2004 (3) TMI 426 - HC - Companies Law

Summary

Issues Involved:
1. Whether any inquiry is pending under section 16(1) so as to entitle the petitioner to protection under section 22 of the SICA.
2. Whether the petitioner is entitled to the protection under section 22 of the SICA in respect of the current sales-tax dues which the petitioner is collecting from the purchasers for the period during the pendency of the reference before the BIFR.

Detailed Analysis:

1. Inquiry Pending Under Section 16(1):

The petitioner claimed immunity from coercive recovery of sales-tax dues, arguing that they were registered as a sick industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The petitioner approached the BIFR, and a reference was registered as Case No. 149 of 2001. However, the BIFR rejected the reference on 24-1-2002 on the grounds of being time-barred. The petitioner appealed to the Appellate Authority for Industrial and Financial Reconstruction (AAIFR), and during the pendency of the appeal, the petitioner filed these petitions challenging the sales-tax recovery actions.

The respondents contended that since the BIFR had rejected the reference, no inquiry was pending, and thus, protection under section 22 of the SICA was not available. However, during the pendency of these petitions, the BIFR registered the petitioner as a sick industrial company for subsequent years (ending on 31st March 2001, 2002, and 2003), thus commencing an inquiry under section 16(1) as per the communications dated 19th January 2004.

The court held that the inquiry under section 16(1) commenced on 19-1-2004, following the principle laid down by the Apex Court in Real Value Appliances Ltd. v. Canara Bank, which stated that once the reference is registered, an inquiry under section 16(1) is deemed to have commenced.

2. Protection Under Section 22 of the SICA for Current Sales-Tax Dues:

The petitioner argued that they were entitled to protection under section 22 of the SICA for current sales-tax dues collected during the pendency of the reference before the BIFR. They relied on various judgments, including Tata Davy Ltd. v. State of Orissa, which held that arrears of taxes due from sick industrial companies could not be recovered by coercive process without the BIFR's consent.

The respondents countered that sales-tax collected by the petitioner from purchasers as a trustee of the State must be paid over to the State Government. They argued that protection under section 22 of the SICA would only apply to sales-tax amounts due on the date of filing of the reference before the BIFR and not to current dues collected after the registration.

The court distinguished between three periods:
(i) The period up to the date of registration of the company as a sick industrial company.
(ii) The period from the date of registration till the sanction of the rehabilitation scheme by the BIFR.
(iii) The period after the sanction of the rehabilitation scheme.

For the first period, the court held that the State is prohibited from recovering arrears of sales-tax without the BIFR's consent as the amounts collected have been intermingled with the company's properties. For the third period, the court referenced the Apex Court's decisions in Dy. CTO v. Corromandal Pharmaceuticals and Tata Davy Ltd., which stated that amounts like sales-tax collected after the sanction of the scheme legitimately belong to the revenue.

For the second period, the court held that the State Government is entitled to refuse to give any concessions or reliefs for current sales-tax dues and can demand payment of sales-tax amounts collected by the company from purchasers. The court emphasized that the State Government cannot be compelled to grant relief or concession for current dues without its consent, as provided under section 19 of the SICA.

Conclusion:

The court restrained the State Government from making any coercive recovery of sales-tax dues from the petitioner for the period until 31st March 2004 without the prior consent of the BIFR. However, it allowed the State Government to take appropriate action for sales-tax amounts collected by the petitioner from 1-4-2004 onwards. The court also declined the petitioner's request for a certificate of fitness to appeal to the Supreme Court, as the judgment did not involve a substantial question of law of general importance. The request for extending interim relief was also rejected.