Sick company protection under industrial law does not bar recovery of sales tax dues absent inclusion in a rehabilitation scheme.

The Andhra Pradesh High Court considered whether recovery of sales tax arrears could continue against a sick industrial company during proceedings before the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985. It held that the protective suspension under section 22(1) covers only the specified proceedings contemplated by the statute and does not automatically bar recovery of sales tax dues belonging to the State, especially where the dues are not shown to be part of a sanctioned rehabilitation scheme and the company continued collecting the tax from customers. On the facts, there was no material that the liability was included in any approved scheme, so the recovery proceedings were sustained.

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Issues: Whether recovery proceedings for sales tax arrears could be continued against a sick industrial company notwithstanding pendency of proceedings before the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 suspends only specified proceedings, including winding up, execution, distress or the like against the company's properties, recovery suits for money, enforcement of security, and guarantees, during the pendency of inquiry, preparation or implementation of a scheme, or pendency of an appeal. The provision was read in the context of the entire statutory scheme, including sections 15 to 18 and section 22(5), and in light of prior decisions distinguishing between ordinary creditor claims and amounts like sales tax collected by an industrial company on behalf of the State. The Court held that sales tax arrears are not barred by section 22(1) where the dues are not shown to have been included in a sanctioned rehabilitation scheme and where the company continued to collect such tax from customers. On the facts, there was no material to show that the petitioner-company had ceased business or that the demand formed part of any sanctioned scheme.

Conclusion: Section 22(1) did not bar the impugned recovery proceedings, and the challenge to the demand notice failed.

Final Conclusion: The writ petition was held to be without merit, and the recovery action under the revenue recovery process was sustained.

Ratio Decidendi: Protective suspension under section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 does not extend to recovery of sales tax dues legitimately belonging to the State unless such liabilities are shown to be covered by the sanctioned rehabilitation scheme.

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