Customs recovery notice treated as coercive proceedings, with sick company protection requiring Board leave during rehabilitation

A notice issued under Section 142 of the Customs Act for recovery of customs dues is a coercive recovery step and falls within distress or execution-type proceedings. Where proceedings before the Board for Industrial and Financial Reconstruction are pending and a rehabilitation scheme is under preparation, Section 22 of the Sick Industrial Companies (Special Provisions) Act bars such recovery against the sick industrial company. The customs authorities could proceed only after obtaining leave of the Board, because the scheme had not yet been finalised and the assets and liabilities to be covered remained undetermined.

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Issues: (i) Whether a notice issued under Section 142 of the Customs Act, 1962 for recovery of customs dues amounts to distress or execution proceedings; (ii) Whether, in view of the pendency of proceedings before the Board for Industrial and Financial Reconstruction and the preparation of a rehabilitation scheme, the company was entitled to protection under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.

Issue (i): Whether a notice issued under Section 142 of the Customs Act, 1962 for recovery of customs dues amounts to distress or execution proceedings.

Analysis: Section 142 provides a statutory recovery machinery that permits deduction from money under customs control, detention and sale of goods, and, failing that, recovery through certificate proceedings as arrears of land revenue. The notice was treated as the commencement of that recovery process. On its nature and object, such a step is a forcible mode of recovery and falls within the broad concept of distress or proceedings of a similar character for the purposes of Section 22.

Conclusion: Yes. The notice under Section 142 was held to be part of distress or execution-type recovery proceedings.

Issue (ii): Whether, in view of the pendency of proceedings before the Board for Industrial and Financial Reconstruction and the preparation of a rehabilitation scheme, the company was entitled to protection under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: Section 22 protects a sick industrial company where an inquiry under Section 16 is pending or where a scheme under Section 17 is under preparation or implementation. The Board had appointed an operating agency and no rehabilitation scheme had yet been prepared, so the assets and liabilities to be covered by the scheme were still undetermined. In that situation, coercive recovery could not be pursued without leave of the Board.

Conclusion: Yes. Protection under Section 22 was available, and recovery could proceed only after obtaining leave of the Board.

Final Conclusion: The recovery notice could not be enforced without prior leave of the Board for Industrial and Financial Reconstruction, although the respondents were left at liberty to proceed after obtaining such leave.

Ratio Decidendi: Recovery measures that form part of statutory coercive collection proceedings against a sick industrial company are barred by Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 when a scheme is under preparation, unless the Board grants leave.

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