Sick company rehabilitation scheme protection bars coercive recovery of pre-scheme tax dues without Board consent.

Under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, coercive recovery proceedings against the properties of a sick industrial company remain suspended while a sanctioned rehabilitation scheme is under implementation unless the Board for Industrial and Financial Reconstruction consents. The Court noted that this protection applies to pre-scheme tax dues and does not extinguish the underlying liability; it only keeps recovery in abeyance until the scheme is fully implemented. Because the recovery action was taken without Board consent for dues relating to periods before the sanctioned scheme, the attachment order and notices were liable to be quashed.

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Issues: Whether, during implementation of a sanctioned rehabilitation scheme under the Sick Industrial Companies (Special Provisions) Act, 1985, coercive steps for recovery of pre-scheme sales tax dues could be taken against the sick company without the consent of the Board for Industrial and Financial Reconstruction.

Analysis: The company had been declared sick, a rehabilitation scheme had been finalised and sanctioned, and the scheme was in the stage of implementation. Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 suspends proceedings for execution, distress or similar coercive action against the properties of a sick industrial company while an inquiry, scheme preparation, consideration, or implementation is pending, except with the consent of the Board. The dues sought to be recovered related to assessment periods preceding the sanctioned scheme, so the principle that post-scheme current tax collections may stand on a different footing did not assist the revenue. The Court also noted that section 22 does not extinguish the tax liability, but only keeps coercive recovery in abeyance until the scheme is fully implemented.

Conclusion: The recovery proceedings were barred by section 22 in the absence of Board consent, and the attachment order and notices were liable to be quashed.

Ratio Decidendi: Where a sick industrial company is operating under a sanctioned rehabilitation scheme, coercive recovery proceedings against its properties for pre-scheme dues cannot continue without the consent of the Board under section 22 of the Act.

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