The doctrine of piercing the corporate veil can be applied to hold directors liable for company debts, especially in cases of substantial unpaid dues and negligible company assets.

( 1 ) THIS writ petition and the connected Writ Petition No. 37836 of 2002, are being disposed of by a common Judgment.

( 2 ) THIS writ petition has been filed against the impugned recovery certificate issued by the executive Engineer, Electricity Distribution Division, UP. Power Corporation, Fatehpur dated 17. 7. 2002 as well as the citation issued by the Tahsildar Sadar, Kanpur Nagar.

( 3 ) HEARD learned Counsel for the parties.

( 4 ) THE petitioner is Director of M/s. Sushila Alloys Pvt. Ltd. , district Fatehpur which is a company registered under the Indian Companies Act. The company applied for sanction of electricity connection which was sanctioned vide order dated 30. 10. 1995 Annexure-1 to the writ petition. An agreement was entered into between the petitioner and the U. P. State Electricity board on 2. 11. 1996 and the supply was released on 8. 11. 1996 vide Annexure-2 to the writ petition. Bills were issued in the name of the company vide Annexure-4 to the writ petition.

( 5 ) THE Executive Engineer has issued recovery certificate dated 17. 7. 2002 for a sum of Rs. 95,99,446. 85 vide Annexure-5 to the writ petition. The recovery certificate was sent to the collector, Kanpur who sent it to Tahsildar Sadar, Kanpur Nagar alongwith collection charges.

( 6 ) THE grievance of the petitioner is that the Company is a distinct legal entity and hence the recovery cannot be made against the Director of the Company but only against the company.

( 7 ) A copy of the agreement for supply of electrical energy is Annexure-2 to the writ petition. This agreement made on 9. 11. 1999 is between the U. P. State Electricity Board and the petitioner.

( 8 ) LEARNED Counsel for the petitioner submitted that the agreement is really between the company and the Electricity Board. In our opinion, even if that is so it is not fit case for interference under Article 226 of the Constitution.

( 9 ) IT is well known that huge dues of electricity are due to the U. P. State Electricity Board (whose successor is the U. P. Power Corporation Ltd. ). Because of these huge unpaid dues the electricity Boards in the country are running at huge losses of thousand of crores of rupees.

( 10 ) IT is true that the legal principle is that a Company is a separate legal entity distinct from its director and shareholders vide Solomon v. Solomon and Co. Ltd. , 1897 AC 22 (HL ). However, the principle of piercing the veil of corporate personality has also been evolved by the Court, vide Subhra Mukherjee v. Bharat Coking Coal Ltd. , 2000 (3) SCC 312; Calcutta Chromotype ltd. v. Collector of Central Excise. , JT 1998 (2) SC 747; New Horizons Limited v. Union of india, 1995 (1) SCC 478; Delhi Development Authority v. Skipper Construction Co. Pvt. Ltd. , 1996 (4) SCC 622; C. I. T. v. Minakshi Mills, AIR 1967 SC 819 and Juggilal Kamlapat v. CIT, air 1969 SC 932, etc.

( 11 ) IN Delhi Development Authority case (supra), the Supreme Court, following its decision in tata Engineering and Locomotive Company Ltd. v. State of Bihar, AIR 1965 SC 40, observed : "the law as stated by Palmer and Gower has been approved by this Court in Tata Engineering and Locomotive Company Limited v. State of Bihar, (1964) 6 SCR 895 : AIR 1965 SC 40. The following passage from the decision is apposite (Para 27 of AIR) :

"gower has classified seven categories of cases where the veil of a corporate body has been lifted. But it would not be possible to evolve a rational consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporate personality should be lifted or not. Broadly, where fraud is intended to be prevented, or trading with enemy is sought to be defeated, the veil of corporation is lifted by judicial decisions and the shareholders are held to be persons who actually work for the corporation. "

( 12 ) IN the same decision the Supreme Court also observed that the concept of corporate entity was evolved to encourage and promote