2023 (4) TMI 909 - HC - Indian Laws

Initiation of recovery proceedings - recovery of amount towards the ESI dues of another company M/s.Jeetstex Engineering Limited - company declared as sick company - grievance of the petitioner is that as per the Sanctioned Scheme, the contribution towards ESI as on the date of merger got nullified and all the departments including ESI shall waive interest, penal interest, damages, liquidated damages and penalty for late payments, if any - overriding provisions of SICA - HELD THAT - Reliance placed upon a judgment of a Division Bench of Delhi High Court in Director General of Income Tax Vs. BIFR 2011 (3) TMI 1467 - HIGH COURT OF DELHI , where it was held that a draft scheme is sanctioned under the provisions of Sub-section (4) of Section 18 of the SICA. Once a draft scheme is sanctioned it is binding on those concerned as is reflected in Sub-section (8) of Section 18 and Section 19(3) of SICA. Thus, once a sanctioned scheme or any of its provisions is made operable it binds the sick industrial company, and the entities referred to in Section 18(8) and 19(3) of SICA. In these circumstances, the Department cannot surely be head to argue that the provisions of the scheme are not binding on it. The above judgment is directly on the issue. By virtue of Section 19 (2) of SICA, the consent can be inferred. Therefore, it is not open to the ESI Corporation to revive the liability of a sick company by operation of statutory discharge. The impugned order passed by the third respondent is quashed - Petition allowed.

Summary

Issues Involved:
1. Legality of the demand for ESI dues from the petitioner.
2. Applicability and binding nature of the Sanctioned Scheme under SICA.
3. Waiver of interest, penal interest, damages, and penalties under the Sanctioned Scheme.

Issue-wise Detailed Analysis:

1. Legality of the demand for ESI dues from the petitioner:
The petitioner, M/s. Lakshmi Machine Works Limited, challenged the demand made by the third respondent for Rs.19,03,339 towards ESI dues of M/s. Jeetstex Engineering Limited, which had been merged with the petitioner. The petitioner argued that the demand was illegal and unsustainable as it contravened the Sanctioned Scheme approved under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The court found that the demand was indeed illegal and quashed the impugned order, emphasizing that the Sanctioned Scheme under SICA was binding on all parties, including the respondents.

2. Applicability and binding nature of the Sanctioned Scheme under SICA:
The court examined the provisions of SICA, particularly Section 19(2), which mandates that a scheme sanctioned under SICA is binding on all stakeholders, including statutory authorities. The Sanctioned Scheme for the merger of M/s. Jeetstex Engineering Limited with the petitioner was approved by the Board for Industrial and Financial Reconstruction (BIFR) on 25.05.2006 and confirmed by the Appellate Authority for Industrial and Financial Reconstruction (AIFR) on 24.09.2007. The court referred to Section 32(1) of SICA, which states that the provisions of SICA and any schemes made thereunder shall have effect notwithstanding anything inconsistent in any other law. Thus, the Sanctioned Scheme had the force of law and was binding on all parties, including the ESI Corporation.

3. Waiver of interest, penal interest, damages, and penalties under the Sanctioned Scheme:
The petitioner contended that as per the Sanctioned Scheme, all departments, including the ESI Corporation, were required to waive interest, penal interest, damages, liquidated damages, and penalties for late payments. The court upheld this contention, noting that the Sanctioned Scheme explicitly provided for such waivers. The court also cited a judgment of the Delhi High Court in Director General of Income Tax Vs. BIFR, which reinforced the binding nature of schemes sanctioned under SICA and the requirement for statutory authorities to comply with the provisions of such schemes.

Conclusion:
The court concluded that the demand made by the third respondent for ESI dues was illegal and unsustainable. The Sanctioned Scheme under SICA was binding on all parties, including the ESI Corporation, and required the waiver of interest, penal interest, damages, and penalties. Consequently, the writ petition was allowed, and the impugned order was quashed.