1990 (3) TMI 322 - SC - VAT and Sales Tax

Whether the panchayat could not recover the amount due to it from out of the properties of the sick industrial company without the consent of the Board? Held that - Appeal dismissed. High Court was justified in quashing the recovery proceedings taken against the properties of the company as it may be against the principles of equity if the creditors are not allowed to recover their dues from the company, but such creditors may approach the Board for permission to proceed against the company for the recovery of their dues/outstandings/overdues or arrears by whatever name they are called. The Board, as its discretion, may accord its approval for proceeding against the company. If the approval is not granted, the remedy is not extinguished. It is only postponed. Sub-section (5) of section 22 provides for exclusion of the period during which the remedy is suspended while computing the period of limitation for recovering the dues.

Summary

Issues:
- Interpretation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985
- Authority of the Board for Industrial and Financial Reconstruction in sick industrial company matters
- Rights of creditors to recover dues from a sick industrial company

Interpretation of Section 22:
The judgment revolves around the interpretation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. Section 22 provides for the suspension of legal proceedings against a sick industrial company under certain circumstances, such as pending inquiries or schemes. The section outlines that proceedings like winding up, execution, or appointment of a receiver against the company's properties are to be suspended unless the Board or appellate authority grants consent. The automatic suspension of these proceedings aims to protect the interests of the sick industrial company during restructuring or revival processes.

Authority of the Board:
The judgment emphasizes the authority of the Board for Industrial and Financial Reconstruction in matters concerning sick industrial companies. The Board is empowered under the Act to conduct inquiries to determine the status of a company as a sick industrial company. Once a company is deemed sick, the Board can take various steps, including appointing operating agencies to prepare revival schemes and safeguarding the company's financial interests. The Board's decisions, such as appointing special directors and approving schemes, have a significant impact on the legal proceedings against the company's properties.

Rights of Creditors:
The judgment also addresses the rights of creditors to recover dues from a sick industrial company. While it may seem inequitable to prevent creditors from recovering their dues, the Act provides a mechanism for creditors to seek permission from the Board to proceed with recovery actions. If the Board does not grant approval, the creditors' remedy is postponed, not extinguished. The Act ensures that the period during which the remedy is suspended is excluded when calculating the limitation for recovering dues. This approach balances the interests of creditors with the protection of the sick industrial company during restructuring.

In conclusion, the Supreme Court upheld the High Court's decision to quash the recovery proceedings against the properties of the sick industrial company. The judgment affirms the importance of following the provisions of the Act, particularly Section 22, to safeguard the interests of sick industrial companies undergoing restructuring processes.