The short question to be adjudicated is as to the sustainability of recovery proceedings initiated a per Exts.P5, P5(a), P5(b) and P5(c) demands; for recovery of sales tax arrears under the Kerala General Sales Tax Act, 1963 (KGST Act) and Central Sales Tax Act, 1956 (CST Act) for the assessment years 2000-01 and 2001-02, are sustainable only on account of the petitioner Company having been registered under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as 'SICA'). The learned counsel for the petitioner relies on Section 22 as also the dictum laid down by a Division Bench of this Court in Ext.P8 in similar circumstances and the authoritative pronouncement of the Honourable Supreme Court in Raheja Universal Limited v. NRC Limited And Others (2012 (4) SCC 148). Section 22(1) having interdicted any proceedings for execution, distress or the like against any of the properties of the Industrial Company, where in respect of an Industrial company, an enquiry under Section 16 is pending or any Scheme referred to under Section 17 is under preparation or a sanctioned Scheme is under implementation and also an appeal under Section 25 is pending before the Appellate Authority for Industrial and Financial Reconstruction (for short 'AAIFR').
2. The petitioner obviously was referred to the Board of Industrial and Financial Reconstruction (for short 'BIFR') in the year 2005 on its net worth having turned negative. By Ext.P1 on 22.02.2007, the Company was declared sick by the BIFR. It is submitted that a sanctioned Scheme is in preparation and hence, there can be no proceedings for recovery of the sales tax dues with respect to a period prior to the registration of the Company as sick. The learned Government Pleader, however opposed the plea on the ground that what is sought to be recovered is only the collected tax and the petitioner cannot retain the collected tax, without payment to the Department. One other contention raised by the learned Government Pleader is that as per the proviso of sub- section (3) of Section 21, any declaration made there under shall not exceed beyond seven years and hence, the Company which is said to have been referred to the BIFR in 2005 and registered in the year 2007, goes out of the protection under Section 22 of the SICA.
3. In fact, the authoritative pronouncement of the Honourable Supreme Court in 'Raheja Universal Limited' (supra) is an answer to both the aforesaid contentions. The Honourable Supreme Court after referring to the entire case history, referred to Tata Davy Ltd. v. State of Orissa (1997 (6) SCC 669) wherein it was held that even proceedings for recovery of tax under the Act were covered within the scope of Section 22(1) of SICA. CTO v. Corromandal Pharmaceuticals (1997 (10) SCC 649) was referred to wherein amounts akin to sales tax, which the Sick Industrial Company was enabled to collect, after the date of sanction of the Scheme, was held to be outside the scope of the protection under Section 22. The Honourable Supreme Court in fact noticed a subsequent judgment in Jay Engg.Works Ltd v. Industry Facilitation Council (2006 (8) SCC 677) wherein the word 'proceedings' appearing in Section 22 (1) was given a wide connotation. The Honourable Supreme Court accepted the said proposition as is evidenced from paragraph 78 which is extracted hereunder:
“The expression “no proceedings” that finds place in Section 22(1) is of wide spectrum but is certainly not free of exceptions. The framers of law have given a definite meaning to the expression “proceedings” appearing under Section 22(1) of SICA 1985. These proceedings are for 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.”
4. In any event, in the present case, even going by the decision in Corromandal Pharmaceuticals(supra) the present dues are with respect to years prior to the reference to BIFR and registration as a sick industry under SICA. In such circumstances, petitioner Company and its properties are saved from any proceedings for execution, distress or the like against it; including the sales tax arrears now demanded as per Ext.P5 series of demands, subject however, to the proceedings being still pending before the BIFR or AAIFR as provided under Section 22. Definitely, the State which is a party before the authorities under the SICA, could verify the said aspect and move accordingly for recovery on the proceedings having concluded or the Scheme having been implemented successfully.
5. With respect to the further contention; the proviso to sub-section (3) is not applicable to sub-section (1) of Section 22. Sub-section (3) is a specific provision quite distinct from sub-section (1) which confers power on the BIFR to suspend any contracts or agreements entered into by the sick Industrial Company with a third party; to facilitate successful implementation of a revival Scheme. It is only with respect to such suspension of agreement or contract that sub-section (3) of Section 22 would be applicable. The proviso being confined to such a declaration made by the BIFR or AAIFR, cannot be termed to be a limitation with respect to interdiction of execution, distress or the like against sick industry as contemplated under sub- section (1) of Section 22.
6. For all the aforesaid grounds, the writ petition is to be allowed. The proceedings for recovery initiated against the Company's properties as per Ext.P5 series of demand, for the present, is not enforceable. It is made clear that the recovery proceedings have been interdicted by this Court only in the context of the Company being before the BIFR and a Scheme for its revival being under preparation as provided under sub-section (1) of Section 22. This does not for all times prohibit the Government from taking recoveries which necessarily, has to be after taking into account the stage of proceedings before the BIFR as also on any specific permission granted by the BIFR or AAIFR.
With the above rider, the writ petition is allowed. Parties are directed to suffer their respective costs.
Sd/-
K.VINOD CHANDRAN,
Judge
Mrcs //True Copy//