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It is pertinent for one to peruse the various laws pertaining to insolvency and bankruptcy, as they existed prior to the promulgation of the Insolvency and Bankruptcy Code (IBC), 2016, in order to comprehend and/or imbibe the kind of remedy which is available to a creditor, whether secured or unsecured, with respect to a debt which is owed and payable to the creditor by a company declared as “Sick” under section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as “SICA”) and has undergone rehabilitation pursuant to an order passed by the Board for Industrial and Financial Reconstruction (hereinafter referred to as “BIFR”) and a scheme drafted by an Operating Agency (OA) under Section 17(3) of SICA. 

The general practice which existed prior to the coming into force of the IBC was that – buttressing upon rehabilitation schemes submitted to the BIFR by an OA – the BIFR will promulgate and formulate a Draft Rehabilitation Scheme (DRS) enumerating and delineating the mechanism for rehabilitation and revival of a Sick Company.

Incidentally, SICA had been repealed by the Parliament with effect from 1st December 2016 and a new act was promulgated to replace the act viz. Sick Industrial Companies (Special Provisions) Repeal Act of 2003 (hereinafter referred to as “the Repeal Act”). The said Repeal Act after coming into effect abated all the proceedings under SICA and provided for abolishment of the BIFR, thereby repudiating all extant proceeding before it.

However, Section 5 of the Repeal Act provides for various exemptions in relation to orders passed by the BIRF in relation to schemes promulgated and sanctioned under SICA and reads as follows:

“The repeal by this Act of the repealed enactment shall not—……….

…………..

(d) affect any order made by the Board for sanction of the schemes;”

Pursuant to Section 5 of the Repeal Act, an order passed by the BIFR sanctioning a DRS shall subsist even after SICA had been repealed and all sick companies shall be governed by the terms and conditions of the scheme so promulgated by BIFR.

In order to clarify the legal status of the schemes formulated under SICA after the promulgation and coming into force of the Repeal Act, reliance may be placed on the Insolvency and Bankruptcy Code (Removal of Difficulties) Order 2017 promulgated on 24th May 2017 which provides clarification to legal status of the schemes sanctioned by the BIRF under the Insolvency and Bankruptcy Code by evincing that such a scheme so formulated by BIFR “shall be deemed to be an approved resolution plan under sub-section (1) of section 31 of the Insolvency and Bankruptcy Code, 2016 and the same shall be dealt with, in accordance with the provisions of Part II……”

Therefore, a DRS drafted by BIFR holds the status of an approved plan which is binding on the corporate debtor and the same can be comprehended from the language of Section 31(1) of the Insolvency Bankruptcy Code, 2016 which reads as follows:

“If the Adjudicating Authority……………………….shall by order approve the resolution plan it shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.”

Since, the DRS is supposed to be treated as an approved resolution plan under the Insolvency and Bankruptcy Code, 2016 and is deemed to be binding on the Corporate debtor, a Corporate debtor is legally obliged to uphold the terms of the DRS promulgated under SICA even after the enactment and coming into force of the Repeal Act and of the Insolvency and bankruptcy Code, 2016.

Therefore, In case of failure on the part of a corporate debtor in furnishing the debt and paying the creditor pursuant to the DRS, the creditor has the right to apply to the National Company Law Tribunal pursuant to Regulation 39(9) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process For Corporate Persons) Regulations, 2016 for “directions in regards to the non-implementation” of the terms of the DRS promulgated by BIFR.