Government Of India, Department ... vs Appellate Authority For ...
2002 Latest Caselaw 413 Del

JUDGMENT

Anil Dev Singh, J.

1. This is a writ petition whereby the petitioner challenges the order of the Appellate Authority for Industrial and Financial Reconstruction ('the AAIFR1) dated 16-5-2001 whereby the appeal of the petitioner, the Government of India (Department of Revenue), against the order of the Board for Industrial and Financial Reconstruction ('the BIFR') dated 22-11-2000 was dismissed. The facts giving rise to the writ petition arc as follows :

2. In 1992, the third respondent, Rajasthan Explosive & Chemicals Ltd., was declared a sick industrial company by the BIFR. The promoters of the company were not able to make a viable proposal for rehabilitation of the third respondent and nurse it back to health. In view of this situation, the BIFR by its order dated 7-7-1999, inter alia, directed the IDBI, the operating agency, to issue an advertisement for change of management. One 'S', in pursuance of the advertisement, made a proposal for rehabilitation of the company. The proposal was found viable by the BIFR. On 6-12-1999, the BIFR directed IDBI, to formulate rehabilitation scheme based on the proposal of 'S'. Accordingly, a Draft Rehabilitation Scheme was prepared. The BIFR, by its order dated 14-2-2000 directed the Draft Rehabilitation Scheme (DRS) to be circulated to the concerned parties under Section 19 of the Sick Industrial Companies (Special Provisions) Act, 1985 ('SICA'). In the draft scheme the following reliefs from the Government of India (Department of Revenue) were envisaged :

(i) To exempt applications of Section 14(1) of the Income-tax Act, 1961 in respect of reliefs and concessions to be availed by the company from various agencies concerned provided in the rehabilitation scheme.

(ii) To allow the company to carry forward and set-off of investment allowance and unabsorbed depreciation/unabsorbed losses for all the years during which the revival scheme is implemented.

(iii) To exempt from applicability of payment of Minimum Alternative Tax under Section 115JA of Income-tax Act till the accumulated losses are wiped out.

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 (vii) To defer the Income-tax (TDS) dues as per the terms of the package without charging any interest and other charges, if any.  
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The DRS was published in two local dailies in the State of Rajasthan. The BIFR fixed 2-5-2000 the date for considering the objections. In the meanwhile on 18-2-2000 the BIFR circulated the DRS to the parties concerned. The DRS was also sent to the Income-tax Department. There is no dispute that the DRS was received by the Income-tax Department on 21-2-2000. After gap of 64 days, the petitioner wrote a letter to the BIFR stating that the third respondent did not supply a copy of the reference made by it under Section 15 of the SICA, Form etc. It was also stated that the third respondent also failed to file any supportive evidence with regard to the envisaged reliefs expected from the Income-tax Department- It was pointed out therein that without the requisite detail it was not possible for the Income-tax Department to examine the case on merits. By the same letter, it was stated that in the circumstances it was not possible for the Income-tax Department to give its consent in respect of the envisaged reliefs.

3. On 2-5-2000 there was no appearance on behalf of the petitioner before the BIFR. It needs to be mentioned that on 2-5-2000, the BIFR heard the matter with regard to the objections/suggestions made by the various parties including the financial institutions. It was observed that certain objections raised during the hearing needed further examination and, therefore, the BIFR reserved its order. On 8-5-2000 the BIFR, on consideration of the suggestions/objections by the various parties, sanctioned the rehabilitation scheme.

4. It may be noted that in para 7 of the order of the BIFR dated 8-5-2000, it was noted that Captain Solanki, the promoter of the company, had agreed to make good any shortfall that might arise in the implementation of the scheme on account of inadequate reliefs and concessions forthcoming from the Government/tax agencies. None of the parties including the Income-tax Department filed any appeal against the order of the BIFR dated 8-5-2000. The BIFR by its order dated 22-11-2000 circulated the

sanctioned scheme for implementation to the concerned parties. It may be noticed that in the sanctioned scheme, the following reliefs were required to be given by the petitioner :

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 (ii) To allow new management to file various Returns/Forms and any other related documents (viz. Income-tax, Central Excise & Customs, Provident Fund, ESI, Registrar of Companies, Department of Explosives and any other Central Government Authorities etc.) on/ before 31-12-2000 and not to impose any interest, penalty, fine etc. on account of delay due to closure of the factory.  
 

 (iii) To exempt applications of Section 41(1) of the Income-tax Act, 1961, in respect of reliefs and concessions to be availed by the company from various agencies concerned provided in the rehabilitation scheme.  
 

 (iv) To allow the company to carry forward and set-off of investment allowance and unabsorbed depreciation/unabsorbed losses for all the years during which the revival scheme is implemented."   
 

5. The petitioner, not being satisfied with the scheme circulated pursuant to the order dated 22-11-2000, filed an appeal before the AAIFR. On 16-5-2001 the appeal of the petitioner was dismissed by the AAIFR. While dismissing the appeal, the AAIFR observed that the petitioner was guilty of gross negligence and did not submit its objections to the draft scheme within sixty days as provided under Section 19(2). AAIFR also noted that the petitioner did not prefer any appeal against the order of the BIFR dated 8-5-2000 whereby the scheme for rehabilitation of the third respondent was sanctioned. The AAIFR was also of the view that the petitioner had concealed the fact that a copy of the draft rehabilitation scheme circulated on 14-2-2000 was received by it on 21-2-2000.

6. The petitioner being aggrieved by the order passed by the AAIFR has filed the instant writ petition. The learned counsel appearing for the petitioner submitted that it was not necessary for the petitioner to challenge the order of the BIFR dated 8-5-2000, as according to that order, the promoter, Captain Solanki, had agreed to make good any shortfall that might arise in the implementation of the scheme on account of inadequate reliefs and concessions forthcoming from Government/ tax agencies. According to him the order which had hurt the petitioner was the one passed by the BIFR on 22-5-2000 pursuant to which the sanctioned scheme was circulated. The sanctioned scheme, according to learned counsel for the petitioner, was different from the one envisaged in the order of the BIFR dated 8-5-2000. It was pointed out that in the sanctioned scheme which was accompanied by the order dated 22-11-2000 a departure was made from the order of the BIFR dated 8-5-2000 inasmuch as the petitioner was directed to allow the aforesaid exemptions and to carry forward and set off the envisaged allowance and

unabsorbed depreciation losses for all the years during which the revival scheme is implemented. The sanctioned scheme also marks a departure from the order dated 8-5-2000 on account of a direction to the petitioner to exempt from applicability of payment of minimum alternative tax under Section 115(a)(b) of Income-tax Act, 1961, till the accumulated losses are wiped out. The learned counsel for the petitioner also contended that the rehabilitation scheme circulated by virtue of the order of the BIFR dated 14-2-2000 did not contain the requisite details. The relevant documents were also not supplied to the petitioner to enable it to examine the scheme on merits. Consequently the limitation prescribed under Section 19(2) for submitting the objections did not come in the way of the petitioner.

7. On the other hand, it was submitted by the learned counsel appearing for the third respondent that the petitioner had been negligent in pursuing the matter before the BIFR. It was pointed out that the petitioner did not appear before the BIFR on 2-5-2000. The petitioner also did not file objections to the draft scheme in time even though the petitioner had received the DRS on 21-2-2000. According to the learned counsel for the third respondent, the DRS did not lack any information, documents or details. The learned counsel canvassed that since the petitioner did not challenge the order dated 8-5-2000 whereby the scheme was sanctioned, it is not entitled to attack the same subsequently as it was merely circulated pursuant to the order passed by the BIFR on 22-11-2000. The draft scheme which was circulated on 14-2-2000 was not different than the scheme which was sanctioned by the BIFR and was circulated pursuant to the order dated 22-5-2000. It was pointed out that pursuant to the scheme, the promoter of the company has already paid the full one time settlement amount of Rs. 214 lakhs to the financial institutions, namely, IDBI, IFCL, ICICI. The learned counsel also pointed out that while an amount of Rs. 120 lakhs was paid to the State Bank of Bikaner and Jaipur, a sum of Rs. 500 lakhs was invested towards capital expenditure and working capital as per the scheme. It was also argued that the petitioner cannot be allowed to challenge the scheme in the garb of attacking the order of the BIFR dated 22-11-2000. It cannot at this stage make the scheme unworkable.

8. We have considered the submissions of the learned counsel for the parties. While it is true that the petitioner did not appear before the BIFR on 2-5-2000 and also did not file any objections to the scheme, it is also equally true that the DRS did not contain the requisite details and unless they were made available to the petitioner, it could not have examined the matter on merits. In the DRS, the BIFR had not quantified the tax concessions expected from the petitioner. Till the tax concessions were quantified, the petitioner could not be expected to give its consent or withhold the same. We have already quoted the relevant part of the DRS

pertaining to the petitioner. A bare perusal of para (e) proves the point that the requisite details and information was not given. It appears to us that the limitation period prescribed under Section 19(2) will run only after the relevant details are supplied to the petitioner for the purpose of examining the scheme on merits.

9. In the order dated 8-5-2000, it was clearly recorded by the BIFR that Captain Solanki had agreed to make good any shortfall that might arise in implementation of the scheme on account of inadequate reliefs and concessions forthcoming from the Government/tax agencies. This shows that the BIFR had left the determination of the question whether or not the reliefs and concessions were to be given to the third respondent to the petitioner. This being so, order dated 8-5-2000 did not offend the interests of the petitioner. It was only after the sanctioned scheme was circulated pursuant to the order of the learned Single Judge dated 22-11-2000 that the interests of the petitioner were affected as the sanctioned scheme did not leave any option with the Income-tax Department to consider the grant of reliefs and concessions to the third respondent under the scheme. By virtue of the order dated 22-11-2000 under which the sanctioned rehabilitation scheme was circulated the Income-tax Department was bound to grant reliefs and concessions to the third respondent. Thus, there was a big difference between the order dated 8-5-2000 by which the scheme was sanctioned but not circulated and the order dated 22-11-2000 pursuant to which the scheme was circulated. Since the petitioner was not hurt by the order dated 8-5-2000 and was adversely affected by the order dated 20-11-2000, it was justified in filing the appeal against the later order.

10. The draft scheme also does not furnish the details of cash flow in case the income-tax reliefs were not to be made available to the third respondent. It was also not provided as to what reliefs under Section 41(1) had been claimed in each year and whether they had been disallowed in the earlier assessment years. It is significant to note that it was only on 31-3-2001 that the third respondent sent a cash flow statement, DS statement and statement showing calculation of income-tax in case exemption was not to be made available to the third respondent as per the sanctioned scheme.

11. In view of the aforesaid discussion, we allow the writ petition and quash the order of the AAIFR dated 16-5-2001, and the order of the BIFR dated 22-11-2000, to the extent it directs the Income-tax Department to grant reliefs and concessions to the third respondent. The BIFR shall, after giving an opportunity to the petitioner, consider the matter afresh relating to the question whether or not reliefs and concessions under the provisions of the Act are required to be given to the third respondent company for its revival and resuscitation.