BEFORE THE MADURAI BENCH OF THE MADRAS HIGH COURT DATED: 18/07/2008 CORAM THE HONOURABLE MR.JUSTICE P.JYOTHIMANI W.P.(MD)No.1522 OF 2004 and W.P.(MD)No.1523 of 2004 and WPMP (MD)Nos.1509 and 1511 of 2004 M/s.B.V.V.Paper Industries Ltd., Represented by its Manager L.Chandrasekar 148-D, Palani Road, Udumalpet - 642 126. ... Petitioner in both WPs'. Vs. The Commercial Tax Officer - II Office of the Commercial Tax Department Near Chellam Illam, Shanmughapuram, Palani - 624 601. ... Respondent in W.P.1522/2004 The Executive Engineer Public Works Department Amaravathi, River Basin Division, Karur. ... Respondent in W.P.1523/2004 PRAYER IN W.P.(MD)NO.1522 OF 2004 Writ Petition filed under Article 226 of the Constitution of India, praying for the issuance of a Writ of Certiorari, call for the records of the respondent by proceedings in NAKA No.1811/04 A3 Rc 5360536 dated 30.07.2004 and quash the same. PRAYER IN W.P.(MD)NO.1523 OF 2004 Writ Petition filed under Article 226 of the Constitution of India, praying for the issuance of a Writ of Certiorari, call for the records of the respondent by proceedings in letter No.38/2003/95 M dated 20.05.2004 and quash the same. !For Petitioner ... Mr.K.Hema Karthikeyan ^For Respondents ... Mr.V.Rajasekaran Special Govt. Pleader :ORDER
Heard Mr.K.Hema Karthikeyan, learned counsel appearing for the
petitioner and Mr.V.Rajasekaran, learned Special Government Pleader appearing
for the respondents.
2.The writ petitioner company is a Public Limited Company operating
from the year 1989 onwards, engaged in manufacture and sale of finished paper,
newsprint and other ancillary products. The petitioner company has also
registered under the Tamil Nadu General Sales Tax Act, 1959 and Central Sales
Tax Act, 1956. The petitioner company has become sick, since it could not meet
out the statutory requirements, a reference was filed before the Board for
Industrial and Financial Reconstruction (hereinafter called as BIFR), under
Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985
(hereinafter referred as “the SICA Act”) for declaring the company as “sick
company” and also for effecting rehabilitation. It is stated that BIFR by an
order dated 09.05.2001 has declared the petitioner Company as “sick company” and
appointed IDBI as its operational agency as per Section 17(3) of the SICA Act,
to examine the viability of settlement of the scheme as a rehabilitary measure.
There was also an order passed under Section 22A of the SICA Act, restraining
the petitioner’s company from disposing of any assets without getting consent
from BIFR. In respect of the due regarding the sales tax amount payable, which
is to the extent of Rs.5,05,30,050/-, the respondent in W.P.(MD)No.1522 of 2004,
viz, the Commercial Tax Officer- II, Palani, has issued a Distraint Order by
exercising the powers under Section 8 of the Revenue Recovery Act, 1864.
3.Likewise, in respect of the amount due Rs.49,34,032/-, regarding
drawing of water from Amaravathi River, after obtaining due permission from the
Public Works Department, the respondent in W.P.(MD)No.1523 of 2004, viz., the
Executive Engineer, Public Works Department, has issued an impugned order dated
20.05.2004, directing the petitioner Company to pay Rs.49,34,032/-, being the
amount for having drawn water from Amaravathi River. The amount not having been
paid from the year 1997 to till date, the respondent / Public Works Department,
has directed the petitioner to pay the said amount of Rs.49,34,032/- before
31.05.2004, failing which, the company will be restrained from taking water.
Admittedly, the process of the Company has come to an end and the matter is
pending before the BIFR and the scheme is yet to be formulated.
4.In such circumstances, the question has to be decided in this case
is as to whether the respondents are entitled to proceed to recover the amounts
from the assets of the Company without resorting to the provisions of the SICA
Act, namely, by obtaining necessary permission from B.I.F.R, wherein the matter
is pending.
5.Section 22 of the SICA Act, suspends the operation of any legal
proceedings or contract entered with such sick Companies, which is declared as
“sick company” under the SICA Act, till the proceedings under the SICA Act are
completed. The proceedings under the SICA Act, is by reference to the BIFR.
Section 22 of the SICA Act reads as follows:-
“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 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 (1 of 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 Board.
(3) [Where an inquiry under section 16 is pending or any scheme referred
to in section 17 is under preparation or during the period] of consideration of
any scheme under section 18 or where any such scheme is sanctioned thereunder,
for due implementation of the scheme, the Board may by order declare with
respect to the sick industrial company concerned that the operation of all or
any of the contracts, assurances of property, agreements, settlements, awards,
standing orders or other instruments in force, to which such sick industrial
company is a party or which may be applicable to such sick industrial company
immediately before the date of such order, shall remain suspended or that all or
any of the rights, privileges, obligations and liabilities accruing or arising
thereunder before the said date, shall remain suspended or shall be enforceable
with such adoptions and in such manner as may be specified by the Board:
Provided that such declaration shall not be made for a period exceeding
two years which may be extended by one year at a time, so, however, that the
total period shall not exceed seven years in the aggregate.
(4) Any declaration made under sub-section (3) with respect to a sick
industrial company shall have effect notwithstanding anything contained in the
Companies Act, 1956 (1 of 1956), or any other law, the memorandum and articles
of association of the company or any instrument having effect under the said Act
or other law or any agreement or any decree or order of a court, tribunal,
officer or other authority or of any submission, settlement or standing order
and accordingly,-
(a) any remedy for the enforcement of any right, privilege, obligation and
liability suspended or modified by such declaration, and all proceedings
relating thereto pending before any court, tribunal, officer or other authority
shall remain stayed or be continued subject to such declaration; and
(b) on the declaration ceasing to have effect-
(i) any right privilege, obligation or liability so remaining suspended or
modified, shall become revived and enforceable as if the declaration had never
been made; and
(ii) any proceeding so remaining stayed shall be proceeded with, subject
to the provisions of any law which may then be in force, from the stage which
had been reached when the proceedings became stayed.
(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”.
6.The Hon’ble Supreme Court, in similar circumstances, regarding the
conduct of the State of Orissa, to proceed to recover the tax amount due under
Orissa Sales Tax Act, 1949, against a Company, which is pending rehabilitatory
measure under the SICA Act, in Tata Davy Ltd., etc., Vs. State of Orissa and
others reported in (JT 1997 S.C. 216), while considering the contention raised
on behalf of the Government, namely, the Commercial Tax Department that the
taxing power conferred on the State in list II, entry 54 of Schedule 7 of the
Constitution of India, is an exclusive power of the State, and therefore, the
term used under Section 22(1) of the SICA Act “any other law” should exclude the
power of the State Government in recovery of the tax amount, has rejected the
said contentions and ultimately held that under Section 22(1) of the SICA Act,
which is a Central Act, unless and until the permission is obtained from BIFR,
no coercive steps to be taken against the sick industries in respect of recovery
of arrears of tax. The Hon’ble Supreme Court in JT 1997 S.C. 216 cited supra,
has held as follows:-
“10.Learned counsel for the respondents submitted that Section 22(1) of the
Central Act should be so read as not to interfere with the exclusive power of
the States to legislate under Entry 54 of List II of the Seventh Schedule of the
Constitution in respect of sales tax. In his submission, the words “any other
law” in Section 22(1) of the Central Act must be so read as to exclude all laws
on List II subjects, for Parliament must be assumed to know its limitations
Learned Counsel cited the judgment of this Court in Deputy Commercial Tax
Officer & Ors., v. Corromandal Pharmaceuticals & Ors., JT 1997 (3) SC 660 =
1997(2) SCALE 640, as supporting his case.
11.The Vallabh Glass Works judgment covers these appeals. Arrears of taxes and
the like due from sick industrial companies that satisfy the conditions set out
in Section 22(1) of the Central Act cannot be recovered by coercive process
unless the said Board gives its consent thereto”.
7.In fact, that was the view taken by the Hon’ble Supreme Court,
even prior to the said judgment. That judgment was in The Gram Panchayat and
another, v. Shree Vallabh Glass Works Ltd., and others, reported in AIR 1990 SC
1017. That was a case regarding the Panchayat in taking steps to recover the
property tax arrears against the Company declared as “sick company”, under the
SICA Act. The State Government has proceeded to recover by virtue of the powers
conferred under Section 129 of Bombay Village Panchayat Act.
8.There also, a similar contention was raised that it is a
constitutional obligation of the Government to recover the tax amount and that
should not be curtailed by the provisions of Section 22(1) of the SICA Act.
Rejecting the said contention, the Supreme Court has held that when once a
company is subject to the proceedings under Sections 16 and 17 of the SICA Act,
not only that winding up of the industrial Company is put an end to but also any
proceedings in execution or any distress proceedings taken against the
properties of the sick industrial company, including the appointment of any
receivers in respect of any claim are also put an end to, however, subject to
the consent and order obtained from the BIFR. In fact, the Supreme Court has
held that it may be against the principles of equity, if the creditor is not
allowed to recover the amount due, especially, when the creditor happens to be
the Government, to drive them to go the the BIFR for getting a sanction in
respect of the statutory amount due but nevertheless, the Supreme Court has held
that the Board has got discretionary power, since the concept and basis of the
SICA Act, is not merely to take a supervisory role regarding the sick industries
but also to give a solution by way of re-habilitatory measures. In view of the
said matter, the Supreme Court has ultimately held that such proceedings can be
continued only with the approval and consent of BIFR. The relevant portion is
as follows-:
“7. Section 22(i) provides that in case the enquiry under S.16 is pending or
any scheme referred to under S.17 is under preparation or consideration by the
Board or any appeal under S.25 is pending then certain proceedings against the
sick industrial company are to be suspended or presumed to be suspended. The
nature of the proceedings which are automatically suspended are: (1) Winding up
of the industrial company; (2) Proceedings for execution, distress or the like
against the properties of sick industrial company and (3) Proceedings for the
appointment of Receiver. The proceedings in respect of these matters could,
however, be continued against the sick industrial company with the consent or
approval of the Board or of the Appellate Authority as the case may be.
8……
9……
10. In the light of the steps taken by the 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.
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 it is 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 S.22 provides for exclusion of the period
during which the remedy is suspended while computing the period of limitation
for recovering the dues.”
9.In the light of the above said decisions of the Supreme Court,
having laid down law in this regard, the first Bench of this Court in Artson
Engineering Ltd., Mumbai v. Deendayal Ashok Kumar Goldani, Chennai and another
reported in (2007) 1 MLJ 661, after analyzing the various case laws on this
subject, has held that in the light of the provisions of the SICA Act, the
proceedings for recovery have to be suspended. The operative portion of the
order of the First Bench of this Court, presided over by the Hon’ble Chief
Justice Mr.A.P.Shah, as he then was, in paragraph 8 is as follows:-
“8. In the instant case, proceedings are pending before the BIFR in Case
No.152 of 2004. By order dated 17.05.2006, the Board has appointed Bank of
India, as Operating Agency (OA) with a direction to prepare a revival scheme for
it, if feasible. The OA has been directed to keep in view the provisions of
Section 18 of the Act and the enclosed guidelines while carrying out this
exercise. 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. In the light of the above provisions,
there would be deeming suspension of such proceedings against the company
properties viz., Gram Panchayat v. Shree Vallabh Glass Works Limited (supra) and
Tata Davy Limited V. State of Orissa and Others (supra). The judgment of the
learned single Judge relied upon the learned counsel for the respondent in Onida
Savak Limited v. Muthumeera Agencies (supra), turns round on the peculiar facts
of the case. In that case, washing machines were supplied by the defendant
company and they were found to be defective and they were once again returned to
the defendant company. In our opinion, the above judgment is not applicable to
the facts of the present case. In view of the steps taken by BIFR, the
proceedings for execution, distress or the like proceedings against any of the
properties of the company are clearly not maintainable.”
10.By applying the legal principles laid down to the facts and
circumstances of the case, the necessary corollary to conclude is that the
respondents cannot proceed with either distress action as it is seen in respect
of the Commercial Tax Department or for recovery of amount by the Public Works
Department unless consent is obtained from BIFR. It is always open to the
respondents in these cases to take necessary steps to implead themselves before
BIFR and seek permission for the purpose of recovery of the amount from the
assets of the petitioner’s company, which has been declared as “sick company”,
in which event, it is for BIFR to decide on merit and based on the scheme that
may be formulated as per the provisions of the SICA Act.
11.In view of the above, the writ petitions are allowed and the
impugned orders are set aside. No costs. Consequently, the connected
Miscellaneous Petitions are closed.
tk/mpk
To
1.The Commercial Tax Officer – II
Office of the Commercial Tax Department
Near Chellam Illam, Shanmughapuram,
Palani – 624 601.
2.The Executive Engineer Public Works Department Amaravathi, River Basin Division, Karur.