| This Judgment has been overruled by : Deputy Commercial Tax Officer and Others Vs. Corromandal Pharmaceuticals and Others, |
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S. Parvatha Rao, J.@mdashThe petitioner-company manufactures and markets bulk drugs and formulations. It was declared as a sick industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985 ("the Act", for short), by the Board for Industrial and Financial Reconstruction ("the BIFR", for short) and the Industrial Re-construction Bank of India (IRBI) has been appointed as the operating agency. By order dated November 19, 1990, in Case No. 160 of 1988 the BIFR sanctioned the scheme for the rehabilitation of the petitioner in exercise of its powers under sub-section (4) of section 18 and sub-section (3) of section 19 of the Act after obtaining the consent of the financial institutions, i.e., IRBI and the Andhra Pradesh Industrial Development Corporation (APIDC), and the said scheme was designated as "the sanctioned scheme" and was bought into force with immediate effect. The sanctioned scheme was modified by the BIFR as indicated in its letter dated December 28, 1993, by granting certain additional reliefs. It was also stated in the said letter that the company was expected to make its net worth positive in the year 1995-96 and wipe out the accumulated losses in the year 1997-98. It is the case of the petitioner that there were delays in the implementation of the rehabilitation scheme and that certain modifications to the sanctioned scheme are at present under processing and consideration of the operating agency, i.e., IRBI and the BIFR. Thus, it cannot be disputed that the sanctioned scheme for the rehabilitation of the petitioner is under implementation.
2. The petitioner defaulted in the payment of sales tax assessed under the Andhra Pradesh General Sales Tax Act, 1957 ("the APGST Act", for short) for the assessment years 1992-93 and 1993-94 and the sales tax authorities have initiated action u/s 17 of the APGST Act for the recovery of the said dues. It is stated on behalf of the petitioner that it preferred appeals to the fourth respondent in respect of the said assessments and also sought stay of collection of tax pending the said appeals and that the same are pending and that the stay petitions have not yet been disposed of. It is further stated that the petitioner approached the third respondent for grant of instalments for payment of the arrears of sales tax and that the third respondent by his proceedings dated October 3, 1994, granted six bi-monthly instalments at the rate of Rs. 2.10 lakhs with effect from January 15, 1995 to November 15, 1995. It is not in dispute that the petitioner could pay only the first instalment in January, 1995. It is stated on behalf of the petitioner that the second respondent issued notice dated July 24, 1995, u/s 17 of the APGST Act to the sixth respondent herein directing it to pay the amount payable by it to the petitioner towards sales tax arrears of Rs. 9,53,833 due from the petitioner. Proceedings under the Andhra Pradesh Revenue Recovery Act, 1864, have also been initiated against the petitioner by issuing distraint order dated July 29, 1995, in form I u/s 8 of that Act in respect of sales tax arrears of Rs. 10,35,671 for the years 1986-87 to 1992-93 and another similar distraint order under that Act dated September 20, 1995, in respect of sales tax arrears of Rs. 10,39,730, which includes the arrears mentioned in the earlier distraint order. Aggrieved by the proceedings initiated by the sales tax authorities for the recovery of the sales tax dues, the petitioner has approached this Court by way of the present writ petition for a writ of mandamus directing the first and second respondents not to proceed with the collection of the balance tax of Rs. 9,53,833 without the permission of the BIFR as required u/s 22 of the Act and directing the fifth respondent to permit the petitioner to operate on the funds lying in its account No. 14/34789, etc.
3. Notice before admission was ordered in the present writ petition on September 28, 1995. The learned Government Pleader for Commercial Taxes took notice on behalf of respondents Nos. 1 to 4. The second respondent herein has filed his counter-affidavit on October 20, 1995, contending that section 22 of the Act does not prevent the sales tax authorities from taking proceedings for collection of the sales tax arrears from the petitioner. On behalf of the petitioner reply affidavit dated October 25, 1995, has been filed by its managing director.
4. The learned counsel for the petitioner relies on the decision of the Supreme Court in
5. The learned Government pleader submits that the second respondent herein in fact issued garnishee notice dated October 26, 1994, u/s 17 of the APGST Act to the State Bank of India, Main Branch, Hyderabad, in respect of the petitioner''s sales tax dues standing at Rs. 9,28,876 on that date and that at the request of the petitioner to raise the garnishee proceedings on the ground that it was a sick unit and had approached the State Government for relief, the said garnishee notice was revoked. He further submits that u/s 16 of the APGST Act instalments were granted by the third respondent at the request made by the petitioner itself. The instalments were to be paid between January 15, 1995 and November 15, 1995. But the petitioner paid only the first instalment. The cheque given by the petitioner towards payment of the second instalment was dishonoured upon presentation. The learned Government pleader contends that the petitioner cannot sell its goods without paying sales tax, and that the arrears of sales tax in question relate to the period after the sanctioned scheme was brought under implementation, and that the legal bar u/s 22 of the Act can only be in respect of sales tax dues existing before a sanctioned scheme has come into operation. According to him, if the intention is to exempt a sick industrial company from payment of any taxes, the scheme shall provide for it only if the Government consents. He relies on section 19 of the Act, which deals with rehabilitation by giving financial assistance. Under sub-section (1) of section 19 "where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees a reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority......to the sick industrial company". sub-section (2) of section 19 provides for circulation of such a scheme to every person required by the scheme to provide financial assistance for his consent within a certain period and if no consent is received within that period it shall be deemed that consent has been given. Sub-section (3) of section 19 provides that when sanction is given to such scheme by the BIFR "from the date of such sanction the scheme shall be binding on an concerned". The learned Government Pleader submits that the sanctioned scheme does not provide for any sales tax concessions from the State Government and no consent for any such concession was sought from the State Government before the sanction for the scheme in question was obtained from the BIFR and that therefore the petitioner is bound to pay the sales tax under the APGST Act which had become exigible after the sanctioned scheme was brought under implementation and that section 22 should be read as not attracted to the proceedings for recovery of such sales tax if it has fallen in arrears.
6. We do not see any reason or logic for reading down section 22 in the manner advocated by the learned Government Pleader. The heading of section 22 is "suspension of legal proceedings, contracts, etc.". Sub-section (1) of section 22 of the Act, which is relevant, is as follows :
"22(1). Where, in respect of an industrial company, an inquiry u/s 16 is pending or any scheme referred to u/s 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal u/s 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."
7. In the present case, it is not disputed that the sanctioned scheme for the rehabilitation of the petitioner is under implementation. Therefore, there can be no doubt that the interdicts of sub-section (1) of section 22 are attracted to the petitioner - they have to be given effect notwithstanding anything contained in the Companies Act, 1956 or any other law, and that includes the APGST Act. Therefore no proceedings for execution, distress or the like against any of the properties of the petitioner shall lie or be proceeded with further except with the consent of the BIFR. It is obvious from this that the liability of the petitioner to pay the sales tax under the APGST Act is not touched or affected. On the other hand, what section 19 provides for is reliefs or concessions or sacrifices by the State Government to the sick industrial companies by way of a provision in that regard in the scheme for its rehabilitation; such a provision can be by way of a tax holiday or by way of deferment in the payment of taxes. If the scheme makes such a provision and there is consent of the State Government as per sub-section (2) of section 19, then the State Government is bound by it when such a scheme is sanctioned by the BIFR under the Act. If a sanctioned scheme provides for sales tax holiday or deferment in the payment of sales tax after the State Government consents to the same, the liability to pay sales tax on the part of the sick industrial company and the right to recover sales tax on the part of the State Government are both governed by that scheme. But, when such a scheme provides for deferred payment of sales tax and defaults are committed by the sick industrial company in violation of what is provided in such a scheme, in our view, then also sub-section (1) of section 22 of the Act is attracted and the State Government cannot initiate proceedings for execution, distress or the like against any other properties of the industrial company for the recovery of such arrears without the consent of the BIFR. This is because section 19 and section 22 of the Act operate in different fields. Whereas u/s 19 of the Act the scheme may provide for total exemption from tax or for deferment of the payment of tax, section 22(1) prohibits coercive proceedings for collection of tax during the pendency of an enquiry u/s 16 of the Act or during the preparation or consideration of any scheme referred to u/s 17 of the Act or during the period the sanctioned scheme is under implementation or during the pendency of an appeal u/s 25 of the Act relating to an industrial company. As aptly stated by a Division Bench of the Madhya Pradesh High Court in Reliance Ispat industries Ltd. v. Commissioner of Sales Tax [1993] 91 STC 521 "sub-section (1) of section 22 of the Act does not prohibit demanding of an amount due from a sick industrial company but creates an embargo against distress action".
8. The Supreme Court held in Gram Panchayat v. Shree Vallabh Glass Works Ltd. [1992] 86 STC 41 that during such pendency, preparation or implementation mentioned in sub-section (1) of section 22 of the Act, the various proceedings set out under that sub-section would be deemed to have been suspended. The Supreme Court further observed as follows :
"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, as its discretion, may accord its approval for proceeding against the company. If the approval is not granted, the remedy is nor 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."
9. In
10. That sub-section (1) of section 22 of the Act cannot be read down or restrictively interpreted also follows from the fact that it is part of a beneficial legislation "enacted in order to evolve a speedy and efficient machinery so that a sick industry could be revived with utmost expedition, production could be started, locked up funds could be utilised for furthering socio-economic development"
11. The need for the legislation has been stated as follows in the Statement of Objects and Reasons :
"It has been the experience that the existing institutional arrangements and procedures for revival and rehabilitation of potentially viable sick industrial companies are both inadequate and time-consuming. A multiplicity of laws and agencies makes the adoption of co-ordinated approach for dealing with sick industrial companies difficult. A need has, therefore, been felt to enact in public interest a legislation to provide for timely determination by a body of experts of the preventive, ameliorative, remedial and other measures that would need to be adopted with respect to such companies and for enforcement of the measures considered appropriate with utmost practicable despatch."
12. It is, therefore, obvious that the emphasis is also on speedy implementation of the remedial measures. Once the scheme is framed and approved, the BIFR is kept in overall control of the implementation of the scheme and, therefore, is given the discretion for according approval for initiating or continuing proceedings for recovery of dues or arrears from the company during the period of implementation of the scheme, so that the revival and rehabilitation of the sick company may not be hampered or adversely affected.
13. There can be no doubt that action u/s 17 of the Andhra Pradesh General Sales Tax Act is attracted by sub-section (1) of section 22 of the Act, which prohibits, inter alia, "proceedings for execution, distress or the like against any of the properties of the industrial company" without the consent of the Board/appellate authority. "A distress is the taking of a personal chattel, without legal process, from the possession of a wrongdoer, into the hands of the party grieved, as a pledge, for the redress of an injury, the performance of a duty, or the satisfaction of a demand." (Bradby Law of Distress). Distress and execution are methods of recovery of monies due from the industrial company. In
"The words ''or the like'' which follow the 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.....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."
14. In that case the Supreme Court has held that the action contemplated by section 29 of the State Financial Corporations Act, 1951, is undoubtedly a coercive measure. The Supreme Court has also held in that case that section 22(1) uses the expression "proceedings" and not "legal proceedings" which expression is albeit used in the marginal note to the said provision, and that the word "proceedings" in section 22(1) cannot be given a narrow or restricted meaning to limit the same to the legal proceedings and that such a narrow meaning would run counter to the scheme of law and frustrate the very object and purpose of section 22(1) of the Act.
15. We, therefore, hold that no coercive steps for the purpose of recovery of tax dues, including action u/s 17 of the Andhra Pradesh General Sales Tax Act, can be taken by respondents Nos. 1 to 4 without obtaining the consent of BIFR. We are supported in this view by the decision of a Division Bench of this Court in Alluminium Industries Limited v. Commercial Tax Officer, Tandur (1990) 11 APSTJ 265. In that case also the BIFR approved a scheme and fixed rehabilitation period as 8 years commencing from November 1, 1989, for the implementation of the said scheme in respect of the petitioner-company in that case, which rose on a writ petition filed by it questioning the proceedings to recover the Central sales tax dues in view of section 22 of the Act contending that no such recoveries could be made except with the previous consent of the BIFR. This Court issued a writ of mandamus directing the commercial tax authorities "not to resort to coercive steps for recovery of the amounts of disputed Central sales tax due for the relevant period......without permission of the BIFR".
16. However our attention is drawn to another decision of a Division Bench of this Court in Andhra Cement Company Ltd. v. Government of A.P. [1993] 89 STC 124; (1991) 15 APSTJ 288, wherein it has been observed that the Act does not permit the company to withhold payment of taxes on sales subsequent to the proceedings under the Act which observation occurs in the following passage :
Reliance was sought to be placed on section 22(1) of the Sick Industrial Companies (Special provisions) Act, 1985. We fail to see how it assists the company in this case for the period in question to which the impugned demand relates. The said Act does not permit the company to withhold payment of taxes on sales subsequent to the proceedings under the aforesaid Act. Besides, the company is not closed. Nor is it presently sick nor in the process of any revival as such. It is in fact actively carrying on its business of manufacturing cement and its said business is prospering. Its erstwhile purported sickness has not affected its present prosperity. Instead, it belongs to that category of industry which itself is currently a highly prosperous industry in the country."
17. The above passage itself makes it abundantly clear that the said observation is obiter in nature and has been made without any discussion of the provisions and, therefore, is not binding. Even otherwise, in view of the decision of the Supreme Court in
18. In Reliance Ispat Industries Ltd. case [1993] 91 STC 521 (MP) also a sick industrial company questioned the distress sales of its properties initiated by the sales tax authorities of the Madhya Pradesh State for realising sales tax dues from it, relying on section 22(1) of the Act. It was contended on behalf of the sales tax authorities that the sick company could not be allowed to go on collecting sales tax from the parties to whom it sold the goods and keep it to itself. There also a scheme prepared for rehabilitation of that company was under implementation. A Division Bench of the Madhya Pradesh High Court held that the decision of the Supreme Court in
In the result, the writ petition is allowed. No costs.
19. Writ petition allowed.
