2006 (6) TMI 540 - HC - Companies Law

Summary

Issues Involved:

1. Whether the respondents could attach the properties of the petitioner for the recovery of excise duty after the petitioner-company was declared a sick company.
2. Interpretation and application of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, regarding the suspension of legal proceedings against a sick company.

Detailed Analysis:

1. Attachment of Properties for Recovery of Excise Duty:

The primary issue in this case was whether the respondents were entitled to attach the properties of the petitioner-company for the recovery of excise duty after the company was declared a sick industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985. The petitioner challenged the attachment proceedings initiated by the respondents, arguing that once a company is declared sick and an operating agency is appointed, coercive recovery methods cannot be enforced against it. The respondents contended that the Act did not prevent them from enforcing claims of excise duty, which becomes due at the time of production. The court examined the provisions of the Act, particularly Section 22, which suspends certain proceedings against a sick company.

2. Interpretation and Application of Section 22 of the Act:

Section 22 of the Act provides for the suspension of legal proceedings against a sick industrial company during the pendency of an inquiry under Section 16 or the preparation or implementation of a scheme under Section 17. The court noted that this provision prohibits proceedings for the winding up of the company, execution, distress, or the like against the properties of the company, except with the consent of the Board or the Appellate Authority. The court referred to several Supreme Court judgments, including Gram Panchayat v. Shree Vallabh Glass Works Ltd., Real Value Appliances Ltd. v. Canara Bank, and Rishab Agro Industries Ltd. v. P.N.B. Capital Services Ltd., which consistently held that proceedings against the properties of a sick company are automatically suspended once an inquiry under Section 16 is ordered or a scheme is under preparation.

The court further analyzed the judgment in Dy. CTO v. Corromandal Pharmaceuticals, which suggested that Section 22's suspension applies only to dues included in a sanctioned scheme. However, the court found that this judgment did not apply to the present case, as the scheme for the petitioner-company was yet to be sanctioned. Therefore, the court concluded that the respondents could not attach the property of the sick company without the Board's consent.

Conclusion:

The court allowed the writ petition, quashing the impugned attachment order. It held that the respondents were not entitled to attach the properties of the petitioner-company for the recovery of excise duty without the consent of the Board, as a scheme was under preparation. The petitioner-company was advised to seek remedies available in law after obtaining permission from the Board.