BIFR pendency bars coercive tax recovery against a sick industrial company absent BIFR consent

During pendency of proceedings before the BIFR, section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 imposes a statutory bar on coercive recovery action against a sick industrial company. On that footing, the court treated the sales tax recovery notice as unenforceable while the BIFR process remained pending, and indicated that the revenue's remedy was to approach the BIFR for impleadment and permission before pursuing recovery. The contrary precedent relied on was found inapplicable because the demand arose in the context of continuing BIFR proceedings and a deferral arrangement default.

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Issues: Whether, during pendency of proceedings before the Board for Industrial and Financial Reconstruction, the revenue could proceed to recover sales tax dues by issuing the impugned notice.

Analysis: Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 creates a statutory bar against recovery proceedings against a sick industrial company when an inquiry, scheme, or appeal is pending before the Board for Industrial and Financial Reconstruction. The Court held that the amount demanded under the impugned notice could not be recovered in view of the pending BIFR proceedings, and that the revenue's remedy was to implead itself before the BIFR and seek appropriate permission. The Court found the reliance placed on the contrary precedent to be inapplicable on the facts, since the demand arose in the context of the company's continuing BIFR process and default under a deferral arrangement.

Conclusion: The impugned tax recovery notice was unsustainable and could not be enforced during the pendency of the BIFR proceedings; the writ petition was therefore allowed in favour of the assessee.

Ratio Decidendi: When proceedings before BIFR are pending in respect of a sick industrial company, section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 bars coercive recovery of dues unless consent is obtained from BIFR.

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