1999 (10) TMI 660 - HC - Companies Law

Government conditions upheld for deferred sales tax payment & nominee director appointment in mill management.

The court dismissed the writ petition, upholding the validity of the conditions imposed by the Government of Tamil Nadu regarding the payment schedule of ... Rehabilitation by giving financial assistance Issues Involved:1. Validity of the conditions imposed by the Government of Tamil Nadu regarding the payment schedule of deferred sales tax.2. Appointment of a nominee director by the Government on the board of management of the petitioner-mills.3. Compliance of the Government's actions with the scheme sanctioned by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR).Issue-wise Detailed Analysis:1. Validity of the Conditions Imposed by the Government of Tamil Nadu Regarding the Payment Schedule of Deferred Sales Tax:The petitioner-mills sought a writ of certiorarified mandamus to quash the Government Orders (G.O. Ms. No. 304, dated 12-10-1990, and G.O. Ms. No. 97, dated 25-2-1991) and the consequential orders passed by the Commercial Tax Officer (CTO) regarding the payment schedule of deferred sales tax. The petitioner argued that the conditions for repayment commencing from the fourth year (i.e., 1993-94) instead of after March 2000, as provided in the sanctioned scheme, were contrary to the terms of the scheme and violated their fundamental and constitutional rights.The court noted that during the AAIFR meeting on 13-6-1990, the Joint Director of Handlooms and Textiles informed that the Government would consider two concessions: power cut exemption for three years and deferment of sales tax for three years. The Government of Tamil Nadu sanctioned these concessions through G.O. Ms. No. 304, dated 12-10-1990. The court observed that the Government had not given any unconditional consent and that the deferment of sales tax for three years was subject to review for extension for another two years. The court held that the Government's actions were discretionary and not obligatory, and the petitioner could not question the mode and time of the concessions granted. Thus, the court found no merit in the petitioner's claims regarding the payment schedule of deferred sales tax.2. Appointment of a Nominee Director by the Government on the Board of Management of the Petitioner-Mills:The petitioner contested the Government's condition to appoint a nominee director on the board of management of the mills, arguing that it was unwarranted and opposed to the sanctioned scheme. The petitioner claimed that the IDBI was already appointed as an implementing agency to monitor the company, making the Government's condition redundant.The court noted that the Government imposed this condition to protect its interests in the funds sanctioned by way of deferment of sales tax. The nominee director was to monitor the utilization of funds and head a sub-committee with the power to veto decisions against the mills' interests. The court found that these conditions were standard practice for mills seeking concessions and were intended to prevent mismanagement and further closures, thereby protecting the interests of the workers and the mills. The court concluded that the appointment of a nominee director did not adversely affect the petitioner's interests and was in line with the Government's commitment to assist the unit.3. Compliance of the Government's Actions with the Scheme Sanctioned by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR):The petitioner argued that the Government's conditions were inconsistent with the AAIFR-sanctioned scheme. The court examined the facts and found that the Government had committed to granting two concessions: power cut exemption and deferment of sales tax for three years, subject to review for extension. The AAIFR had recommended these concessions favorably, and the Government had fulfilled its commitment by sanctioning them.The court held that the Government's conditions were consistent with its commitment before the AAIFR and were imposed to safeguard the interests of the mills, workers, and Government funds. The court emphasized that the Government's actions were discretionary and aimed at ensuring the viability and proper management of the mills. Thus, the court concluded that the Government's conditions did not violate the sanctioned scheme and were justified.Conclusion:The court dismissed the writ petition, finding no merit in the petitioner's claims. The conditions imposed by the Government regarding the payment schedule of deferred sales tax and the appointment of a nominee director were upheld as valid and consistent with the sanctioned scheme. The court emphasized that these conditions were in the interest of the mills, workers, and Government funds, and did not adversely affect the petitioner's rights.