2019 (7) TMI 1457 - HC - VAT and Sales Tax

Liability of surety under VAT, CST or sales tax matters - Release of payment from the account of petitioner company - company had stood surety of a dealer Gayatri Steel Traders against which dues of VAT and CST of a sum of ₹ 7,87,550/- were outstanding - HELD THAT - The petitioner company itself did not stand surety for M/s Gayatri Steel Traders, Ambala City nor any resolution was given by it to the Excise and Taxation Department. Infact, one of its Directors Shri Vinod Kumar stood surety for the said firm in his individual and personal capacity for which the petitioner company cannot be held liable - it is well settled that in the absence of any specific provision in the statute, company cannot be held liable for the surety given by its director in his individual and personal capacity. Petition allowed - decided in favor of petitioner.

Summary

Issues involved:
Petition for quashing order rejecting representation and refund of amount; Company's bank account frozen due to alleged surety; Director standing surety for another firm; Legality of recovery from company's account; Liability of company for director's personal surety.

Analysis:
The petition under Articles 226/227 sought to quash the order rejecting the petitioner-company's representation and requested a refund of ?5 lacs with interest from the frozen bank account. The petitioner, a private limited company, had its account frozen by Kotak Mahindra Bank Limited based on a Government order due to an alleged surety for another firm's outstanding dues. The company denied providing any surety and filed a representation to withdraw the freezing order. Despite a court direction to decide on the representation, the bank released ?5 lacs from the company's account, invoking the alleged personal surety of one of its directors, Shri Vinod Kumar.

In response, the State argued that the recovery was justified as Shri Vinod Kumar, a director of the petitioner-company, had stood surety for the other firm. However, the Court found that the company did not stand surety, and the director's personal surety could not make the company liable. The State failed to provide statutory backing for the recovery. Citing legal precedent, the Court emphasized that a company cannot be held liable for a director's personal surety in the absence of specific statutory provisions. It was noted that recovery from a director can be made after due notice and hearing, as per the law.

Consequently, the Court allowed the petition, setting aside the impugned order and directing the refund of the recovered amount to the petitioner-company. The Court clarified that the recovery could be pursued from the actual liable parties, M/s Gayatri Steel Traders, or the director personally, in accordance with the law. This judgment clarified the distinction between a company's liability and a director's personal obligations, emphasizing the need for legal basis and due process in financial recoveries involving directors' personal actions.