BIFR rehabilitation scheme bars recovery of undisclosed pre-cut-off liabilities and stops refund adjustment against them.

A BIFR-sanctioned rehabilitation scheme protected the new management from undisclosed pre-cut-off liabilities up to 31 March 2000, and those liabilities could not be enforced outside the approved package. Because the Central Excise Department's additional claims were neither disclosed by the old management nor covered by the sanctioned scheme, and the BIFR's directions barring extra claims were never overturned, the sanctioned refund arising from the departmental appeal could not be adjusted against those demands. The rehabilitation scheme therefore controlled the recovery process, leaving the respondent company protected from the attempted adjustment and recovery of the excluded liabilities.

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Issues: Whether the sanctioned refund could be adjusted against demands that were not disclosed to, or covered by, the rehabilitation scheme sanctioned by the BIFR and whether such pre-cut-off liabilities could be recovered from the new management.

Analysis: The refund arose out of deposit made in connection with the departmental appeal, while the demands sought to be adjusted were found to relate to liabilities that had not been disclosed by the old management or brought within the package approved by the BIFR. The sanctioned scheme fixed a cut-off date of 31 March 2000 and protected the new management from liabilities not taken on record or provided for in the scheme. The BIFR also directed the Central Excise Department not to raise additional claims outside the sanctioned scheme, and those directions were never set aside in appeal. On that basis, the adjustment of the refund against such demands was held to be impermissible.

Conclusion: The demands could not be enforced against the respondent company and the refund could not be adjusted towards them; the departmental appeal failed.

Final Conclusion: The rehabilitation scheme prevailed over the attempted recovery, and the respondent remained protected against the undisclosed pre-cut-off liabilities.

Ratio Decidendi: Where a BIFR-sanctioned rehabilitation scheme protects a new management from undisclosed liabilities up to the cut-off date, the revenue cannot recover or adjust against refund amounts claims not covered by the scheme.

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