Holding

Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 applies only to dues included in the sanctioned rehabilitation scheme; tax arrears not part of the scheme are not protected and may be recovered without BIFR’s consent.

Summary

Corromandal Pharmaceuticals Ltd., declared a sick industrial company, had a rehabilitation scheme sanctioned by BIFR in 1990. The Andhra Pradesh Commercial Tax Department issued sales‑tax assessments for 1992‑93 and 1993‑94 and began recovery proceedings in 1994‑95, after the scheme was in force. The company obtained a writ on the ground that Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 barred any execution, distress or similar action without BIFR’s consent, even for tax dues arising after the scheme. The Revenue argued that the bar applied only to dues expressly included in the sanctioned scheme and could not protect post‑scheme tax arrears. The High Court held in favour of the company, but the Supreme Court reversed, holding that Section 22(1) must be read down to cover only dues reckoned or included in the sanctioned scheme; tax arrears not part of the scheme are recoverable without BIFR’s consent. The Court emphasized that allowing the bar to extend to post‑scheme taxes would let a sick company retain public revenue indefinitely, which is unreasonable and contrary to the statute’s purpose.

Issues considered

Whether Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 imposes an absolute bar on recovery proceedings against a sick company for tax dues arising after a rehabilitation scheme is sanctioned.
Whether the bar under Section 22(1) applies only to dues that are reckoned or included in the sanctioned scheme.
Whether the High Court’s interpretation of Section 22(1) as an absolute bar was correct.

Legislation cited

Andhra Pradesh General Sales Tax Act, 1957s. 17
Sick Industrial Companies (Special Provisions) Act, 1985s. 15, s. 16, s. 17, s. 18, s. 19, s. 22(1), s. 22(5), s. 25

Subjects

Sick Industrial Companies ActSection 22tax recoveryrehabilitation schemeBIFRsales taxlegal embargosuspension of proceedingsinterpretationpublic revenue

Judgment

A DEPUTY COMMERCIAL TAX OFFICER AND ORS.
v.
CORROMANDAL PHARMACEUTICALS AND ORS.

MARCH 12. 1997
B
(B.P. JEEVAN REDDY AND KS. PARIPOORNAN, JJ.)

Sick Industrial Companies (Special Provisions) Act, 1985-Sections
22( I) & 22(5)-Board of Indust1ial and Financial Reconstmct1ion Regula-
C tions, 1987-Regulation Nos. 29 & 3(}-Suspension of legal proceedings, con-
tracts, etc.-Liability of sick company-Bar or embargo envisaged in Sec. 22
(1) can apply only to dues reckoned or included in sanctioned schem~Sales
tax arrears relating to period after scheme was brought under implementa-
tion-Recove1y proceedings-Sustainability-Wliether legal bar or embargo u/s
22 can apply-Held, No.
D
The respondent Company was declared as a sick industrial company
under the Sick Industrial Companies (Special Provisions) Act, 1985, by
the Board for Industrial and F'inancial Reconstruction. The Board sanc-
tioned a scheme in 1990 for the rehabilitation of the company which was
under implementation. The respondent company was assessed to sales tax
E for the assessment years 1992-93 and 1993-94 by orders passed in the years
1994 and 1995, long after the scheme was sanctioned. The Sales tax
authorities initiated recovery proceedings which were challenged. The
company pleaded that the sanctioned scheme by BIFR for rehabilitation
of the company being under implementation, no Jlroceedings for execution,
F destrees or the like against the company, shall lie except with the consent
of the Board, while according to the Revenue, for the arrears of sales tax,
relating to the period after the sanctioned scheme was brought under
imJJlementation, the legal embargo u/s 22 of the Act was inapplicable as
only those dues which were included in 'the package' in the sanctioned
scheme will be governed by the said bar. Allowing the writ petition, the
G High Court held that no coercive steps for the purJJoSe of recovery of tax
dues could be taken by the Revenue without obtaining the consent of BIFR.
The present appeal had been filed by the Revenue against the judgment of
the High Court.

H According to the Revenue the legal bar or embargo u/s 22 of the Act
1026 .
•
l DY. COMMERCIAL TAX OFFICER v. CORROMANDAL PHARMACEUTICAL~ 1027

can apply only in respect of the sales tax dues included in the sanctioned A
scheme. In the present case when the scheme was sanctioned in 1990, there

- was no assessment for the sales tax for the years 1992-93 and 1993-94, the
tax so collected by the petitioner assessee belonged to the State hut the
amount was not remitted to the State and if the bar or embargo u/s 22 (1)
of the Act is held to cover such amount collected by the assessee, which B
really belonged to the State, and enables such an assessee to retain the
same, till the implementation is over or the appeal u/s 25 of the Act is
disposed of, it will result in a state of affairs enabling the assessee to retain
the amounts due to the State for no reason and indefinitely, resulting into
an undesirable state of affairs; therefore, the section should be understood
or read down to act as a bar or embargo only for such of those pre-package C
dues reckoned or included in the scheme sanctioned.

- ThP. respondent company asserted that the embargo u/s 22 (1) is
absolute and cannot be diluted or whittled down and all that is required
by the provision is that in the cases where an enquiry. is pending or scheme
is under preparation or consideration or a sanctioned scheme is under D
implementation or an appeal is pending, no proceedings, as stated in Sec.
22. of the Act for execution, distress or the like, shall be proceeded with
except with the consent of the Board or the Appellate Authority and the
re11uirement of a previous consent is not an absolute bar and that the facts
of the instant case did not call for reading down the wide huport of Section E
22(1) of the Act.

Allowing the appeal, this Court

HELD : (Per K.S. Pwipooma11, J.)
F
1.1. Though the language of Section 22 of the Sick Industrial Com·
pank~ (Special Pr1wisions) Act, 1935 is of wide import regarding suspen·
sion of legal proceedings from the moment an im111iry is started, till after
the implementation of the :.;:heme or the disposal of an appeal undier
Section 25 nf the Act, it will be reason~ble to hold that the bar or embai-go
evisaged in Section 22 (1) of the Act can apply only to such of those dues G
reckoned or included in the sanctioned scheme. 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. Any other construction \\ill be unreasonable and unfair and will lead H
1028 SUPREME COURT REPORTS (1997] 2 S.C.R. j
l_

A to a state of affairs enabling the sick industrial unit to collect amounts
due to t!ie Revenue and withhold it indefinitely and unreasonably. Such a
contructio.n which is unfair, unreasonable and against the spirit of the
statute in a business sense, should be avoided. [1037·G·H, 1038-B]

Gram Panchayat and Another v. Shree Val/abh Glass works Limited
-
B and Other, [1990)2 SCC 440; Maharashtra Tubes Ltd. v. State Indusuial &
Investment Corporation of Maharashtra Ltd. and Another, (1993) 2 SCC
144; Reliance !spat Industries Ltd. &Anr. v. Commissioner of Sales Tax, M.P.
& Ors., Vol. 91 (1993) STC 521 M.P.; Himalaya Rubber Products Limited
and Anr. v. 171e Board for Industrial and Financial Reconstruction & Ors.,
C Vol. 88 (19.93) STC Cal. 47 and Vijay Mills Co. Ltd. & Ors. v. State of Gujarat
& Ors., Vnl. 6li (1990) .Co. Cases 597 Guj., referred to.

Per B.P. Jeevan Re!ldy, J. (Supplementing) :

The object of the Act is undoubtedly laudatory but it must also
D provide for appropriate measures against persons responsible where it is
found thafsickness is caused by factors other than circumstances beyond
-
· the control of the management. It is also well known fact ,that the proceed·
ings before the Board of Industrial and. Financial Reconstruction take a
fong l'me to conclude all the while the protective umbrella of Section 22 is 1.
E held' over the Company which has reported sick. There are cases where
.m,1rair.advantage is souiht to be taken of the provisions of Section 22 by
certain .industrial companies and the wide language employed in the
section is providing them a cover. Section 22 was not meant to bread
dishonestly nor can it be so operated as to encourage unfair practices. The
ultimate prejudice to public monies should not be overlooked in the
F process of promoting industrial progress. The government is fully alive to
the situation; it is certain that they must be thinking of necessary modifica·
tions in the Act. These few observations are meant morely to record the
need for change in the Act. (1039-D-F]

G CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1895 of
1997.

From the Judgment and Order dated 4.11.95 of the Andhra pradesh
High Court in W.P. No. 21973 of 1995.

H . Ms. K. Amreshwari, K. Ram Kumar, C. Balasubramaniam and Ms.
r DY.COMMERCIAL TAXOFFICERv.CORROMANDALPHARMACElmCAl.S 1029

Asha Nair for the Appeallants. A
M.S. Ganesh, Nikhil Nayyar and T.V.S.N. Chari for the Respondents.

The Judgments of the Court were delivered by

PARIPOORNAN, J. Special leave granted. B

2. Respondents 1 to 4 in writ petition No. 21973 of 1995 before the
High Court of An<lhra Pradesh, representing the Commercial Tax Depart-
ment, Andhra Pradesh, arc the appellants in this appeal. The petitioner
and respondents 5 and 6 in the writ petition are respondents 1 to 3 in this C
appeal. This appeal is filed against the judgment and order of the High
Court of Andhra pradesh <lated 4.11.1995.

3. The petitioner in the writ petition is M/s. Corromandal Phar-
maceuticals Ltd. The said company manufactures and markets bulk drugs
and formulations. It was declared as a sick industrial company under the D
Sick Industrial Companies (Special Provisions ) Act, 1985 (hereinafter
referred to as 'the Act' (Act No. 1 of 1986) by the Board Industrial and
Financial Reconstruction (shortly called 'BIFR'). The Industrial
Reconstruction Bank of India (shortly called '!RBI') has been appointed
as the operating agency. The BIFR sanctioned a scheme for the rchabilita- L
tion of the petitioner in case No. 160 of 1988 in exercise of its powers under
Section 18 (4) read with Section 19 (3) of the Act after obtaining the
consent of the concerned financial institutions, on 19.11.1990. The said
sanctioned scheme was brought into force with immediate effect. It was
modified later on 29.12.1993. Shortly stated, the said sanctioned scheme for
F
rehabilitation of the company is under impelcmcntation.

4. The petitioner-company is an assessee to sales tax under the
Andhra Pradesh General Sales Tax Act, 1957. It was assessed for the
assessment years 1992-93 by order dated 3.1.1994 and for the years 1993-94
by order passed in 1995. The Sales Tax authorities initiated action under G
· Section 17 of the Andhra Pradesh General Sales Tax Act for recovery of
the said dues. It is seen that appeals were preferred from the assessment
orders and the appellate authority granted a conditional order of stay to
pay the tax assessed in instalments. Even then, there was default. For the
aforesaid two years, the sales tax arrears due from the petitioner-company, H
1030 SUPREME COURT REPORTS (1997) 2 S.C.R. f
A is stated to be Rs.9,53,833/-. It is brought to our notice that there are sales
tax arrears for the years 1986-87 lo 1992-93, but those arrears are not in
qu.estlon in this appeal. We are concerned only with the collection of the
bala1we of tax Rs. 9,53,833/- due for the assessment years 1992-93 and
1993-94. As stated, the assessment orders for the said years were passed
B on 3.1.1994 and in.1995--long after the scheme was sanctioned by the BIFR
on 19.11.1990.

•. ~-·The Petitioner-company assailed the recovery proceedings for the
sales tax dues beforp the High Court. It prayed for the issue of a writ of
ma~i.I~mus directing the first and second respondents (Commercial Tax
C Authorities) not io procec,:d with the collection of balance sales tax amount
of Rs. 9,53,833/- Without the pem1issio11 of BIFR, as required under Section '
22 of the Act (Act 110. 1/86), and for other reliefs. The plea of the petitioner
was that the sanctioned scheme by BIFR for rehabilitation of the company
is under implementation, and so, no proceedings for execution, distress or
D the like against the company, shall lie except with the co11sent of the Board.
Accordin~ to the Revenue, the arrears of the sales Tax in question relate
to the period after the sanctioned scheme was brought under implementation
and that the legal emb_argo/bar under Section 22 of the Act is inapplicable
since Section 22 of the Act can apply only in respect ~f the sales taic dues
E included in the "sanctioned scheme". Only those dues which were included ·
in "the package" in the sanctioned s~heme will be governed by the said bar.
The High Court considered the rival pleas in the light of the relevant
statutory provisions, a few decisions of this Court and of other High Courts,
and held thal there is no warrant to import the limitation as confended by
the Revenue in applying section 22 of the Act and tlzat no coercive steps
F
for the purpose of recovery of tax dues including action under Se~tion 17
of the Andhra Pradesh General Sales Tax Act can be taken by the Revenue
without obtaining the consent ,of BIFR. The writ petition filed by the first
respondent herein -- the company, was "allowed. It is thereafter, the
Revenue moved this Court by way of S.L.P. No. 10474/96 and has come in
G appeal.

6. We heard counsel. For the purpose of resolving the controversy
raised in this case, it will be useful to q note Section 22( 1) and Section 22

H
(5) of the Act as also Board of Industrial and Financial Reconstruction
Regulations, 1987, regulalion Nos. 29 and 30 : -
DY. COMMERCIAL TAX OFFICER v. CORROMANDAL PHARMACEUTIC.A LS [PARJPOORNAN. J.] 1031

"22. Suspension of legal proceedings, contracts, etc. -- (l) Where in A
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 B
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 C
receiver in respect thereof and no suit for the recovery of money
or for the enforcement of any security against the industrial ccim-
pany 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 01; as the case may be, the D
Appellate Auth01ity.

(2) ······

(3) ······
E
(4) ..... .

(5) In computing the period of limitation for the enforcement of
any right, privilege, obligation or liability, the period during which
it or the remedy for the enforcement thereof remains suspended
under this section shall be excluded." F
Regulation Nos. 29 & 30.

"29. The Board shall publish or cause to be published short
particulars concerning the draft scheme, by way of notification, in
such daily newspapers and periodicals, a> it may consider neces-. G
smy, inviting suggestions and objections regarding the draft scheme,
within such time as may be mentioned in the notification, from the
sharelwlde1~·, creditors and employees of the sick industrial com-
pany, the transferee company as well as any other company con-
cerned in the amalgamation. H
1032 SUPREME COURT REPORTS [1997] 2 S.C.R.

A 30. The Board shall consider the suggestions and objections
received from the sick industrial company, the operating agency
or, as the case may be, from the transferee· company and any other
company concerned in the amalgamation and from any
shareholder, creditor, or employee, of such industrial companies."

B (emphasis supplied)

It will be useful to understand the scheme of the Act (No. 1/1986): the
Preamble to the Act states as follows:-

"An Act to make, in the public interest, special provisions with a
c view to securing the timely detection of sick and potentially sick
companies owning industrial undertakings, the speedy determina-
tion by a Board of e-xperts of the preventive, ameliorative, remedial
and other measures which need to be taken with respect to such
-
comp:o.:1ies and the expeditious enforcement of the measures so
D determind and for matters connected therewith or incidental
thereto."

Sxtion 3(b), 3(i) and 3(o) may also be read:-

3. (b) "Board means the Board for Industrial and Financial
E Reconstruction established under section 4;

xxx xxx xxx

F
(i) "Operating agency" means any public financial institution,
State level institution, scheduled bank or any other person as may
be specified by general or special order as its agency by the Board;
-
xxx xxx xxx

(o) "Sick industrial company" means an industrial company
(being a company registered for not less than five)'ears) which has
G
at the end of any financial year accumulated losses equal lo or
exceeding its entire net worth.

Explanation. -- For the removal of doubts, it is hereby declared
than an industrial company existing immediately before the com-
H mencement of the Sick Industrial Companies (Special Provisions)
. DY. COMMl!RCIAL TAX OFF!CllR v. CORROMANDAL PHARMACEUnCALS (PARIPOORNAN, J.J 1033

Amendment Act, 1993, registered for not less than five years and A
having at the end of any financial year accumulated losses equal
to or exceeding its entire net worth, shall be deemed to be a' sick
industrial company;

xxx xxx xxx
. .
B
Chapter III of the Act deals with '.'References, i11qttiries, a11d iche1i1e~"·
Section 15 thereof authorise the Board of Directors of the Clomparty_ to
make a reference to the Board (BIFR) for determination of the measures
which shall be adopted With respect. to the. company. Section 16 authories
the Board to make such 'inquiries 'as it may deem fit for determining C
whether any industrial company has become a sick industrial company.
0 0

Where Board is satisfied tha t a company has ,be;c6me a: sick industdal
company, it could give a reasonable time t9 the company to make its net
worth positive [Section 17 (2) ]. Where~it is not practicablefor sick in-
dustrial company to make its ~et 'fOrth positive within ·•a reasonable time,
Section 17(3) steps in authorisingJhe Boar~ to direct any operating agency D
. to prepare a scheme in relation to the company: The Board may speci(y
; the various measures t? ·be coqsidered by the operating' agency. These
measures are _detailed out in ·Section 18. The operating agency has to
. prepare a scheme as per the.:order specified by the Board.
E
Under Section 18 (3) of the Act a scheme prepared by the operating
agency shall be examined by the Board and a copy of the scheme with
modification made by the Board shall be sent to the Sick Industrial
Company and the operating agency. The draft scheme shall be P,ublls~ed
in brief in daily newspapers, inviting suggestion~ and objections. (Regula-
tions No. 29 &30). It is open to the. Board to make ~odificafi0 mf' as it F
considers necessary in the light of the suggestions and objections Tec;eived.
It is thereafter the scheme is sanctioned by the Board and .it sh ail ·cofue
into force . on such date as the Board may specify in-that behalf:' Sectio~ 19
of the Act provides for rehabilitation by giving financial assistance. Section
22 (1) deals With suspension 'of legal proceedings, contracts: 'etc.
G
It is common ground that a sanctioned scheme for the rehabilitation
of the petitioner company is under implementation. The scheme was
sanCtioned on 19.11.1990. It is also admitted before' us that the sales tax
arrears for which proceedings were initiated by the Revenue are for the
assessment years 1992-93 and 1993-94. The asse~sment orders for these H
1034 SUPREME COURT REPORTS [1997] 2 S.C.R.

A years were passed on 3.1.1994 and in 1995, long after the sanctioned
scheme was brought into force. The main contention of the Revenue before
the High Court and still in appeat before us is, that the arrears of sales tax
in question for which proceedings are initiated against the petitioner
company, relate to the period after the sanctioned scheme was brought
under implementation and the legal bar or embargo under Section 22 of
B the Act can only be in respect of the sales tax dues included in a sanctioned
scheme. According to the Revenue, the Section should be reasonably
construed and understood or read down in the above light. It was argued
that apparently the embargo or bar envisaged by Section 22 of the Act is
of wide import and covers a long period. This bar or embargo begins to
c operate the moment an inquiry is ordered or pending, and continues during
the course of the inquiry, when a scheme is under preparation or con-
sideration, and still later when the scheme is under implementation or even
when an appeal under Section 25 of the Act relating to the company is
pending. It was urged that the inquiry itself will take time and the pendency
-
of the proceedings from the date of the inquiry till the scheme is imple-
D mentcd or an appeal is disposed of, envisage going through various for-
malities and will take <I Jong time. If the bar or embargo envisaged by
Section 22 of the, Act is to cover the entire length of time, the situation may
lead to very unreasonable or unintended state of affairs similar to the one
of the present case; the suspension of proceedings specified in Section 22
of the Act should be confined to matters included, in pre-package state of
E
affairs only, (in the sanctioned scheme) and not post-package matters like
the instant one, which should be outside the pale or area of the "sanetioned
scheme". Counsel submitted that when the scheme was sanctioned on
19.11.1990, there was no assessment for the sales tax for the years 1992-93
and 1993-94. The petitioner (assessee) itself could have collected sales tax
F for the said years only a(ter the scheme was sanctioned. The tax so
collected really belongs to the State. But, the amount is not remitted to the
is
state. If the bar or embargo under Section 22(1) of the Act held to cover
such amount collected by ·the assessee, which really belong to the State,
and enables it to retain the sa~e, till the implementalion is over or the
G appeal under Section 25 of the Act is disposed of, it will result in a state
of affairs enabling the assessee to retain the am·ounts due to the State for
no reason and indefinitely; the Revenue will have to obtain consent of the
Board or as the Appellate Authority .even for realising the legitimate
amounts due to it and withheld by the assessee, unreasonably. There may
be similar instances where the petitioner/assessee collects amounts due to
H the Revenue or other and is yet enabled to keep it back with itself
y
DY. COMMERCIAL TAX OFFICER v. CORROMANDALPHARMACElll'ICAL~ (PARIPOORNAN, J.] 1035

unreasonaoly for a long time if the immunity under Section 22(1) of the Act A
operates absolutely. According to the Revenue the bar under Section 22(1) of
the Act should not lead to such an undesirable, state of affairs; and so the
section should be understood or read down to act as a bar or embargo only
for such of those pre-package dues reckoned or included in the scheme
sanctioned. On the other hand, counsel for the first respondent (petitioner in
the writ petition) company asserted that the embargo under Section 22(1) of B
the Act is absolute and cannot be diluted or whittled down. All that is required
by Section 22 (1) of tl1e Act is that in cases where an inquiry is pending or
scheme is under preparation or consideration or a sanctioned scheme. is under
implementation or an appeal is pending, no proceedings, as stated in Section
22 of the Act[or execution, distress or the like, shall be proceeded with except C
with the consent of the Board or as the Appellate Authority. What is con-
templated by Section 22 (1) of the Act is only a previous consent of the
Board for the proceedings to be initiated against a sick company. It is not an
absolute bar. The facts pointed out by the Revenue do not call for reading
down the wide import of Section 22 (1) of the Act.
D
8. We considered the rival pleas urged before us. In Gram Panchayat
and another v. S!zri Vallabh Glass Works Limited and others, (1990) 2 SCC
440, the concerned company was declared a sick industrial company and
steps were taken under Sections 16 and 17 of the Act by the Board. The
question was; whether the creditor (panchayat) could. recover the amount
due to it from out of the property of the company without the consent of E
the Board. This Court, stated the law at page 443 (paragraph 10), thus:-

"In the light of the steps taken by the Board under Sections 16 and
17 of the Act, no proceedings for execution, distress or the like
proceedings against any of the properties of the company shall lie
or be proceeded further except with the consent of the Board. F
Indeed those would be automatic suspension of such proceedings
against the compa11y's properties. As soon as the inquiry under
Section 16 is ordered by the Board, the various proceedings set
out under sub-section (1) of Section 22 would be deemed to have
been suspended."
G
(emphasis supplied)

The above decision was followed by this court in Maharashtra Tubes Ltd.
v. State Industlia/ & Investme11t Corporation of Maharashtra Ltd. and
another, [1993] 2 sec 144. The following portion of the head note of the H
1036
'fI
SUPREME COURT REPORTS [1997) 2S.C.R.

A report at pages 144-145 sufficiently brings out the ratio relevant for the
purpose of the present appeal:- •.

"Where an inquiry is pending under Sections 16/17 or an appeal
is pending under Section 25 of the 1985 Act there should be
cessation of the coercive activities of the type mentioned in Section
B 22(1) to permit the BTFR to consider what remedial measures it
should take with respect to the sick industrial company."

"The purpose and object of suspension of proceedings etc. under
S. 22(1) of the 1985 Act is to await the outcome of the reference
made to the BIFR for the revival and rehabilitation of the sick
c industrial company. 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 charac-
te1istic till the BIFR finally disposes of the reference made under
D Section 15 of 1he 1985 Aci. 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 un-
dertaking ............"

(emphasis supplied)
E
Our attention was also drawn to the following High Court decisions :

Reliance !spat lndust1ies Ltd. & Anr. v. Commissioner of Sales Tax,
M.P. & Ors., Vol. 91 (1993) STC 521 M.P.; Himalaya Ruber Products
F Limited and Anr. v. The Board for lndus!lial and Financial Reconstmction
& Ors., Vol. 88 (1993) STC Cal. 47 and Vijay Mills Co. Ltd & Ors. v. State
of Gujarat & Ors., Vol. 68 (1990) Co. Cases 597 Guj, etc.

9. The Madhya Pradesh and Calcutta High Courts have followed the
decision of this Court is Gram Panchayat and another v. Sltree Vallabh
G Glass W01*s Limited and Others, (1990] 2 SCC 440.

10. On a fair reading of the provisions contained in Chapter IIJ of
Act 1/1986 and in particular Sections 15 to 22, we are of the opinion that
the plea put forward by the Revenue is reasonable and fair in all cir-
cumstances of the case. Under the statute, the BIFR is to consider in what
H way various preventive or remedial measures should be afforded to a sick
( DY. COMMERCIAL TAX OFFICER v. CORROMANDALPHARMACEIJ11CALS [PARIPOORNAN,J.] 1037

industrial company. In that behalf, BIFR is enabled to frame an ap- A
propriate scheme. To enable the BIFR to do so, certain preliminaries are
_. required to be followed. It starts with the reference to be made by the
Board of Directors of the sick company. The BIFR is. directed to make
appropriate inquiry as provided in Sections 16 and 17 of the Act. At the
conclusion of the inquiry, after notice and opportunity afforded to various
persons including the creditors, the BIFR is to prepare a scheme which B
shall come into force on such date as it may specify in that behalf. It is
impleme11tatio11 of the scheme wherein various preventive remedial or other
measures, are designed for the sick industrial company, steps by way of
giving financial assistance etc. by Government, banks or other institutions,
are comtemplated. In other words, the scheme is implemented or given C
effect to, by affording financial assistance by way of loans, advances or
guarantees or reliefs or concessions or sacrifices by Government, banks
public financial institutions and other authorities. In order to see that the
scheme is successfully implemented and no impediment is caused for the
successful carrying out of the scheme, the Board is enabled to have a say
when the steps for recovery of the amounts or other coercive proceedings D
are taken against sick industrial company which, during the relevant time,
acts under the guidance/control or supervision of the Board (BIFR). Any
step for execution, distress or the like against the properties of the industrial
company of other similar steps should not be pursued which will cause delay
or impediment in the implementation of the sanctioned scheme. In order to E
safeguard such state of affairrs, an embargo or bar is placed under Section 22
of the Act against any step for execution, distress or the like or other similar
proceedings against the company without the consent of the Board or, as the
case may be, the appellate authority. The language of Section 22 of the Act is
certainly wide. But, in the totality of the circumstances, the safeguard is only
against the impediment, that is likely to be caused in the implementation of F
the scheme. lf that be so, only the liability or amounts covered by the scheme
will be taken in, by section 22 of the Act. So, we are of the view that though
the lan1,ruage of Section 22 of the Act is of wide import regarding suspension
of legal proceedings from the moment an inquiry is started, till after the
implementation of the scheme or the disposal of an appeal under Section 25
of the Act, it will be reasonable to hold that the bar or embargo envisaged in G
Section 22 (1) of the Act 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 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. Any other H
1038 SUPREME COURT REPORTS [1997] 2 S.C.R.

A 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 spirit of the statutes in a business
sense, should be avoided.

B 11. The situation which has arisen in this ease seems to be rather
exceptional. The issue that has arisen in this appeal did not arise for
consideration in the two cases decided by this Court in Gram Panchayat
and another v. Shree Vallabh Glass Works Limited and others, [1990] 2 SCC
440. and Maharashtra Tubes Ltd. v. State Industrial & Investment Corpora-
C tion of Maharashtra Ltd. and A11othe1; [1993] 2 SCC 144. It does not appear
from the above two decisions of this Court nor from the decisions of the
various High Courts brought to our notice, 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 of those cases, a
situation arose whereby the sick industrial unit was enabled to collect tax
D 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. The two
decisions of this Court as also the decisions of High Courts brought lo our
notice are, therefore, distinguishable. They will not apply to a situation as
has arisen in this case. We are, therefore, of the opinion that Section 22
E (1) should be read down or understood as contended by the Revenue. The
decision to the contrary by the High Court is unreasonable and unsus-
tainable. We set aside the judgment of the High Court and allow this
appeal. There shall be no order as to costs.

B.P. JEEVAN REDDY, J. I agree respectfully with the opinion
F prepared by my learned brother K.S. Paripooman, :I.·

L;ioking at the provisions of the Sick Industrial Companies (Special
Provisions) Act, 1985 [the Act), I was wondering how out o(tune the Act
has become with the economic policies being pursued now in this country.
G Since 1991-92, we arc launched upon, what is being called, liberalisation of
our economy. we· have given up the policy of protecting our industries
against foreign competition on the ground that it has given rise to an
inefficient and outdated industrial system in our country. Our industries
are suddenly being asked lo compete with foreign companies, many of
whom being giant multi-nationals have vast resources at their disposal.
H They are merrily gobbling up our poor native companies. Many local
DY. COMMERCIAL TAX OFFICER v. CORROMANDAL PHARMACEUTICALS (JEEVAN REDDY,J.)1039

industries, unable to stand the said conpetition are joining the foreign A
gaints in one form of venture or other. Several hundreds of small-scale and
medium scale units in telecom sector, for example have suffered enormous-
... ly because of our love for foreign companies and their capital. The state
of several public sector companies is no better. I arri not saying that we
have totally embraced, what may be called "Reaganism" or "Thatcherism".
The fact, however, remains that it is no longer thought advisable to keep B
alive inefficient and uneconomic industries by injecting public funds or in
the name of safeguarding the employment of the workers. And here is this
Act, a product of the era of protectionism, seeking to keep alive "sick"
companies by pumping in funds - mostly public funds - and by providing
various concessions. In the process, nobody inquires why a particular C
industrial company has become sick, viz., whether it is an induced one or
whether it is on account of factors beyond their control. The object of the
Act is undoubtedly laudatory but it must also provide for appropriate
measures against persons responsible where it is found that sickness is
caused by factors other than circumstances beyond the control of the
management. It is also a well-known fact that the proceedings before the D
Board of Industrial and Financial Reconstruction take a long time to
conclude and all the while the protective umbrella of Section 22 is held
over the company which has reported sick. We have come across cases
where unfair advantage is sought to be taken of the provisions of Section
22 by certain industrial companies - and the wide language employed in
the section is providing them a cover. We are sure Section 22 was not E
meant to breed dishonesty nor can it be so operated as to encourage unfair
practices. The ultimate prejudice to public monies should not be over-
looked in the process of promoting industrial progress. We are quite sure
that the Government is fully alive to the situation and are equally certain
that they must be thinking of necessary modifications in the Act. These few F
observations are meant merely to record the need for changes in the Act.

R.A.. Appeal allowed.

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