9911796707
TMI Blog2006 (6) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... and the paid up capital is Rs. 3379.78 lakhs of equity shares of Rs. 1000/- each. 3. The Company ran into losses and ultimately on 23-8-2004, it approached The Board for Industrial and Financial Reconstruction (hereinafter referred to as 'the Board') under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as 'the Act') for a declaration that the Company was sick and for grant of a scheme for rehabilitation. The Company was declared a sick Company within the meaning of the Act on 6-10-2005. Attachments were ordered by respondents on 16-1-2006 and 27-1-2006. The State Bank of India was appointed as operating agency under Section 17(3) of the Act with a direction to prepare a viability study report and revival scheme for the Company. 4. These facts are not disputed. The only question is whether, after declaration of a Company as a sick Company and after appointment of an operating agency in terms of Section 17(3) of the Act, the respondents could use coercive methods in order to recover the dues on account of excise duty. 5. The contention of the petitioner is that after the declaration that the petitioner-Company was a sick ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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 enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company] shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. 2. Where the management of the sick industrial company is taken over or changed [in pursuance of any scheme sanctioned under section 18], notwithstanding anything contained in the Companies Act, 1956 or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law (a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company; (b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded." 14. This Section lays down that without the consent of the Board or the appellate authority as the case may be, 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 there of, can be appointed. The requirements for this prohibition are that an inquiry contemplated under Section 16 of the Act should be pending, or a scheme under Section 18 is under preparation, or a sanctioned scheme is under implementation, or an appeal under Section 25 of the Act should be pending. Admittedly, in the present case, a scheme is under preparation and therefore, in our view, the respondents could have not attached the property belonging to the sick Company. 15. There has been consistent view of Supreme Court in this regard and reference has been made to a judgment in the case of The Gram Panchayat v. Shree Vallabh Glass Works Ltd. This was a case where dues were sought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board under Ss. 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 S.16 is ordered by the Board, the various proceedings set out under sub-section (1) of S. 22 would be deemed to have been suspended." 16. In the case of Real Value Appliances Ltd. v. Canara Bank, the Supreme Court was essentially interpreting Section 16 of the Act along with Section 22. In para 21 it said "21. It is to be noticed that according to Section 22, in case an "inquiry under Section 16" is pending, then, notwithstanding anything in the Companies Act or any other instrument etc., no proceedings for the winding up of the company or for execution or distress or the like against the property of the company or for the appointment of a receiver and no suit for recovery of money or enforcement of any security or of any guarantee - shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ursued 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 of the Act 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 of the Act is certainly wide. But, in the totality of the circumstances, the safeguard is only against the impediment, that is likely to be caused in the implementation of the scheme. If that be so, only the liability or amounts covered by the scheme will be taken in, by Section 22 of the Act. So, we are of the view that though the language of Section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started, till after the implementation of the scheme or the disposal of an appeal under Section 25 of the Act, it will be reasonable to hold that the bar or embargo envisaged in Section 22(1) of the Act can apply only to such of those dues reckoned or included in the sanctioned scheme. Such amounts like sales tax, etc., which the sick ..... X X X X Extracts X X X X X X X X Extracts X X X X
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