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TMI Blog2017 (3) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... requires detailed examination which has rightly been examined by the authority. This Court sitting in a writ jurisdiction substantially in exercise of extraordinary equitable jurisdiction cannot ignore such kind of situation prevailing on record and see it helpless just because a defence is put up that company in question is a public limited company and therefore, no resort to Section 179 of the Act can be made. The case of Pravinbhai M. Khemi (2012 (12) TMI 494 - GUJARAT HIGH COURT ) is sufficient answer to hold that there is no illegality and/or irregularity of any nature which is committed by the authority while passing the order impugned in the petition. Now in the light of above position if we look at self-imposed restrictions which are well recognized in exercise of extraordinary jurisdiction of this Court, it would become clear that the specific findings which are reflected on record cannot be given a go-bye simply because there appears to be one or the other reasons no so cogently assigned by the authority. - Writ petition dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, upto 15.9.2014 time was granted. However, by that time, the petitioner instead of responding to notice has filed the petition before this Court being SCA No.12861 of 2014 challenging the legality and validity of the said notice dated 4.9.2014. This Court, while taking up the plea of the petitioner, found that while initiating such action, no adequate opportunity was given to the petitioner nor any proper procedure was followed and therefore, the action in purported exercise of power under Section 179 of the Act came to be quashed and the petition was partly allowed by an order dated 12.2.2015 and consequently, directed to take steps in accordance with the provisions of law by keeping the rights and contentions of both the sides open and the petition came to be disposed of. 2.3 Subsequently, the respondent authority observed the order of this Court and thereafter, after observing the statutory provisions, issued a fresh show cause notice on 19.6.2015 in detailed by giving all particulars and called upon the petitioner to explain as to why steps should not be taken as contemplated under Section 179 of the Act. To this notice, the petitioner appears to have replied on 24.7.2015 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted company and therefore, from the initial step itself, invocation of Section 179 of the Act is impermissible and therefore, the action tantamount to be without authority of law. It was also contended by learned counsel that though the petitioner came to be appointed as a director on 20.3.2005, he has not acted as such as the director and has not participated in transaction related to the company, has not signed any documents related to financial transactions, has also not signed any paper related to income-tax department and has not taken any decision nor has participated in the affairs of the company. It was further contended by the learned counsel that on 5.9.2005, the petitioner has resigned from the company and therefore, no liability can be fastened upon the petitioner. It was also contended by the learned counsel that the petitioner is not guilty of any misuse of power nor any allegation pertaining to any misuse of his position as a director nor has grossly neglected nor has committed any breach of duty in any manner is alleged and since the affairs of the company were not looked after by the petitioner, the authority ought not to have saddled the petitioner with liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any contingency, resort to Section 179 of the Act is impermissible. Learned counsel further contended that even on facts also, the authority has not established even remotely that the petitioner is responsible for the affairs of the company. It was pointed out by the learned counsel that corporate veil can be lifted or pierced if either statute permits the same or any extraordinary circumstances prevailing and compelling the authority to lift the veil. By referring to the averments contained in the petition, learned counsel has submitted that no such situation is reflecting which would permit the authority to pass such kind of order insofar as petitioner is concerned and therefore, learned counsel has submitted that in the absence of any guilt on the part of petitioner in relation to affairs of the company, no action can be initiated against the petitioner and thereby, learned counsel submitted that no such step could have been taken. Learned counsel further submitted that even in case of Pravinbhai M. Khemi V/s. Assistant Commissioner of Income-tax Central Circle-2 and Ors., reported in 353 ITR 585, the principle of lifting of corporate veil is analyzed but, the same was in altoge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th has increased to ₹ 7 crores and mostly the equity shares were held by him. It was also pointed out that total equity shares of the company was of ₹ 30 lacs at the relevant time, out of which in the hands of the petitioner such shares to the extent of ₹ 29.50 lacs and therefore, the petitioner's holding at the relevant point of time was to the extent of more than 98%. Learned counsel for the revenue has further drawn the attention of the Court that though the company in question is incorporated as public limited company, the company has not involved public in any substantive form and the characteristic of the affairs of the company are found to be akin to the private limited company and therefore, the authority has rightly come to the conclusion that company in question was treated as defacto private limited company and therefore, the petitioner is rightly held to be responsible. Learned counsel for the revenue has submitted that normally when such kind of huge share capital is in the hands of the petitioner, as a natural consequence he would be active in the affairs of the company. But unnatural conduct shown by the petitioner that though he was major sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the petitioner and therefore, huge accommodation entries have been executed during the course of time when the petitioner was director and therefore, simply because the petitioner has walked away from the company in September,2005, he cannot be absolved from responsibilities which accrued to the company over the period of time and therefore, the learned counsel for the revenue has submitted to dismiss the petition. Learned counsel further submitted that series of decisions have taken the view that if such kind of extraordinary circumstances are prevailing, it is always open for the authority as well as to this Court to lift the corporate veil of the company and therefore, the authority has rightly passed the order which is impugned in the petition. Learned counsel has further pointed out that none of the directors, though steps have been taken against them, have responded. However, it is the petitioner, who is bringing the affidavit of Mr.Pratik R. Shah, who is trying to take entire burden upon him just with a view to accommodate the petitioner as it seems and therefore, such kind of attempt inter-se between the directors and the person of close nexus, cannot be allowed to be enc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the loans and advances were ₹ 6,23,56,433/-. This is the affairs of the company at the relevant point of time when the petitioner was additional director. However, in a gradual process of time when the attachment proceedings were initiated, it has been found by the department that the value of aforesaid assets and structure of the company has become practically zero. So practically everything was vanished. (6) The record indicates that though there is a plea of petitioner that he has nothing to do with the company except remaining as an additional director, he is not party to the transaction, he is not connected with affairs of the company internally but, record reveals that though the company is incorporated on 20.3.2005, the actual business and the commencement appears to have taken place from 13.4.2005. Meaning thereby that the commencement of business has taken place only after the petitioner came to be introduced as an additional director on 20.3.2005. The certificate of commencement of business issued under Section 149(3) of the Companies Act which reflects this position which is a part of petition compilation on Page-29 and therefore, substantially appears that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther it appears that the case of the department is that substantial accommodation entries have been made during the course of time when the petitioner was a director. There is a sizable amount of entries which reveal that substantial cash deposit took place in Kalupur Commercial Bank account to the extent of ₹ 48 lacs which is reflecting from the assessment order dated 20.12.2008 with respect to Assessment Year 2006-07. The assessment order during the course of hearing of the petition is presented for perusal by the learned counsel for the petitioner. (11) Further it appears from the record that though the petitioner claimed to have not participated in the affairs of the company, a reasonable contrary inference which has been drawn appears to be sound to some extent as the commencement certificate of the company is after the induction of the petitioner as additional director. (12) Further it also appears that Memorandum of Association of the company is the vital key to get the knowhow about the company's affairs. In law, Memorandum of Association is charter which contains the fundamental conditions upon which alone a company can be incorporated and any action outside the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that behalf. Clause (5) of the said Articles of Association deals with power to increase capital. Now, this if to be looked into, initial share capital structure of the company was only ₹ 5 lacs as on 31.3.2005. But the moment the petitioner came to be inducted as director, it has rocketed capital to the extent of ₹ 7 crores and therefore, that substantial increase in the share capital requires certain procedure which has been stipulated in clause (5) which reads as under : "Power to increase Capital 5(a) The Company in general meeting may, from time to time increase the capital by the creation of new shares, such increase to be of such aggregate amount and of such classes and to be divided into shares of such respective amounts as the resolution shall prescribe. (b) Subject to the provisions of the Act, the new shares shall be issued upon such terms and conditions and with such rights and privileges annexed thereto as the Company in general meeting shall prescribe, and in particular such shares may be issued with a preferential or qualified right to dividends and in the distribution of assets of the Company, and with a right of voting at general meeting of the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercisable by the person concerned to renounce the shares offered to them in favour of any other person and the notice referred to in sub clause (b) hereof shall contain a statement of this right. PROVIDED THAT the Directors may decline, without assigning any reason to allot any shares to any person in whose favour any member may renounce the shares offered to him. (d) After expiry of the time specified in the aforesaid notice or on receipt of earlier intimation from the person to whom such notice is give that he declines to accept the shares offered, the Board of Directors may dispose off them in such manner and to such person(s) as they may think, in their sole discretion, fit. (2) Notwithstanding anything contained in sub-clause (1) thereof, the further shares, aforesaid may be offered to any persons (whether or not those persons include the persons referred to in clause (a) of sub-clause 91) hereof in any manner whatsoever. (a) If a special resolution to that effect is passed by the company in General Meeting, or (b) Where no such special resolution is passed, if the votes cast (whether on a show of hands or on a poll as the case may be ) in favour of the proposal contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue demand as crystallized from the company but, all efforts have been in vain and most surprising factor which is revealing from the record is that none of the Directors have cooperated with the department nor have presented themselves in the course of this recovery proceedings. It further reveals that this demand substantially is related to the period in which the petitioner may for a short time but was a Director. These steps are very much reflected from the order which has been considered by the authority and this sequence of steps for realizing demand deserves reproduction hereinafter: Sr. No. Date Recovery measures undertaken Outcome of the measures 1 20.3.2009 226(3) issued to the ICICI Bank Limited, Ashram Road, Branch, 2/1, Popular House, near Income tax Circle, Ashram Road, Ahmedabad. Bank vide letter dated 21.3.2009 reported that in the a/c no.018905500065, the balance is Zero. 2 226(3) issued to Ahmedabad People's Cooperative bank limited, Ahmedabad Bank vide letter dated 23.03.2009 reported that the FDR in the form security had been adjusted against bank dues. Hence no balance available. 3 226(3) issued to Kalupur Commercial Cooperative bank limited, Ah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter to the Registrar of companies, ROC Bhavan, opposite Rupal Park Society, Ahmedabad. It was requested to supply the detail of name and address of all directors during the FY 2005-06 as an order u/s 179 has been passed against some of the directors. As per annual return filed by him vide letter dated 1.9.2010, Shri Ajay Surendrabhai Patel was one of the directors of the company and the date of appointment in the company has been shown as 20.03.2005. In share holders list as on 20.09.2005 he held share of 29,50,000. 19 22.11.10 Letter to the company. The company has sold its property Survey No.208, 65155 sq. meter, Survey No.209 5139 sq. meter and survey no.211 35724 sq. meter to Vadgas Realty Pvt. Limited vide transfer deed dated 25.2.2009 and the company was intimated why proceedings u/s 281 may not be initiated against it. 20 22.11.10 Letter to Nikita Baldevbhai Dave, one of the directors. The company has sold its property Survey No.208, 65155 sq. meter, Survey No.209 5139 sq. meter and survey no.211 35724 sq. meter to Vadgas Realty Pvt. Limited vide transfer deed dated 25.2.2009 and the company was intimated why proceedings u/s 281 may not be initiated against it. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of gross neglect, misfeasance or beach of duty on the part of directors in relation to the affairs of the company and therefore, the conditions which are contained in Section 179 of the Act before its invocation are appearing on the face of it which rightly visualized by the department for passing the order which is impugned in the petition. 12. As stated above, though the company has been incorporated with a strength of initial directors but, within a very short span of almost two and half months only, contrary to norms the petitioner came to be inducted as the director in March,2005 and certificate of commencement of business came to be obtained by the company only after the petitioner being inducted as additional director. Therefore, it appears to this Court that though in front the directors' names have been projected but, behind those directors the petitioner appears to be a key person looking to the stiff rise in the share capital only after induction of petitioner. It further appears that Mr.Pratik R. Shah is projected as a key person, who is substantially looking after the affairs of the company as the main director appears to be a person who took on his shoulde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s practically led virtually a company to a closure. This fiduciary obligation does not cease with the resignation. As said earlier, sub-section (3) of Section 166 of the Companies Act which spelled out that director shall exercise his duties with due and reasonable care and based upon which the Supreme Court in case of N. Narayanan V/s. Adjudicating Officer, SEBI, reported in AIR 2013 SC 3191 has held that, 'failure of a corporate governance on the part of directors if they failed to exercised due care and diligence and thereby, allowing fabrication of figures and false disclosure, they would be liable for such omissions and commissions.' Relevant observations of the said decision are reproduced hereinafter : "32. Responsibility is cast on the Directors to prepare the annual records and reports and those accounts should reflect 'a true and fair view'. The over-riding obligation of the Directors is to approve the accounts only if they are satisfied that they give true and fair view of the profits or loss for the relevant period and the correct financial position of the company. 33. Company though a legal entity cannot act by itself, it can act only through its Directors. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everything was done by Mr.Pratik R. Shah is not an excuse available to the petitioner from absolving from the crystallized liability. The statute does not permit a director of a company to assign his office to be left to others and therefore, consequences he must suffer on account of such negligence. Such assignment shall be void as impermissible in the statute and therefore, defence which has been tried to be projected that everything is done by the others is not available to the petitioner. The fiduciary position of a director in a company does not permit the directors to throw always up their hands and say that we knew nothing as did not take part and therefore, considering this position of petitioner in the company we do not propose to allow such defence to be accepted. On the contrary, we feel that a director with a sizable amount of holding structure of the company can never be allowed to take such plea to keep himself away from the responsibilities under the guise of resignation. 12.3 Now, in the context of this situation if we examine the principle of lifting of corporate veil, it seems that the authority has rightly applied this principle. The principle of separate legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made it clear that concept of lifting or piercing the corporate veil to crack the corporate shell can be resorted to even in case of Public Limited Company. No doubt, the Courts have to cautiously deal with the said issue but, at the same time, there is no embargo not to lift the corporate veil. Some of the pronouncements on the issue are profitably to be referred to. A Division Bench of this Court in the case of Dhaval N. Patel Vs. Commissioner of Income Tax reported in 2014(184) ComCas 367 after considering the law on the issue has observed in paragraph No.6 as under: "10. This Court in Special Civil Application NO.1921/2005 referred to some of the decisions and held thus (page 362): This Court in the case of Pravinbhai M. Kheni v. Assistant Commissioner of Incometax, Central Circle 2 and others, reported in 353 ITR 585, had an occasion to deal with the liability of the directors of a public limited company, where the proceedings under section 179 were initiated against the petitioner Director of such company. Pursuant to search proceedings against the public limited company, the tax liability determined was more than ₹ 155 crore. The Revenue was of the opinion that suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act itself is a statutory creation of piercing of corporate veil. Ordinarily, directors of a company even that of a private company would not be answerable for the tax dues of the company. Under subsection(1) of section 179 of the Act, however, subject to satisfaction of certain conditions, the directors can be held jointly and severally liable to pay the dues of the company. In the present case, however, the Revenue desired to apply the principle of lifting the corporate veil in case of a public company and seeking to resort to provisions contained in section 179 of the Act. In our view if the factors noted by the Assistant Commissioner are duly established, there is no reason why such double application of lifting the corporate veil one statutorily provided and other due to emergent need of the situation, cannot be applied. As noted above, the factors recounted by the Assistant Commissioner in the impugned order are glaring. The company had defaulted in tax for more than ₹ 155 crores. Same was unearthed during search operations carried out by the Revenue Authority. The attachment of the assets of the company could lead to recovery of not more than ₹ 5 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides for lifting of veil and secondly, whether the facts are so glaringly emerging on record whereby it can be found that with a view to defeat the interest of the Revenue, attempt is made by creating complexity of the facts. In the instant case, therefore, in other words, what needs to be examined is whether with a view to defeat the interest of the State some of the real beneficiaries have created complex design and web and have chosen to hide behind the corporate veil. Section 179 of the Act itself is a creation of the statute whereby the corporate veil can be pierced and original Directors of the Private Limited Company could be held liable for the outstanding tax dues of the Company. The statute, however, has created a situation whereby they can be jointly and severally held liable. In the instant case, the facts are apparently clear whereby conversion of the Amadhi Investment Limited from a Private Limited Company to a Public Limited Company was in the year 1995. The petitioners were appointed as Directors of Amadhi Investment Limited on 29.12.2005. They were not even shareholders of the Company from 5.6.1995 till 30.9.2006. Therefore, there would not be any requirement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the very issuance of the notice cannot be sustained unless, of course, as provided in the case of Pravinbhai Kheni (supra) and followed thereafter, in the case of Sandeep A. Mehta (supra) there are glaring facts which would permit the lifting of the corporate veil. In the present case, as could be noticed, those foundational facts are completely missing. It is not even the case of the Revenue that such claim exist warranting lifting of veil. Except nonfulfillment of the obligation by the Company of the tax demands that had arisen as a result of the assessment of all these years, nothing comes on record for the Court to permit the piercing of corporate veil. The petitioner being the director of the public limited company, this provision is nonapplicable. Section 179 of the Act chooses to impose a vicarious liability on the director of a private company making his liability coextensive with the company in respect of arrears of tax of assessment year when he functions as a director. However, the income tax authority in relation to the liability of the Company shall need to insist upon its recovery and when the Company is unable to discharge such liability and the attempts of the Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such findings without giving sufficient opportunity of hearing to the petitioner and without disclosing the necessary materials for coming to such a conclusion. 5) The impugned orders dated 15.4.2002 and revisional order dated 9.4.2003 are quashed. 6) The proceedings are however, placed back before the Assistant Commissioner for proceeding further in accordance with law after giving a notice to the petitioner indicating his tentative grounds why he desires to invoke the concept of lifting of corporate veil, giving sufficient opportunity to the petitioner to meet with such allegations. After giving opportunity of hearing to the petitioner and following the principles of natural justice it would be open for the Assistant Commissioner to pass fresh orders in accordance with law as may be found appropriate on the basis of material on record."" 15.1 In view of the aforesaid scenario which is prevailing on record related to the present Company, we are of considered opinion that such a huge tax evasion cannot be so lightly permitted on account of any hyper-technicality. The concept of lift or piercing of corporate veil, as sometimes referred to as cracking the corporate shell, is app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of Memorandum of Association then such transaction has no legal sanctity and can be said to be void and therefore, this improper conduction of business de-hors the main object tantamount to be improper conduct of the company and for that very purpose, it is always open for the Court as well as for the authority to lift the corporate veil. 17. Similarly, the corporate veil can be lifted if it is found that the company is acting as an agent of shareholders though it has got legal entity. In a well known case of Re F.G.Filims Ltd., a British company which was formed with 90% of shares held by American director. The said British company and an American company arranged to produce a films in the name of the British company. The Board of Trade of Great Britain refused to register the firm as British firm by upholding that English company acted as the nominee or agent of the American company and this has taken place upon lifting of corporate veil. Therefore, this is also relevant case law for the subject on hand as the petitioner upon induction has brought share capital to the extent of 98.33% and the certificate of commencement of business was obtained after induction of the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is ultra vires, no legal relationship or effect ensues therefrom. Such an act is absolutely void and cannot be ratified even if all the shareholders agree. Re. Birkbeck Permanent Benefit Building Society, (1912) 2 Ch 183. The payment made pursuant to the resolution was therefore unauthorised and the trustees acquired no right to the amount paid by the Directors to the trust. 17. The only question which remains to be considered is whether the appellants were personally liable to refund the amount paid to them. Appellants 2 and 4 were at the material time Directors of the Company and they took part in the meeting held under the Chairmanship of the fourth appellant in which the resolution, which we have held ultra vires, was passed. As office bearers of the Company responsible for passing the resolution ultra vires, the Company, they will be personally liable to make good the amount belonging to the Company which was unlawfully disbursed in pursuance of the resolution. Again by S. 15 of the Life Insurance Corporation Act, 1956 the Life Insurance Corporation is entitled to demand that any amount paid over to any person without consideration, and not reasonably necessary for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ublic by the company in question. Therefore, practically the company appears to have systematically operated as if it is a private concern. On the contrary, a public limited company has to act more in responsible manner than private limited company. 20. Now in this context if we look at the distinction between private and the public limited company, some of the stinking points of distinction deserve to be considered and the main distinct feature is analyzed hereinafter looking to the definition of 'private limited company' as defined under Section 3(1)(iii) as also Section 3(1)(iv), it appears that authority has rightly examined the background of the company in question. 20.1 The difference between private and public company mainly is that a private company is a very suitable device for carrying on the business at a small scale level and can start with a minimum number of members with a minimum paid up capital of ₹ 1 lac only. Being a private company, it has an element of some restrictions of transferability of shares as well as of number of members. It cannot issue prospectus and therefore, in view of the position being private company, can be exempted from certain operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 23. All these eventualities which are reflected hereinabove further takes us to the position of a director in the company. The directors of the company have got a specific legal position in the company. The legal position of the directors may be that definitely it cannot be crystallized but, these directors are akin to trustees. In case of VS Ramaswamy Iyer V/s. Brahmayya and Anr., reported in 1965 LawSuit (Mad) 121 the Madras High Court, while examining the position of Director in the legal sphere, has held that, 'the directors of a company are trustees for the company, and with reference to their power of applying funds of the company and for misuse of the power they could be rendered liable as trustees and on their death the cause of action survives even against their legal representatives and besides almost all the powers of directors, e.g., of allotting shares, making calls, forfeiting shares, accepting or rejecting transfers etc. are powers exercised in trust and they have been made liable to make good money which they have misapplied, upon the same footing as if they were trustees of the company and therefore, simply because the petitioner has projected that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... protect the revenue of the department. The aforesaid distinguishable feature between private limited company and public limited company would lead to a situation where the petitioner cannot be allowed to take shelter of corporate veil to find himself non-responsible to the liability of the department. 24. The aforesaid situations which are prevailing and discussed above has taken the Court to another issue of scope of Section 179 of the Act which is by now well defined and therefore, without dwelling much into that, straightway we may refer to the decisions which are cited by the respective sides. Learned counsel for the petitioner has made an attempt to rely upon one unreported decision delivered by the Division Bench of this Court in Special Civil Application No.21206 of 2015 decided on 8.7.2016 and tried to contend that no liability can be fastened upon the director personally under the guise of lifting of corporate veil. Now if we peruse the said case, we may first see that the petitioner of that case was working as a Computer Engineer in one associate company of Mr.Sunil Kakkad named as Sai Infosystem (India) Ltd. and later on, floated a company in the name of Power Infocont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company to operate at the sweet will of the directors but, that story which has been put up appears to be not sound enough to permit the petitioner to evade the huge liability and therefore, this case on hand permits the Court not to take assistance from the said decision which is recorded and stated above. 27. The overall situation if we analyze in its true perspective then only one conclusion which can be arrived at is that the corporate veil to be lifted and rightly so by the authority. The reason itself is explanatory from the above mentioned circumstances which are emerging from the record and therefore, without much dwelling in it, since it has been pointed out either the Court is desisted from reiterating, however, in the decision in case of Pravinbhai M. Khemi (Supra) in which the Division Bench of this Court has analyzed the entire scheme of Section 179 of the Act and has also analyzed the well recognized principle of lifting or piercing of corporate veil after considering the entire case law on Section 179 of the Act and therefore, the background of present case on hand necessitated this Court to take assistance from few of the observations made in the aforesaid decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, however, the Revenue desired to apply the principle of lifting the corporate veil in case of a public company and seeking to resort to provisions contained in section 179 of the Act. In our view if the factors noted by the Assistant Commissioner are duly established, there is no reason why such double application of lifting the corporate veil one statutorily provided and other due to emergent need of the situation, cannot be applied. As noted above, the factors recounted by the Assistant Commissioner in the impugned order are glaring. The company had defaulted in tax for more than ₹ 155 crores. Same was unearthed during search operations carried out by the Revenue Authority. The attachment of the assets of the company could lead to recovery of not more than ₹ 5 crores from such huge outstanding dues. The company was formed for taking over business of the partnership. The members of the partnership firm and other family members of the same family became the directors of the company. Shares of the company were held by them and not by any members of the public. The directors had amassed huge wealth in the form of immovable property. The Assistant Commissioner therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality theory' is a dangerous one and, however inconvenient, natural justice must be followed" because, "convenience and justice are often not on speaking terms". As held by series of decisions including in case of Canara bank and others (supra), in a case where breach of natural justice is noticed, the proceedings cannot be terminated for all times to come, but would have to be revived from the stage where the defect is noticed. 23. Our conclusions therefore, are as follows : 1) The respondent authorities did establish that it was not possible to recover the tax dues from the company. 2) The petitioner neither pleaded nor succeeded in establishing that such non recovery was not attributable to any gross neglect, misfeasance or failure in discharging duty on his part in connection with the affairs of the company. 3) Being a public company, ordinarily, provisions of section 179(1) of the Act cannot be applied. However, if the factors noted by the Assistant Commissioner in his impugned order dated 15.4.2002 and highlighted by us in this judgement are duly established, it would certainly be a fit case where invocation of principle of lifting of corporate veil would be justifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g rights and being subjected to duties which are not the same as those enjoyed or borne by its members. But, in certain exceptional cases, the Court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade." It is trite that a company, registered under the Companies Act, is a legal personality distinct from its members and generally corporate veil may not be lifted unless the Legislature so provides but in certain exceptional cases, which would embrace those cases where the corporate entity is used for tax evasion or to circumvent tax obligation, the Court is entitled to lift the corporate veil and to pay regard to the economic realities behind the legal facade. If the situation so demands and for the ends of justice the corporate personality itself may be disregarded. It is thus, well settled that the corporate veil can be cracked open even in the absence of a statutory provision, when it is felt that the corporate entity is being used as a device or cloak to circumvent tax obligations or as an instrument of fraud." 29. The aforesaid proposition of law on the issue of center of controversy of applicability of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al decrease and evaporation of substratum of a company after the petitioner resigned from the company and then, has also considered the huge financial crunch upon which the entire substratum is evaporated under the steps of securitization. Therefore, here it appears that this is not a simple case of petitioner coming and going away from the company for which he is claiming to be non-responsible at all but, it requires detailed examination which has rightly been examined by the authority. Therefore, these findings which are arrived at by the authority on the basis of record and upon basis of explanation tendered by the petitioner, these findings are not in a position of dislodge by this Court in exercise of extraordinary jurisdiction. The statutory provisions cannot be considered in so hyper technical manner which frustrates the very object for which it has been included in the statute. There are ample circumstances available on record even in addition to the findings specifically arrived at by the authority which reflect that the authority has rightly resorted to provision of Section 179 of the Act. This Court sitting in a writ jurisdiction substantially in exercise of extraordinar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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