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2016 (5) TMI 771 - SC - Companies LawRehabilitation Scheme - attachment of movable or immovable assets of the company - whether the Company was not entitled to get the period of rehabilitation scheme extended? - Held that - Sanctioned Scheme (SS-02) has outlived its life which came to an end on 31st March, 2011. the Revenue is, thus, entitled to recover its dues. We are not deciding this issue in the present appeal and permit the parties to approach the Board seeking clarification as to what was meant by the words to consider i.e., whether the Board meant that it was mandatory on the part of the Revenue to waive the interest and penalty or it was only recommendatory and, therefore, it was upto to the Department to agree or not to agree to the said request. The jurisdiction of the Board, whenever such application is filed, would be limited to the aforesaid aspect alone and the Board shall decide the issue within the period of two months. Otherwise, we make it clear that as the Scheme has lapsed no further proceedings of any nature are to be entertained by the Board including the application for modification filed by the Company and pending before the Board. The Income Tax Department shall be entitled to take steps for attachment of the properties of the Company, including Ville Parle land as per the provisions of the Income Tax Act and shall be entitled to sell the same. If there are any secured creditors in respect of these properties, such attachment and sale shall be subject to the rights of those creditors. Out of the proceeds, the Principal amount of tax due to the Income Tax Department and even the admitted excise dues shall be paid to the Revenue. Insofar as payment of interest and penalty is concerned, that would be dependent upon the decision which the Board would give. Before parting with, we may point out that M/s. Sheth Developers Private Limited and Suraksha Realty Limited have filed applications to intervene in the matter as they submit that in respect of Ville Parle Land, MOU was entered into by the Company with them. However, once it is found that such an agreement was in violation of the Scheme, the arrangement with the aforesaid interveners entered into by the Company loses its legal force and no right would accrue to these interveners on the basis of the said agreements. We, thus, dismiss the plea raised by the intervener.
Issues Involved:
1. Determination of the Company's status as a sick industrial company. 2. Approval and implementation of the Draft Rehabilitation Scheme (DRS). 3. Income tax reliefs and concessions proposed and sanctioned. 4. Modification of the rehabilitation scheme and extension of its duration. 5. Recovery of outstanding income tax dues by the Revenue. 6. Jurisdiction of the Board after the Company's net worth turned positive. 7. Validity of the Company's actions and agreements post-rehabilitation. 8. Quantum of dues recoverable by the Revenue. Detailed Analysis: 1. Determination of the Company's status as a sick industrial company: The Company became a sick industrial company in 1997 as its net worth had eroded. It filed a reference before the Board of Industrial and Financial Reconstruction (BIFR) under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The Board conducted an enquiry and appointed the Managing Director of State Bank of India as the Operating Agency (OA) to prepare a report. The Board confirmed the Company's status as a sick industrial company and initiated the preparation of a Draft Rehabilitation Scheme (DRS). 2. Approval and implementation of the Draft Rehabilitation Scheme (DRS): The DRS was prepared by the OA and circulated by the Board on 14.01.2000. The scheme included various income tax reliefs such as exemption from Section 41(1) of the Income Tax Act, carry forward of unabsorbed losses, lifting of attachment orders, waiver of interest and penalties, and exemption from capital gains tax. The scheme was sanctioned by the Board on 16.02.2002, with specific income tax reliefs incorporated. 3. Income tax reliefs and concessions proposed and sanctioned: The sanctioned scheme included several income tax reliefs: - Exemption from Sections 41(1), 115JB, 43-B, and 72(3) of the Income Tax Act. - Waiver of interest and penalties during the rehabilitation period. - Exemption from capital gains tax on the sale of surplus land. - Exemption from TDS on payments received by the Company. Additionally, the Board directed the Income Tax Department to lift attachment orders and suspend recovery proceedings during the rehabilitation period. 4. Modification of the rehabilitation scheme and extension of its duration: The cut-off date for the scheme was initially 31.12.1998, later changed to 31.03.2003, with the rehabilitation period extended to 31.03.2011. The Company sought further extension, claiming delays due to coercive actions by the Revenue. However, the Board and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) found no merit in this claim and refused the extension, noting that the Company had violated the scheme by selling assets without prior approval. 5. Recovery of outstanding income tax dues by the Revenue: The Revenue filed a petition under Section 22(1) of SICA to recover outstanding dues of ?426.37 crores. The Board directed the Revenue to release withheld amounts and expedite the settlement of disputed demands. The Company was required to pay dues arising after 01.04.2003 in the normal course, without protection under SICA. After the scheme lapsed on 31.03.2011, the Revenue demanded ?761.35 crores, including principal tax, penalties, and interest. 6. Jurisdiction of the Board after the Company's net worth turned positive: The Company's net worth turned positive on 31.03.2007, leading to its discharge from SICA. The Board's order stated that unimplemented provisions of the scheme would continue to be implemented by concerned agencies. The Revenue argued that the Company was no longer entitled to protection under SICA, and the High Court directed the Revenue to seek lifting of the bar under Section 22 from the Board. However, the Supreme Court found that the scheme had expired and the Company was no longer a sick company, allowing the Revenue to recover its dues. 7. Validity of the Company's actions and agreements post-rehabilitation: The Company entered into agreements for the sale and development of properties without prior approval, violating the sanctioned scheme. The AAIFR noted that the Company had altered the essential ingredients of the scheme, making extension untenable. The Supreme Court upheld this view, stating that the Company's actions were unauthorized and the agreements lost legal force. 8. Quantum of dues recoverable by the Revenue: The Revenue claimed ?652.45 crores as of 02.05.2016, including principal tax, penalties, and interest. The Company disputed the amount, arguing that interest and penalties should be waived as per the scheme. The Supreme Court permitted the parties to seek clarification from the Board on whether the waiver of interest and penalties was mandatory or recommendatory. The Revenue was allowed to attach and sell the Company's properties to recover the principal tax and admitted excise dues, with the payment of interest and penalties dependent on the Board's clarification. Conclusion: The Supreme Court allowed the Revenue to recover its dues, stating that the sanctioned scheme had expired and the Company was no longer protected under SICA. The Board was directed to clarify the waiver of interest and penalties, and the Revenue was permitted to attach and sell the Company's properties, subject to the rights of secured creditors. The appeal was allowed and disposed of on these terms.
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