Rehabilitation scheme protection bars distress recovery against a sick industrial company without Board consent, even for tax arrears.

Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 bars distress and similar coercive recovery proceedings against a sick industrial company while a rehabilitation scheme under section 17 is under implementation, unless the Board for Industrial and Financial Reconstruction gives consent. The protective bar applies to tax arrears as well, including recovery threatened as arrears of land revenue. The absence of Board consent makes distress action impermissible during the currency of the scheme, and non-compliance with instalment conditions in the scheme does not by itself remove that statutory protection.

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Issues: Whether recovery of interest arrears by distress proceedings could be initiated against a sick industrial company while a rehabilitation scheme under the Sick Industrial Companies (Special Provisions) Act, 1985 was under implementation without the consent of the Board for Industrial and Financial Reconstruction.

Analysis: Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 bars execution, distress and like proceedings against the properties of an industrial company when a scheme framed under section 17 is under implementation, except with the consent of the Board. The demand related to interest under section 24(3) of the Tamil Nadu General Sales Tax Act, 1959, and the notice threatened recovery as arrears of land revenue. The protective object of section 22 is to prevent coercive recovery from defeating rehabilitation, and the absence of Board consent renders distress action impermissible during the currency of the scheme. Non-compliance with instalment conditions in the scheme did not by itself remove the statutory protection.

Conclusion: The recovery notice was invalid to the extent it authorised distress proceedings without prior consent of the Board, and the challenge succeeded in favour of the assessee.

Ratio Decidendi: When a rehabilitation scheme under the Sick Industrial Companies (Special Provisions) Act, 1985 is under implementation, coercive recovery by distress or similar proceedings against the sick industrial company cannot be undertaken without the Board's consent, even for tax-related arrears.

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