Directors of private companies are jointly and severally liable for unpaid tax debts of the company unless they can prove that the non-recovery cannot be attributed to their gross neglect, misfeasance, or breach of duty.

AJOY NATH RAY, J.

( 1 ) THE writ petitioner challenges a notice dated October 12, 1999, by which the Tax Recovery Officer from Calcutta requested the State Bank of India, Bela Industrial Estate Branch, Muzaffarpur, to freeze the bank account maintained there by M/s. H. Guru Industries.

( 2 ) ACCORDING to the writ petitioner, who is 73 years old, that is his proprietorship business, is completely separate from H. Guru Instruments Private Limited, of which, however, he was a managing director at the material time.

( 3 ) MR. Mitter submits for the writ petitioner that even if there are dues of or in regard to income-tax of the company, the stoppage of the bank account of the writ petitioner himself is illegal.

( 4 ) ACCORDING to him, for unpaid tax debts of the company, such attachment has the effect of prohibiting the carrying on of business by the writ petitioner himself altogether for all times in future unless the company's debts are met.

( 5 ) ON behalf of the Revenue, affidavits are prayed for, interim order is opposed and reliance is placed on Section 179 of the Income-tax Act. That Section is as follows :"179. Liability of directors of private company in liquidation.-- (1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), (where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company) cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. (2) Where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered, then, nothing contained in Sub-section (1) shall apply to any person who was a director of such private company in relation to any tax due in respect of any income of such private company assessable for any assessment year commencing before the first day of April, 1962. "

( 6 ) THE marginal note or heading of the Section is misleading, because the body applies now to companies, whether those are in liquidation or not.

( 7 ) RELIANCE is also placed on Rule 4 contained in the Second Schedule to the Act, which provides for the mode of recovery. That rule is as follows :"4. Mode of recovery.--If the amount mentioned in the notice is not paid within the time specified therein or within such further time as the Tax Recovery Officer may grant in his discretion, the Tax Recovery Officer shall proceed to realise the amount by one or more of the following modes : (a) by attachment and sale of the defaulter's movable property ; (b) by attachment and sale of the defaulter's immovable property ; (c) by arrest of the defaulter and his detention in prison ; (d) by appointing a receiver for the management of the defaulter's movable and immovable properties. "

( 8 ) FROM the Section it is clear that if at the material time a person was a director of the defaulting company, his duty before the Revenue is very heavy, he is to prove that the non-recovery of the company's tax debts cannot be attributed to (i) any gross neglect, (ii) misfeasance or (iii) breach of duty on his part.

( 9 ) THE third item, viz. , breach of duty is a very wide expression.

( 10 ) MR. Mitter submitted that there has been no determination of the director writ petitioner's liability in regard to the company's tax debts under Section 179 yet. Section 179 does not specifically provide for any determination or any hearing. But hearing and determination are to be read into the section, according to the principles of natural justice and the law in this regard is w

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