1. Challenge to notices for recovery of Interest Free Sales Tax Loan under SICA rehabilitation scheme. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 )
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2026 Supreme(Raj) 521
HIGH COURT OF JUDICATURE FOR RAJASTHAN, BENCH AT JAIPUR
SANJEEV PRAKASH SHARMA, ACJ., SANGEETA SHARMA, J.
Lords Chloro Alkali Ltd., Through Its AGM (Accounts And Finance) Subsequently Through Mr. Rajiv Kumar Authorised Representative - Appellant
Versus
State Of Rajasthan, Through Secretary Industries Department Government Of Rajasthan, Jaipur – Respondent
D.B. Special Appeal (Writ) No. 64 of 2026 In S.B. Civil Writ Petition No.990 of 2018
Decided On : 06-03-2026
Advocates Appeared:
For the Appellant : Mr. Amol Vyas, Mr. Saurabh Jain, Ms. Udita Singh, Mr. Aashu Kansal, Mr. Bajrang Singh Jaitawat, Mr. Abhishek Purohit
For the Respondent: Mr. Rishabh Khandelwal.
For the Appellant : Mr. Amol Vyas, Mr. Saurabh Jain, Ms. Udita Singh, Mr. Aashu Kansal, Mr. Bajrang Singh Jaitawat, Mr. Abhishek Purohit
For the Respondent: Mr. Rishabh Khandelwal.
A rehabilitation scheme sanctioned by the Board for Industrial and Financial Reconstruction and approved by the High Court is binding on all stakeholders, including unsecured creditors and the State Government, and cannot be ignored to claim original loan amounts once the scheme attains finality.
Headnote:(A) Sick Industrial Companies (Special Provisions) Act, 1985 - Sections 18 and 19 - Companies Act, 1956 - Section 391 - Interest Act, 1961 - Rehabilitation Scheme sanctioned by the Board for Industrial and Financial Reconstruction - Binding nature of the scheme - Whether a sanctioned scheme is binding on the State Government and its nodal agency - A rehabilitation scheme sanctioned by the Board and subsequently approved by the High Court is binding on all stakeholders, including the State Government and unsecured creditors. Once the order of the High Court approving the scheme is not challenged, it attains finality and the parties are bound by its terms (Paras 19, 21, 22 and 30)
(B) Delay and Acquiescence - Where a company repeatedly offers payment as per a sanctioned scheme but the nodal agency refuses to accept the same, such delay cannot be attributed to the company nor can it extinguish the company's rights under the scheme. Silence of the State Government in the face of such offers amounts to acquiescence and deemed consent (Paras 26, 27 and 28)
Facts of the case:
A company, declared sick under the relevant law, had a rehabilitation scheme sanctioned by the Board for Industrial and Financial Reconstruction. The scheme provided that the State Government would accept 26.5% of the existing sales tax loan in full and final settlement, waiving the interest and balance. Although the nodal agency raised objections, the High Court sanctioned the scheme. The company attempted to make payments as per the scheme on multiple occasions between 2007 and 2014, but the nodal agency refused to accept the sums, later demanding the full original loan amount along with interest in 2017. The company eventually deposited the 26.5% settlement amount in July 2017.
Findings of Court:
The sanctioned scheme is binding on all stakeholders, including the State Government. Since the High Court's order approving the scheme was not challenged, it attained finality. The refusal of the nodal agency to accept the settled amount, while shifting the burden to the State Government, does not invalidate the scheme. The demand for the full loan amount is illegal, arbitrary and unjustified.
Issues: Whether the sanctioned rehabilitation scheme is binding on the State Government and whether the delay in the company approaching the court or making payment defeats its claim.
Ratio Decidendi: The court ruled that the objective of the legislation is to revitalize sick companies and that a sanctioned scheme is binding on all creditors, including unsecured ones. Once a scheme is approved by the court and remains unchallenged, it binds all stakeholders regardless of the company's subsequent profitability. Delay in payment is not fatal if the delay is caused by the creditor's refusal to accept payment.
Result: Appeal allowed in part. The demand letter dated 06 July, 2017 is quashed. The company is directed to deposit interest @ 12% per annum on the amount already deposited for the period from 15 March, 2007 to 27 July, 2017.
Legal Category Hierarchy
- administrative law
- practice and procedure
- corporate and insolvency law
Table of Contents
2. Petitioner argues scheme binds all; respondents contend delay and lack of state consent disentitle relief. (Para 9 , 10 , 11 , 12 , 13 , 14 , 15 )
3. Scheme sanctioned by BIFR and confirmed by High Court binds all parties including state government. (Para 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 )
4. SICA rehabilitation scheme binding on all creditors and state; delay not attributable to petitioner. (Para 20 , 21 , 22 , 24 , 28 , 30 )
5. Appeal allowed partly; quashes demand; directs petitioner to pay interest on deposited amount. (Para 31 , 32 , 33 )
6. Is a BIFR-sanctioned rehabilitation scheme binding on the state government and its agencies?
Yes, once the scheme is sanctioned by BIFR and confirmed by the High Court, it binds all parties including the state, which is bound by its nodal agency's objections. (Para 20 , 21 , 22 , 24 , 25 , 28 , 30 )
7. Does delay in payment by the petitioner under a rehabilitation scheme extinguish the scheme's benefits?
No, if the delay is not attributable to the petitioner but to the respondents' refusal to accept payment, the petitioner remains entitled to the scheme's benefits. (Para 26 , 27 , 28 )
8. What is the effect of the state government's silence on a rehabilitation scheme?
Silence amounts to acquiescence and deemed consent under Section 19 of SICA, and the state cannot later challenge the scheme. (Para 28 )
JUDGMENT :
SANJEEV PRAKASH SHARMA, ACJ.
1. By way of this appeal, the writ petitioner assails the judgment passed by the learned Single Judge whereby, he dismissed the writ petition rejecting the prayer made by the petitioner for quashing the notices issued by the respondent No.2-Rajasthan State Industrial Development and Investment Corporation Ltd. (for short, 'RIICO'), for recovery of the amount of Interest Free Sales Tax Loan (hereinafter referred as 'IFSTL') alleged to be outstanding as against the petitioner-company.
2. The brief facts which have come on record are that the petitioner-company earlier known as Modi Alkalies & Chemicals Limited had availed two loans for the period from 1985-1991 from RIICO as under:
"i. Interest Free Sales Tax Loan (IFSTL) under the IFSTL Scheme, 1976 of a sum of Rs. 257.53 lakhs.
ii. Term Loan (TL) of Rs. Rs.81.68 lakhs from the RIICO."
3. On 30 June, 2000, the company filed a reference under Sick Industrial Companies (Special Provisions) Act, 1985 (for brevity, 'SICA') before the Board for Industrial and Financial Reconstruction (for short, 'BIFR') and vide order dated 15th January, 2002, the petitioner-company was declared as a sick company within meanings of Section 3(1)(O) of SICA and Industrial Development Bank of India (IDBI) was appointed as the Operating Agency (OA).
4. A Rehabilitation Scheme was circulated by the BIFR on 22 September, 2006 and invited objections from all the creditors in terms of Sections 18 and 19 of the SICA. After receiving objections and considering the same, the BIFR sanctioned the Scheme on 30 November, 2006. RIICO only filed objections with respect to the secured term loan and the same were recorded in the Sanctioned Scheme. As regards IFSTL, neither the State Government nor RIICO filed objections and as per the Sanctioned Scheme relating to Government of Rajasthan, it was noticed as under:
"10.8 Government of Rajasthan :
1. ..................................
2. To Accept the repayment of 26.5% (Rs.40.48 Lakhs) of the existing Sales Tax Loan (Rs.152.76 Lakhs) in full and final settlement of the dues and to waive entire interest, penalty and balance of the sales tax loan. The settlement amount shall be paid over a period of 7 years in equal annual installments on interest free basis. The first such installment shall be paid at the end of one year from the date of sanction of scheme by BIFR."
5. Objections were raised by the IIBI Ltd., UTI and RIICO for reconsideration and modification of the Scheme which were rejected by the High Court vide its order dated 15th March, 2007 in terms of Section 391 of the Companies Act, 1956 (for short, Act of 1956) and the Rehabilitation Scheme was approved. The term loan was paid to the secured creditors and as per the settlement scheme, the State Government was to be paid 26.5% of the outstanding principal amount and the same attained finality. No appeal was preferred to the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) under the SICA. On 30 May, 2007, the RIICO issued the Non-Objection Certificate (NOC) for the term loan. However, it demanded from the petitioner to pay overdues of Rs.1,52,75,480/- towards principal and Rs.2,83,37,193/- towards interest with respect to the IFSTL.
6. The petitioner submitted objections for demand of such loan contending that the Rehabilitation Scheme had been brought into force and therefore, the IFSTL was not required to be paid as a whole, but only 26.5% of the principal amount was to be paid by the petitioner company. The RIICO, however, refused to accept the contention and sent the matter to the State Government for decision on the ground that it was the State which had disbursed the amount.
7. It is stated by the learned counsel that the company sent several letters to the RIICO to withdraw its claim of the IFSTL amount and to accept the amount as decided under the Scheme and grant its acceptance, however, the RIICO did not respond. In the meanwhile, it is stated that th
