2009 (10) TMI 884 - HC - VAT and Sales Tax

Summary

Issues:
1. Recovery of outstanding trade tax liability from personal assets of directors of a company.
2. Applicability of the doctrine of piercing the corporate veil.
3. Responsibility of directors for financial mishandling leading to company closure.

Analysis:
1. The petitioners, former directors of a company, filed a writ petition challenging the recovery of outstanding trade tax liability from their personal assets. The company had failed to repay a loan to a bank, resulting in a debt recovery case against it. The Trade Tax Department issued recovery certificates against the company for outstanding trade tax. The petitioners argued that their personal assets should not be attached for the company's dues.

2. The counter-affidavit by the respondents claimed that the petitioners, as directors, were responsible for the company's financial matters, leading to its closure. However, the court noted that there were no allegations of fraud or illegal asset transfer by the directors. Citing the Meekin Transmission Ltd. case, the court emphasized that directors cannot be held personally liable for a company's debts unless specific statutory provisions apply or the doctrine of lifting the corporate veil is justified.

3. The court held that since there was no evidence of the petitioners misusing company assets, the recovery from their personal assets was not justified. The court reiterated that directors should not be held personally responsible for a company's debts unless exceptional circumstances warrant it. The Department was allowed to pursue recovery from the company's assets if found in possession of the petitioners.

In conclusion, the writ petition was allowed, and recovery from the personal assets of the directors was deemed inappropriate. The court clarified that if the Department finds the petitioners in possession of company assets, recovery could be pursued against those assets.