Recovery attachment against a sick industrial company's bank accounts stayed, with revenue safeguarded by an undertaking to deposit funds.

Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 gives a sick industrial company protection against coercive recovery, so notices under section 226(3) of the Income-tax Act to attach its bank accounts were treated as prima facie inconsistent with that safeguard. The attachment was stayed by interim relief, because continuing it would not advance recovery while preventing operation of the accounts. The revenue's interest was protected by requiring an undertaking from the petitioner to deposit the account balance if the petition ultimately failed.

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Issues: Whether notices issued under section 226(3) of the Income-tax Act, 1961 to attach and recover amounts from the petitioner's bank accounts could be continued when the petitioner's reference had been registered as a sick industrial company under section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, and whether interim relief should be granted staying those notices.

Analysis: The petitioner had been registered as a sick industrial company, attracting the protective umbrella of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. Continuation of the bank attachment was prima facie inconsistent with that statutory protection, because it operated as a coercive measure against the petitioner's property. The Court also noted that keeping the attachment alive would not advance recovery, since the petitioner would still be unable to operate the accounts, while the revenue would not obtain payment. To balance the competing interests, the Court considered that the revenue's interest could be safeguarded by requiring an undertaking from the petitioner to deposit the amount standing in the accounts if it ultimately failed in the petition.

Conclusion: The notices under section 226(3) were stayed by way of interim relief, and the respondent authorities were not permitted to continue the attachment of the petitioner's bank accounts at that stage.

Final Conclusion: Interim protection was granted in favour of the petitioner on the footing that recovery attachment against a sick company could not be continued pending adjudication, while the revenue was protected through an undertaking.

Ratio Decidendi: Recovery attachment against the bank accounts of a company registered as a sick industrial company is prima facie impermissible under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, and may be stayed pending proceedings, with suitable safeguarding of the revenue's interest.

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