Sick industrial company protection bars coercive tax recovery through a garnishee notice without BIFR consent.

Coercive recovery against a sick industrial company is barred under section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, so a notice under section 226(3) of the Income-tax Act, 1961 cannot be enforced without prior consent of the BIFR. Where the company is registered as sick, acting on such notice to recover past tax arrears amounts to prohibited recovery proceedings. The High Court granted interim protection restraining the authorities from proceeding on the notice, while declining to express any broader opinion on the scope of section 226(3).

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Issues: Whether enforcement of the notice under section 226(3) of the Income-tax Act, 1961 could be restrained against a sick industrial company protected under section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: The petitioner was registered as a sick industrial company, and recovery of past income-tax arrears by acting upon the notice would amount to coercive recovery. The bar under section 22(1) applies to recovery proceedings against a sick company, and such dues cannot be enforced coercively without the consent of the Board for Industrial and Financial Reconstruction. The Court did not express any opinion on the broader interpretation of section 226(3) of the Income-tax Act, 1961, but held that the petitioner was entitled to interim protection under the SICA.

Conclusion: Interim relief was granted restraining the respondent authorities from acting upon the notice and from enforcing any notice under section 226(3) of the Income-tax Act, 1961 without prior consent of the BIFR under section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.

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