Goradia Special Steels Ltd. and Another vs Union of India (UOI) and Others

V.C. Daga, J.—Rule, returnable forthwith.

Respondents waive service.

Heard finally by consent of parties.

This petition filed under Article 226 of the Constitution of India is directed against the order dated 19th June, 2009 directing the petitioners to pre-deposit 50% of the Cenvat Credit amounting to Rs. 30,83,065/- (less Rs. 2,00,000/- already paid) and 50% of the penalties of Rs. 30,83,065/- and Rs. 30,00,000/- within eight weeks with compliance report on or before 26th August, 2009. On pre-depositing the said amount within the stipulated period, the balance amounts of Cenvat Credit and the penalties imposed were waived for the purposes of pre-deposit pending consideration of appeal filed by the appellant- petitioner herein. In default, consequences as indicated in the impugned order were to follow.

It appears that in compliance with the above order, the petitioners could deposit only Rs. 21,00,000/- towards Cenvat Credit liability and could not comply with the order with regard to the penalties. With the result, vide order dated 7th October, 2009, the order of stay came to be vacated and the appeals were dismissed for noncompliance of the order dated 19th June, 2009. Both orders are the subject matter of challenge in this petition.

Submissions:

Mr. A.M. Sethna, learned Counsel appearing for the petitioners urged that the petitioner No. 1 is declared as sick company under the provisions of the Sick Industrial Companies Act, 1985 (''SICA'' for short). The petitioner No. 2 is the Director of petitioner No. 1- Company. He submits that it was specifically submitted before the Tribunal that petitioner No. 1 is declared as sick company under the orders of the B.I.F.R. as far back in the month of April, 1999 copy of which is produced at Exh. B.

Mr. Sethna further submits that the rehabilitation scheme u/s 17 of SICA after completion of enquiry u/s 16 thereof is under preparation. In the wake of this factual matrix, the conditions stipulated in Section 22 of SICA were very much applicable to the facts of the case in hand. Consequently, no order directing pre-deposit of part of Cenvat Credit and penalties could have been passed against the petitioners, especially, petitioner No. 1- Company.

Mr. Sethna further submits that the extreme action of attachment of the properties of the Company resorted by the department is also ex facie bad. In support of his submission he pressed into service Section 22(1) of SICA, which reads as under:

Where in respect of an industrial company, an inquiry u/s 16 is pending, or any scheme referred to u/s 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal u/s 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.

According to Mr. Sethna, the statutory provision which clearly applies to the case in hand, categorically bars any distress action against the properties of a sick company which would, inter alia, include attachment. In this view of the matter, in his submission, the attachment order passed by respondent No. 1 is contrary to Section 22 of the SICA and the same is liable to be quashed and set aside. In support of his submission he placed reliance on some of the judgment of the Apex Court in the case of Maharashtra Tubes Ltd. Vs. State Industrial and Investment Corporation of Maharashtra Ltd. and Another, ; Real Value Appliances Ltd. Vs. Canara Bank and Others, ; Gauri Shankar Prasad Vs. State of Bihar and Another, ; Union of India v. Shree Synthetics 2008 (143) ELT A 134 (SC). He also placed reliance on the judgment of this Court in the case of CEAT Limited Vs. The Union of India (UOI) and Others,

So far as petitioner No. 2 is concerned, Mr. Sethna urged that the duty liability of the Company cannot be fastened on the Director of the Company unless there is statutory provision to that effect. Reliance is placed on the Division Bench order of this Court in Notice of Motion No. 440/2009 in Writ Petition No. 2087/2006 Satish D. Sanghavi v. Union of India and Ors.; wherein this Court observed as under:

The settled position in law is that liability for duty of the company cannot be fastened upon the director of a company unless there is a statutory provision to that effect. Such an issue came up for consideration before this Court in the matter of Sunil Parmeshwar Mittal v. Dy. C. (Recovery Cell), C.EX, Mumbai-I wherein the court took a view that liability of members is limited to the extent of face value of shares subscribed by each member and amount remaining unpaid on them for time being, former director of the company cannot be held responsible for payment of liabilities of company in the absence of any specific provision. This was reiterated in unreported judgment delivered on 5.5.2009 in the case of Chandrakant Bhalchandra Garware v. Union of India and Ors. In writ petition No. 4117 of 2009. We are of the opinion that duty demand of the company cannot be recovered from the director in the absence of statutory provisions in the Central Excise Act, 1944.

In the aforesaid view if the matter, Mr. Sethna strongly urged that the duty liability is not at all recoverable from the Director of the Company.

So far as the levy of penalty is concerned, Mr. Sethna urged that imposition of personal penalty on the Director is also not permissible under Rule 26 of the Central Excise Rules, 2002 ('' Central Excise Rules'' for short). In his submission, penalty imposed is not under Sub-rule (2) of Rule 26 in the adjudication order. According to him, penalty imposed on the petitioner No. 2 is under Sub-rule (1) of Rule 26, which is a subject matter of appeal pending before the Tribunal. According to him, penalty is not imposable on the Director of the Company. In other words, penalty under Rule 26(1) could only be imposed on the company in the facts of this case. He placed reliance on the judgment of this Court in the case of Ashok kumar H. Fulwadhya v. Union of India W.P. No. 18/2010 dated 19th January, 2010 (unreported). He, thus, submits that so far as petitioner No. 2 is concerned, he was entitled to full waiver of the predeposit. On the aforesaid totality of the submissions, he urged that the impugned orders are liable to be quashed and set aside and the appeal is liable to be restored to the file of the Tribunal with direction to hear and dispose of the same on its own merits.

Per contra, Mr. R.V. Desai, learned senior counsel appearing for the Revenue strongly opposed the aforesaid submission and urged that the central excise duty collected by the petitioners from their customers subsequent to the date of registration of the reference with the Board was recoverable from the petitioners. The amount of central excise collected and payable to the department could not be intended to be within the sweep of Section 22 of the SICA. He, therefore, submits that the Tribunal was justified in directing predeposit to the extent of 50% of the duty liability and penalty. Since the petitioners did not comply with the order, the Tribunal was perfectly justified in dismissing the appeal and Revenue was well within its right to proceed to attach the properties of the petitioners to recover their outstanding dues. Heavy reliance is placed on the Apex Court judgment in the case of Deputy Commercial Tax Officer and Others Vs. Corromandal Pharmaceuticals and Others, and on the Division Bench judgment of this Court in the case of Polymermann (ASIA) P. Ltd. Vs. The Union of India (UOI) and Others, to which one of us (Daga, J) is party.

Mr. Desai also urged that proviso to Sub-section (3) to Section 22 of the SICA provides that a declaration made by the Board cannot have a life beyond a period of seven years. If that be so, provision of Section 22 would not be applicable to the facts of the case in hand.

Mr. Desai, with respect to petitioner No. 2, urged that the Director of the Company is well within the net of Rule 26 of the Central Excise Rules. He, thus, submits that the petition is without any substance and the same is liable to be rejected.

Consideration:

Having heard rival contentions, in view of the law laid down by the Apex Court in the case of Corromandal Pharmaceuticals (supra) followed by this Court in the case of Polymermann (Asia) P. Ltd. (supra), the central excise duty collected by the petitioner from its customers subsequent to the date of registration of the reference to the Board can always be ordered as predeposit. In the case in hand, the Tribunal has directed pre-deposit of 50% of the duty liability which was quantified in the sum of Rs. 28,83,065/- i.e. (Rs. 30,83,065 less Rs. 2,00,000). The petitioner was, therefore, liable to deposit Rs. 14,41,533/- i.e. 50% by way of pre-deposit of Cenvat Credit availed by it. Against this amount the petitioner has already deposited Rs. 21 lakh. Therefore this part of the order has been complied with by the petitioners. So far as penalty is concerned, the same was not recoverable from the Company so long as the Company was under the umbrella of Section 22 of the SICA. Consequently, the Tribunal was not justified in directing pre-deposit to the extent of 50% of the penalty in its impugned order dated 19th June, 2009. To that extent the impugned order is liable to be set aside being bad and illegal.

So far as petitioner No. 2- Director of the Company is concerned, Mr. Sethna is justified in contending that the duty liability is not recoverable from the Director of the Company, the petitioner No. 2 herein in view of law laid down by this Court in the case of Satish D. Sanghavi (supra).

So far as direction against petitioner No. 2 to pre-deposit 50% of the amount of penalty is concerned, reliance is placed by Mr. Sethna on Rule 26 of the Central Excise Rules. Taking assistance of the judgment of this Court in the case of Ashokkumar Fulwadhya (supra), we have no hesitation to record finding that Mr. Sethna has also made out, prima facie; case for waiver of penalty on behalf of petitioner No. 2 as the said contention has good amount of strength. Consequently, in totality the petitioner No. 2 could not have been directed to predeposit either amount of duty or the penalty.

Having said so, the respondents could not have proceeded to attach properties of the petitioner No. 1- Company since it was and is under the umbrella of Section 22 of the SICA.

Decision:

In the result, the impugned orders dated 19th June, 2009 and 7th October, 2009 together with the order of attachment dated 1st January, 2010 passed by respondent No. 2 are liable to be quashed and set aside. Order accordingly. Appeal is restored to the file of the Tribunal with direction to hear and decide the same on its own merits.

Rule is made absolute in terms of this order with no order as to costs.