2008 (7) TMI 860 - HC - VAT and Sales Tax

Whether the respondents are entitled to proceed to recover the amounts from the assets of the company without resorting to the provisions of the SICA, namely, by obtaining necessary permission from the BIFR, wherein the matter is pending? Held that - The respondents cannot proceed with either distress action as it is seen in respect of the Commercial Tax Department or for recovery of amount by the Public Works Department unless consent is obtained from the BIFR. It is always open to the respondents in these cases to take necessary steps to implead themselves before the BIFR and seek permission for the purpose of recovery of the amount from the assets of the petitioner s-company, which has been declared as sick company , in which event, it is for the BIFR to decide on merit and based on the scheme that may be formulated as per the provisions of the SICA. W.P. allowed.

Summary

Issues Involved:
1. Recovery of sales tax dues from a sick company.
2. Recovery of water usage charges from a sick company.
3. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on recovery proceedings.

Detailed Analysis:

Recovery of Sales Tax Dues from a Sick Company:
The petitioner-company, declared as a "sick company" by the Board for Industrial and Financial Reconstruction (BIFR) under Section 15(1) of the SICA, was subjected to a distraint order issued by the Commercial Tax Officer for recovery of sales tax dues amounting to Rs. 5,05,30,050. The court examined whether such recovery actions could proceed without the consent of the BIFR. Referring to Section 22 of the SICA, which suspends legal proceedings against a sick company, the court emphasized that no coercive steps could be taken for recovery of arrears of tax without obtaining permission from the BIFR. The Supreme Court's ruling in Tata Davy Ltd. v. State of Orissa was cited, which held that the recovery of tax dues from sick industrial companies must be suspended unless consent is obtained from the BIFR.

Recovery of Water Usage Charges from a Sick Company:
Similarly, the Executive Engineer, Public Works Department, issued an order directing the petitioner-company to pay Rs. 49,34,032 for drawing water from the Amaravathi river. The court considered whether such recovery could proceed without BIFR's consent. The court reiterated the principles laid down in Section 22 of the SICA, which suspends proceedings for execution, distress, or recovery against the properties of a sick company. The Supreme Court's decision in Gram Panchayat v. Shree Vallabh Glass Works Ltd. was referenced, which held that recovery actions against a sick company must be suspended unless approved by the BIFR.

Applicability of Section 22 of the SICA on Recovery Proceedings:
The court analyzed Section 22 of the SICA, which suspends legal proceedings, contracts, and recovery actions against a sick company during the pendency of inquiry or scheme preparation under Sections 16 and 17 of the SICA. The court emphasized that this provision overrides other laws, including the Companies Act, 1956, and any other law, ensuring that no recovery actions can proceed without BIFR's consent. The court cited the Supreme Court's interpretation in Tata Davy Ltd. and Gram Panchayat cases, affirming that the suspension of recovery proceedings is mandatory to facilitate the rehabilitation of sick companies.

In conclusion, the court held that the respondents could not proceed with recovery actions against the petitioner-company without obtaining consent from the BIFR. The writ petitions were allowed, and the impugned orders were set aside. The respondents were directed to seek permission from the BIFR for recovery of the dues, and it was left to the BIFR to decide based on the rehabilitation scheme. The court's decision underscores the protective mechanism of the SICA to aid in the rehabilitation of sick industrial companies by suspending recovery actions during the pendency of BIFR proceedings.