Holding

A rehabilitation scheme sanctioned under Section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 binds all creditors, including unsecured creditors, who must accept the scaled‑down value of their dues.

Summary

Modi Rubber Ltd., a sick industrial company, obtained a rehabilitation scheme approved by the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985, which scaled down the dues of unsecured creditors, including Continental Carbon India Ltd. The Delhi High Court held that an unsecured creditor could refuse the scaled‑down amount and wait for recovery after the scheme’s implementation. The Supreme Court examined whether the scheme binds unsecured creditors and whether compelling them to accept reduced dues violates Article 300A of the Constitution. Relying on the object of SICA and the language of sections 18, 19 and 18(8), the Court held that the scheme binds all creditors, including unsecured ones, and that the scaling‑down is not violative of Article 300A. Consequently, the High Court’s judgment was set aside, the rehabilitation scheme was upheld, and the lead civil appeal was allowed while related appeals were dismissed. The transfer petition was also allowed and the Madhya Pradesh High Court’s order was quashed.

Issues considered

Whether an unsecured creditor has the option to reject the scaled‑down value of its dues under a rehabilitation scheme approved by the BIFR under SICA, 1985.
Whether compelling an unsecured creditor to accept a reduced amount under such a scheme violates Article 300A of the Constitution of India.

Legislation cited

Constitution of Indias. Article 300A, s. Article 39
Sick Industrial Companies (Special Provisions) Act, 1985s. 15, s. 16, s. 17, s. 18, s. 18(4), s. 18(5), s. 18(7), s. 18(8), s. 18(9), s. 19, s. 20, s. 21, s. 22, s. 22A, s. 32

Subjects

Sick Industrial Companies Actrehabilitation schemeunsecured creditorscaling down of duesBIFRArticle 300Acompany revivalscheme bindingSection 18Section 19civil appeal

Judgment

1026 [2023]
SUPREME COURT 3 S.C.R. 1026
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 down
C
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
D 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
E
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
F 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
G
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
H creditors that to compel them to accept the scaled down value of its
1026
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1027
LTD.

dues would be violative of Article 300A – Held: Has no substance – A
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 B
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 C
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 D
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 E
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] F

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 G
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
H
1028 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 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
B
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
C 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,
D
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
E 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
F
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,
G 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
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1029
LTD.

the shareholders, creditors and guarantors and even the A
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 B
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 C
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 D
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 E
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 F
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 G
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 H
1030 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 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
B
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
C the revival scheme, which is at the cost of other creditors including
the financial institutions and even the labourers. [Para 12][1066-
C-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
D 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
E 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
F 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
G 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]
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1031
LTD.

1.7 The view taken by the High Court of Delhi in Continental A
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
B
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 C
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]
D
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 E
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 F
(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 G
[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 H
1032 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 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
B
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
C 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.

D 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,
E 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.
F 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.
G
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
H Writ Petition (C) No. 4854 of 2011 by which the Division Bench of the
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1033
LTD. [M. R. SHAH, J.]

High Court has allowed the said writ petition preferred by the respondent A
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
B
(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
C
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 D
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 E

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 F
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. G
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 H
1034 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 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.
B 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),
C 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)
D 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
E 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
F 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)
G Pressing creditors have been identified as under:-

H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1035
LTD. [M. R. SHAH, J.]

The above creditors shall accept their outstanding dues as per A
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 B
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 C
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 D
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 E
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:- F
“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.”
G
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,
H
1036 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 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
B 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
C 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
D 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
E 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
F 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
G 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
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1037
LTD. [M. R. SHAH, J.]

the creditors including the decree holders / arbitration award A
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
B
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 C
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 D
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; E

(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. F
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 G
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
H
1038 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 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;
B (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 /
C 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
D 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
E 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;
F
(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
G 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
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1039
LTD. [M. R. SHAH, J.]

/ liability owed by the insolvent company to all creditors A
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
B
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 C
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 D
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, E
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 F
or other measures mentioned therein.
b) The words financial reconstruction provided in section
18(1) (a) are of widest amplitude. Under this sub-
section the BIFR can reorganize, modify, vary,
reduce, defer the dues of creditors. G
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
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1040 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 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
B 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
C institution or other authority. Section 19(2) provides
that only in the case of above mentioned prescribed
entities that their consent is imperative as they may
be required to give financial assistance. This sub-
section requires the consent to be given within a span
of 60 days from the date of circulation of scheme or
D 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
E 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
F 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
G 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
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1041
LTD. [M. R. SHAH, J.]

decree holders/ arbitration award holders/industrial A
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 B
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.
C
(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. D

(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 E
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 F
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 G
/ 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
H
1042 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 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
B
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
C 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.
D
(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
E 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
F 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.
G (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
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1043
LTD. [M. R. SHAH, J.]

Companies Act, 1956 is a general act. Therefore, wherever A
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
B
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 C
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 D
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 E
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 F
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 G
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.
H
1044 SUPREME COURT REPORTS [2023] 3 S.C.R.

A (supra), it is observed that there is no distinction between
secured and unsecured creditors except those creditors, who
have given financial assistance under a scheme to a sick
company. In other words, every creditor stand on a same
footing with respect to the power of the Board to sanction
a scheme. It is further observed that those creditors, which
B
have to provide financial assistance would form a sub-
category and their consent alone would be necessary with
respect to the financial assistance to be provided.
(xix) Making above submissions and relying upon the above
decisions, it prayed to allow the present appeals and set
C aside the impugned judgment and order taking the view that
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 appellant company has worked itself
out with an option to recover its debt post such rehabilitation.
D 6. Shri C.U. Singh, learned Senior Advocate, appearing on behalf
of the appellant / petitioner in Civil Appeal arising out of SLP (C) No.
4282 of 2020 has vehemently submitted that the Hon’ble Madhya
Pradesh High Court has erred in treating the judgment of the Delhi High
Court in the case of Continental Carbon India Ltd. (supra) as a
E binding precedent and even the said judgment was contrary to the several
earlier and later judgments of the Delhi High Court and, therefore, the
Madhya Pradesh High Court ought to have independently examined the
issue.
6.1 It is further submitted by Shri C.U. Singh, learned Senior
F Advocate that the sanction accorded by the BIFR under section 18(4) is
under section 18(7) treated as conclusive evidence that all requirements
relating to reconstruction or amalgamation or any other measure specified
therein have been complied with, and a certified copy thereof shall in all
legal proceedings be admitted as evidence. Further, on and from the
date of sanction, the scheme and every provision thereof shall be binding
G on the sick industrial company, and, inter alia, its shareholders, creditors,
guarantors, and employees, in terms of section 18(8) of SICA. Reliance
is placed on the decisions of this Court as well as the decision of the
Bombay and Delhi High Court in the case of :
(i) Raheja Universal Limited Vs. NRC Limited and Ors.,
H (2012) 4 SCC 148;
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1045
LTD. [M. R. SHAH, J.]

(ii) Kanpur Fertilizers and Cement Limited Vs. State of A
Uttar Pradesh and Anr., (2018) 17 SCC 309;
(iii) Kotak Mahindra Finance Ltd. Vs. Mafatlal Industries
Ltd., (2004) 5 Bom. CR 792 (Bom.);
(iv) Nasik People’s Co-operative Bank Ltd. Vs. Datar
Switchgear and Anr., 2007 SCC Online Del 2067(DB); B

(v) Oman International Bank S.A.O.G. Vs. Appellate
Authority for Industrial and Financial Reconstruction,
(2010) 169 DLT 618 (DB);
(vi) International Finance Corporation, Washington Vs. C
Bihar Sponge & Iron Ltd. & Ors., AIR 2010 Del 142
(DB); and
(vii) Union of India Vs. Cimmco Ltd. and Ors. reported in
2014 SCC OnLine Del 909.
6.2 Shri C.U. Singh, learned Senior Advocate has further submitted D
that the judgment in the case of Continental Carbon India Ltd. (supra)
has made a complete departure from all prior decisions as to the scope
and effect and Sections 18 and 22 of SICA and the effect thereof would
be to completely negate the purpose for which a Scheme has been framed
by BIFR. It is submitted that it is no longer res integra that the provisions
E
of SICA did not envisage any prior consent being obtained from
unsecured creditors, yet dues of such unsecured creditors could be
completely or partially written off under a revival scheme framed under
section 18 of SICA.
6.3 It is further submitted that under Section 18 of SICA, the
F
operating agency prepares a scheme with respect to the sick company
and the scheme can provide any of the measures specified in Section
18(1) and 18(2). The provisions of 18(1) and 18(2) are extremely broad
and there is power to provide for such incidental and consequential
measures as are necessary. Specifically, Section 18(2)(f) and (m) provide:
(f) the reduction of the interest or rights which the shareholders G
have in the sick industrial company to such extent as the Board
considers necessary in the interests of the reconstruction, revival
or rehabilitation of the sick industrial company or for the
maintenance of the business of the sick industrial company;
H
1046 SUPREME COURT REPORTS [2023] 3 S.C.R.

A (m) such incidental, consequential and supplemental matters as
may be necessary to secure that the reconstruction or
amalgamation or other measures mentioned in the scheme are
fully and effectively carried out.
6.4 It is further submitted that the draft Scheme is examined by
B the Board and then published in daily newspapers for suggestions and
objections [Section 18(3)(a)]. Thereafter, the Board makes such
modifications as considered necessary in light of the suggestions and
objections received [Section 18:31(b)]. Thereafter the scheme is
sanctioned by the Board [Section 18(4)].
C 6.5 It is submitted that SICA being a special statute, the provisions
thereof, shall prevail over the general law for recovery of money in
respect of price of goods sold and delivered. SICA provides for a special
mechanism for revival of a company declared sick, and the fate of such
a scheme cannot be upset by the refusal of one creditor, secured or
unsecured, to adhere to the provisions of the scheme.
D
6.6 It is submitted that the scheme framed by the BIFR in terms
of the provisions of SICA is binding on all creditors of the sick company
and it is not open to any creditor to contend that the scheme framed shall
not bind such creditor irrespective of whether such consent of such
unsecured creditor was not taken prior to sanction of the scheme. The
E provisions of SICA do not provide for the creditors’ consent white framing
of the scheme under Section 18 or its implementation. In section 19(2),
the scheme under Section 19(1) is required to be circulated to every
person providing financial assistance “for his consent”. However, the
scheme under Section 18 envisages no such “consent.
F 6.7 Further, the Scheme under Section 18 remains binding even
after revival of the company. Here, it is necessary to contrast the
provisions of Section 22, which provide that legal proceedings, contracts,
etc., in respect of a sick company against whom an inquiry is pending
under Section 16, or a scheme is under preparation or implementation,
G etc., shall remain suspended in terms of a declaration of the Board under
Section 22(3), and would revive upon the declaration ceasing to have
effect [Section 22(4)]. However, the scheme under Section 18 does not
lose its finality/efficacy upon revival of the company.
6.8 It is further submitted that SICA, being a special Act, the
provisions thereof and the scheme sanctioned thereunder, would prevail
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1047
LTD. [M. R. SHAH, J.]

over any other obligation that may have arisen against a sick company A
under any other law for the time being in force. Section 32 of SICA
clearly provides that a scheme framed by the BIFR shall prevail and
have effect over any other law for the time being in force notwithstanding
the same.
6.9 It is submitted that the entire purpose of formulating a scheme B
under SICA is to rehabilitate the sick company. If the sick company is
wound up, then the unsecured creditors would get nothing. Hence is the
very scheme that ensures that all creditors get some of their property,
albeit to a reduced extent.
7. Shri P.S. Sudheer, learned counsel appearing on behalf of the C
respondent – Continental Carbon India Ltd. – unsecured creditor has
vehemently submitted that the Hon’ble High Court after examining
various provisions of the SICA, 1985 and various judgments has answered
the question and has held that the unsecured creditor has the option not
to accept the scaled down value of its dues and may wait till the scheme
of rehabilitation of the sick company has worked itself out with the option D
to recover its debt post such rehabilitation, which is not required to be
interfered with by this Court.
7.1 It is submitted that there is no provision under the SICA to
compel an unsecured creditor to accept the scaled down value of its
dues. In absence of any such provision, the unsecured creditor – E
respondent cannot be compelled to accept a lesser amount, which would
tantamount to taking the right to property in the goods without appropriate
consideration and would be violative of Article 300A of the Constitution
of India.
7.2 It is submitted that the scheme under the SICA, 1985 provides F
for preparation and sanction of the scheme for rehabilitation under Section
18. It is submitted that sub-clause (e) of sub-section (1) of Section 18 of
the SICA provides for preventive, ameliorative and remedial measures
as may be appropriate, while Section 19 of the SICA deals with
rehabilitation by giving financial assistance qua such preventive, G
ameliorative and remedial measures. The same would apply to a class
of creditors which did not include unsecured creditors and, therefore,
there is no specific provision in the SICA which authorized the BIFR to
deprive the unsecured creditor of its full value of unsecured debt.

H
1048 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 7.3 It is submitted that even if Section 18/19 are interpreted as the
provisions providing for deprivation of property of an unsecured creditor
in 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 for
making an unsecured creditor, in the first place, to be a part of the scheme
without his consent. It is submitted that in other words, once an unsecured
B
creditor is ready to be part of the scheme then even if no consent of his
is required before asking him to sacrifice does not mean that he has to
be forced to become a part of the scheme.
7.4 It is submitted that as such the interpretation to the scheme of
the SICA, 1985 as given by the High Court would, in fact, render the
C provisions of the Act more workable and reasonable. It is further
submitted that the fact that an unsecured creditor is permitted to stand
outside the scheme, in no manner can cause prejudice to the rehabilitation
of a Sick Company. This is also clear from the fact that the period of the
scheme is completely independent from the net worth of the Sick
D Company turning positive. It is submitted that in the present case, the
period of the rehabilitation scheme is to continue till 2013, whereas the
very same scheme contemplated the networth of the petitioner company
turning positive by 2007-2008 and the loss completely wiped off by 2008-
2009. It is submitted that therefore the petitioner company ceased to be
a Sick Industrial Undertaking as per its Balance Sheet of 31.03.2009.
E
7.5 It is further submitted that even otherwise, the BIFR had no
authority to scale down the debts of an unsecured creditor without their
consent. It is submitted that in absence of any provision permitting BIFR
to scale down the debts of the unsecured creditor without its consent
would be violative of Article 300A of the Constitution. It is submitted
F that Article 300A of the Constitution provides that no person shall be
deprived of his property save by authority of law. It is submitted that
money is undoubtedly property and, therefore, the right to a sum of money
is also a property. It is submitted that hence, the aforesaid right of the
respondent – unsecured creditor to receive the sum of money is a
G Constitutional Right and, further, the said Constitutional Right to property
can be taken away / deprived only by authority of law.
7.6 It is submitted that the expression ‘law’ in Article 300A would
mean a Parliamentary Act or an Act of State Legislature or Statutory
having the force of law. It is submitted that while enacting such a law,
H Parliament cannot be presumed to have taken away a right in property.
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1049
LTD. [M. R. SHAH, J.]

It is submitted that the provision taking away such right to property has A
to be provided explicitly.
7.7 It is further submitted that so far as the Insolvency and
Bankruptcy Code, 2016 is concerned, it contains the definition of the
term ‘Creditor’ and the same includes an ‘Unsecured Creditor’. It is
submitted that therefore, the regime under the SICA, 1985 and the B
Insolvency and Bankruptcy Code, 2016 are completely different. It is
submitted that the Insolvency and Bankruptcy Code, 2016 specifically
provides for distribution of assets under Section 53. Thus, the Insolvency
and Bankruptcy Code, 2016 specifically provides for provisions for dealing
with ‘Unsecured Creditors’ whereas in the SICA, 1985, there is no
provision to deal with ‘Unsecured Creditors’ without their consent. C

7.8 Making above submissions, it is prayed not to interfere with
the impugned judgment and order passed by the Division Bench of the
High Court.
8. While supporting the view taken by the Delhi High Court D
followed by the Madhya Pradesh High Court, it is submitted by Shri
A.K. Shrivastava, learned senior counsel appearing on behalf of the
unsecured creditor – decree holders that in the present case, the scheme
sanctioned for revival of the company has been substantially implemented
and the net worth of the company has turned positive substantially by
Rs. 31 crores. E

8.1 It is submitted that in the present case, the appellant company
moved an application before the BIFR for discharging the company from
the purview of SICA as its net worth has turned positive. It is submitted
that the BIFR thereafter has allowed the said application vide order
dated 07.12.2010 and the applicant company has been discharged from F
the provisions of SICA. It is submitted that therefore, the execution
application filed by the respondent shall have to be proceeded further
and there would not be any bar under Section 22 of the SICA, 1985 as
contended on behalf of the appellant before the High Court. It is submitted
that once the appellant on its own motion got discharged from the purview G
of SICA and such relief having been granted, the appellant thereafter
cannot take shelter under any of the provisions of SICA, 1985. Shri
Shrivastava, learned senior counsel appearing on behalf of the respondent
in Civil Appeal arising out of SLP (C) No. 4282 of 2020 has prayed to
consider the following factual background:-
H
1050 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 8.1.1 That the answering respondent raised invoices in the 1991-
92 for supply of goods and services provided to the
foundry unit of petitioner at Gwalior which remained
outstanding. Thereafter in the year 1996 the answering
respondent filed a Civil Suit No. 172B/1996 for recovery
of Rs 7,76,138/- alongwith interest @ 25%.
B
8.1.2 That on 24.02.2000 the money decree was passed by the
Trial court, in favour of the answering respondent and
against the petitioner vide judgement dated 24.02.2000.
8.1.3 That the petitioner thereafter challenged the decree dated
C 21.02.2000 in First Appeal No. 65/2000 before the Hon’ble
High Court of Madhya Pradesh. The said First Appeal
was dismissed on 19-10-2005 and the order of High Court
became final as it was not assailed before this Court.
8.1.4 That the petitioner subsequently filed reference under
D Section 15(1) of SICA in June 2000. Subsequently the
BIFR on 21.08.2000 declared the petitioner to be a sick
company under Section 3(1)(0) of SICA, 1985 and
appointed IDBI as operating agency. That the petitioner
did not disclose about the BIFR proceedings in the appeal
preferred by them before the High Court. The BIFR also
E did not pass any order under Section 22(2) of the SICA
for suspension of pending legal proceedings.
8.1.5 That the Hon’ble High Court dismissed the First Appeal
No. 65/2000 vide order dated 10.10.2005 and hence the
judgement and decree dated 24.02.2000 was affirmed
F and order dated 10.10.2005 attained finality as the
petitioner never challenged the order dated 10.10.2005.
8.1.6 That thereafter the proceedings continued before the
BIFR for revival of the petitioner. That on 07.12.2010,
the petitioner company was declared revived and was
G discharged from the purview of the SICA.
8.1.7 That after the revival of the appellant company the
answering respondent filed execution petition on
03.11.2011.
8.1.8 That the petitioner thereafter filed an application seeking
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1051
LTD. [M. R. SHAH, J.]

direction to the respondent to accept the cheque for a A
meager amount of Rs 70,452/- in terms of the scheme
which is the scaled down value of the claim amount and
further prayed for closing the execution proceedings. The
learned executing court dismissed the application of the
appellant vide order dated 13.03.2014. This order was
B
never challenged by the petitioner and hence attained
finality.
8.1.9 That the appellant thereafter again filed written objection
to the execution proceedings on the same grounds as were
earlier raised by them. Such objections are barred by the
principles of res-judicata as vide earlier order the identical C
pleas of the petitioner was rejected by the Learned
Executing Court on 13.03.2014.
8.1.10 That the answering respondent filed reply to the written
objections filed by the petitioner.
D
8.1.11 That the Learned Executing Court again vide detailed
order dated 06.11.2017 rejected the objections raised by
the petitioner.
8.1.12 That in Feb 2018 the petitioner filed Civil Revision No.
96/2018 under Section 115 of CPC before the Hon’ble E
High Court of Madhya Pradesh at Gwalior.
8.1.13 That on 17.08.2019 in the pending execution proceedings,
part of the land of petitioner admeasuring 4.025 hectares
was attached by the Executing Court.
8.1.14 That the Hon’ble High Court vide impugned order dated F
18.10,2019 dismissed the Civil Revision field by the
petitioner.
8.1.15 That the petitioner thereafter had fled SLP(C) No. 42822/
2020 before the Hon’ble Supreme Court. The Hon’ble
Supreme Court vide order dated 20.02.2020 issued notice G
and granted interim protection till the next date of hearing.
8.1.16 That thereafter the matter came up for hearing on
20.05.2022, the petitioner stated that they are willing to
deposit the entire decretal amount with the Registry of
the Hon’ble Supreme Court. The Court upon such H
1052 SUPREME COURT REPORTS [2023] 3 S.C.R.

A statement directed the appellant to deposit the entire
decretal amount on or before 11.07.2022.
8.1.17 That it appears that the appellant has deposited an amount
of Rs 61,31,490/- stating it to be the decretal amount.
The answering respondent most respectfully submits that
B the correct decretal amount is Rs 68,21,918/ as on
11.07.2022. Therefore, the answering respondents
disputes the amount of Rs 61,31,490 to be the entire
decretal amount.
8.1.18 That the Hon’ble Supreme Court on 11.07.2022, in view
C of the above deposit made by the appellant, directed
release of the attached property,
8.2 It is submitted that in view of the above factual background
there is no infirmity in the orders passed by the High Court, which is
passed following the decision of the Delhi High Court in the case of
D Continental Carbon India Ltd. (supra), which still holds the field and
it is prayed to release the entire decretal amount in favour of the
respondent.
9. Heard, the learned counsel for the respective parties at length.
10. The short question, which is posed for the consideration of
E this Court is :-
“Whether on approval of a scheme by the BIFR under the Sick
Industrial Companies (Special Provisions) Act, 1985, 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
F – sick company has worked itself out, with an option to recover
the debt with interest post such rehabilitation?”
11. While appreciating the submissions made on behalf of the
respective parties on the aforesaid issue, few decisions of this Court and
the legislative scheme of the SICA, 1985 are required to be referred to:
G Legislative Scheme of SICA, 1985
11.1 The framers of law felt that the existing institutional
arrangements and procedure for revival and rehabilitation of potentially
viable sick industrial companies are both inadequate and time consuming.
Multiplicity of law and the regulatory agencies makes the adoption of a
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1053
LTD. [M. R. SHAH, J.]

coordinated approach for dealing with sick industrial companies difficult. A
Thus, a need was felt to enact, in public interest, a legislation to provide
for timely determination, by a body of experts, of the preventive,
ameliorative, remedial and other measures that would be needed to be
adopted with respect to such companies and for enforcement of the
appropriate measures with utmost practicable dispatch.
B
11.2. The ill effects of sickness in industrial companies, such as
cessation of production, loss of employment, loss of revenue to the Central
and State Governments and blocking up of investible funds of the banks
and financial institutions, were of serious concern to the Government as
well as the society at large. It had repercussions on the industrial growth
of the country. With the passage of time the number of sick industrial C
units increased rapidly. Therefore, it was imperative to salvage the
productive assets and release, to the extent possible, the amounts due to
the banks and financial institutions from non-viable sick industrial debtor
companies by liquidation of those companies or through formulation of
rehabilitation schemes. D
11.3. With these objects, the Bill was introduced with the salient
features inter alia of identification of sickness in the industrial companies,
on the basis of symptomatic indices of cash losses for the specified
periods. Wherever the Government or Reserve Bank were satisfied
that an industrial company has become sick, they were required to make E
a reference to BIFR. BIFR consists of experts, in various relevant fields,
with powers to inquire into and determine the incidences of sickness in
the industrial companies and devise suitable measures through appropriate
schemes to revive them. An appeal lies from the order of BIFR to an
appellate authority (Aaifr) consisting of members selected from amongst
Supreme Court or High Court Judges or Secretaries to the Government F
of India.
11.4 With this background, objects and reasons, this Bill was passed
by the Indian Parliament and it received the assent of the President of
India on 8-1-1986. Thus, it became an Act of Parliament intended to
revolutionise the mechanism of revival or liquidation of sick industrial G
units and channelisation of the complete administrative-cum-quasi- judicial
process within the framework of SICA 1985.
11.5 The statement of Objects and Reasons for enactment of
SICA, 1985 is as under:-
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1054 SUPREME COURT REPORTS [2023] 3 S.C.R.

A “Statement of Objects and Reasons.—The ill effects of
sickness in industrial companies such as loss of production, loss
of employment, loss of revenue to the Central and State
Governments and locking up of investible funds of banks and
financial institutions are of serious concern to the Government
and the society at large. The concern of the Government is
B
accentuated by the alarming increase in the incidence of sickness
in industrial companies. It has been recognised that in order to
fully utilise the productive industrial assets; afford maximum
protection of employment and optimize the use of the funds of the
banks and financial institutions, it would be imperative to revive
C and rehabilitate the potentially viable sick industrial companies as
quickly as possible. It would also be equally imperative 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.
D It has been the experience that the existing institutional
arrangements and procedures for revival and rehabilitation of
potentially viable sick industrial companies are both inadequate
and time-consuming. A multiplicity of laws and agencies makes
the adoption of a co-ordinated approach for dealing with sick
industrial companies difficult. A need has, therefore, been felt to
E enact in public interest a legislation to provide for timely detection
of sickness in industrial companies and for expeditious
determination by a body of experts of the preventive, ameliorative,
remedial and other measures that would need to be adopted with
respect to such companies and for enforcement of the measures
F considered appropriate with utmost practicable despatch.”
11.6 Thus, the SICA, 1985 basically and predominantly is a remedial
and ameliorative enactment, insofar as it empowers a quasi-judicial Body
- BIFR to take appropriate measures for revival and rehabilitation of the
potentially viable sick industrial companies as quickly as possible and
G also to salvage the productive assets and realise the amounts due to the
banks and financial institutions, to the extent possible, from the non-
viable sick industrial companies through liquidation of those companies.
11.7 Now, let us consider the scheme under the BIFR and the
relevant provisions of SICA, 1985, which are relevant for our
H consideration:-
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1055
LTD. [M. R. SHAH, J.]

“35. Section 15 of SICA 1985 places an obligation upon an A
industrial company, which has become sick in terms of that
provision, to make a reference to BIFR established under Section
4 of SICA 1985 within the period of limitation prescribed. While
under Section 15(2) where the Central Government or Reserve
Bank of India or a State Government or a public financial institution
B
has sufficient reasons to believe that any industrial company has
become, for the purpose of SICA 1985, a sick industrial company,
would also make a reference of such company to the Board for
determination of the measures which may be adopted with regard
to such company.
36. Section 16 of SICA 1985 deals with the conduct of an C
inquiry by BIFR and the manner in which BIFR is expected to
deal with the matter upon receipt of a reference under Section 15
of SICA 1985. Section 16 vests BIFR with very wide powers of
inquiry and passing appropriate orders. Section 16(2) empowers
BIFR to pass an order, in its discretion, directing any operating D
agency to inquire into and to make a report with regard to the
matters as may be specified in the order. Such operating agency
is expected to complete the inquiry expeditiously and preferably
within 60 days from the date of commencement of inquiry. BIFR
is vested with powers such as appointing special Directors for the
sick company and issuing directions to the special Directors in E
relation to discharge of their duties and to improve the performance
of any or all of the functions postulated under Section 16(6) of
SICA 1985.
37. After the inquiry by BIFR or by the operating agency is
completed, BIFR if satisfied that the company has become sick F
and upon considering all relevant facts and circumstances of the
case in exercise of its powers under Section 17 of SICA 1985,
may pass orders requiring the company to make its net worth
exceed the accumulated losses within a reasonable time and for
that purpose it may impose such restrictions or conditions as may G
be specified in the order in terms of Section 17(2) of SICA 1985.
Further, where BIFR decides that it is not practicable for a sick
industrial company to make its net worth exceed the accumulated
losses within a reasonable time and that it is otherwise necessary
or expedient in public interest to adopt all or any of the measures
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1056 SUPREME COURT REPORTS [2023] 3 S.C.R.

A specified in Section 18 of SICA 1985 in relation to the said company,
it may, having regard to the guidelines, as may be specified, pass
an order formulating a scheme providing for such measures in
relation to the sick industrial company. In the event of non-
compliance with the restrictions or conditions specified in the order
of BIFR or where the company fails to revive itself in pursuance
B
to the order, BIFR can pass any of the directions/orders as required
under Section 17(4) of SICA 1985.
38. Section 18 of SICA 1985 again is a remedial provision
which contains specified guidelines for the preparation and sanction
of the schemes for the revival of the sick industrial company.
C Where an order is made under Section 17(3) in relation to a sick
industrial company, the operating agency is required to prepare,
as expeditiously as possible, ordinarily within 90 days from the
date of such order, a scheme with respect to such company
providing for any one or more of the measures stated under clauses
D (a) to (f) of Section 18(1) of SICA 1985. The scheme so framed
may provide for any one or more of the measures stated under
clauses (a) to (m) of Section 18(2) of SICA 1985.
39. The scheme which has been prepared in consonance
with the provisions of Sections 18(1) and 18(2) then has to be
E examined by BIFR in terms of Section 18(3) of SICA 1985 and if
BIFR makes any modifications to the scheme, the same draft
scheme, in brief, shall be published or caused to be published in
such daily newspapers as BIFR may consider necessary, for
receipt of suggestions and objections, if any. In the light of the
suggestions and objections received in response to such publication,
F BIFR may still make further modifications. Also, where the scheme
relates to amalgamation of the companies, the procedures specified
therein shall be followed. In such cases, the shareholders of the
company, other than the sick industrial company, are expected to
pass a resolution of approval of the scheme.
G 40. The scheme thereafter shall be sanctioned by BIFR
and shall come into force on such date as BIFR may specify in
this behalf and in exercise of the powers vested in it under Section
18(4) of SICA 1985. This scheme does not attain finality which is
unalterable. Once the scheme is sanctioned and comes into force
H even then, on the recommendation of the operating agency, BIFR
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1057
LTD. [M. R. SHAH, J.]

can consider further modifications or even prepare a fresh scheme A
providing for such measures as the operating agency may consider
it necessary and recommended in terms of Section 18(5) of SICA
1985.
41. Section 18(7) of SICA 1985 is an important provision
which provides that the sanction accorded by BIFR shall be B
conclusive evidence that all the requirements of the scheme relating
to reconstruction or amalgamation or any measure specified therein
have been complied with and a copy of the sanctioned scheme
certified in writing by an officer of BIFR to be a true copy thereof
shall be admissible as evidence in all legal proceedings. To resolve
the difficulties that may arise in giving effect to the provisions to C
the sanctioned scheme, BIFR may, on the recommendation of the
operating agency or otherwise, by order do anything, not
inconsistent with such provisions, which appears to it to be
necessary or expedient for the purpose of removing difficulty in
terms of Section 18(9) of SICA 1985. D
42. The role of BIFR does not end here and it may even
periodically monitor the implementation of the scheme. Where
the scheme relates to preventive, ameliorative, remedial and other
measures with respect to any sick industrial company, the scheme
may provide for financial assistance by way of loans, advances E
or guarantees from the Government or financial institutions. Before
any financial institution is called upon to proceed to release the
financial assistance to the sick industrial company in fulfilment of
the requirements in that regard, the procedure contemplated under
the provisions of Section 19 of SICA 1985 has to be followed.
F
43. Where BIFR, after making inquiry under Section 16 of
SICA 1985, considering all relevant facts and circumstances and
giving an opportunity of being heard to all parties concerned, is of
the opinion that the sick industrial company is not likely to make
its net worth exceed the accumulated losses within a reasonable
time while meeting all its financial obligations and that the company G
as a result thereof is not likely to become viable in future and that
it is just and equitable that the company should be wound up, it
may record and forward its opinion to the High Court concerned
as per the provisions of Section 20 of SICA 1985 whereafter the
company shall be wound up in accordance with the provisions of H
1058 SUPREME COURT REPORTS [2023] 3 S.C.R.

A the Companies Act, 1956. The High Court may even appoint any
officer of the operating agency as the liquidator of the sick industrial
company. Section 21 of SICA 1985 requires the operating agency
to prepare an inventory, if so directed by BIFR.”
11.8 Thus, the primary concern of the Board would be the revival
B 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
C 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.
D 11.9 As observed and held by this Court in the case of Tata Motors
Limited (supra), SICA, 1985 has been enacted to secure the principles
specified in Article 39 of the Constitution of India. It seeks to give effect
to the larger public interest and, therefore, it should be given primacy
over other laws because of its higher public purpose.
E 11.10 In the case of Raheja Universal Limited (supra), it is
observed and held that the SICA, 1985 is a special law, giving overriding
effect vis-à-vis other laws and the provisions of general laws like
Companies Act for regulation, incorporation, winding up etc. of the
companies would have still been overridden to the extent of inconsistency.
F In the case of NGEF Ltd. Vs. Chandra Developers (P) Ltd., (2005)
8 SCC 219, it is specifically observed by this Court that the SICA, 1985
is 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 except
G the laws, which have been specifically excluded by the legislature under
Section 32 of SICA, 1985.
11.12 Keeping in mind the statement of objects and reasons for
enactment of SICA, 1985 and the powers exercised by the BIFR and
the primary concern to revive the sick industry for which the rehabilitation
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1059
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scheme is to be framed under Section 18, the question posed is required A
to be considered.
11.13 As per the statutory provisions under SICA, 1985, the
rehabilitation scheme is provided under Section 18 of the SICA, 1985,
which shall be made after making the inquiry under Section 16 by the
Board. Section 18 reads as under:- B
“18. Preparation and sanction of schemes.—(1) Where an
order is made under sub-section (3) of Section 17 in relation to
any sick industrial company, the operating agency specified in the
order shall prepare, as expeditiously as possible and ordinarily
within a period of ninety days from the date of such order, a scheme C
with respect to such company providing for any one or more of
the following measures, namely:—
(a) the financial reconstruction of the sick industrial company;
(b) the proper management of the sick industrial company by
change in, or take over of, management of the sick industrial D
company;
(c) the amalgamation of—
(i) the sick industrial company with any other company;
or
E
(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”; F
(d) the sale or lease of a part or whole of any industrial
undertaking of the sick industrial company;
(da) the rationalisation of managerial personnel, supervisory
staff and workmen in accordance with law;
G
(e) such other preventive, ameliorative and remedial measures
as may be appropriate;
(f) such incidental, consequential or supplemental measures
as may be necessary or expedient in connection with or for
the purposes of the measures specified in clauses (a) to (e).
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1060 SUPREME COURT REPORTS [2023] 3 S.C.R.

A (2) The scheme referred to in sub-section (1) may provide for
any one or more of the following, namely:—
(a) the constitution, name and registered office, the capital,
assets, powers, rights, interest, authorities and privileges, duties
and obligations of the sick industrial company or, as the case
B may be, of the transferee company;
(b) the transfer to the transferee company of the business,
properties, assets, and liabilities of the sick industrial company
on such terms and conditions as may be specified in the scheme;
(c) any change in the Board of Directors, or the appointment
C of a new Board of Directors, of the sick industrial company
and the authority by whom, the manner in which and the other
terms and conditions on which, such change or appointment
shall be made and in the case of appointment of a new Board
of Directors or of any director, the period for which such
D appointment shall be made;
(d) the alteration of the memorandum or articles of association
of the sick industrial company or as the case may be, of the
transferee company for the purpose of altering the capital
structure thereof or for such other purposes as may be
E necessary to give effect to the reconstruction or amalgamation;
(e) the continuation by, or against, the sick industrial company
or, as the case may be, the transferee company of any action
or other legal proceeding pending against the sick industrial
company immediately before the date of the order made under
F sub-section (3) of Section 17;
(f) the reduction of the interest or rights which the shareholders
have in the sick industrial company to such extent as the Board
considers necessary in the interests of the reconstruction,
revival or rehabilitation of the sick industrial company or for
the maintenance of the business of the sick industrial company;
G
(g) the allotment to the shareholders of the sick industrial
company of shares in the sick industrial company or, as the
case may be, in the 29[transferee company] and where any
shareholder claims payment in cash and not allotment of shares,
or where it is not possible to allot shares to any shareholder the
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1061
LTD. [M. R. SHAH, J.]

payment of cash to those shareholders in full satisfaction of A
their claims—
(i) in respect of their interest in shares in the sick industrial
company before its reconstruction or amalgamation; or
(ii) where such interest has been reduced under clause (f)
in respect of their interest in shares as so reduced; B

(h) any other terms and conditions for the reconstruction or
amalgamation of the sick industrial company;
(i) sale of the industrial undertaking of the sick industrial
company free from all encumbrances and all liabilities of the C
company or other such encumbrances and liabilities as may be
specified, to any person, including a cooperative society formed
by the employees of such undertaking and fixing of reserve
price for such sale;
(j) lease of the industrial undertaking of the sick industrial D
company to any person, including a cooperative society formed
by the employees of such undertaking;
(k) method of sale of the assets of the industrial undertaking of
the sick industrial company such as by public auction or by
inviting tenders or in any other manner as may be specified
E
and for the manner of publicity therefor;
(l) transfer or issue of the shares in the sick industrial company
at the face value or at the intrinsic value which may be at
discount value or such other value as may be specified to any
industrial company or any person including the executives and
F
employees of the sick industrial company;
(m) such incidental, consequential and supplemental matters
as may be necessary to secure that the reconstruction or
amalgamation or other measures mentioned in the scheme are
fully and effectively carried out.
G
(3) (a) The scheme prepared by the operating agency shall be
examined by the Board and a copy of the scheme with
modification, if any, made by the Board shall be sent, in draft, to
the sick industrial company and the operating agency and in the
case of amalgamation, also to any other company concerned, and
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1062 SUPREME COURT REPORTS [2023] 3 S.C.R.

A the Board shall publish or cause to be published the draft scheme
in brief in such daily newspapers as the Board may consider
necessary, for suggestions and objections, if any, within such period
as the Board may specify.
(b) The Board may make such modifications, if any, in the
B draft scheme as it may consider necessary in the light of the
suggestions and objections received from the sick industrial
company and the operating agency and also from the transferee
industrial company and any other company concerned in the
amalgamation and from any shareholder or any creditors or
employees of such companies:
C
Provided that where the scheme relates to amalgamation
33[* * *] the said scheme shall be laid before [the company other
than the sick industrial company]34 in the general meeting for the
approval of the scheme by its shareholders and no such scheme
shall be proceeded with unless it has been approved, with or without
D modification, by a special resolution passed by the shareholders
of [the company other than the sick industrial company]35.
(4) The scheme shall thereafter be sanctioned as soon as
may be, by the Board (hereinafter referred to as the ‘sanctioned
scheme’) and shall come into force on such date as the Board
E may specify in this behalf:
Provided that different dates may be specified for different
provisions of the scheme.
(5) The Board may on the recommendations of the operating
agency or otherwise, review any sanctioned scheme and make
F such modifications as it may deem fit or may by order in writing
direct any operating agency specified in the order, having regard
to such guidelines as may be specified in the order, to prepare a
fresh scheme providing for such measures as the operating agency
may consider necessary.
G (6) When a fresh scheme is prepared under sub- section
(5), the provisions of sub-sections (3) and (4) shall apply in relation
thereto as they apply to in relation to a scheme prepared under
sub-section (1).
(6-A) Where a sanctioned scheme provides for the transfer
H of any property or liability of the sick industrial company in favour
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1063
LTD. [M. R. SHAH, J.]

of any other company or person or where such scheme provides A
for the transfer of any property or liability of any other company
or person in favour of the sick industrial company, then, by virtue
of, and to the extent provided in the scheme, on and from the date
of coming into operation of the sanctioned scheme or any provision
thereof, the property shall be transferred to, and vest in, and the
B
liability shall become the liability of, such other company or person
or, as the case may be, the sick industrial company.
(7) The sanction accorded by the Board under sub- section
(4) shall be conclusive evidence that all the requirements of this
scheme relating to the reconstruction or amalgamation, or any
other measure specified therein have been complied with and a C
copy of the sanctioned scheme certified in writing by an officer
of 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 of
the sanctioned scheme or any provision thereof, the scheme or D
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 the shareholders, creditors and guarantors and
employees of the said companies.
(9) If any difficulty arises in giving effect to the provisions E
of the sanctioned scheme, the Board may, on the recommendation
of the operating agency 38[or otherwise], by order do anything,
not inconsistent with such provisions, which appears to it to be
necessary or expedient for the purpose of removing the difficulty.
(10) The Board may, if it deems necessary or expedient so F
to do, by order in writing, direct any operating agency specified in
the order to implement a sanctioned scheme with such terms and
conditions and in relation to such sick industrial company as may
be specified in the order.
(11) Where the whole of the undertaking of the sick G
industrial company is sold under a sanctioned scheme, the Board
may distribute the sale proceeds to the parties entitled thereto in
accordance with the provisions of Section 529-A and other
provisions of the Companies Act, 1956 (1 of 1956).
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1064 SUPREME COURT REPORTS [2023] 3 S.C.R.

A (12) The Board may monitor periodically the implementation
of the sanctioned scheme.”
11.14 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 Section 18, which
B include:-
(i) the financial reconstruction of the sick industrial company;
(ii) such other preventive, ameliorative and remedial measures as
may be appropriate.

C 11.14.1 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
D 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
E 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
F 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.
G 11.14.2 At this stage, it is required to be noted that if a sick company
is ordered to be wind up, in that case, the unsecured creditors otherwise
may not get anything. However, on the 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,
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1065
LTD. [M. R. SHAH, J.]

which has been substituted by Act 12 of 1994, on and from the date of A
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 the shareholders, creditors and guarantors and
even the employees of the said companies.
B
11.15 Thus, 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” C
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 D
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.
11.16 If the submission on behalf of the unsecured creditors, which E
has been accepted by the High Court in the case of Continental Carbon
India Ltd. (supra) 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, F
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 primary
object and purpose of SICA, 1985 is revival of a sick industrial company
even by providing rehabilitation scheme under Section 18. A reading of G
the statement of objects and reasons says that the effect of the ill effects
of sickness in industrial companies was a serious concern not only to the
Government but also to the society at large. Therefore, it was found that
there is a need to fully utilise the productive industrial assets; afford
maximum protection of employment and optimize the use of the funds of H
1066 SUPREME COURT REPORTS [2023] 3 S.C.R.

A the banks and financial institutions and it is imperative to revive and
rehabilitate the potentially viable sick industrial companies. Considering
Section 20 of the Act it becomes clear that winding up of a company is
only resorted to as a last resort and only when it is just and equitable to
wind up the sick industrial company.
B 11.18 Thus, minority creditors and that too some unsecured creditors
cannot be permitted to stall the rehabilitation of the sick company by not
accepting the scaled down value of its dues. Unless and until there is a
sacrifice by all concerned, including the creditors, financial institutions,
unsecured creditors, labourers, there shall not be any revival of the sick
industrial company / company.
C
12. 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 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
D 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
E 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.

F 13. 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
G 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.
H
MODI RUBBER LIMITED v. CONTINENTAL CARBON INDIA 1067
LTD. [M. R. SHAH, J.]

14. Now, so far as the submission on behalf of the unsecured A
creditors that to compel the unsecured creditors to accept the scaled
down value of its dues would tantamount to and would be violative of
Article 300A of the Constitution of India is concerned, the same has also
no substance. Scaling down the value of the dues is under the rehabilitation
scheme prepared under Section 18 of the SICA, which has a binding
B
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 C
violative of Article 300A of the Constitution of India as submitted on
behalf of the unsecured creditors.
15. In view of the above and for the reasons stated above, the
view taken by the High Court of Delhi in Continental Carbon India
Ltd. (supra) that on approval of a scheme by the BIFR under the Sick D
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 E
quashed and set aside.
It is observed and held that the rehabilitation scheme under Section
18 of the SICA, 1985 shall bind all the creditors including the unsecured
creditors and the unsecured creditors have to accept the scaled down
value of its dues provided under the rehabilitation scheme. F

Conclusion:-
(i) Civil Appeal No. 375 of 2017 is accordingly allowed. No
costs.
(ii) The transfer petition being Transfer Petition (C) No. 543 G
of 2016 is allowed and is ordered to be transferred to this
Court.
(iii) Civil Appeal No. 1755 of 2023 (arising out of SLP (C) No.
4282 of 2020) is allowed and the impugned judgment and
H
1068 SUPREME COURT REPORTS [2023] 3 S.C.R.

A 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. (supra), which has been
set aside by the present order also deserves to be allowed
and the impugned judgment and order passed by the High
Court of Madhya Pradesh in Civil Revision No. 96 of 2018
B
is hereby quashed and set aside.
(iv) On being set aside the judgment and order passed by the
High Court of Delhi in the case of Continental Carbon
India Ltd. (supra), Civil Appeal No. 377 of 2017 stands
dismissed.
C
(v) In view of the above and for the reasons stated above and
quashing and setting aside the judgment and order passed
by the High Court of Delhi in the case of Continental
Carbon India Ltd. (supra), Civil Appeal No. 379 of 2017
and Transfer Petition (C) No. 543 of 2016 stands disposed
D of and consequently the writ petition before the High Court
being Writ Petition (C) No. 832 of 2016 stands dismissed.

Divya Pandey Appeals disposed of.
(Assisted by : Abhishek Agnihotri and Roopanshi Virang, LCRAs)
E

F

G

H