Point of Law: Liability of directors of private company in liquidation.—Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), when any private company is wound up after the commencement of this Act, and any tax assessed on the company under this Act for any period, whether before or in the course of or after its liquidation, cannot be recovered, then, every person who was a director of the private company at any time during the period for which the tax is due 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

JUDGMENT :

J.B. PARDIWALA, J.

1. By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following relief’s;

“(a) Pending the admission, hearing and final disposal of this petition, to release the amount of input Tax Credit available to the Petitioner.

(b) to quash and set aside the action of the Respondent No.2 in blocking the Input Tax Credit.

(c) any other and further relief deemed just and proper be granted in the interest of justice;

(d) to provide for the cost of this petition.”

2. The facts, giving rise to this application, may be summarized as under;

2.1 The writ applicant seeks to challenge the action of the respondent No.2 in blocking the input tax credit in exercise of power under Rule 86A of the Central Goods & Service Tax Rules, 2017 (for short “the Rules, 2017”) to the tune of Rs.17,94,723/- allegedly towards effecting the recovery of dues under the Gujarat Value Added Tax Act, 2003 (for short “the GVAT Act”) in the case of one Dolphin Metals (India) Ltd.

2.2 The writ applicant is engaged in the business of manufacturing of brand kitchenware and home appliances and is registered under the provisions of the CGST Act. It appears from the materials on record that the writ applicant, at one point of time, was a Director in a public limited company named Dolphin Metals (India) Ltd. The writ applicant was a Director in the said Dolphin Metals (India) Ltd. since 23rd November, 2009 and, thereafter, from 20th December, 2018 till the date of filing of this writ application. The writ applicant is also a director in one another company named Bhagat Marketing Private Limited since 21st March, 1994.

2.3 It appears that the respondent No.2 sent a notice dated 5th September, 2020 under Section 44 of the GVAT Act to the Union Bank of India proposing to attach the bank account maintained by Bhagat Marketing Private Limited, referred to above, wherein the writ applicant is a Director, seeking recovery of the amount of outstanding tax and interest for the years 2006-07 to 2013-14 in the case of Dolphin Metals wherein the writ applicant was a Director for some period of time. It appears that the bank declined to act as per the notice dated 5th September, 2020 as the name and PAN of the account holder differed from that of the Dolphin Metals to whom the notices were addressed. It appears that the respondent No.2, on the very same day, i.e., 5th September, 2020, blocked the input tax credit of the amount of Rs.17,94,723/- available to the writ applicant in his electronic credit leder under the provisions of the CGST Act. This action was with an intention to recover the amount of tax and interest due and payable by the Dolphin Metals under the GVAT Act for the period during which the writ applicant was not even the Director.

2.4 The writ applicant addressed a letter dated 23rd September, 2020 to the respondent No.2 requesting to release the input tax credit blocked for the recovery of the amount of tax and interest in case of the Dolphin Metals under the GVAT Act.

2.5 As the respondent No.2 declined to release the input tax credit, the writ applicant was left with no other option but to come before this Court with the present writ application.

3. Mr. Tushar Hemani, the learned senior counsel assisted by Ms. Vaibhavi Parikh, the learned counsel appearing for the writ applicant vehemently submitted that the action of the respondent No.2 in blocking the input tax credit of the writ applicant under the CGST Act is patently bad, illegal, contrary to law and in gross violation of the fundamental rights as enshrined to the writ applicant under Articles 14 and 19(1)(g) of the Constitution. Mr. Hemani would submit that it is a settled position of law that the Directors of a Company are not to be held personally liable for the dues of the Company and the same cannot be recovered from the Directors under any of the provisions of the GVAT Act.

4. Mr. Hemani submitted that the GVAT Act does not empower the r