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1989 DIGILAW 167 (GUJ)

VIJAY MILLS CO. LTD. AHMEDABAD v. STATE

1989-10-11

A.P.RAVANI, J.U.MEHTA

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A. P. RAVANI, J. U. MEHTA, J. ( 1 ) PETITIONER No. 1 is an existing Company registered under the Companies Act 1956 and petitioners Nos. 2 to 4 were Mang- ing Directors of petitioner No. 1 Company. The petitioner-Company runs a Textile Mill. In respect of sales of petitioner Company Sales Tax liability for the period commencing from December 198 6/06/1987 had arisen and an amount of Rs. 1 84 220 had fallen due and payable by the Company. Quarterly returns were filled in by the Company but the amount has not been paid by it. Therefore under the provisions Of Rule 78 of the Gujarat Sales Tax Rules 1970 the petitioner is sought to be prosecuted for offence of not complying with the provisions of Rule 31 of the aforesaid Rules (in the petition wrongly translated as section of the Rules ). Therefore the Commissioner of Sales Tax exercising the power converted upon him under the provisions of Sec. 27 of the Gujarat Sales Tax Act 1969 read with Rule 79 of the aforesaid Rules sanctioned the prosecution against the petitioner Company. The order of sanction of prosecution dated 12/07/1988 is produced at Annexure C to the petition. ( 2 ) THE petitioners pray that the aforesaid order produced at Annexure C to the petition be quashed and set aside. Reliance is placed on Sec. 22 of the Sick Industrial Companies (Special Provisions) Act 1985 The relevant part of the Section is reproduced in para 2. 8 of the petition. The Section provides for suspension of legal proceedings cont- racts etc. in case of industrial company in respect of which enquiry under Sec. 16 and under Sec. 17 is pending or appeal under Sec. 25 of the said Act is pending. In the instant case there is no dispute with regard to the fact that an appeal being Appeal No. 16/89 against the order of refusal to sanction scheme passed by the Board is pending before the appellate authority. (These facts are given at the bar and sro not referred to in the petition. However the facts are not controverted by the other side.) The relevant part of the Section which are required to be considered reads as follows:. . . . . (These facts are given at the bar and sro not referred to in the petition. However the facts are not controverted by the other side.) The relevant part of the Section which are required to be considered reads as follows:. . . . . 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 of for the appointment of a receiver in respect thereof shall lie or be proceeded further except with the consent of the Board or as the case may be the Appellate Authority. The aforesaid provisions clearly show that the Section does not take within its sweep the criminal prosecution against the Company. This stands to reason. The amount of Sales Tax is recovered by the dealer from the purchaser. The dealer is required to make the payment thereof the appropriate Government within the stipulated time. Meanwhile the dealer holds the amount not as the owner of the same but he is holding it in trust for being passed over to the Government. This money does not being to the dealer nor does it belong to the members of this Company or the Directors of the Company. Therefore when any criminal proceeding is instituted on account of non-payment of such amount it cannot be said that the proceedings is for the winding up of the industrial company or for execution distress or the like against the properties of the industrial company. Therefore the provisions of Sec. 22 of the Act would not come in the way of launching of criminal prosecution under the provisions of Gujarat Sales Tax Act 1969 where it is show that the amount of Sales Tax dues have not been paid by the dealer. ( 3 ) IT may also be noted that the criminal prosecution is not against the property of the Company. It is against the Company. What is prohibited under Sec. 22 of the Act is the proceedings of winding up of the Company or for execution distress or the like against any of the properties of the industrial company. These are not proceedings for winding up or any proceeding against the property of the Company. It is against the Company. What is prohibited under Sec. 22 of the Act is the proceedings of winding up of the Company or for execution distress or the like against any of the properties of the industrial company. These are not proceedings for winding up or any proceeding against the property of the Company. It may be that after the prosecution is over and ultimately if fine is imposed upon the Company the question may arise as to whether and how the amount of fire imposed is to be recovered from the Company. At that stage if fine is sought to be recovered from the property of the Company the aforesaid provisions may become relevant and may be invoked. However we do not express any firm opinion on this point. ( 4 ) BY order Annexure C dated 12/07/1988 all that has been done is to sanction the prosecution under the provisions of Rule 79 of the Rules. The provisions of Sec. 22 of the Sick Industrial Companies (Special Provisions) Act 1985 does not prohibit the sanctioning of the prosecution. If it is assumed that the criminal prosecution as contem- plated is covered by the provisions of Sec. 22 (1) of the Act even then the challenge to the order Annexure C on the basis of the provisions of Sec. 22 (1) cannot be sustained. Be it noted that there is not total embargo on the proceedings mentioned in the Section against the Company and its property. Such proceedings can be launched with the consent of the Board or the appellate authority as the case may be. Therefore even for taking the cannot of the Board or that of appellate authority the Commissioner is required to sanction the prosecution. What is barred is initiation of the proceedings or further proceedings thereof. Sanctioning of the prosecution by the Commissioner of Sales Tax is B stage prior to the initiation of the criminal prosecution. There is no prohibition in the provisions of Sec. 22 (1) as far as the sanction of the prosecution is concerned. Therefore challenge to the order passed by the Commissioner of Sales Tax on the basis of provisions of Sec. 22 (1) of the Act cannot be sustained. There is no prohibition in the provisions of Sec. 22 (1) as far as the sanction of the prosecution is concerned. Therefore challenge to the order passed by the Commissioner of Sales Tax on the basis of provisions of Sec. 22 (1) of the Act cannot be sustained. ( 5 ) THE learned Counsel for the petitioners had relied upon a deci- sion of the division bench of this High Court in the case of Testeels Ltd. v. Radhaben Ranchhodlal Charitable Trust reported in AIR 1988 Gujarat 213: [ 1989 (2) GLR 1158 ]. In his submission the phrase no proceedings for winding up of the industrial company or for execution distress or the like would take within its sweep the criminal proceedings also. The aforesaid decision does not help the petitioner. In that case the question was as to whether the winding up proceedings already started should be kept in abeyance or the same can be dismi- ssed. The Court held that the winding up proceedings already started need not be kept in abeyance and pending and they can be dismissed. The aforesaid decision does not even refer to the criminal proceedings started or to be started. In fact no such question was before the Court. Therefore the aforesaid decision does not help the petitioner at all. ( 6 ) THE learned Counsel for the petitioners submits that the sanction to prosecute is a pre-condition as provided under Rule 79 of the Rules. The sanction to prosecute is granted only against the Company. There is no sanction for prosecution against petitioners Nos. 2 to 4 who were the Managing Directors of the Company. Therefore in his submission the prosecution should not be permitted to be launched and the department should be restrained from launching prosecution against petitioners Nos. 2 to 4 As to whether the sanction for prose- cution against petitioners Nos. 2 to 4 is valid or not is a mixed question of facts and law. Such a question can be raised before the Court before which the criminal prosecution is launched. In a petition under Arts. 226/227 of the Constitution of India we do not propose to examine this question. ( 7 ) IN above view of the matter there is no substance in the petition. Hence rejected. Notice discharged. Ad interim relief granted earlier stands vacated. In a petition under Arts. 226/227 of the Constitution of India we do not propose to examine this question. ( 7 ) IN above view of the matter there is no substance in the petition. Hence rejected. Notice discharged. Ad interim relief granted earlier stands vacated. The request to continue the ad interim relief for some time is rejected. (KMV) Rule discharged. .