Davy Ltd. Vs. State of Orissa & Ors  INSC 642 (4 August 1997)
BHARUCHA, V.N. KHARE
4TH DAY OF AUGUST, 1997 Present:
Mr. Justice S.P.Bharucha Hon'ble Mr. Justice V.N.Khare (R.F.Nariman, Sr.Adv., S.Sukumaran)
Adv. for M/s JBO & Co., M.L.Lathoty, P.K.Sharma, Himanshu Shekhar, P.S.Jha,
P.N.Mishra, Advs. with him for appearing Parties.
following Judgment of the Court was delivered:
Appeal Nos.1362-63 of 1991)
facts that we state relate to the case of Tata Davy Limited (C.A. No.1354/91).
They are substantially similar to the facts of the other appeals.
said appellant was, o 9th
declared a sick company within the meaning of the Sick Industrial companies
(Special Provisions) Act, 1985 (now referred to as "the Central
Act"). On a reference under Section 15 of the Central Act made on 23rd December, 1989, an inquiry under Section 16 was
made and a scheme was sanctioned by the Board for Industrial and Financial
Reconstruction (now referred to as "the Board") for the said
appellant's benefit and it was at the relevant time under implementation.
the Assessment Years 1983-84 and 1984-85 the said appellant was in arrears of
sales tax under the Orissa Sales Tax Act, 1947 (now referred to as "the
State Act"). Recovery of the said arrears was sought to be made by
attachment of the said appellant's property under the provisions of section
13-A of the State Act. The High Court of Orissa was considering the question
whether steps to recover sales tax dues under Section 13-A of the State Act
were in the nature of proceedings by way of execution, distress or the like
contemplated by Section 22(1) of the Central Act in a writ petition filed by
M/s. Aluminium Industries Ltd. (the appellant in the other appeals) which was,
as aforestated, in a position similar to that of the said appellant. The said
appellant intervened in the writ petition and was heard.
High Court said in its judgment on the writ petition that the question before
it was whether the provisions of Section 22(1) of the Central Act overrode the
provisions of Section 13-A of the State Act. It held that there was no irreconciliable
conflict between the two provisions as they operated in separate an distinct
fields and, therefore, both were capable of being obeyed. The result was that
Section 22(1) of the Central Act "would not protect the properties of
industrial companies from being proceeded against in exercise of the power
under Section 13- A of the State Act".
soon after the High Court's judgment this Court decided the case of Gram Panchayat
and Anr. vs. Shri Vallabh Glass Works Limited & Ors., 1990 (1) S.C.R. 966,
to which we shall make reference. The appellants applied to the High Court to
review its decision in the light of the Vallabh Glass Works' judgment. The High
Court expressed its inability to do so. Hence, these appeals.
the purposes of appreciating the controversy, Section 22(1) of the Central Act
needs to be set down.
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 of 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." Learned counsel for the
appellants placed reliance upon the judgment in Vallabh Glass Works. Vallabh
Glass Works had been declared a sick industrial company within the meaning of
Section 3(1) (o) of the Central Act. The appellant Gram Panchayat initiated
coercive proceedings under Section 129 of the Bombay Village Panchayat Act
against Vallabh Glass Works to recover arrears of property tax. Vallabh Glass
Works filed a writ petition in the High Court at Bombay claiming the protection of Section 22 of the Central Act.
writ petition was allowed, and the Gram Panchayat appealed to this Court. This
Court noted that the said Board had been satisfied by its order dated 27th August, 1987, that Vallabh Glass Works had
become a sick industrial company and, consequently, steps had been taken under
Sections 16 and 17 of the Central Act. As soon as the enquiry under Section 16
was ordered by the said Board, this Court said, the various proceedings set out
under Section 22(1) of the Central Act were deemed to have been suspended.
could then approach the said Board for permission to proceed against the sick
company for recovery of their dues and the said Board, at its discretion, could
accord such approval. If approval was not granted, the creditors' remedy was
not extinguished. it was only postponed. The section provided for exclusion of
the period during which the remedy was suspended while computing the period of
limitation for recovery of the dues.
counsel for the appellants submitted that in the case of Vallabh Glass Works
this Court had dealt with proceedings for recovery of dues under a State Act
and had come to the conclusion that Section 22(1) of the Central Act applied
thereto. The case of the appellants was, therefore, squarely covered by the Vallabh
Glass Works judgment.
counsel for the respondents submitted the 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. vs. Corromandal Pharmaceuticals & Ors., 1997 (2) SCALE
640, as supporting his case.
Glass Works judgment covers these appeals.
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.
Central Act is enacted under Entry 52 of List I of the Seventh Schedule. The
said Entry 52 empowers Parliament to legislate in respect of "Industries,
the control of which by the Union is
declared by Parliament by law to be in the public interest". The Central
Act declares that it is "for giving effect to the policy of the State
towards securing the principles specified in clauses (b) and (c) of Article 39
of the Constitution", namely, "that the ownership and control of the
material resources of the community are so distributed as best to serve the
common good" and "that the operation of the economic system does not
result in the concentration of wealth and means of production to the common
detriment". The Central Act does not impair or interfere with the rights
of the States to legislate with respect to sales tax under Entry 54 of List II
of the Seventh Schedule. In the larger interest of the industrial health of the
nation, Section 22 of the Central Act requires all creditors seeking to recover
their dues from sick industrial companies in respect of whom an inquiry under
Section 16 is pending or a scheme is under preparation or consideration or has
been sanctioned to obtain the consent of the said Board to such recovery. If
such consent is not secured and the recoverers deferred, the creditors' remedy
is protected for the period of deferment is, by reason of sub-section (5) of
Section 22, excluded in the computation of the period of limitation. The words
"any other law" in Section 22 cannot, therefore, be read in the
manner suggested by learned counsel for the respondents.
Pharmaceuticals judgment dealt with a sick industrial company which was enabled
to collect amounts like sales tax after the date of the sanctioned scheme.
Court said, "Such amounts like sales tax, etc which the sick industrial
company is enabled 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 within Section 22 of the Act". It added that the
issue that had been arisen before it had not arisen in the case of Vallabh
Glass Works. It did not appear therefrom or from any other decision of this
Court or of the High Courts "that in any one of them, the liability of the
sick company dealt with therein itself arose for the first time after the date
of sanctioned scheme. At any rate, in none these cases a situation arose
whereby the sick industrial unit was enabled to collect tax due to the Revenue
from the customers after the sanctioned scheme but the sick unit simply folded
its hands and declined to pay it over to the Revenue, for which proceedings for
recovery had to be taken". Clearly, the facts in the Corromandal
Pharmaceuticals case differ from the facts of the Vallabh Glass Works case and
those before us. The reference to the Corromandal Pharmaceuticals case is,
hold, in the premesis, that the respondents cannot recover the aforementioned
arrears of sales tax from the appellants without first seeking the consent of
the said Board in this behalf.
appeals are allowed and the judgments and orders under appeal are set aside. No
order as to costs.