Full Judgment Text
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PETITIONER:
DEPUTY COMMERCIAL TAX OFFICER & ORS
Vs.
RESPONDENT:
CORROMANDAL PHARMACEUTICALS & ORS.
DATE OF JUDGMENT: 12/03/1997
BENCH:
B.P. JEEVAN REDDY, K.S. PARIPOORNAN
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
Paripoornan, J.
Special leave granted.
2. Respondent 1 to 4 in writ petition No. 21973 of 1995
before the High Court of Andhra Pradesh representing the
Commercial Tax Department, Andhra Pradesh, are the
appellants in this appeal. The petitioner and respondents 5
and 6 in the writ petition are respondents 1 to 3 in this
appeal. This appeal is filed against the judgment and order
of the High Court of Andhra Pradesh dated 4.11.1995.
3. The petitioner in the writ petition is M/s. Corromandal
Pharmaceuticals Ltd. The said company manufacture and
markets bulk drugs and formulations. It was declared as a
sick industrial company under The Sick Industrial Companies
(Special Provisions) Act, 1985 (hereinafter referred to as
’the Act’ (Act No.1 of 1986) by the Board for Industrial and
Financial Reconstruction (shortly called ’BIFR’). The
Industrial Reconstruction Bank of India (shortly called
’IRBI’) has been appointed as the operating agency. The BIFR
sanctioned a scheme 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 years 1992-93 by order dated
3.1.1994 and for the year 1993-94 by order passed in 1995.
The Sales Tax authorities initiated action under Section 17
of the Andhra Pradesh General Sales Tax Act for recovery of
the said dues. It is seen that appeals were preferred from
the assessment orders and the appellate authority granted a
conditional order of stay to pay the tax assessed in
instalments. Even then, there was default. For the aforesaid
two years, the sales tax arrears due from the petitioner-
company is stated to be Rs.9,53,833/-. It is brought to our
notice that there are sales tax arrears for the years 1986-
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87 to 1992-93, but those arrears are not in question in this
appeal. We are concerned only with the collection of the
balance of tax Rs.9,53,833/- due for the assessment years
1992-93 and 1993-94. As stated, the assessment orders for
the said years were passed on 3.1.1994 and in 1995-- long
after the scheme was sanctioned by the BIFR on 19.11.1990.
5. The petitioner-company assailed the recovery
proceedings for the sales tax dues before the High Court. It
prayed for the issue of a writ of mandamus directing the
first and second respondents (commercial Tax Authorities)
not to proceed with the collection of balances sales tax
amount of Rs.9,53,833/- without the permission of BIFR, as
required under Section 22 of the Act (Act No.1/86), and for
other reliefs. The plea of the petitioner was that the
sanctioned scheme by BIFR for rehabilitation of the company
is under implementation, and so, no proceedings for
execution, distress or the like against the company, shall
lie except with the consent of the Board. According to the
Revenue, the arrears of the sales tax in question relate to
the period after the sanctioned scheme was brought under
implementation and that the leal embargo/bar under Section
22 of the Act is inapplicable since Section 22 of the Act
can apply only in respect of the sales tax dues included in
the "sanctioned scheme". Only those dues which were included
in "the package" in the sanctioned scheme will be governed
by the said bar. The High Court considered the rival pleas
in the light of the relevant statutory provisions, a few
decisions of this court and of other High Courts and held
that there is not warrant to import the limitation as
contended by the Revenue in applying Section 22 of the Act
and that no coercive steps for the purpose of recovery of
tax dues including action under Section 17 of the Andhra
Pradesh General Sales Tax Act ca be taken by the Revenue
without obtaining the consent of BIFR. The writ petition
filed b the first respondent herein--- the company, was
allowed. It is thereafter, the Revenue move this court by
way of S.L.P.No.10474/96 and has come in appeal.
6. We heard counsel. For the purpose of resolving the
controversy raised in this case, it will be useful to quote
Section 22(1) and 22(5) of the Act as also Board of
industrial and Financial Reconstruction Regulations, 1987,
regulation 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 ay 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
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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) ............................
(3) ...........................
(4) ...........................
(5) In computing the period of
limitation for the enforcement 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."
Regulation Nos. 29 & 30.
"29. The Board shall publish or
cause to be published short
particulars concerning the draft
scheme, by way of notification, in
such daily newspapers and
periodicals, as it may consider
necessary, inviting suggestions and
objections regarding the draft
scheme, within such time as may be
mentioned in the notification, from
the shareholders, creditors and
employees of the sick industrial
company, the sick industrial
company, the transferee company as
well as any other company concerned
in the amalgamation.
30. The Board shall consider the
suggestions and objections received
from the sick industrial company,
the operating agency or, as the
case may be, from the transferee
company and any other company
concerned in the amalgamation and
from any shareholder, creditor, or
employee or such industrial
companies."
(emphasis supplied)
It will be useful to understand the scheme of the Act
(No.1/1986); the Preamble to the Act states as follows :-
"An Act to make, in the public
interest, special provisions with a
view to securing the timely
detection to sick and potentially
sick companies owning industrial
undertakings, the speedy
determination by a Board of experts
of the preventive, ameliorative,
remedial and other measures which
need to be taken with respect to
such companies and the expeditious
enforcement of the measures so
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determined and for matters
connected therewith or incidental
thereto."
Section 3(b), 3(i) and 3(o) may also be read :-
3. (b) "Board" means the board
for Industrial and Financial
Reconstruction established under
section 4;
xxxx xxxx
(i) "Operating agency" means
any public financial institution,
State level institution, scheduled
bank or any other person as may be
specified by general or special
order as its agency by the Board;
xxxx xxxxx
(o) "sick industrial company"
means an industrial company (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, its 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;
xxxxx xxxxx"
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 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 practicable
for sick industrial company to make its net worth positive
within a reasonable time, Section 17(3) steps in authorising
the Board to direct any operating agency to prepare a scheme
in relation to the company. The Board may specify the
various measures to be considered by the operating agency.
These measures are detailed out in Section 18. The operating
agency has to prepare a scheme as per the order specified by
the Board.
Under Section 18(3) of the Act a Scheme prepared by the
operating agency shall be examined by the Board and an copy
of the scheme with modification made by the Board shall be
sent to the sick Industrial Company and the operating
agency. The draft scheme shall be published in brief in
daily newspapers, inviting suggestions and objections.
(Regulations No. 29 & 30). It is open to the Board to make
modifications as it considers necessary in the light of the
suggestions and objection received. It is thereafter the
scheme is sanctioned by the Board and it shall come into
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force on such date as the Board may specify in that behalf.
Section 19 of the Act provides for rehabilitation by giving
financial assistance. Section 22(1) deals with suspension of
legal proceedings, contracts, etc.
It is common ground that a sanctioned scheme for the
rehabilitation of the petitioner company is under
implementation. The scheme was sanctioned on 19.11.1990.
It is also admitted before us that the sales tax arrears for
which proceedings were initiate by the Revenue are for the
assessment years 1992-93 and 1993-94. The assessment orders
for these years were passed on 3.1.1994 and in 1995, long
after the sanctioned scheme was brought into force. The main
contention of the Revenue before the High Court and still in
appeal before us is, that the arrears of sales tax in
question for which proceedings are initiated against the
petitioner company, relate to the period after the
sanctioned scheme was brought under implementation and the
legal bar or embargo under Section 22 of the Act can only be
in respect of the sales tax dues included in a sanctioned
scheme. According to the Revenue, the Section should be
reasonably construed and understood or read down in the
above light. It was argued that apparently the embargo or
bar envisaged by Section 22 of the Act is of wide import and
covers a long period. This bar or embargo beings to operate
the moment an inquiry is ordered or pending, 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 of the Act relating to the company is pending. It
was urged that the inquiry itself will take time and the
pendency of the proceedings form 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 of
the Act 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 of the Act should be
confined to matters included, in prepackage 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". 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 after the scheme
was sanctioned. The tax so collected really belongs to the
State. But, the amount is not remitted to the State. If the
bar or embargo under Section 22(1) of the Act is held to
cover such amounts collected by the assessee, which really
belong to the State, and enables it to retain the same, till
the implementation is over or the appeal under section 25 of
the Act is disposed of, it will result in a state of affairs
enabling the assessee to retain the amounts due to the State
for no reason and indefinitely; the Revenue will have to
obtain consent of the Board or as the Appellate Authority
even for realising the legitimate amounts due to it and
withheld by the assessee, unreasonably. There may be similar
instances where the petitioner/assessee collects amounts due
to the Revenue or others and it yet enabled to keep it back
with itself unreasonably for a long time if the immunity
under Section 22(1) of the Act operates absolutely.
According to the Revenue the bar under Section 22(1) of the
Act should not lead to such an undesirable, state of
affairs; and so the section should be understood or read
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down to act as a bar or embargo only for such of those pre-
package dues reckoned or included in the scheme sanctioned.
On the other hand, counsel for the first respondent
(petitioner in the writ petition) company asserted that the
embargo under Section 22(1) to the Act is absolute and
cannot be diluted or whittled down. All that is required by
Section 22(1) of the Act is that in cases where an inquiry
is pending or scheme is under preparation or consideration
or a sanctioned scheme is under implementation or an appeal
is pending, no proceedings, as stated in Section 22 of the
Act for execution. distress or the like, shall be proceeded
with except with the consent of the Board or as the
Appellate Authority. What is contemplated by Section 22(1)
of the Act is only a previous consent of the Board for the
proceedings to be initiated against, a sick company. It is
not an absolute bar. The facts pointed out by the Revenue
do not call for reading down the wide import of section
22(1) of the Act.
8. We considered the rival peas urged before us. In Gram
Panchayat and another v. Shree Vallabh Glass Works Limited
and others [1990 (2) SCC 440], the concerned company was
declared a sick industrial company and steps were taken
under Section 16 and 17 of the Act by the Board. The
question was; whether the creditor (Panchayat) could recover
the amount due to it from out of the property of the company
without the consent of the Board. This Court, stated the law
at page 443 (paragraph 10), 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)
The above decision was followed by this court in
Maharashtra Tubes Ltd. v. State Industrial & Investment
Corporation of Maharashtra Ltd. and another [1993 (2) SCC
144]. The following portion of the heed note of the report
at pages 144-145 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
with respect to the sick industrial
company."
"The purpose and object of
suspension of proceedings etc.
under S. 22(1) of the 1985 Act is
to await the outcome of the
reference made to the BIFR for the
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revival and rehabilitation of the
sick industrial company. The words
or the like which follows words
’execution’ and ’distress’ are
clearly intended to convey that the
properties of the sick industrial
company shall not be made the
subject-matter of coercive action
of similar quality and
characteristic till the BIFR
finally dispose of the reference
made under Section 15 of the 1985
Act. The legislature has advisedly
used an omnibus expression ’the
like’ as it could not have
conceived of all possible coercive
measures that may be taken against
a sick undertaking............"
(emphasis supplied)
Our attention was also drawn to the following High
Court decisions:
Reliance Ispat Industries Ltd. & Anr. v. Commissioner
of Sales Tax, M.P. & Ors. [Vol. 91 (1993) STC 521 M.P.);
Himalaya Rubber Products Limited and Anr. v. The Board for
Industrial and Financial Reconstruction & Ors. [Vol.88
(1993) STC Cal. 47]; Vijay Mills Co. Ltd. & Ors. v. State of
Gujarat & Ors. [Vol. 68 (1990) Co. Cases 597 Guj], etc.
9. The Madhya Pradesh and Calcutta High Courts have
followed the decision of this court in Gram Panchayat and
another v. Shree Vallabh Glass Works Limited and others
[1990 (2) SCC 440].
10. On a fair reading of the provision contained in Chapter
III of Act 1/1986 and in particular Sections 15 to 22, we
are of the opinion that he plea put forward by the Revenue
is reasonable and fair in all the circumstances of the case.
Under the statue, 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, advance or guarantees of reliefs or concessions or
sacrifices by Government, banks, public financial
institutions and other authorities. In order to see that the
Scheme is successfully implemented and no impediment is
cased for the successful carrying out of the scheme, the
Board is enabled to have say when steps for recovery of the
amounts or other coercive proceedings are taken against sick
industrial company which, during the relevant time, acts
under the guidance/control or supervisions of the board
(BIFR). 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
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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,
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 stated, 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 industrial company is enabled to
collect after the date of the sanctioned scheme legitimately
belonging to the Revenue, cannot be and could not have been
intended to be covered within Section 22 of the Act. Any
other construction will be unreasonable and unfair and will
lead to a state of affairs enabling the sick industrial unit
to collect amounts due to the Revenue and withhold if
indefinitely and unreasonably. Such a construction which is
unfair, unreasonable and against spirit of the statue in
business sense, should be avoided.
11. The situation which has arisen in this case seems to be
rather exceptional. The issue that has arisen in this appeal
did not arise for consideration in the two case decided by
this Court in Gram Panchayat and another v. Shree Vallabh
Glass Works Limited and others [1990(2) SCC 440] and
Maharashtra Tubes Ltd. V. State Industrial & Investment
Corporation of maharashtra Ltd, and another [1993 (2) SCC
144]. It does not appear from the above two decisions of
this court nor from the decisions of the various High Courts
brought to our notice, that in any one of them, the
liability of the sick company dealt with therein itself
arose, for the first time after the date of sanctioned
scheme. At any rate, in none of those cases, a situation
arose whereby the sick industrial unit was enabled to
collect tax due to the Revenue from the customers after the
"sanctioned scheme" but the sick unit simply folded its
hands and declined to pay it over to the Revenue, for which
proceedings for recovery, had to be taken. The two decisions
of this Court as also the decisions of High Courts brought
to our notice are, therefore, distinguishable. They will not
apply to a situation as has arisen in this case. We are,
therefore, of the opinion 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 unreasonable and
unsustainable. We set aside the judgment of the High Court
and allow this appeal. There shall be no order as to costs.