cannot be accepted. Looking to the object and purpose
of the SICA, 1985 and the provisions 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 be construed narrowly,
otherwise, the object and purpose of rehabilitation scheme shall
be frustrated. If the scheme binds the creditors, including other
creditors like financial institutions etc., who may have a better
claim than the unsecured creditors, there is no reason to treat
the unsecured creditors separately and not to treat them as
creditors. Therefore, even as per Section 18(8), the scheme shall
bind all the creditors and guarantors and even the employees of
the sick company, for whose revival the scheme is sanctioned. If
the submission on behalf of the unsecured creditors, which has
been accepted by the High Court in the case of Continental Carbon
India Ltd. that an unsecured creditor can opt out of the scheme
sanctioned by the BIFR under the SICA, 1985 and is allowed not
to accept the scaled down value of its dues and may wait till the
scheme for rehabilitation of the sick company has worked itself
out, with an option 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. Thus, minority creditors
and that too some unsecured creditors cannot be permitted to
stall the rehabilitation of the sick company by not 51 accepting
the scaled down value of its dues. Unless and until there is a
sacrifice by all concerned, including the creditors, financial
institutions, unsecured creditors, labourers, there shall not be
any revival of the sick industrial company / company. [Para 11.15,
11.16][1065-B-F]
1.4 Now, so far as the submission on behalf of the unsecured
creditors that the unsecured creditors should have an option not
to accept the scaled down value of its dues and to wait till the
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA
LTD.
A
B
C
D
E
F
G
H
1030
SUPREME COURT REPORTS
[2023] 3 S.C.R.
scheme for rehabilitation of the sick company has worked itself
out, with an option to recover the debt post such rehabilitation is
concerned, the same has no substance and cannot be accepted.
It is required to be noted that in a given case, because of the
scaling down of the value of the dues of the creditors, the company
survives. The company has survived in view of the rehabilitation
scheme because of the sacrifice/scaling down the value of the
dues of the creditors including the financial institutions. How such
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
unsecured creditor cannot be permitted to take the benefit of
the revival scheme, which is at the cost of other creditors including
the financial institutions and even the labourers. [Para 12][1066C-E]
1.5 Now, so far as the view taken by the High Court that
the unsecured creditor had an option not to accept the scaled
down value of its dues and can wait till the scheme for
rehabilitation of the company has worked itself out with an option
to recover the debt with interest post such rehabilitation is
accepted, in a given case, the sick company, which has been able
to revive because of the scaling down the value of the dues, may
again become sick, if the entire dues of the unsecured creditors
are to be paid thereafter. It may again lead to becoming such a
revived company again as a sick company. If such a thing is
permitted, in that case, it will again frustrate the object and
purpose of enactment of the SICA, 1985. [Para 13][1066-F-H]
1.6 Scaling down the value of the dues is under the
rehabilitation scheme prepared under Section 18 of the SICA,
which has a binding effect on all the creditors. Therefore, the
same cannot be said to be violative of Article 300A of the
Constitution of India. The law permits framing of the scheme
taking into consideration and to provide the measures
contemplated under Section 18, therefore, the rehabilitation
scheme which provides for scaling down the value of dues of the
creditors /unsecured creditors and even that of the labourers
cannot be said to be violative of Article 300A of the Constitution
of India as submitted on behalf of the unsecured creditors. [Para
14][1067-B-C]
A
B
C
D
E
F
G
H
1031
1.7 The view taken by the High Court of Delhi in Continental
Carbon India Ltd. that on approval of a scheme by the BIFR under
the Sick Industrial Companies (Special Provisions) Act, 1985,
the unsecured creditors has an option not to accept the scaling
down value of its dues and to wait till the rehabilitation scheme of
the sick company has worked itself out with an option to recover
the debt with interest post such rehabilitation is erroneous and
contrary to the scheme of SICA, 1985 and the same deserves to
be quashed and set aside and is accordingly quashed and set aside.
The rehabilitation scheme under Section 18 of the SICA, 1985
shall bind all the creditors including the unsecured creditors and
the unsecured creditors have to accept the scaled down value of
its dues provided under the rehabilitation scheme. The impugned
judgment and order passed by the Madhya Pradesh High Court
relying upon the decision of the Delhi High Court in the case of
Continental Carbon India Ltd. is quashed and set aside. [Paras
15, 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 Uttar
Pradesh and Anr. (2018) 17 SCC 309 - referred to.
Kotak Mahindra Finance Ltd. vs. Mafatlal Industries
Ltd. (2004) 5 Bom. CR 792 (Bom.); Nasik People's
Co-operative Bank Ltd. vs. Datar Switchgear and Anr.,
2007 SCC Online Del 2067(DB); Oman International
Bank S.A.O.G. vs. Appellate Authority for Industrial and
Financial 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. 2014
SCC OnLine Del 909 - referred to.
Case Law Reference
(1988) 4 SCC 387
referred to
para 5
[2008] 9 SCR 267
relied on
para 5
[2012] 3 SCR 388
relied on
para 5 & 6
(2018) 17 SCC 309
referred to
para 6
[2005] 3 Suppl. SCR 747
relied on
para 11
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA
LTD.
A
B
C
D
E
F
G
H
1032
SUPREME COURT REPORTS
[2023] 3 S.C.R.
CIVIL APPELLATE JURISDICTION : Civil Appeal No.375 of
2017.
From the Judgment and Order dated 31.07.2012 of the High Court
of Delhi at New Delhi in WP No.4854 of 2011.
With
Civil appeal nos.377, 379 of 2017, transfer petition (c) no.543 of
2016 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, Tushar
Bhushan, 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.
Balbir Singh, ASG, Nalin Kohli, Sr. AAG, A.K. Shrivastava, Gopal
Jain, Arijit Prasad, Sr. Advs., P. S. Sudheer, Rishi Maheshwari, Ms. Anne
Mathew, Bharat Sood, Ms. Shruti Jose, Kamal Kant, P. N. Puri, Akshat
Shrivastava, Satvic Mathur, Amar Gupta, Pranav Tanwar, Divyam
Agarwal, Deepak Goel, Arun Aggarwal, Ms. Anshika Agarwal, B.
Krishna Prasad, M/s. Mitter & Mitter Co., Upender Thakur, Yatin Grover,
Ms. Nandini Tomar, A. V. Rangam, Buddy A. Ranganadhan, M. Yogesh
Kanna, 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.
for the Respondent.
The Judgment of the Court was delivered by
M. R. SHAH, J.
1. As common question of law and facts arise in these group of
appeals, they are being disposed of by this common judgment and order.
Civil Appeal No. 375 of 2017 - (To be treated as the lead
matter)
2. Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court of Delhi at New Delhi passed in
Writ Petition (C) No. 4854 of 2011 by which the Division Bench of the
A
B
C
D
E
F
G
H
1033
High Court has allowed the said writ petition preferred by the respondent
No. 1 herein - Continental Carbon India Ltd. (unsecured creditor) and
has held that the original writ petitioner is an unsecured creditor and has
the option not to accept the scaled down value of its dues and may wait
till the scheme of rehabilitation of the appellant company [company before
the BIFR under Sick Industrial Companies (Special Provisions) Act, 1985
(hereinafter referred to as "SICA")] has worked itself out with an option
to recover its debt post such rehabilitation, the original respondent No. 1
- Modi Rubber Ltd. has preferred the present Civil Appeal No. 375 of
2017.
Civil Appeal No. 377 of 2017
2.1 Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court of Delhi at New Delhi passed in
Writ Petition (C) No. 8154 of 2010 by which the Division Bench of the
High Court has dismissed the said writ petition preferred by the appellant
herein confirming the orders passed by BIFR and AAIFR taking the
view that the appellant herein, on obtaining the decree in its favour has
to stand in the queue alongwith other unsecured creditors, who were to
be given 54 paisa in a rupee as per the scheme of revival sanctioned
under the SICA, the original writ petitioner - OCL India Ltd. (unsecured
creditor) has preferred the present Civil Appeal No. 377 of 2017.
Civil Appeal No. 379 of 2017
2.2 Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the Division Bench of the High Court of Delhi at
New Delhi dated 02.03.2016 passed in Writ Petition (C) No. 832 of
2016 by which the Division Bench of the High Court has doubted the
correctness of the judgment and order passed by the High Court of
Delhi in the case of Continental Carbon India Ltd. Vs. Modi Rubber
Ltd., 2012 (131) DRJ 294 (DB), which is the subject matter of Civil
Appeal No. 375 of 2017 before this Court and has referred the matter to
the 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 the
subject matter of Civil Appeal No. 379 of 2017 as the issue involved in
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA
LTD. [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
1034
SUPREME COURT REPORTS
[2023] 3 S.C.R.
the writ petition is the same arising in Civil appeal No. 375 of 2017 as the
correctness of the said decision, which is the subject matter of Civil
Appeal 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.
2.4 Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court of Madhya Pradesh Bench at Gwalior
passed in Civil Revision No. 96 of 2018 by which the High Court has
dismissed the said revision application relying upon the decision of the
Delhi High Court in the case of Continental Carbon India Ltd. (supra),
which is the subject matter of Civil Appeal No. 375 of 2017, the original
revisionist - M/s. Titagarh Wagons Limited, the judgment debtor has
preferred the present appeal.
3.
Following question of law arise in the present group of
appeals:- Whether on approval of a scheme by the BIFR
under the Sick Industrial Companies (Special Provisions)
Act, 1985 (hereinafter referred to as the 'SICA'), an
unsecured creditor has the option not to accept the scaled
down value of its dues, and to wait till the scheme for
rehabilitation of the respondent - Company has worked
itself out, with an option to recover the debt with interest
post such rehabilitation?
4. For the sake of convenience Civil Appeal No. 375 of 2017 is
treated as the lead matter. The facts leading to the Civil Appeal No. 375
of 2017 are as under:-
4.1 That the scheme of rehabilitation of the respondent - company
was approved on 08.04.2008 under the SICA. The dues of the unsecured
creditors was dealt with in para 5.1.3 of the sanctioned scheme, under
which the payment to the unsecured creditors was to be made as under:-
"5.1.3. UNSECURED PRESSING CREDITOR (RS. 7390.20
LACS)
Pressing creditors have been identified as under:-
A
B
C
D
E
F
G
H
1035
The above creditors shall accept their outstanding dues as per
one of the following three options:
a)
To accept 30% of the principal outstanding as full and final
payment. The payment shall be made within 3 months of
the sanction of the scheme by the BIFR. Or
b)
To accept 40% of the principal outstanding as full the final
payment. The payment shall be made in 3 equal annual
installments from the cut off date (i.e. 31.3.2008). The first
installment shall be payable within 3 months of the sanction
of the Scheme by the BIFR
c)
To accept 50% of the principal outstanding as full and final
payment. The payment shall be made in one go at the end
of 3rd year from the sanction of the Scheme by the BIFR.
Raw-material Suppliers: MRL has already entered into
Memorandum of Understanding with 30 Suppliers out of
total 36 Pressing Raw Material suppliers They have
accepted for payment as per option (a). Discussions with
others are underway by the company management.
Acceptances: MRL has already received acceptance from
PNB about their Hundi acceptances settlement as per option
(a). Efforts are being made to settle with other banks
namely Federal Bank, Dhanlakshmi Bank, etc in respect of
Hundi Acceptances. The negotiations are at advance
stage."
4.2 Clause 5.1.4 provides for payment to other unsecured creditors
as under:-
"5.1.4 OTHER unsecured creditors (Rs. 1840.42 lacs)
To accept 20% of the principal outstanding as full and final
payment. The payment shall be made at the end of 3rd year from
the sanction of the Scheme by the BIFR."
4.3 That the respondent herein was an unsecured creditor - a
carbon black supplier, who did not accept the amount offered under the
rehabilitation scheme sanctioned under SICA. According to the original
writ petitioner - respondent No. 1 herein, the debts recovered in the
scheme due to it were much less than the actual debts. Therefore,
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA
LTD. [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
1036
SUPREME COURT REPORTS
[2023] 3 S.C.R.
aggrieved by the rehabilitation scheme, the respondent No. 1- unsecured
creditor preferred an appeal before the AAIFR to the extent it provided
a 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 petition
before the High Court.
4.5 By the impugned judgment and order, the Division Bench of
the High Court has allowed the writ petition and has set aside the order
passe by the AAIFR dated 23.06.2011 by holding that the respondent
No. 1 - original writ petitioner as an unsecured creditor has the option
not to accept the scaled down value of its dues and wait till the scheme
of rehabilitation of the respondent company has worked itself out with
an option to recover its debt post such rehabilitation. Holding so, the
Division Bench was of the view that the contract inter se the parties
arrived at whereafter the company has become sick, cannot be
compulsorily overridden by the provisions of the SICA if the creditor is
willing to wait till such time as the company is financially rehabilitated to
claim its dues. The High Court is of the opinion that there would be only
suspension of legal proceedings as envisaged under Section 22 of the
SICA and the enforcement of the remedy remains suspended and that is
why even in computing period of limitation, the period is excluded as per
sub-section (5) of Section 22 of the SICA. The impugned judgment and
order passed by the Division Bench of the High Court is the subject
matter of present Civil Appeal No. 375 of 2017.
5. Shri Jayant Bhushan, learned senior counsel appearing on behalf
of the appellant - Modi Rubber Limited in Civil Appeal No. 375 of 2017
while assailing the impugned judgment and order passed by the High
Court has submitted as under:-
(i)
That in the instant case, notwithstanding the mandatory
provisions of Section 18(8) of SICA read with Section 32
of SICA, the High Court by the impugned judgment and
order has allowed the unsecured creditor to stay outside
the rigours of the scheme sanctioned under Section 18(4)
of SICA read with Section 32 of SICA, thus, putting at
naught the very purpose, rationale and scheme of SICA;
(ii)
The schemes whether under the Companies Act or under
specific insolvency legislations like, SICA are binding on all
A
B
C
D
E
F
G
H
1037
the creditors including the decree holders / arbitration award
holders / industrial award holders covered by the scheme.
No creditor including decree holders etc. covered by a
scheme can opt out of the scheme once the statutory
requirements are complied with. It is submitted that even
the binding effect of a scheme is based on the statutory
provisions. It is submitted that under such statutory
provisions enabling framing and sanction of schemes and
their binding effect is founded upon larger public interest.
Reliance is placed upon the decision of this Court in the
case of Navnit R. Kamani Vs. R.R. Kamani, (1988) 4
SCC 387. It is submitted that once the rehabilitation scheme
is sanctioned under the statutory provisions of the SICA,
the concerned insolvent companies can lead a debt free
future life and can use this as a second chance / fresh start
to succeed;
(iii)
That no creditor including the decree holders / arbitration
award holders / industrial award holders can claim super
priority of their claims specially when the prescribed entities
mentioned in Section 19(1) may be required to take severe
cuts to help revive sick companies, the other creditors
including the decree holders / arbitration award holders /
industrial award holders cannot claim to have better rights;
(iv)
Learned senior counsel appearing on behalf of the appellant
has taken us to the object and purpose of SICA, 1985. He
has also taken us to the procedure to be followed under the
SICA while considering and/or sanctioning the rehabilitation
scheme under Section 18(4) read with Section 32 of SICA.
It is submitted that SICA has done away with classification
of creditors and shareholders, separate meetings of classes
of creditors and shareholders. It submitted that done away
with the vexed distinctions in law between composition,
arrangements, reconstruction etc. The SICA has also done
away with individual notices to and separate meetings of
unsecured creditors and shareholders. It is submitted that
SICA treats all creditors including decree holders /
arbitration award holders / industrial award holders as one
class so as to avoid giving veto power to the minority
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA
LTD. [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
1038
SUPREME COURT REPORTS
[2023] 3 S.C.R.
creditors in value. It is further submitted that the
rehabilitation scheme under SICA discharges debt by
operation of law. It is submitted that SICA, 1985 was not a
consent based regime rather it was an operation by law
based regime;
(v)
It is further submitted by learned senior counsel appearing
on behalf of the appellant that in case of insolvent company,
from practical and commercial point of view, there is in
effect, no scaling down of debt of ordinary creditors -
unsecured creditors as the real market value of debts owed
to the ordinary creditors including the decree holders /
arbitration award holders / industrial award holders covered
by the scheme is nothing. The nominal value of debt may
appear to have been scaled down, however, in reality, the
unsecured creditors normally do not get anything;
(vi)
It is submitted that subsequently, legislatures in response to
societal and economic changes have enacted separate
insolvency legislations providing a mandatory system to
reorganize business which shielded the insolvent companies
with automatic stay against recovery of the debts. It is
submitted that invocation of insolvency legislations are
usually involuntary. It is submitted that the Parliaments of
different countries recognized the need to have separate
insolvency legislations as the fallout of insolvency and
eventual winding up leading to dissolution of companies was
having serious economic and social implications for the
society at large;
(vii)
It is further submitted that the commercial laws have two
types of laws, one, mandatory laws and second, permissive
opting out laws. Insolvency/bankruptcy laws are mandatory
laws and not permissive opting out laws. Insolvency/
bankruptcy laws provides a mandatory system wherein
creditors' bargain take place within a common collection
pool;
(viii) It is further submitted that a sanctioned scheme whether
under Companies Act or under specific insolvency laws
like SICA or IBC, 2013 is to operate as a discharge of debt
A
B
C
D
E
F
G
H
1039
/ liability owed by the insolvent company to all creditors
including decree holders / arbitration award holders /
industrial award holders. All creditors are entitled to collect
the amount of debt as provided in the scheme and not the
full amount of debt. It is submitted that a decree or an award
does not confer any superior right to a creditor holding such
a decree or an award. Decree holders or award holders do
not form a separate class;
(ix)
On the scheme of SICA, more particularly, the rehabilitation
scheme, it is submitted as under :-
a)
Section 18(1) deals with the measures that a scheme
with respect to a sick industrial company can provide
for. The scheme under section 18(1)(a) and 18(2)(h)
can provide for "financial reconstruction of the sick
industrial company" Section 18(1)(e) enable a
scheme to provide for such other preventive,
ameliorative and remedial measures as may be
appropriate". Financial reconstruction would normally
entail reduction / sacrifice of portion of debts as
otherwise, no financial reconstruction of a financially
distressed company would be possible. Section
18(1)(f) is the residuary clause dealing with incidental,
consequential or supplemental measures that may be
necessary or expedient in connection with or for the
purposes of the measures specified in clauses (a) to
(e) of Section 18(1). Section 18(2) delineates various
aspects that the scheme may provide for to fully and
effectively carry out reconstruction, amalgamation
or other measures mentioned therein.
b)
The words financial reconstruction provided in section
18(1) (a) are of widest amplitude. Under this subsection the BIFR can reorganize, modify, vary,
reduce, defer the dues of creditors.
c)
Section 18(3)(a) provides for publication of draft
scheme in daily newspapers for suggestions and
objections. Section 18(3)(b) specifically provides that
BIFR may modify draft scheme in the light of
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA
LTD. [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
1040
SUPREME COURT REPORTS
[2023] 3 S.C.R.
suggestions and objections received from creditors,
amongst others, of sick company.
d)
Section 18(8) of SICA provides that a sanctioned
scheme shall be binding on the sick industrial
company, shareholders, creditors, guarantors and
employees of the company.
e)
Section 19(1) deals with financial assistance,
sacrifices to he provided by central and state
governments, scheduled banks or other bank, public
financial institutions, state level institution or any
institution or other authority. Section 19(2) provides
that only in the case of above mentioned prescribed
entities that their consent is imperative as they may
be required to give financial assistance. This subsection requires the consent to be given within a span
of 60 days from the date of circulation of scheme or
within such further period not exceeding 60 days, as
allowed by BIFR. It is imperative that the consent is
given within the prescribed period of 60 days or within
such further period not exceeding 60 days, as allowed
by BIFR. Otherwise, this sub-section mandatorily
provides that the consent will be deemed to have
been given.
f)
Section 32 of the SICA provides that the provisions
of the scheme framed under the SICA, i.e., the
sanctioned scheme, shall override all other laws except
the Foreign Exchange Regulations Act, 1973 and the
Urban Land (Ceiling and Regulations) Act, 1976. The
section states that a scheme framed under the SICA
will override also the memorandum and articles of
association of a sick industrial company or any other
instrument having effect by virtue of any law other
than 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 power
to scale down/ vary the dues of the creditors including
A
B
C
D
E
F
G
H
1041
decree holders/ arbitration award holders/industrial
award holders.
(x)
It is further submitted that as such in the case of winding
up, the ordinary creditors including decree holders etc.
normally do not get anything. Thus, when the BIFR scales
down the dues owed to the creditors including the unsecured
creditors, in effect, there is no confiscation of property.
Rather, if the sick company becomes healthy, the unsecured
creditors including decree holders / arbitration award holders
/ industrial award holders can do business with the healthy
company.
(xi)
It is further submitted that Section 22(1) does not provide
for any period of the implementation of scheme. The
protective umbrella of Section 22 is not terminable on
networth becoming positive. The scheme is binding on all
covered and creditors including decree holders etc., who
cannot have the option of opting out.
(xii)
It is further submitted that Section 22(5) of SICA dealing
with exclusion of limitation period cannot be relied upon to
argue that it indicates that the dues of the creditors can be
deferred to a period when the company's networth becomes
positive or when the scheme is fully implemented. It is
submitted that if such an argument is accepted, no creditor
will like to give financial assistance or make sacrifices. The
resultant effect may be that the company whose networth
has turned positive with the assistance of financial assistance
and sacrifices may again become sick making the whole
effort of taking a company out of sickness futile.
(xiii) It is submitted that such a submission / argument would be
against the foundational principle of SICA and, in general,
other insolvency legislations that their purpose is to rescue
the sick companies from the throes of their inevitable death
/ liquidation and are not mechanisms for recovery of debts
of creditors.
(xiv) Now, so far as the submission on behalf of the respondents
that the scaling down/reduction/waiver of dues of creditors
is violative of Article 300A of the Constitution of India is
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA
LTD. [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
1042
SUPREME COURT REPORTS
[2023] 3 S.C.R.
concerned, it is submitted that Article 300A of the
Constitution of India shall have no application to a
rehabilitation scheme sanctioned by BIFR under the
framework of SICA. It is submitted that there is no
deprivation of and/or confiscation of property when the dues
owed to a creditor other than prescribed entities under
Section 19(1) of SICA, is unilaterally reduced after
complying with the procedure stated in Section 18(3)(a)
including publication of draft rehabilitation scheme inviting
objections and suggestions, as the same is done by authority
of law i.e., SICA. It is submitted that SICA has been enacted
to secure the principles specified in Article 39(a) and (b). It
is submitted that in reality, there is no real property or interest
in favour of creditors which get affected. In the case of
winding up of a sick industrial company whose networth is
eroded, the ordinary creditors including decree holders do
not normally get anything.
(xv)
It is submitted that the High Court has interpreted the
provisions of SICA by juxtaposing them with the provisions
of Companies Act, 1956 in a way which is contrary to the
general principle that no person can stay out of insolvency
regime. The High Court has by its interpretation allowed
the creditors to stay out of the insolvency regime, which is
impermissible. The High Court has failed to appreciate the
full import of various provisions of Sections 18(3)(a), 18(4),
18(8), 19(1), 19(2) etc. The purpose of SICA is to
expeditiously rehabilitate a sick company by framing and
sanctioning a scheme of rehabilitation and the timeline fixed
to complete the process is 90 days. The Parliament in its
wisdom provided for public notice rather than individual
notices as the same was neither practical nor of commercial
utility.
(xvi) It is submitted that in the case of Tata Motors Limited
Vs. Pharmaceutical Products of India Limited and Anr.,
(2008) 7 SCC 619, it is specifically observed and held by
this Court that the provisions of a special Act will override
the provisions of a general act. It is observed that SICA is
a special statute and is a self-contained code. The
A
B
C
D
E
F
G
H
1043
Companies Act, 1956 is a general act. Therefore, wherever
any inconsistency is seen between the provisions of the
two Acts, SICA would prevail. It is further submitted that
in the said decision, it is also further observed that the SICA
has been enacted to secure the principles specified in Article
39 of the Constitution. It seeks to give effect to the larger
public interest and it should be given primacy because of its
higher public purpose.
(xvii) It is further submitted that in the case of Raheja Universal
Limited Vs. NRC Limited and Ors., (2012) 4 SCC
148 taking into consideration the object and purpose and
nature of SICA and its provisions, it is observed and held
by this Court that the matters connected with sanctioning
and implementation of rehabilitation / restructuring scheme
from the date of its presentation or date of its coming into
effect, whichever is earlier, fall exclusively within the
jurisdiction of BIFR. It is further observed that in such a
case of creditors' demand, even if not made part of the
scheme, would not merely for that reasons stand executed
from BIFR's jurisdiction, which extends to making changes
in instruments, documents etc., which create rights and
liabilities vis-à-vis sick industrial company and its properties.
It is observed that any other view would defeat the very
purpose of SICA. It is submitted that it is further observed
and held in the said decision that the SICA is a special law
vis-à-vis Transfer of Property Act, which is a general law.
(xviii) It is further submitted by the learned senior counsel appearing
on behalf of the appellant - Modi Rubber Ltd. that even
subsequently, the Division Bench of the High Court has
doubted the correctness of the present impugned decision
by observing that prima facie the view taken in Modi
Rubber Ltd. (supra) is not in sync with the view taken by
the various Division Benches of the High Court, which have
been distinguished by the Division Bench in Modi Rubber
Ltd. (supra) with a simple observation that the point therein
was on a slightly different question. It is submitted that in
the case of Singer India Ltd. (supra) while not agreeing
with the view taken in the case of Modi Rubber Ltd.
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA
LTD. [M. R. SHAH, J.]
A
B
C
D
E
F
G
H
1044
SUPREME COURT REPORTS
[2023] 3 S.C.R.
(supra), it is observed that there is no distinction between
secured and unsecured creditors except those creditors, who
have given financial assistance under a scheme to a sick
company. In other words, every creditor stand on a same
footing with respect to the power of the Board to sanction
a scheme.