* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 04.07.2013
Pronounced on: 19.07.2013
+ W.P.(C) 1915/2013, C.M. APPL. 3645/2013
M/S LORD CHLORO ALKALIES LTD. ..... Petitioner
Through : Sh. J.P. Sengh, Sr. Advocate with
Ms. Vinita Sasidharan, Ms. Varsha Banerjee,
Sh. Sumeet Batra and Ms. Ankita Gupta,
Advocates.
versus
DIRECTOR GENERAL OF INCOME TAX (ADMN) AND
ANR. ..... Respondents
Through : Sh. Sanjeev Sabharwal, Sr.
Standing Counsel.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE NAJMI WAZIRI
MR. JUSTICE S.RAVINDRA BHAT
%
1. In these proceedings under Article 226 of the Constitution of
India, the petitioner challenges the orders of the Appellate Authority
for Industrial Reconstruction (hereafter "AAIFR") under provisions of
the Sick Industrial Companies (Special Provisions) Act, 1985
(hereafter "SICA") dated 01.04.2009 and 27.09.2012 in Appeal No.
227/2008. By that order, the AAIFR had set aside a scheme
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 1
formulated under the SICA to the extent it dealt with waiver and
deduction of interest under provisions of the Income Tax Act, 1961.
2. The Petitioner was incorporated under the Companies Act, 1956
on 1st March, 1979; it was originally named Modi Alkalies &
Chemicals Limited, which was subsequently changed to M/s Lord
Chloro Alkalies Ltd in the year 2003. It started commercial
production of caustic soda in 1994-95 with a capacity of 126 TPD
which was later enhanced to 195 TPD based on mercury cell
technology which was replaced by membrane cell technology in the
year 1994-95 with a further enhancement in its capacity to 255 TPD.
Till 1997-98 the Petitioner-company operated satisfactorily. Later, due
to adverse market conditions, change in government policy, high cost
of power, high cost of production and heavy interest burden, the
Petitioner started incurring heavy losses resulting in closure of its
operations. On 30.06.1999, in view of the colossal losses, the net
worth of the Petitioner eroded pursuant to which it made a reference
under Section 15(1) of SICA to the Board for Industrial Finance and
Reconstruction (hereafter "BIFR"); it was rejected in July 2001 as not
maintainable. Later, on 30.06.2000, the Petitioner filed another
reference before the BIFR based on its accounts. This time, it was
registered as Case No.308 of 2001. On 15.01.2002, BIFR declared that
the Petitioner was a sick company and directed IDBI to act as the
Operating Agency (OA).
3. Holding that no feasible rehabilitation proposals were
forthcoming from the Petitioner Company, BIFR by its order dated
19.08.2003 directed the OA to issue an advertisement for change of
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 2
management (COM) as the offers received by the OA for COM did
not fructify. Taking these factors into account BIFR prima facie
concluded that it would be just, fair and in public interest that the
Company should be wound-up and show cause notice for Winding Up
should be issued to the Petitioner Company. By ex-parte order dated
02.06.2004, BIFR directed winding up of the Petitioner Company
under Section 20(1) of SICA and accordingly directed issuance of
Show Cause Notice (SCN) for Winding Up. Aggrieved by that order
of BIFR, the Petitioner filed an appeal being Appeal No. 154/ 2004.
4. During pendency of the said appeal, the first Respondent, i.e.
the Income Tax Department filed an application on 14.11.2005 under
Section 22(1) of SICA seeking permission to recover its dues of Rs.
997.79 lakhs with an alternative claim that in the event a scheme is
allowed to be formulated then a suitable provision for payment of
income tax dues of the Petitioner-Company ought to be made in the
scheme itself. It is stated that on 14.03.2006, during the pendency of
the appeal before BIFR, the Petitioner could settle the dues of all its
secured creditors (except IIBI, RIICO & UTI). The AAIFR, taking
note of the fact that the Petitioner, out of its 10 secured creditors
namely IDBI, ICICI, IFCI SBI, PNB, Syndicate Bank, Indian Bank,
IIBI, RIICO & UTI had already settled the dues of 7 creditors (except
IIBI, RIICO and UTI), by order dated 14.03.2006 allowed the appeal
and set aside the order (dated 02.06.2004) and remanded the matter
with a direction that a suitable provision for payment of income tax
dues amounting to Rs. 997.79 lakhs payable by the Petitioner ought to
be made in the rehabilitation scheme. By its order dated 22.09.2006,
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 3
BIFR directed for circulation/publication of the Draft Rehabilitation
Scheme (DRS), in compliance with provisions of Section 18(3) of
SICA. The DRS was duly published. The BIFR after considering the
objections/suggestions of the secured creditors to the DRS sanctioned
the scheme on 30.11.2006; a copy of the sanctioned scheme was duly
sent by BIFR to the income tax authorities on 15.12.2006. The
petitioner states that by a separate letter, the sanctioning of the scheme
was brought to the notice of the income tax authorities on 27 th
February, 2007.
5. In September 2008, being aggrieved by the order (dated
30.11.2006 of BIFR), the Income Tax Department preferred a belated
appeal to AAIFR, (being Appeal No.227 of 2008) in respect of the
Income Tax reliefs and concessions provided in the Sanctioned
scheme in Paras 10.7(1), (2), (3) & (4). An accompanying application,
M.A. No.46 of 2009 for condoning the delay of two years was filed.
The appeal and application were objected to by the Petitioner. On
01.04.2009 by its interim order, AAIFR allowed the application for
condonation of delay and held that the first Respondent department
had no knowledge of the proceedings before the BIFR prior to
07.08.2008. The Petitioner had opposed the application and argued
that the Income Tax Department had in fact, given effect to clause
11.5 of the sanctioned scheme and waived the interest under Section
234B of Income Tax Act to the extent of Rs.2,47,34,779/- and interest
under Section 220(2) amounting to Rs.3,20,62,504/- in respect of the
Petitioner Company for assessment year 1996-1997. By the impugned
order, the AAIFR finally allowed the Income Tax Department's
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 4
appeal and set aside Clause 11.5 of the published scheme, approved by
the BIFR.
6. The Petitioner argues, in its pleadings, and through the
submissions of its senior counsel, Shri J.P.Sengh, that the impugned
order is not sustainable in law. It is pointed out that the finding
regarding the order (of AAIFR) having been made in contravention of
principles of natural justice is contrary to facts. It was argued in this
regard that the letter of 30.09.2009 of the concerned assessing officer
of the Income Tax Department itself shows that the Respondents were
aware of the BIFR's orders, and accepted them without demur. The
said letter reads as follows:
"Order to give effect to the decision of the BIFR u/Ss 22
& 32 of the SICA Act 1985 Dated : 30-9-2009
The Board for Industrial and Financial Reconstruction,
New Delhi in Case No. 308/2001 in the case of M/s Lords
Chloro Alkalies Ltd. Dated 13.12.2006 has passed the
order as per para 11.5 which is as under:
"The statutory liabilities which are under
litigation/appeal shall on crystallization after
exercise of all the legal remedies available to the
company be paid over a period of seven years on
interest free basis. All the penal interest, damages,
penalties, charges are chargeable on the same
shall be waived."
The Hon'ble ITAT, Jaipur in its decision in appeal
no.199/JP/2000 and 210/JP/2000 dated 19.02.2008 set
aside the decision before the ld. CIT(A), Alwar in view of
the decision passed by the BIFR for fresh adjudication de
novo in the assessment year 1996-97.
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 5
To give effect to the decision of BIFR, the interest
u/s 234B amounting to Rs.2,47,34,779/- and interest u/s
220(2) amounting to Rs. 3,20,62,504/- waived by the
BIFR is hereby reduced from the arrear demand against
the M/s. Modi Alkalies & Chemicals Ltd., Alwar."
Learned senior counsel also relied on the order of the CIT (Appeals)
dated 4th March, 2011, especially Paras 31 and 32, to say that the
determination of BIFR was accepted, and directions contained in its
order were implemented. Consequently argued counsel, the Income
Tax authorities should not have made a grievance of the BIFR
scheme. The consequential order of the assessing officer, dated
29.03.2011, reducing the demands, in line with the order of BIFR was
relied on. The said order reads as follows:
"Consequent to order of Ld.CIT(A), Alwar of AY 1999-
97, a demand has been reduced to Rs.2,87,17,062/- after
appeal effect.
As per order of BIFR, you are required to make the
payment of above demand in seven installments.
Accordingly, it is requested to pay Rs.41,02,437/(1/7th of
Rs. 2,87,17,062/-) by 31.03.2011 positively.
Please note in the event of non-response the above
mentioned demand will be recovered by adopting
coercive measures."
7. It is argued on behalf of the Petitioner that in the above
circumstances, the Income Tax authorities were estopped and bound
by the principle of waiver from contending that the orders of the BIFR
were not binding upon them. Counsel further emphasised that the
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 6
order of BIFR had been worked out and the benefits of both in respect
of the income tax concessions as well as the other benefits mandated
under the rehabilitation scheme had been implemented. In these
circumstances, contended learned senior counsel, it would be unjust
and inequitable to set aside the order of BIFR on an erroneous
interpretation of law and mistaken view of the facts.
8. Learned Counsel next argued that in terms of Section 32 of the
Sick Industrial Companies (Special Provisions) Act, 1985, overriding
effect has been given to the orders of BIFR and schemes of
rehabilitation which are otherwise legally valid.
9. On behalf of the official respondents, it is argued by Shri.
Sanjeev Sabharwal, learned Standing Counsel, that the income tax
authorities were completely in the dark about the nature of the scheme
finalised by BIFR. It was argued that after the previous order of
remand by the AAIFR, a duty had been cast upon the BIFR to
circulate the draft scheme to it i.e. the income tax authorities. There
was no material on the record to suggest that such an obligation had
been fulfilled.
10. More substantially, learned Standing Counsel argued that the
provisions of SICA could not prevail over those of the Income Tax
Act. In this context, it was argued that in terms of the decision of the
Supreme Court in Commissioner of Income tax v Anjum. M.H.
Ghaswala & Ors. (2002) 1 SCC 633 it was held that the interest
contemplated under Sections 234A, 234B and 234C is mandatory in
nature and the power of waiver or reduction, having not been
expressly conferred on the Settlement Commission, waiver or
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 7
reduction in payment of statutory interest is outside the purview of the
settlement proceedings, contemplated in Chapter XIX-A of the Act. It
was submitted that likewise, since no provision of SICA enabled
waiver or reduction of statutory interest mandated by the Act, BIFR
could not have unilaterally directed such a relief. In this respect,
contended Learned Standing Counsel, the sole repository of the power
to grant a waiver or reduction of interest rates or amounts was the
Board of Direct Taxes, under Section 119 (2) of the Income Tax Act.
Reliance was also placed on Board Circular No. 400/234-95/IT (B)
which has specified the authorities entitled to consider the question of
waiver of interest and such other relief. It was submitted that in the
present case, the assessing officers and Commissioners had
unilaterally, and without reference to the Board, and its circulars,
which they were bound to respect, given effect to the orders of the
BIFR.
11. The broad and brief facts necessary to decide this petition are
not in dispute. The company was declared sick; when a reference was
made, BIFR circulated the draft rehabilitation scheme with the broad
acceptance of the company's secured creditors. At th at stage, the
income tax authorities were in the know of the scheme. During the
pendency of an appeal to the AAIFR, the Income Tax Commissioner
had preferred an application, on 14.11.2005. In that application, the
following reliefs were claimed:
"1) the Deptt may be granted permission u/s 22(1) of
SICA to recover its dues of Rs. 976.79 lakhs as intimated
by the company.
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 8
2) If a scheme is being directed to be formulated,
provision may be directed to be kept in that revival
scheme for the payment of I.T. dues of Rs. 976.79 lakhs
on priority basis.
3) Taking cognizance of Section 281 of the I.T.Act, 1961
the Deptt may be given priority in the matter of recovery
of Rs. 976.79 lakhs. In the event, a scheme is allowed to
be formulated the 1.T.dues of Rs. 976.79 Iakhs may be
given due priority for payment over other dues.
XXXXXX XXXXXX XXXXXX"
The AAIFR, while disposing of the appeal, took note of the claims of
the Income Tax Department, and directed as follows, in its order dated
14.03.2006:
"XXXXXX XXXXXX XXXXXX
Given this context we set aside the impugned order
and remand the case to the BIFR. We also direct the
company and the OA severally to ensure that a fully tied
up revival scheme is presented to the BIFR not later than
60 days of this order. If in the meanwhile negotiations
cannot be completed with IIBI, RIICO and UTI then the
scheme may provide that their dues will be settled by the
company/ promoters separately. One Trivedi & Sons who
is an unsecured creditor and had appeared before us has
some dues from the company which should be taken care
of in an appropriate manner in the scheme itself. Income
Tax Authorities in a separate application dated 14th Nov.
2005 have filed an application seeking permission under
Section 22(1) of SICA to recover its dues of 997.79 lakhs.
XXXXXX XXXXXX XXXXXX"
The BIFR scheme complied with this direction, and expressly
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 9
provided that "The statutory liabilities which are under
litigation/appeal shall on crystallization after exercise of all the legal
remedies available to the company be paid over a period of seven
years on interest free basis. All the penal interest, damages, penalties,
charges are chargeable on the same shall be waived."
12. The first question is whether the income tax authorities are
justified in stating that the order of BIFR, to the extent that it scaled
down interest (on income tax liability) are beyond jurisdiction, since
only the Board through its designate has the authority to waive or
remit interest under the Income Tax wholly or in part. The petitioner
in this context, relies on Section 32 of SICA; it reads as follows:
"32. Effect of the Act on other laws.-- (1) The provisions
of this Act and of any rules or schemes made there under
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.
(2) Where there has been under any scheme under this
Act an amalgamation of a sick industrial company with
another company, the provisions of section 72A of the
Income-tax Act, 1961 (43 of 1961), shall, subject to the
modifications that the power of the Central Government
under that section may be exercised by the Board without
any recommendation by the specified authority referred
to in that section, apply in relation to such amalgamation
as they apply in relation to the amalgamation of a
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 10
company owning an industrial undertaking with another
company."
The decision of the Supreme Court in Anjum M.H. Ghaswala (supra)
is no doubt an authority for the proposition that interest waiver cannot
be granted to anyone except those specified in the Income Tax Act.
However, the court did not have any occasion to deal with provisions
of SICA, or their interface with provisions and orders under the
Income Tax Act.
13. One well recognized principle of statutory construction is that
when courts have to deal with conflicting or inconsistent laws, or
inconsistent provisions of two separate enactments, the first approach
should be to attempt at harmonization of the two provisions, to avoid,
or minimize the conflict. The second line of approach is to see which
of the two laws is a general law. A prior special law will prevail over a
later and general law. This is more so, when the prior law contains a
non-obstante clause (R.S. Raghunath vs State Of Karnataka And Anr
AIR 1992 SC 81; Allahabad Bank v. Canara Bank & Anr. (2000) 4
SCC 406). The tenor and express provisions of Section 32 of SICA,
in the opinion of this court, leave no doubt that the provisions of SICA
are to prevail, except to the extent excluded. The immunity, or
exception from, the non obstante clause, is limited to the provisions of
enactments referred, of the enactments referred. The specific reference
to Foreign Exchange Regulation Act and Urban Land Ceiling Act in
Sectin 32 (1) and to Section 72-A of the Income Tax Act, mean that
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 11
those provisions will stand excluded from the rigors of Section 32 of
SICA.
14. A somewhat similar question had been considered by the
Supreme Court in Aswini Kumar Ghosh & Anr v. Arabinda Bose &
Anr, [1953] SCR 1, when it was observed that - "It should first be
ascertained what the enacting part of the section provides on a fair
construction of the words used according to their natural and
ordinary meaning, and the non obstante clause is to be understood as
operating to set aside as no longer valid anything contained in
relevant existing laws which is inconsistent with the new enactment."
In the case of Section 32 SICA, the specific exclusion of two
enactments, and the express reference to Section 72A of the Income
Tax Act, to say that its provisions apply (by Section 32 (2)) manifest
Parliamentary intention that provisions of SICA have to prevail over
those of the Income Tax Act. This court's conclusion is strengthened
by precedent. In http://indiankanoon.org/doc/366360/ Mewar Sugar
Mills Ltd. v. Chairman, Central Board of Direct Taxes & Anr 1998
VI AD(DELHI) 309 a Division Bench had concluded that:
"21. To sum up:
(1) The non obstinate clause contained in sub-section (1)
of Section 32 of SICA does not give the SICA a blanket
overriding effect on all other laws; the overriding effect
is given to the provisions of SICA, rules or schemes made
thereunder only to the extent of inconsistency therewith
contained in any other law excepting a few exceptions
enumerated therein.
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 12
(2) Exempting from and suspending the operation of the
provisions contained in Section 41 of the Income-tax Act,
1961 as regards a sick industry amounts to 'sacrifice
from the Central Govt.'- the expression as used in Section
19(1) of SICA.
(3) It is for the BIFR to form an opinion while framing a
scheme of rehabilitation for a sick industry whether an
exemption from operation of S 41 of the Income-Tax Act,
1961 is required to be engrafted in the scheme so as to
secure the object of rehabilitation and if so then to what
extent. If the BIFR may form an opinion in favour of
grant of such exemption then the same amounts to
'financial assistance' from the Central Govt to the extent
of the sick industry having been exempted from the
operation of Section 41 of the Income-tax Act."
This court also notices that a similar view has been expressed by the
Bombay High Court in Vadilal Dairy International Ltd v. State of
Maharashtra 2009 (1) Comp. LJ 466 (Bom).
15. The next issue is whether the revenue is correct in saying that
by virtue of Section 119 of the Income Tax Act, and circulars issued
under that enactment, the Board of Direct Taxes' views have primacy
over that of BIFR. Section 119 reads as follows:
"119. Instructions to subordinate authorities
(1) The Board may, from time to time, issue such orders,
instructions and directions to other income- tax
authorities as it may deem fit for the proper
administration of this Act, and such authorities and all
other persons employed in the execution of this Act shall
observe and follow such orders, instructions and
directions of the Board: Provided that no such orders,
instructions or directions shall be issued-
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 13
(a) so as to require any income- tax authority to make a
particular assessment or to dispose of a particular case
in a particular manner; or
(b) so as to interfere with the discretion of the Deputy
Commissioner (Appeals) or the Commissioner (Appeals)]
in the exercise of his appellate functions.
(2) Without prejudice to the generality of the foregoing
power,-
(a) the Board may, if it considers it necessary or
expedient so to do, for the purpose of proper and efficient
management of the work of assessment and collection of
revenue, issue, from time to time whether by way of
relaxation of any of the provisions of sections 5[ 139],
143, 144, 147, 148, 154, 155, 6[ sub- section (1A) of
section 201, sections 210, 211, 7[ 234A, 234B], 234C],
271 and 273 or otherwise, general or special orders in
respect of any class of incomes or class of cases, setting
forth directions or instructions (not being prejudicial to
assessees) as to the guidelines, principles or procedures
to be followed by other income- tax authorities in the
work relating to assessment or collection of revenue or
the initiation of proceedings for the imposition of
penalties and any such order may, if the Board is of
opinion that it is necessary in the public interest so to do,
be published and circulated in the prescribed manner for
general information;
(b) the Board may, if it considers it desirable or
expedient so to do for avoiding genuine hardship in any
case or class of cases, by general or special order,
authorise 8[ any income- tax authority, not being a
Deputy Commissioner (Appeals) or Commissioner
(Appeals)] to admit an application or claim for any
exemption, deduction, refund or any other relief under
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 14
this Act after the expiry of the period specified by or
under this Act for making such application or claim and
deal with the same on merits in accordance with law.
(c) the Board may, if it considers it desirable or expedient
so to do for avoiding genuine hardship in any case or
class of cases, by general or special order for reasons to
be specified therein, relax any requirement contained in
any of the provisions of Chapter IV or Chapter VIA,
where the assessee has failed to comply with any
requirement specified in such provision for claiming
deduction thereunder, subject to the following conditions,
namely:-
(i) the default in complying with such requirement was
due to circumstances beyond the control of the assessee;
and
(ii) the assessee has complied with such requirement
before the completion of assessment in relation to the
previous year in which such deduction is claimed:
Provided that the Central Government shall cause every
order issued under this clause to be laid before each
House of Parliament.
(3) Every Income- tax Officer employed in the execution
of this Act shall observe and follow such instructions as
may be issued to him for his guidance by the Director of
Inspection or by the Commissioner or by the Inspecting
Assistant Commissioner within whose jurisdiction he
performs his functions."
16. In pursuance of the above provision, the Central Board of Direct
Taxes had withdrawn previous circulars, and in its Circular No. 683
dated 08.06.1994, required that the nodal authority for coordinating
between BIFR and the Central Board was the Director General
(Administration). This was sought to be highlighted by counsel for the
W.P.(C) 1915/2013, C.M. APPL.3645/2013 Page 15
revenue. This court has no doubt about the proposition. However, the
blanket submission that when the circular under Section 119 is
ignored, and a scheme is given effect to by income tax authorities
themselves, the BIFR's order or scheme is void, cannot be
countenanced. There is no material on record to suggest such a
conclusion. The Income Tax authorities in this case were aware in the
earlier round, about the reference and possibility of a scheme; they
requested for provision to recover their dues. The AAIFR specifically
remitted the matter to BIFR to consider this aspect, which it did.
Although the income tax authorities were not given notice, the order
of BIFR reveals that it applied its mind, and granted limited
concession only as regards reduction and waiver of interest. The larger
pleas of the company towards income tax dues and concessions were
denied by the BIFR. Having regard to these circumstances, and
Section 32 of the Act as well as the Circular No. 683 of 1994 under
the Income Tax Act, the failure of income tax authorities to inform the
Director General (since the Circular was in existence at the time of
formulation of the scheme in the present case) would not result in the
invalidity of BIFR's scheme. Another aspect which this court notices
is that the Income Tax authorities, i.e. the assessing officer and the
Commissioner, have given effect to the orders of BIFR. These were
pursuant to the orders of the Income Tax Appellate Tribunal (ITAT)
dated 19.02.2008. That order stands and has attained finality. Besides,
the period for operation of the limited concessions in the scheme has
also apparently ended. Lastly, in view of the concurrence of the other
secured creditors, and implementation of the approved scheme, it
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would be inequitable and unjust to put the clock back, at the behest of
the Income Tax authorities.
17. In view of the above discussion, the writ petition is entitled to
succeed. The impugned orders of AAIFR dated 01.04-2009 and
27.09.2012 in Appeal No. 227/2008 are hereby quashed. The orders of
BIFR sanctioning the scheme, on 30th November, 2006 are hereby
restored. The writ petition is allowed in these terms; there shall be no
order as to costs.
S. RAVINDRA BHAT
(JUDGE)
NAJMI WAZIRI
(JUDGE)
JULY 19, 2013
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