Research › Search › Judgment

Jharkhand High Court · body

2003 DIGILAW 525 (JHR)

Central Coal Fields Ltd. v. State of Jharkhand

2003-04-24

GURUSHARAN SHARMA, P.K.BALASUBRAMANYAN

body2003
JUDGMENT : P. K. Balasubramanyan, CJ.- The petitioner, a Company registered under the Companies Act, 1956 was assessed for the assessment year 1998-99 under the Central Sales Tax Act. The Petitioner has challenged that assessment in an appeal before the appellate authority under the Act. The Petitioner sought a stay of recovery of the tax assessed pending disposal of the appeal. An order of stay was passed to the effect that if the Petitioner pays a sum of Rs. 50 lacs within the time fixed by that order, the recovery of the balance, amounting to something more than 2.5 crores would remain stayed pending disposal of the appeal. The petitioner did not deposit the amount in terms of the above interim order. The petitioner filed a revision against that interim order and it is said that the revision is pending. 2. Since the Petitioner failed to take advantage of the interim order of stay granted by the appellate authority by failing to fulfil the conditions imposed by that order, the authority under the Act took steps for recovery of the tax assessed. In terms of Section 27 of the Bihar Finance Act, 1981, a notice of demand was served on the Branch Manager of the Punjab National Bank/Ramgarh informing the Bank that a sum of Rs. 3,60,71,293/- was due from the Petitioner towards tax and Petitioner had failed to make the payment. Hence the money was liable to be paid from out of the funds of the assessee held by the Bank. Under the notice (Annexure-3) the Bank was directed not to pay the amount to the assessee and further to pay over the amount to the authority under the Act towards the liability to tax, of the assessee. It is thereupon that the Petitioner has approached this Court with the present Writ Petition essentially challenging the notice of demand issued by the authority under Section 27 of the Bihar Finance Act. 3. According to the petitioner, the interim order of the appellate authority dated 5.10.2002 could not be complied with and the Petitioner has filed revision challenging that interim order. The Petitioner has informed the authority concerned that it had filed a revision against the interim order of the appellate authority and until the revision is disposed of no coercive proceedings may be taken or continued. The Petitioner has informed the authority concerned that it had filed a revision against the interim order of the appellate authority and until the revision is disposed of no coercive proceedings may be taken or continued. That apart, the Petitioner had approached the Board for Industrial and Financial Reconstruction (hereinafter referred to as "BIFR"). Under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "SICA") that an enquiry as contemplated by Section 16 of SICA has commenced and hence in terms of Section 22 of SICA no proceeding for recovery against the Petitioner can be initiated or pursued. It is submitted that the application before the BIFR was made on 20.11.2001 and the proceedings are pending. 4. Counsel for the Department submits that the Petitioner had not fulfilled the conditions imposed by the interim order passed by the appellate authority and hence the recovery proceedings were rightly initiated and they can be continued. It is submitted that the order issued to the Punjab National Bank was strictly in terms of Section 27 of the Bihar Finance Act. In terms of the Bihar Finance Act there is nothing illegal in issuing such a notice. It is further submitted that no plea based on SICA or alleged approach to BIFR was put forward at any stage specially before the appellate authority when it passed the interim order and even before the revisional authority where the order of the appellate authority is challenged. It is submitted that even in the Writ Petition there in no clear pleading of facts to show that the Petitioner is a sick industrial Company as defined in Section 3(1)(O) of SICA. It is also submitted that the claim based on Section 22 of SICA was made without bonafides and the approach to BIFR was a mere ruse to avert the recovery proceedings. It is submitted that Section 22 of SICA cannot bar the issuance of a restraint order to the Bank and that even recovery of sales-tax due to State would not be affected by the pendency of the proceedings under SICA. Finally, it is submitted that there is no reason why this Court should interfere at this stage since the Petitioner can raise this question before the revisional authority in the pending revision. 5. Obviously, there is an order of assessment finalized against the Petitioner by the assessing authority. Finally, it is submitted that there is no reason why this Court should interfere at this stage since the Petitioner can raise this question before the revisional authority in the pending revision. 5. Obviously, there is an order of assessment finalized against the Petitioner by the assessing authority. The Petitioner has filed an appeal challenging the assessment. Pending the appeal the Petitioner was granted a conditional order of stay. The Petitioner failed to take advantage of that order by its failure to fulfil the conditions imposed. Though a revision is filed against the interim order of the appellate authority, there is no case that the order of the appellate authority has been stayed or suspended by the revisional authority pending the revision. Hence it is submitted that the authority under the Sales Tax Act was justified in initiating proceedings for recovery of the tax assessed. Equally in terms of Section 27 of the Bihar Finance Act, the authority was also justified in seeking to recover the amount from the Bank which can be considered to be a garnishee or bailee of the amount. 6. The order (Annexure-3) contains two parts; the one restraining the garnishee or bailee from paying over to the petitioner assessee the amount mentioned in the notice issued. The second is a demand of the garnishee or bailee to pay over the amount held by it to the authority towards the tax due from the Petitioner-assessee. The question is whether the issuance of the two orders or directions by the recovering authority is hit by Section 22 of SICA. 7. What is sought to be recovered by the issuance of Annexure-3 is the sales-tax due under the Sales Tax Act, here, the Bihar Finance Act. In the case of Dy. Commercial Tax Officer vs. Corromandal Pharmaceuticals And Others. (1997) 10 S.C.C. 649 , the Supreme Court held that though the language of Section 22 of S.I.CA was wide, in the totality of the circumstances, the safeguard is only against the impediment, that is likely to be caused in the implementation of the scheme. The bar or embargo envisaged in Section 22(1) of SICA can apply only to such of those dues reckoned or included in the sanctioned scheme. The bar or embargo envisaged in Section 22(1) of SICA can apply only to such of those dues reckoned or included in the sanctioned scheme. Such amounts like sales tax, etc., which the sick industrial company is entitled to collect after the date of the sanctioned scheme legitimately belonging to the Revenue, cannot be and could not have been intended to be covered by Section 22 of SICA. Any other construction will be unreasonable and unfair and will lead to a state of affairs enabling the sick industrial unit to collect amounts due to the Revenue and withhold it indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against the spirit of the statute in a business sense, should be avoided. Therefore, Section 22(1) should be read down or understood as indicated. The Supreme Court further observed that proceedings before the BIFR took a long time to conclude and all the while the protective umbrella of Section 22 is held over the company which has reported sick. There have been cases where unfair advantage is sought to be taken of the provisions of Section 22 by certain industrial companies. The wide language employed in the Section is providing them a cover Definitely Section 22 was not meant to breed dishonestly, nor can it be so operated as to encourage unfair practices. A modification of the Act was even recommended. 8. The case of Tata Davy Ltd. vs. State of Orissa and Others, (1997) 6 S.C.C. 669 was somewhat a parallel case. Therein proceedings were initiated against the assessee which had reported sick by proceedings under Section 13-A of the Orissa Sales Tax Act by calling upon the garnishee or bailee to pay over the amount. The Supreme Court, after referring to the decision in Gram Panchayat vs. Shree Vallabh Glass Works Ltd., (1990)2 SCC 440 and CTO vs. Corromandal Pharmaceuticals (referred to above) held that Corromandal Pharmaceuticals' case was distinguishable in view of the fact that it related to collection of sales-tax after the date of the sanctioned scheme and that in case where the collection was made before the finalization of the proceedings under SICA., the ratio in Shree Vallabh Glass Works's case was to be applied and the amount could not be recovered by the Sales Tax Department. 9. 9. In the recent decision in Kailash Nath Agarwal vs. Pradeshiya Industrial and Investment Corporation, 2003(2) Supreme 207 , the Supreme Court adopted a strict interpretation of Section 22 of SICA by confining the bar enacted therein to suits by holding that proceedings other than suits were not hit by that Section. In this context, it is necessary to notice that Section 22 of SICA hits any proceedings for winding up of the Industrial Company or for execution, distress or the like against any of the properties of the Industrial Company or the appointment of a receiver in respect of the properties of the Industrial Company. Normally, the expression "execution" of a decree or order denotes enforcement though a Court of law. Execution in the present context, in the normal sense of the term, is a judicial writ grounded on the judgment of the Court from whence it issues and is supposed to be granted by the Court at the request of the party at whose suit it is issued, to give him satisfaction on the judgment which he hath obtained {Tomlin's Law Dictionary}. According to the decision noticed in Ramanatha Aiyer, The Law Lexicon, execution proceeds from a judgment and it does not include a distress for rent or other cause, nor a garnishee order. In the words of Lord Denning M.R. in Re Overseas Aviation Engineering (G.B.) {1963} Chancery 24, " 'execution' means, quite simply, the process for enforcing or giving effect to the judgment of the Court" Therefore, applying the strict rule of construction of Section 21 of SICA, in the light of the decision of the Supreme Court referred to above it cannot be said that by directing the Bank not to pay the amount to the assessee and by directing it to pay the amount to the department, an execution prohibited by Section 22 of SICA is levied. The expression "execution" is followed by the words, "distress or the like against any of the properties of the industrial Company". It is possible to say that distress or the like, are steps in a pending execution or for seizure of the assets of the judgment-debtor in an execution. Such a narrow interpretation, in our view would be justified if we go by the approach made in the decision in Corromandal Pharmaceutical and in Kailash Nath Agarwal, referred to above. It is possible to say that distress or the like, are steps in a pending execution or for seizure of the assets of the judgment-debtor in an execution. Such a narrow interpretation, in our view would be justified if we go by the approach made in the decision in Corromandal Pharmaceutical and in Kailash Nath Agarwal, referred to above. Distress is the seizure of another's property to secure the performance of a duty such as the payment of overdue rent, the legal remedy authorizing such seizure, the procedure by which the seizure is carried out (see Black's Law Dictionary). The expression means or indicates that it is a seizure of the property of the industrial Company for compelling that Company to perform its obligation. Steps may include the seizure of property in the hands of another but belonging to the debtor. An order restraining a third party from paying the amount to the debtor need not necessarily come within the scope of the expression "distress" used in Section 22 of SICA. Of course, if on a proper construction, the expression 'distress or the like' could be understood as steps in a pending execution, the same cannot have any application to an order of the nature issued in this case by the department. The proceeding directing a garnishee or bailee not to pay over the amount to the debtor or to an industrial Company appears to be more consistent with what is contemplated by Order XXXIX, Rule 7 of the Code of Civil Procedure. In other words, we are inclined to the view that Section 22 of SICA does not stand in the way of• an order directing a bailee or a Banker or a creditor of the Industrial Company from handing over the proceeds, at least until the department or the creditor is enabled to approach the BIFR and get its permission as contemplated by Section 22 of SICA. It also appears to us that Section 22 may not affect the power of the Court to issue a Mareva injunction or the like. We must hasten to add here that all this discussion is out of deference to the arguments raised but subject to the decision of the Supreme Court in Tata Davy Ltd. 10. It also appears to us that Section 22 may not affect the power of the Court to issue a Mareva injunction or the like. We must hasten to add here that all this discussion is out of deference to the arguments raised but subject to the decision of the Supreme Court in Tata Davy Ltd. 10. We find that as far as the recovery of the amount by the Sales Tax Department is concerned, the decision in Tata Davy Ltd. would squarely apply. The argument of learned counsel for the Department that the sales-tax collected in this case is also a collection made by the assessee as the agent of the Government and it is not the property of the assessee and hence Section 22 of SICA. does not apply, may have force. The actual amount of sales-tax collected by the assessee on behalf of the State in terms of the concerned Act, is the property of the State and could even be said to be held by the assessee in trust for being made over to the State. Why there should be a difference between the collection made before the Industrial Company approached the BIFR under SICA, and the amount collected by the Company after the sanctioning of the scheme is a question that may arise. May be, there would be no difference in principle since both the amounts are held by the assessee not as its property but as amount collected on behalf of the State. But it is not for us to venture into such regions in view of the pronouncement in Tata Davy Ltd. by which we are bound. Thus, we have to hold that to the extent the authority directed the Bank, the garnishee or bailee, to pay over the amount to the recovering authority, the same is hit by Section 22 of SICA. Unless permission of BIFR is taken in that regard, the actual recovery cannot be effected. 11. But we think that we would be justified in holding that to the extent the order restrains the Bank from paying over the amount to the assessee, the order can be sustained. Unless permission of BIFR is taken in that regard, the actual recovery cannot be effected. 11. But we think that we would be justified in holding that to the extent the order restrains the Bank from paying over the amount to the assessee, the order can be sustained. It is one thing to say that the property of an industrial company cannot be recovered once the Industrial Company had approached the BIFR in terms of Section 15 of SICA and an enquiry is pending in terms of Section 16 thereof and quite another thing to say that the garnishee who is holding the assets or money of the sick industrial company should not pay over the amount to the sick industrial company unless the demands of the authority under the Sales Tax Act are met. No doubt the money held by the Bank, whether it is treated as a garnishee or bailee, is an amount that may belong to the assessee. What is prohibited by Section 22 of the Act is the winding up of the industrial company or the recovery of the amount from the Company by proceeding against the properties of the Company, the object being to see whether the sick industrial Company cannot be reactivated under a scheme. If the properties were taken away by the creditors pending a decision by BIFR and the sanctioning of a scheme, the revival contemplated by SICA cannot become a reality. But at the same time, if it is to be held in terms of Section 22 of SICA that the company can take away the money and spend it-it must be noted that it had not been established that the Company is actually sick and in this case, even the necessary facts are not pleaded before us at this stage-or to collect all the amounts due to it from its debtors and use it up, siphone it off, divert it or to make unduly preferential payment even when a substantial obligation to the State is till outstanding, would lead to unjust results. As observed in Corromandal Pharmaceuticals' case, Section 22 of SICA cannot be a blanket cover for an industrial company reporting sick to collect all amounts owed to it while at the same time claiming immunity from paying out its liability. As observed in Corromandal Pharmaceuticals' case, Section 22 of SICA cannot be a blanket cover for an industrial company reporting sick to collect all amounts owed to it while at the same time claiming immunity from paying out its liability. The scheme of SICA also suggests that the idea is to keep the assets frozen until a package or scheme is worked out for the revival of the Company. In that context the view we have adopted appears to be justified. Section 27 of the Bihar Finance Act enables the taxing authority to pass an order of restraint on the Bank from handing over the money involved to the company reporting sick before BIFR. Since in our view, that part of the restraint order is not hit by Section 22 of SICA, that part of the order cannot be interfered with in this Writ Petition. In other words, we are inclined to the view that while the direction for paying over the amount to the recovering authority under the Central Sales Tax Act must be set aside, the order directing the Punjab National Bank not to pay over the amount to the assessee-company should be up held. 12. Thus, the Writ Petition is allowed only to the extent of setting aside the direction to pay the amount to the Sales Tax Authority till it gets an order from the BIFR but dismissed to the extent it directs the Bank not to pay the amount to the extent indicated in the restraint order, to the assessee-petitioner.