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TMI Blog1997 (3) TMI 452X X X X Extracts X X X X X X X X Extracts X X X X ..... ny manufactures and markets bulk drugs and formulations. It was declared as a sick industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985 ('the Act') by the Board for Industrial and Financial Reconstruction ('the BIFR'). The Industrial Reconstruction Bank of India ('the IRBI') has been appointed as the operating agency. The BIFR sanctioned a scheme for the rehabili-tation of the petitioner in Case No. 160 of 1988 in exercise of its powers under section 18(4) read with section 19(3) of the Act after obtaining the consent of the concerned financial institutions, on 19-11-1990. The said sanctioned scheme was brought into force with immediate effect. It was modified later on 29-12-1993. Shortly stated, the said sanctioned scheme for rehabilitation of the company is under implementation. 4. The petitioner-company is an assessee to sales tax under the Andhra Pradesh General Sales Tax Act, 1957. It was assessed for the assessment year 1992-93 by order dated 3-1-1994, and for the year 1993-94 by order passed by in 1995. The sales tax authorities initiated action under section 17 of the Andhra Pradesh General Sales Tax Act for the recovery of the said dues. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the revenue moved this Court by way of S.L.P. No. 10474 of 1996 and has come in appeal. 5. We heard the counsel. For the purpose of resolving the controversy raised in this case, it will be useful to quote sections 22(1) and 22(5) as also the Board for Industrial and Financial Reconstruction Regulations, 1987, regulations Nos. 29 and 30 : "22 Suspension of legal proceedings, contracts, etc.-(1) Where, in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no Proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth. Explanation.-For the removal of doubts, it is hereby declared that an industrial company existing immediately before the commencement of the Sick Industrial Companies (Special Provisions) Amendment Act, 1993, registered for not less than five years and having at the end of any financial year accumulated losses equal to or exceeding its entire net worth, shall be deemed to be a sick industrial company." 6. Chapter III of the Act deals with References, Inquiries and Schemes. Section 15 thereof authorises the board of directors of the company to make a reference to the Board (BIFR) for determination of the measures which shall be adopted with respect to the company. Section 16 authorises the Board to make such inquiries as it may deem fit for determining whether any industrial company has become a sick industrial company. Where the Board is satisfied that a company has become a sick industrial company, it could give a reasonable time to the company to make its net worth positive [section 17(2)]. Where it is not practicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, and continues during the course of the inquiry, when a scheme is under preparation or consideration, and still later when the scheme is under implementation or even when an appeal under section 25 relating to the company is pending. It was urged that the inquiry itself will take time and the pendency of the proceedings from the date of the inquiry till the scheme is implemented or an appeal is disposed of, envisage going through various formalities and will take a long time. If the bar or embargo envisaged by section 22 is to cover the entire length of time, the situation may lead to very unreasonable or unintended state of affairs similar to the one in the present case; the suspension of proceedings specified in section 22 should be confined to matters included, in pre-package state of affairs only (in the sanctioned scheme) and not post-package matters like the instant one, which should be outside the pale or area of the 'sanctioned scheme'. The counsel submitted that when the scheme was sanctioned on 19-11-1990, there was no assessment for the sales tax for the years 1992-93 and 1993-94. The petitioner (assessee) itself could have collected sales tax for the said years only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty of the company without the consent of the Board. This Court, stated the law thus : "In the light of the steps taken by the Board under sections 16 and 17 of the Act, no proceedings for execution, distress or the like proceedings against any of the properties of the company shall lie or be proceeded further except with the consent of the Board. Indeed, there would be automatic suspension of such proceedings against the company's properties. As soon as the inquiry under section 16 is ordered by the Board, the various proceedings set out under sub-section (1) of section 22 would be deemed to have been suspended." [Emphasis supplied] (P. 173). 10. The above decision was followed by this Court in Maharashtra Tubes Ltd. v. State Industrial & Investment Corporation of Maharashtra Ltd. [1993] 2 SCC 144. The following portion of the had note sufficiently brings out the ratio relevant for the purpose of the present appeal: "Where an inquiry is pending under section 16/17 or an appeal is pending under section 25 of the 1985 Act there should be cessation of the coercive activities of the type mentioned in section 22(1) to permit the BIFR to consider what remedial measures it should take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In other words, the scheme is implemented or given effect to, by affording financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices by the Government, banks, public financial institutions and other authorities. In order to see that the scheme is successfully implemented and no impediment is caused to the successful carrying out of the scheme, the Board is enabled to have a say when the steps for recovery of the amounts or other coercive proceedings are taken against the sick industrial company which, during the relevant time, acts under the guidance/control or supervision of the Board. Any step for execution, distress or the like against the properties of the industrial company or other similar steps should not be pursued which will cause delay or impediment in the implementation of the sanctioned scheme. In order to safeguard such state of affairs, an embargo or bar is placed under section 22 against any step for execution, distress or the like or other similar proceedings against the company without the consent of the Board or, as the case may be, the appellate authority. The language of section 22 is certainly wide. But, in the totali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion that section 22(1) should be read down or understood as contended by the revenue. The decision to the contrary by the High Court is unreason-able and unsustainable. We set aside the judgment of the High Court and allow this appeal. There shall be no order as to costs. Reddy, J. - I agree respectfully with the opinion prepared by my learned brother, K.S. Paripoornan J. Looking at the provisions of the Act, I was wondering how out of tune the Act has become with the economic policies being pursued now in this country. Since 1991-92, we have launched upon, what is being called, the liberalisation of our economy. We have given up the policy of protecting our industries against foreign competition on the ground that it has given rise to an inefficient and outdated industrial system in our country. Our industries are suddenly being asked to compete with foreign companies, many of whom being giant multi-nationals have vast resources at their disposal. They are merrily gobbling up our poor native companies. Many local industries, unable to stand the said competition are joining the foreign giants in one form of venture or other. Several hundreds of small-scale and medium scale units ..... X X X X Extracts X X X X X X X X Extracts X X X X
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