2008 (10) TMI 624 - HC - VAT and Sales Tax

Summary

Issues: Liability of directors for company's dues under Bihar Tax on Entry of Goods Act, 1993; Maintainability of writ petition challenging certificate proceedings.

Liability of Directors:
The judgment dealt with the issue of whether directors could be held personally liable for the dues of a company under the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993. The company in question, M/s. Nalanda Electro Steel (P) Limited, had admitted certain liabilities under the Act but failed to discharge them. The Commercial Taxes Department sought to recover the dues by initiating proceedings against the directors in their individual capacities. The court held that a company is a separate legal entity from its directors and shareholders, and their liability is distinct. The judgment emphasized that for civil dues of a company, directors and shareholders cannot be held personally liable. The court noted that the requisition made against the directors was without jurisdiction, as it failed to mention the company and targeted the directors individually. Consequently, the court declared the certificate proceedings against the directors to be null and void, quashing them accordingly.

Maintainability of Writ Petition:
The judgment also addressed the issue of the maintainability of the writ petition challenging the certificate proceedings. The State and the Commercial Taxes Department argued that the petitioners should have availed of alternative remedies, such as challenging the proceedings by denying liability and filing appeals against consequential orders. However, the court rejected this argument, stating that if the action taken is wholly without jurisdiction, there is no need for the petitioners to exhaust alternative remedies. The court highlighted that a company incorporated under the Companies Act is an independent juristic entity, and if the proceedings against it are without jurisdiction, the petitioners need not suffer the consequences and can directly seek relief through a writ petition. The court, therefore, allowed the writ petition and quashed the certificate proceedings pending before the Certificate Officer in Patna.

In conclusion, the judgment clarified the legal position regarding the liability of directors for a company's dues and emphasized the importance of jurisdiction in initiating proceedings. It upheld the principle that directors and shareholders cannot be held personally liable for the civil dues of a company and declared the certificate proceedings against the directors to be null and void. The court also established that in cases where the action taken is without jurisdiction, petitioners can seek relief through a writ petition without exhausting alternative remedies.