9911796707
TMI Blog2006 (3) TMI 709X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent to drop all the proceedings, in vain. In the meanwhile, the petitioner was declared as sick industrial company in case No. 236 of 1998, under the Sick Industrial Companies (Special Provisions) Act, 1985 ( SICA , for brevity). Therefore, the petitioner has filed the present writ petition in 1999 seeking a writ of mandamus declaring the action of the respondents in proceeding under the R. R. Act as illegal and arbitrary. The petitioner states that the demand made by the first respondent is illegal and violative of articles 14 and 19(1)(g) of the Constitution of India, that the petitioner is taking necessary steps to question the demand made by the second respondent and that though only show cause notice is issued under the R. R. Act, the first respondent is regularly visiting the factory to attach and sell its properties. It is also alleged that two thousand employees in the petitioner-industry would suffer if the properties are attached and sold. The second respondent filed a counter-affidavit, wherein it is stated that the petitioner is an assessee under the U. P. Trade Tax Act, 1948 ( the Trade Tax Act , for brevity) as well as Central Sales Tax Act, 1956, having bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecovery of all amounts remain suspended and therefore, the impugned notice issued by the respondents is illegal and in contravention of the provisions of SICA. He placed reliance on Gram Panchayat v. Shree Vallabh Glass Works Ltd. [1992] 86 STC 41 (SC); AIR 1990 SC 1017; [1991] 71 Comp. Cas 169 (SC), Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals [1997] 105 STC 327 (SC); AIR 1997 SC 2027; [1997] 89 Comp. Cas 1 (SC), Tata Davy Ltd. v. State of Orissa [1998] 111 STC 462 (SC); AIR 1998 SC 2928, Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd. AIR 2000 SC 1583 and Patheja Bros. Forgings and Stamping v. I.C.I.C.I. Ltd. AIR 2000 SC 2553. The learned Assistant Government Pleader for Revenue (General), Sri Surya Kiran, while placing strong reliance on Corromandal Pharmaceuticals [1997] 105 STC 327 (SC); AIR 1997 SC 2027, would urge that even when a company is declared as sick company, the recovery of sales tax dues is not barred under law. He would point out that section 22 of SICA results in automatic stay of only certain proceedings and the proceedings for recovery of sales tax have not been specifically mentioned in section 22 of SICA and that there is no ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and there depending on the circumstances of each case. Section 19 of SICA deals with winding up of the sick industrial company on recommendation of the BIFR. Sections 22 and 22A [as inserted by the Sick Industrial Companies (Special Provisions) Amendments Act, 1993], deal with interim measures to protect the sick company so as to stop further erosion of its net worth during the pendency of the proceedings before BIFR or during the implementation of the scheme framed by it under section 18 of SICA. Section 22A of SICA empowers the BIFR to direct the sick company not to dispose of the assets of the company during the period of preparation and consideration of the scheme under section 18 and during the winding up proceedings before the High Court. Section 22 of the SICA for the last decade has generated controversy with regard to stay of various civil, criminal and company proceedings against a company, which approached BIFR. Section 22(1) is relevant and before considering its other sub-sections as well, it may be extracted. 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd awards by or against a sick company pending action under sections 16 to 18 of SICA. Sub-section (4) of section 22 of SICA is to the effect that the order/ declaration by BIFR under sub-section (3) will have overriding effect notwithstanding any agreement or any decree or order of the court, Tribunal, officer or other authority. It further lays down that the remedy for enforcement of any right, privilege or obligation, remains suspended only till the declaration by BIFR under sub-section (3) is in force and under sub-section (5) of section 22 of SICA, the period of limitation does not run during the force of the declaration by BIFR. The proviso to sub-section (3) of section 22 of SICA is very important. It lays down that the declaration by BIFR (prohibiting and suspending all actions against sick companies) shall not 1. Here italicised. be made for a period exceeding two years, which can be extended from time to time not exceeding a total period of seven years in aggregate. The analysis of all the sub-sections in section 22 of SICA would show that the Parliament consciously did not prohibit the recovery of arrears due to the sovereign nor the provision prohibits recovery of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 11.. It may be against the principles of equity if the creditors are not allowed to recover their dues from the company, but such creditors may approach the Board for permission to proceed against the company for the recovery of their dues/outstandings/overdues or arrears by whatever name they are called. The Board, at its discretion, may accord its approval for proceeding against the company. If the approval is not granted, the remedy is not extinguished. It is only postponed. Sub-section (5) of section 22 provides for exclusion of the period during which the remedy is suspended while computing the period of limitation for recovering the dues. The ratio in Shree Vallabh Glass Works [1992] 86 STC 41 (SC); AIR 1990 SC 1017, that section 22(1) bars the creditors of the sick company from proceeding with the suit execution or attachment of the properties. What all section 22(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and fair in all the circumstances of the case. Under the statute, the BIFR is to consider in what way various preventive or remedial measures should be afforded to a sick industrial company. In that behalf, BIFR is enabled to frame an appropriate scheme. To enable the BIFR to do so, certain preliminaries are required to be followed. It starts with the reference to be made by the board of directors of the sick company. The BIFR is directed to make appropriate inquiry as provided in sections 16 and 17 of the Act. At the conclusion of the inquiry, after notice and opportunity afforded to various persons including the creditors, the BIFR is to prepare a scheme which shall come into force on such date as it may specify in that behalf. It is in implementation of the scheme wherein various preventive remedial or other measures, are designed for the sick industrial company, steps by way of giving financial assistance, etc., by Government, banks or other institutions, are contemplated. 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 Government, banks, public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed against the appellant under the Orissa Sales Tax Act, 1947. On challenge, the High Court of Orissa decided against the appellant holding that section 22(1) of SICA is not a bar to initiate recovery proceedings against the assessee. Before the Supreme Court, reliance was placed on Shree Vallabh Glass Works [1992] 86 STC 41 (SC); AIR 1990 SC 1017. Following the same, the appeal was allowed observing that Tata Davy Limited and other appellants were not enabled to collect tax due to the Revenue from the customers after the sanctioned scheme and the sick unit cannot be said to have simply folded its hands and declined to pay it over to the Revenue. The observations made by the Supreme Court are as follows: (para 13 in AIR; para 11 in STC) The Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals [1997] 105 STC 327 (SC); [1997] 89 Comp Cas 1 (SC) judgment dealt with a sick industrial company which was enabled to collect amounts like sales tax after the date of the sanctioned scheme. This court said, 'such amounts like sales tax, etc., which the sick industrial company is enabled to collect after the date of the sanctioned scheme, legitimately belonging to the Revenue, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powered to reduce the quantum of damages that may be required to be paid by a company in relation to an establishment which is a sick industrial company and in respect of which a Scheme for rehabilitation has been sanctioned by the BIFR subject to such terms and conditions as may be specified in the scheme. When the provisions of sections 14B were inserted, Parliament took cognizance of the provisions of the EPF Act and in its wisdom only the recovery of damages was permitted to be reduced or waived subject to the conditions provided thereunder. Even the conditions specified in para 32-B of the scheme do not provide for any provision exempting a sick company from paying the provident fund contributions collected from the wages of the employees or prohibiting the authority under the EPF Act from proceeding against such employers who defaulted to remit the contributions collected from the wages of the employees to the provident fund, in accordance with the provisions of the EPF Act. Though the learned counsel cited the other decisions of the Supreme Court in Real Value Appliances Ltd. v. Canara Bank AIR 1998 SC 2064, Rishabh Agro Industries Ltd. AIR 2000 SC 1583 and Patheja Bros ..... X X X X Extracts X X X X X X X X Extracts X X X X
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