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2017 Supreme(UK) 378
IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL
RAJIV SHARMA, J.
Jagteshwar Prasad Bansal & Others - Petitioners
Versus
State of Uttarakhand & Another - Respondents
Writ Petition (M/S) No. 73 of 2012
Decided On : 07-12-2017
For the Petitioners:Mr. S.K. Posti, Advocate
For the Respondents: Mr. Mohit Molekhi, Standing Counsel
The distinct juristic personality of a company and the limited liability of directors, emphasizing that recovery from the personal assets of directors is not permissible unless specifically provided in the statute.
Headnote:
liability - recovery of tax dues from directors - Uttarakhand VAT Act, 2005, Section 12(1), Section 2(11)(e), Section 12(2) - The court considered the liability of directors for outstanding tax dues and discussed the interpretation of relevant sections of the Uttarakhand VAT Act, 2005. The court referred to case law and held that the recovery of tax dues from the personal assets of directors is not permissible unless specifically provided in the statute. The court emphasized the distinct juristic personality of a company and the limited liability of directors, and quashed the recovery notice issued to the directors.
Fact of the Case:
The petitioners, directors of a company, challenged the recovery of tax dues and penalty imposed upon the company for the assessment year 2007-08. They contended that the directors are not liable and the amount can be recovered only from the assets of the company.
Finding of the Court:
The court held that the recovery of tax dues from the personal assets of directors is not permissible unless specifically provided in the statute. The court emphasized the distinct juristic personality of a company and the limited liability of directors.
Issues: The main issue was whether the directors of the company could be held personally responsible for outstanding tax dues.
Ratio Decidendi: The court relied on the interpretation of relevant sections of the Uttarakhand VAT Act, 2005 and emphasized the principle that recovery from the personal assets of directors is not permissible unless specifically provided in the statute.
Final Decision: The writ petition was allowed, and the recovery notice issued to the directors was quashed and set aside.
Rajiv Sharma, J.
1. M/s Sunshine Industries Ltd. Rudrapur is a limited company. It was incorporated under the Companies Act, 1956 on 08.12.1995. Its registered office is at National Capital Territory of Delhi. It was incorporated to do the business in manufacturing and sale of MS Ingots and alloys.
2. Petitioners were appointed as Directors of the company for a period of one year, as per Clause 80 of Article of Association.
3. The assets of the company were assessed to Rs.3,57,47,354.55/- as on 01.04.2006. Petitioners have placed on record the balance-sheet of the company as on 31.03.2007. The company was assessed under the Uttarakhand VAT Tax, 2005 for the assessment year 2007-08. The liability was created against the company. Petitioners have placed on record a copy of assessment order for the year 2007-08 under Section 25(7) of the Vat Act as well as Section 9(2) of Central Sales Tax Act.
4. Respondent no.2, on 12.12.2011, issued a recovery certificate to the District Magistrate/Collector of District U.S. Nagar for recovering the tax dues and penalty imposed upon the company for the assessment year 2007-08.
5. The case of the petitioners, in a nutshell, is that the directors of the company are not liable and the amount can be recovered only from the assets of the company. Their further contention is that they have tendered their resignations.
6. Learned counsel for the State submits that the petitioners are liable under Section 12 of Uttarakhand VAT Act, 2005. He has supported the assessment orders issued vide Annexure No.3 (colly.).
7. I have heard and gone through the impugned order carefully.
8. Section 2(11)(e) of the Uttarakhand VAT Act, 2005 (hereinafter referred to as the Act) reads as under: -
“(e) an individual, a firm or a company or other body corporate, club, Hindu Undivided Family or any other system of joint family, association of persons, trust, and co-operative society or any other society, whether such society is incorporated or un-incorporated, and which carries on such business including buying goods for and selling to its members for a price, fee or subscription, whether in the course of business or not.”
9. Section 12(1) of the Act provides the liability of directors of private company in liquidation.
10. The question raised in this petition has fallen for consideration before the Division Bench of Allahabad High Court, reported in 2010 (20) STR 390 All., in the case of “Meeking Transmission Ltd. through its Managing Director vs. State of Uttar Pradesh through Secretary, Institutional Finance, U.P. Govt. & others”. The Division Bench after considering the entire case law has come to the conclusion that the directors were not liable for outstanding tax dues. The Division Bench has also held that in order to find out as to who are the persons responsible personally when the veil is lifted it would be wholly irrelevant as to whether such person is a Director or a promoter shareholder or otherwise of the company since the purpose of lifting the veil is to find out to persons who is operating behind the corporate personality for his personal gain. The Division Bench has further held that whether in respect of tax dues or other public revenue or in other cases, if one has to discard the corporate personality, then the initial burden would lie upon it to place on record relevant material and facts to justify invocation of doctrine of lifting of veil and to plead that the corporate shell be not made a ground of defence. The Division Bench has held as under:-
“7. Now the second aspect needs to be adjudicated in this matter is whether outstanding tax dues of petitioner No. 1 can be recovered from the personal assets of the petitioner No. 2 who is Director of the petitioner-Company.
8. This question has to be considered in the light of the status of Company vis-a-vis its share holders, directors and other employees, their inter-relationship and the extent to which one or the other is liable in respect to the matter o
