Sick company moratorium limits coercive recovery of past sales-tax dues, but not current tax collections pending rehabilitation.

Registration of a reference with BIFR after scrutiny is treated as commencement of an inquiry under section 16(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, so section 22(1) bars coercive recovery of past sales-tax dues without the Board's consent. The protection, however, does not extend to sales-tax collected from purchasers during the pendency of the reference and before any rehabilitation scheme is sanctioned, because such current collections are treated as amounts payable to the State and not as funds the company may retain. The company is therefore shielded only against recovery of prior dues, not against prospective payment of current collections.

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Issues: (i) Whether registration of the reference with the Board for Industrial and Financial Reconstruction commenced an inquiry under section 16(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, so as to attract the protection of section 22(1) against coercive recovery of past sales-tax dues. (ii) Whether section 22(1) protected the company from being compelled to pay sales-tax collected from purchasers during the pendency of the reference and before sanction of any rehabilitation scheme.

Issue (i): Whether registration of the reference with the Board for Industrial and Financial Reconstruction commenced an inquiry under section 16(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, so as to attract the protection of section 22(1) against coercive recovery of past sales-tax dues.

Analysis: Once the reference is registered after scrutiny, inquiry under section 16(1) is deemed to have commenced. The protective bar under section 22(1) therefore operates in respect of coercive proceedings against the company's properties for past liabilities. The Court treated the later registration communications as sufficient to bring the company within the statutory moratorium.

Conclusion: The inquiry under section 16(1) had commenced, and section 22(1) protected the company against coercive recovery of past sales-tax dues without the Board's consent.

Issue (ii): Whether section 22(1) protected the company from being compelled to pay sales-tax collected from purchasers during the pendency of the reference and before sanction of any rehabilitation scheme.

Analysis: Section 19 of the Act contemplates rehabilitation schemes involving financial assistance, reliefs, concessions, or sacrifices from the State Government only with consent. The Court distinguished past dues from current collections. Amounts already intermingled with the company's assets for the past period could not be recovered coercively without consent, but current sales-tax collections were treated as monies collected on behalf of the State and not as funds the company could retain until a scheme was sanctioned. The statutory scheme did not compel the State to grant a tax deferment for current collections, and section 22(1) could not be used to require such concession.

Conclusion: The company was protected only against coercive recovery of past sales-tax dues up to 31 March 2004, but not in respect of sales-tax collected from 1 April 2004 onwards, which the State was entitled to demand in accordance with law.

Final Conclusion: The petitions succeeded only to the extent of shielding the company from coercive recovery of prior sales-tax dues without BIFR consent, while preserving the State's right to recover current sales-tax collections prospectively.

Ratio Decidendi: Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 bars coercive recovery of past dues from a sick industrial company, but it does not prevent the State from insisting that sales-tax collected from purchasers during pendency of the reference be paid over prospectively, since such current collections are not meant to remain with the company as its own funds.

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