Madras High Court
M/S.B.V.V.Paper Industries Ltd vs The Commercial Tax Officer - Ii on 18 July, 2008
Author: P.Jyothimani
Bench: P.Jyothimani
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.
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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.