C/SCA/1698/2016 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 1698 of 2016 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India or any order made thereunder ? M/S ELECTROTHERM (INDIA) LTD. Petitioner(s) Versus UNION OF INDIA (DELETED ) & 1 Respondent(s) Appearance: THAKKAR AND PAHWA ADVOCATES, ADVOCATE for Petitioner(s) No. 1 DELETED for Respondent(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for Respondent(s) No. 2 RULE SERVED for Respondent(s) No. 2 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Page 1 of 7 HC-NIC Page 1 of 7 Created On Wed Aug 23 10:03:44 IST 2017 C/SCA/1698/2016 JUDGMENT Date : 21/08/2017 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Petitioner has challenged demand notices dated 27.01.2016 and 28.01.2016 issued by Deputy Commissioner of Income Tax, Ahmedabad, to ICICI Bank, Ahmedabad, and Bank of India, Ahmedabad, seeking to recover petitioner's unpaid tax dues of Rs.30,56,76,000/ through petitioner's bank accounts in said two banks. These orders are passed purportedly in exercise of section 226(3) of Income Tax Act, 1961, ('the Act' for short). 2. Brief facts are as under. 3. Petitioner is company registered under Companies Act and is engaged in manufacturing activities through its units. petitioner is sick industrial company within meaning of section 3(1)(o) of Sick Industrial Companies (Special Provisions) Act, 1985 ('SICA' for short) with effect from 30.09.2013. company's case came to be registered on 27.06.2014 before Board for Industrial and Financial Reconstruction ('BIFR' for short). According to petitioner, such case is Page 2 of 7 HC-NIC Page 2 of 7 Created On Wed Aug 23 10:03:44 IST 2017 C/SCA/1698/2016 JUDGMENT even now pending before BIFR. 4. According to petitioner, for assessment year 2010 11, order of assessment was passed on 15.03.2013 assessing petitioner's loss of Rs.51.79 crores (rounded off). petitioner has challenged such order before Appellate Commissioner and appeal is pending. 5. For assessment year 2011 12, Assessing Officer had assessed petitioner's income at Rs.165.28 crores (rounded off) based on which, demand notice for amount of Rs.25.16 crores (rounded off) was raised on 28.03.2014. Against such order of assessment also, petitioner has filed appeal which is pending. Likewise, for assessment year 2010 11, Assessing Officer reassessed petitioner's income at Rs.50.14 crores and raised demand notice dated 02.03.2015 for sum of Rs.6.37 crores (rounded off). petitioner has challenged such order also before Appellate Commissioner. 6. In view of pendency of proceedings before BIFR, petitioner had moved Misc. Civil Application No.431 of 2015 seeking to restrain Page 3 of 7 HC-NIC Page 3 of 7 Created On Wed Aug 23 10:03:44 IST 2017 C/SCA/1698/2016 JUDGMENT department from carrying out coercive recoveries of tax dues. According to petitioner, despite pendency of proceedings before BIFR, department continued its effort to seek coercive recovery, pursuant to which, impugned demand notice came to be issued to bankers of petitioner seeking to recover tax from petitioner's such bank accounts. 7. petitioner heavily relies on section 22 of SICA and contends that pending proceedings before BIFR, department could not have carried out coercive recovery of tax dues. department contends that petitioner had also moved BIFR for interim protection, presently there is no information about pendency of proceedings before BIFR and at any day, mere pendency of proceedings would not prevent department from carrying out recovery of tax dues. 8. Since department is not in position to controvert petitioner's contention that petitioner's case has been registered before BIFR and that such proceedings are still pending, we have Page 4 of 7 HC-NIC Page 4 of 7 Created On Wed Aug 23 10:03:44 IST 2017 C/SCA/1698/2016 JUDGMENT proceeded on such basis. Section 22 of SICA pertains to suspension of legal proceedings and contracts etc. Sub section (1) thereof reads as under: 22(1). Where in respect of industrial company, inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or sanctioned scheme is under implementation or where appeal under section 25 relating to industrial company is pending, then, notwithstanding anything contained in Companies Act, 1956 (1 of 1956), or any other law or memorandum and articles of association of industrial company or any other instrument having effect under said Act or other law, no proceedings for winding up of industrial company or for execution, distress or like against any of properties of industrial company or for appointment of receiver in respect thereof [and no suit for recovery of money or for enforcement of any security against industrial company or of any guarantee in respect of any loans or advance granted to industrial company] shall lie or be proceeded with further, except with consent of Board or, as case may be, Appellate Authority. 9. In case of Gram Panchayat and another v. Shree Vallabh Glass Works Limited and others reported in (1990) 2 SCC 440, this provision came up for consideration before Supreme Court. It was observed that consequent to company being sick industrial company under section 3(1)(o) of Act, all proceedings for execution, distress or like Page 5 of 7 HC-NIC Page 5 of 7 Created On Wed Aug 23 10:03:44 IST 2017 C/SCA/1698/2016 JUDGMENT against any of property of sick company would automatically be suspended and could not be taken without consent of Board. It was held that in such case, gram panchayat could not have recovered property tax and other amount of dues from company by initiating coercive proceedings under section 129 of Bombay Village Panchayats Act, 1959, without consent of Board. fact that impugned demand notices seek to coercively recover petitioner's pending dues directly from petitioner's bank account is not possible to be disputed. fact that no consent of BIFR was obtained by department when they carried out such steps is not in dispute. That being position, we cannot upheld action of department. If at all department would have to move BIFR for appropriate order or reliefs, either permitting recovery or taking into account dues of department at time of preparation of scheme in case of petitioner company. Our findings and observations are based on premise that proceedings before BIFR are still pending. If however, it is found that same have been disposed Page 6 of 7 HC-NIC Page 6 of 7 Created On Wed Aug 23 10:03:44 IST 2017 C/SCA/1698/2016 JUDGMENT of, it would be open for department to proceed further in accordance with law. 10. Subject to above observations, impugned notices dated 27.01.2016 and 28.01.2016 are quashed. Petition is disposed of. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) ANKIT Page 7 of 7 HC-NIC Page 7 of 7 Created On Wed Aug 23 10:03:44 IST 2017 Electrotherm (India) Ltd. v. Union of India (Deleted ) & 1