1. THIS writ petition has been filed by the petitioner challenging the demand notice dated 17.6.2005 whereby it has been directed to pay a sum of Rs.6.89 lacs along with interest.
2. THE petitioner is a Public Ltd. company and was suffering losses for many years as a result of which it was declared a sick company under the provisions of the Sick Industrial Companies (Special Provisions) Act 1985, hereinafter referred to as the 'Act'. Its manufacturing activities stopped with effect from 15.5.1989 and in July 1990 it was registered as sick company.
In order to rehabilitate and restart the company a draft Rehabilitation Scheme was formulated with notice to concerned parties including the respondent Excise Department. The said Rehabilitation Scheme was formulated under the provisions of the Act and in exercise of power under Section 18 of the Act and after hearing all the parties concerned, the said Scheme was approved on 12.11.2002 (Annexure 2 to the writ petition). The contention of the petitioner is that as per the terms and conditions of the approved Scheme, the company was granted exemption from payment of interest and penalty and further more that excise duty finally payable for pending cases, relief in that regard would be given within a period of two years from the year in which the said amount became payable.
We have heard Sri V. K. Upadhayay, learned senior counsel assisted by Sri Ritvik Upadhayay appearing for the petitioner-company, and Sri S. P. Kesarwani, learned counsel for the respondent-department. Sri Upadhaya also stated that reply to the second supplementary counter affidavit is not required.
3. IT has been contended by learned counsel appearing for the petitioner that the company had stopped its manufacturing activities w.e.f. 15.5.1989.
IT was registered as a sick company in July, 1990 under the provisions of the Act.
IT was further submitted that Section 18 of the said Act provides for framing a Scheme in order to secure the rehabilitation of a sick company. Such Rehabilitation Scheme is prepared after due inquiry into working of the sick industrial company as provided in Sections 16 and 17 of the Act.
IT was further submitted that in the case of the petitioner-company also after completing the procedure of enquiry contemplated under Sections 16 and 17 of the Act, a Rehabilitation Scheme was drawn up by the Board for Industrial and Financial Reconstruction (hereinafter referred to as the 'BIFR'). Sri Upadhayay, learned senior counsel has drawn our attention to provisions of sub clause (d) of clause 8.04 of the Scheme which has been filed as Annexure- 2 to the writ petition. Clause 8.04 (d) of the Scheme reads as follows:-
"(d) To exempt company from payment of interest, penalty etc. and accept payment of excise duty finally payable in pending cases over a period of 2 years from the year in which such amount becomes payable."
A perusal of the said Scheme would show that as per the terms and conditions of the Rehabilitation Scheme it was provided that the respondent-department would grant exemption to the petitioner-company from payment of interest, penalty etc and accept payment of excise duty finally payable in pending cases over a period of 2 years from the year in which such amount becomes payable.
IT was contended that in view of the Scheme and the specific provisions contained in clause 8.04 (d), the impugned demand for Rs.6,89,000/- was absolutely illegal and in violation of the specific terms and conditions of the Rehabilitation Scheme.
The further contention of the petitioner was that the same dues had been raised by the Excise Department vide order dated 29.4.2004 as payable by the petitioner-company for the period from 1978 to May, 1989 and an amount of Rs.13,78,000/- was found to be due and payable by the petitioner-company. On receipt of the Notice dated 29.3.2004 the petitioner-company by the letter dated 19.4.2004 informed the respondent-department that the BIFR had sanctioned the Rehabilitation Scheme and in terms of provisions of clause 8.04 (d) of the said Scheme, the Excise Department was required to grant exemption to the company from payment of interest, penalty etc. and accepted payment of excise duty finally payable in pending cases over a period of 2 years from the year in which such amount becomes payable. However, by the department's letter dated 3.11.2004 the company's request was declined. Therefore, the petitioner submitted representations on 22.11.2004 and 17.1.2005 but instead the respondent issued another notice dated 18/25.1.2005 to recover a sum of Rs.13,78,000. In response, the petitioner again made a request through its letter dated 31.1.2005 wherein a request was made to the Commissioner Central Excise, Kanpur Division requesting for permission to make payment of the differential duty of Rs. 13,78,000/- without interest, in terms of the orders passed and Rehabilitation Scheme of the Company as proposed by the BIFR on 12.11.2002. However, the petitioner company made a payment of a sum of Rs.6,89,000/- as part payment being 50% of the payment of the original demand as per their undertaking vide letter dated 31.1.2005 and for the remaining 50 % it was submitted by the company that the same would be paid in the year 2005-06. The grievance of the petitioner is that in spite of its undertaking given in its letter dated 31.1.2005, a notice dated 11.5.2005 was issued by the Assistant Commissioner, Central Excise, Division III, Kanpur calling upon it to deposit the outstanding remaining dues amounting to Rs.6,89,000/- along with interest within seven days on receipt of the letter otherwise same will be recovered by the attachment and sale of the property.
4. THE learned counsel for the petitioner further submitted that the Act being a Central Act, the same, being later in point of time and being a Special Act would prevail and have overriding effect over the Excise Act and, therefore, the petitioner was entitled to the benefit of the provisions of Section 22 read with Section 32 of the Act and no coercive action could be taken by the respondents against the petitioner-company for recovery of the remaining dues. Opposing the writ petition Sri S.P. Kesarwani, learned counsel appearing for the respondents submitted that the respondent-department neither participated in the said proceedings nor consented to the claimed exemption and in any view of the matter, the Central Excise Act, 1944, hereinafter referred to as the Excise Act, being special law no power can be vested in the authority under the Act, to grant exemption from the liabilities arising under the Excise Act and, therefore, if any scheme has been formulated for granting exemption from payment of duty or interest to the company under the provisions of the Act, the same would not be binding upon the Excise Authorities and the company would be liable for payment of interest as well as penalty.
The further submission of learned standing counsel for the respondent-department was that the Excise Act was a special law and it did not vest powers on any authority to grant exemption in respect of liabilities towards excise duty arising under the said Act and any relief granted by the BIFR to the petitioner by way of exemption from payment of duty or interest was without any authority of law. It was further submitted that Excise Department had never entered into any agreement with the company or with the BIFR in respect of framing of the Rehabilitation Scheme and the facility of payment of excise duty and interest thereon could only be considered in terms of the provisions of Section 11 AA of the Excise Act.
At this point we may refer to some of the relevant provisions of the Act. It may be noted that the Act was enacted in the public interest making special provisions for the timely detection of sick and potentially sick companies, speedy determination by a Board of experts of the preventive, ameliorative remedial and other measures as may be necessary, and expeditious enforcement of measures to be taken for rehabilitation of such sick companies/industrial undertakings. A reference may be made to the Preamble of the Act which reads as follows:-
"An Act to make in public interest, special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and matters connected therewith or incidental thereto."
5. FROM a reading of the Preamble, it will be clear that the Act was enacted as beneficial legislation specifically to assist sick industrial undertakings/ companies for their rehabilitation. Section 4 of the Act provides for the establishment of a Board known as the Board and Appellate Authority for Industrial And Financial Reconstruction, which reads as under:-
"4. Establishment of Board.-
(1) With effect from such date as the Central Government may, by notification, appoint, there shall be established a Board to be known as the "Board for Industrial and Financial Reconstruction" to exercise the jurisdiction and powers and discharge the functions and duties conferred or imposed on the Board by or under this Act.
(2) The Board shall consist of a Chairman and not less than two and not more than fourteen other Members, to be appointed by the Central Government.
(3) The Chairman and other Members of the Board shall be persons who are or have been or are qualified to be High Court Judges, or persons of ability, integrity and standing who have special knowledge of, and professional experience of not less than fifteen years in science, technology, economics, banking industry, law, labour matters, industrial finance, industrial management, industrial reconstruction, administration, investment, accountancy, marketing or any other matter, the special knowledge of, or professional experience in which, would in the opinion of the Central Government be useful to the Board."
Section 14 of the Act declares that the proceedings before the Board or the Appellate Authority under the Act shall be deemed to be a civil court for the purposes of Section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973(2 of 1974) and every proceeding before the Board or the Appellate Authority shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 and 196 of the Indian Penal Code.
6. 11. THE Act further provides that on a reference being made to the Board under Section 15 of the Act, the Board in excise of powers under Section 16 may make such enquiry as it may deem fit for determining whether any industrial company has become a sick industrial company. Section 16 reads as under:-
"16. Inquiry into working of sick industrial companies.-
(1) THE Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company-
(a) upon receipt of a reference with respect to such company under Section 15; or
(b) upon information received with respect to such company or upon its own knowledge as to the financial condition of the company.
(2) THE Board may, if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under sub-section (1), require by order any operating agency to enquire into and make a report with respect to such matter as may be specified in the order. Section 17 of the Act provides:-
"17. Powers of Board to make suitable order on the completion of inquiry –
(1) If after making an inquiry under Section 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be by order in writing, whether it is practicable for the company to [ make its net worth exceed the accumulated losses] within a reasonable time. Section 18 of the Act provides:-
"18. Preparation and sanction of schemes.-
(1) Where an order is made under sub-section (3) of section 17 in relation to any sick industrial company, the operating agency specified in the order shall prepare, as expeditiously as possible and ordinarily within a period of ninety days from the date of such order, a scheme with respect to such company providing for any one or more of the following measures, namely:-
[(a) the financial reconstruction of the sick industrial company;]
(b) the proper management of the sick industrial company by change in or takeover of, management of the sick industrial company;
(c) the amalgamation of –
i. the sick industrial company with any other company, or
ii. any other company with the sick industrial company (hereafter in this section, in the case of sub-clause (I), the other company, and in the case of sub-clause (ii), the sick industrial company, referred to as 'transfree company');]
(d) the sale or lease of a part or whole of any industrial undertaking of the sick industrial company.
[(da) the rationalisation of managerial personnel, supervisory staff and workmen in accordance with law;]
(e) such other preventive, ameliorative and remedial measures as may be appropriate;
(f) such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purpose of the measures specified in clauses (a) to (e).
Section 19 of the Act reads as follows:-
"19. Rehabilitation by giving financial assistance.-
(1) Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority (any Government bank, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company.
Section 22 of the Act reads as follows:-
"22. Suspension of legal proceedings, contracts, etc-
(1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding - up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof [ and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans, or advance granted to the industrial company] shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.
Section 32 of the Act declares as follows-
"32. Effect of the Act on other laws.-
(1) THE provisions of this Act and of any rules or schemes made hereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act.
From a reading of the various provisions of the Act referred to hereinabove, it will be seen that there is no dispute so far as the framing of the Rehabilitation Scheme is concerned, vide order dated 12.11.2002. A reference was made as provided under Section 15 of the Act and after due inquiry as contemplated under Sections 16 and 17 of the Act, the Rehabilitation Scheme was framed. In the said Scheme clause 8.04 was consciously inserted. Sub clause (d) of clause 8.04 in clear and categorical terms provided for exemption to the company from payment of interest, penalty etc. with a further condition that the Excise Department would accept payment of excise duty finally payable in pending cases over a period of two years from the year in which such amount becomes payable. From the records, it would be seen that the company vide its letter dated 31.1.2005 had sought permission of the department to deposit a sum of Rs.6,89,000/- and also made payment of Rs.6,89,000/- on 23.2.2005 towards 50% part payment of the original payment of Rs.13,78,000/- as demanded by the Department vide notice dated 29.3.2004.
THEreafter, the petitioner had also vide letter dated 31.1.2005 given an undertaking to the Commissioner, Central Excise, Davison III Kanpur that he was making part payment of 50% of the adjudicated amount during February/March 2004 and that the balance 50% amount would be paid in the following year. This undertaking has been taken note of by the Assistant Commissioner, Central Excise, Kanpur Division in his notice of demand dated 11.5.2005 filed as Annexure- 13 to the writ petition.
THE question that now remains for consideration of this Court is that whether the petitioner is liable for payment of interest and penalty as demanded by the impugned notice dated 17.6.2005. As already noticed in clause 8.04 (d) of the Rehabilitation Scheme dated 12.11.2002 framed by the BIFR, the petitioner is not liable for payment of interest and penalty. Section 22 of the Act clearly provides that once proceedings have been initiated under the Act and an inquiry under Section 16 is pending or any Scheme referred to under Section 17 is under preparation or consideration or a sanctioned Scheme is under implementation then, notwithstanding anything contained in any other law for the time being in force no proceeding for the winding up or execution or distress or the like against any of the properties of the industrial undertaking company and no proceedings for recovery of money or for enforcement of any security against the company etc. shall be maintainable.
7. SECTION 32 of the act further provides that the Schemes made under the Act shall have effect notwithstanding anything inconsistent therewith contained any other law except two Acts namely FERA and Urban Land Ceiling Act for the time being in force and Memorandum or Articles of Association of an Industrial Company or in any other instrument having effect by virtue of any other law other than this Act. The Excise Act has not been exempted from the applicability of section 32 of the Act.
The provisions of the Act came up for consideration before the Apex Court reported in (1997) 6 SCC 669, TATA DAVY LTD. vs. State of Orissa and others. This was a case in respect of recovery of arrears of sales tax under the Orissa Sales Tax Act and the Apex Court interpreting the provisions of Section 22 of the Act held as follows:-
"12. The Central Act is enacted under Entry 52 of List I of the Seventh Schedule. The said Entry 52 empowers Parliament to legislate in respect of "Industries, the control of which by the Union is declared by Parliament by law to be in the public interest". The Central Act declares that it is "for giving effect to the policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39 of the Constitution", namely, "that the ownership and control of the material resources of the community are so distributed as best to sub serve the common good" and "that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment". The Central Act does not impair or interfere with the rights of the States to legislate with respect to sales tax under Entry 54 of List II of the Seventh Schedule. In the larger interest of the industrial health of the nation, Section 22 of the Central Act requires all creditors seeking to recover their dues from sick industrial companies in respect of whom an inquiry under Section 16 is pending or a scheme is under preparation or consideration or has been sanctioned to obtain the consent of the said Board to such recovery. If such consent is not secured and the recovery is deferred, the creditors' remedy is protected for the period of deferment and is, by reason of sub-section (5) of Section 22, excluded in the computation of the period of limitation. The words "any other law" in Section 22 cannot, therefore, be read in the manner suggested by the learned counsel for the respondents."
The Court was pleased to hold:-
"14. We hold, in the premises, that the respondents cannot recover the aforementioned arrears of sales tax from the appellants without first seeking the consent of the said Board in this behalf."
8. IN Tata Motors Ltd. vs. Pharmaceutical Products of India Ltd. and another reported in( 2008) 7 SCC 619 the Apex Court again while extensively referring to the various provisions of the Act held as follows:-
"31. SICA furthermore was enacted to secure the principles specified in Article 39 of the Constitution of India. It seeks to give effect to the larger public interest. It should be given primacy because of its higher public purpose. Section 26 of SICA bars the jurisdiction of the Civil Courts. 32. What scheme should be prepared by the operating agency for revival and rehabilitation of the sick industrial company is within the domain of BIFR. Section 26 not only covers orders passed under SICA but also any matter which BIFR is empowered to determine."
The provisions of Section 32 and the overriding effect of the Act, 1985 was also considered by a Division Bench of the Bombay High Court in 2009 (III) Bom LR 3585 also reported in (2009)26 VST 530 (Bom) and the Division Bench held as follows:-
"9. Having so held we may also point out that it is the contention of the respondents that they were not heard. Considering the argument advanced the remedy for such person would be to apply before the BIFR for recalling that part of the sanctioned scheme in so far as they are concerned. It is now settled law as laid down by the Supreme Court in Grindlays Bank v. Central Government Industrial Tribunal MANU / SC/0308/1980; AIR 1981 SC 606 that the p
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ower of procedural review is inherent in a court and or quasi judicial body which includes the power to set aside an exparte order, i.e. an order passed without notice to the aggrieved person. If therefore, the respondents are still aggrieved by that part of the order and it is open to them that they can still move the BIFR for whatever reliefs they may be entitled to in law. The Tribunal will note the finding in the scheme that the Respondents were present." On behalf of the respondents a reference was made to the judgments of the Apex Court reported (2004) 11 SCC 569, Voltas Ltd. vs. State of A.P. in respect of their contention that the statutory liability for payment of penalty and interest and other dues could not be waived under the Scheme framed by the BIFR. Negativing the contention of the department the Apex Court held that" ........if the statutory liability has to be waived and then there must be express waiver of the same. The fact that the Scheme is silent about such waiver shows that there is no waiver". The Apex Court in the reported case specifically referred to the provisions of Clause 13 (b) (3) of the Scheme and in para 23 of the judgment, it was again reiterated that there being no express wavier of interest, the statutory provision must prevail. 9. IN our opinion, the judgment referred to in the case of Voltas Ltd.(supra) was on its own facts and does not help the respondents inasmuch as in the Scheme under consideration before the Apex Court, there was no express waiver from the statutory liability of payment of interest at the rate of 18%. However, in the case before us the provisions of clause 8.04 (d) of the Rehabilitation Scheme contains an express waiver from payment of interest, penalty etc. and to accept payment of excise duty finally payable in pending cases over a period of 2 years, from the year in which such amount becomes payable. 10. THE petitioner having already deposited a sum of Rs.6,89,000/- as 50% part payment for 2004-2005 and having given an undertaking for payment of remaining 50% amount of Rs.689000/- which also was paid on 6.3.2006 (Annexure-SA1 to the supplementary affidavit) the liability towards payment of excise duty had been duly discharged as per the demand notice and the company was not liable for payment of penalty or interest in terms of the specific provisions of the Rehabilitation Scheme. In view of the foregoing, the notice of demand dated 17.6 2005 is absolutely illegal and is quashed. The writ petition is allowed. There shall be no order as to costs.