Allahabad High Court
Shri Arun Kumar Rathi vs State Of U.P. And 4 Others on 9 July, 2019
Bench: Sudhir Agarwal, Kaushal Jayendra Thaker
HIGH COURT OF JUDICATURE AT ALLAHABAD
AFR
Reserved on 29.04.2019
Delivered on 09.07.2019
Court No. - 34
Case :- WRIT TAX No. - 839 of 2015
Petitioner :- Shri Arun Kumar Rathi
Respondent :- State Of U.P. And 4 Others
Counsel for Petitioner :- Anil Prakash Mathur
Counsel for Respondent :- C.S.C.,C.B.Tripathi
Hon'ble Sudhir Agarwal,J.
Hon'ble Dr. Kaushal Jayendra Thaker,J.
(Delivered by Hon'ble Sudhir Agarwal,J.)
1. Heard Sri Anil Prakash Mathur, learned counsel for petitioner, learned Standing Counsel for respondents and perused the record.
2. This writ petition under Article 226 of the Constitution of India has been filed by one Arun Kumar Rathi, Director of M/s Rathi Ispat Ltd., South Side G.T.Road, Ghaziabad (hereinafter referred to as "Company") praying for issue of a writ of certiorari for quashing modified recovery certificate dated 11.9.2015 issued by Assistant Collector Grade I, Khand II, Commercial Tax, Commercial Tax Building, Room No.254, Collectorate Compound Rajnagar, Ghaziabad (hereinafter referred to as "AC (CT)") for recovery of Rs.292,84,60,127=00 towards dues of Trade Tax /Commercial Tax for the assessment years 2002-03, 1994-95, 1995-96, 2006-07, 2007-08, 2005-06, 2004-05, 2000-01, 2001-02, 1998-99, 1999-00 from the petitioner. Petitioner has also challenged initial recovery certificate dated 05.3.2014 issued by AC (CT) addressed to Collector, Delhi for recovery of Rs.255,31,66,785/- from petitioner being outstanding dues of Commercial Tax/Trade Tax of the assessment years 1994-95, 1995-96, 2000-01 to 2002-03 and 2004-05 to 2007-08.
3. Facts stated in the writ petition in brief are, that petitioner is one of the Directors of Company, which had its registered office at 135, Third Floor, Banjara Basti, New Delhi. Company was duly registered with Trade Tax Department, subsequently named as Commercial Tax Department, in State of Uttar Pradesh. For certain Assessment Years, Company owe some tax dues to respondents-department but instead of recoverying the same from assets of Company, recovery certificate/notice has been issued by authorities concerned at Delhi to recover the said amount from personal assets of petitioner though petitioner has neither given any personal guarantee for recovery of the dues of Company nor is otherwise responsible to clear the dues of Company.
4. In the counter affidavit filed by respondents, details of Directors of Company, during different period, have been given in para 5 as under :
71-72
Sri Ghajhadhar Somani
Sri V.C. Patel
Sri Bhoopender Dalal
Sri Ram Chandra Rathi
Sri Kambesh Kumar Rathi
Sri Prem Ratan Rathi
94-95
Sri M.K.Dhoot, Chairman
Sri G.K. Jhawar
Sri Arun Kumar Rathi
Sri Anik Rathi
Sri A.K.Mehta, IFCI (Nominated)
95-96
Sri M.K.Dhoot, Chairman
Sri G.K. Jhawar
Sri Arun Kumar Rathi
Sri Anik Rathi
Sri A.K.Mehta, IFCI (Nominated)
99-200
Sri Arun Kumar Rathi
Sri Anik Rathi
Sri Kamalseel Maheshwari
Sri Y.P. Ahuja
Sri Santosh Kumar Bhagat
2000-01
Sri Arun Kumar Rathi
Sri Anik Rathi
Sri Kamalseel Maheshwari
Sri Jagmohan Maheshwari
Sri R.J.Sharma
Sri Santosh Kumar Bhagat
Sri Rajesh Narang
01-02
Sri Arun Kumar Rathi
Sri Anik Rathi
Sri Kamalseel Maheshwari
Sri Jagmohan Maheshwari
Sri R.J.Sharma
Sri Santosh Kumar Bhagat
Sri Rajesh Narang
02-03
Sri Arun Kumar Rathi
Sri Anil Sharma
Sri Santosh Kumar Bhagat
Sri Shyam Kacholia
Sri Rajesh Narang
03-04
Sri Arun Kumar Rathi
Sri Anil Sharma
Sri Santosh Kumar Bhagat
Sri Shyam Kacholia
Sri S.P.Gupta
Sri B.L.Khurana
Sri Sanjeev Kumar Agarwal
04-05
Sri Arun Kumar Rathi
Sri Vats Rathi
Sri Anil Sharma
Sri Santosh Kumar Bhagat
Sri S.P.Gupta
Sri B.L.Khurana
Sri Sanjeev Kumar Agarwal
05-06
Sri Arun Kumar Rathi
Sri Anil Sharma
Sri Santosh Kumar Bhagat
Sri Shyam Kacholia
Sri Sanjeev Kumar Agarwal
Sri Dileep Mishra
Sri Varun Garg
06-07
Sri Arun Kumar Rathi
Sri Anil Sharma
Sri Santosh Kumar Bhagat
Sri Shyam Kacholia
Sri Sanjeev Kumar Agarwal
Sri Dileep Mishra
Sri Varun Garg
07-08
Not available
5. It is further said that all the Directors are either related or family members. The petitioner is one of the Directors from 1988-89 till the closure of the business. The details of outstanding dues towards U.P.Trade Tax/Commercial Tax, as also Central Tax and Entry Tax, are given in para 9 of counter affidavit, which read as under :
Year
U.P.
Central
Entry Tax
Total
94-95
15417736
20719795
-
36137531
95-96
17449990
10895626
-
28345616
98-99
63400000
34213674
-
97613674
99-2000
44300000
29569453
-
73869453
2000-01
42022726
444035
-
42466761
2001-02
255385540
-
-
255385540
2002-03
-
3000000
-
3000000
2004-05
115466886
369971426
2566373
488004685
2005-06
299375028
393054208
3000000
689429236
2006-07
686410939
517147694
-
1203558633
2007-08
104560587
97138657
2210000
203909244
2008-09
464639
80000
-
544639
Grand Total
1638254071
1476234568
7776373
3122265012
6. However, contents of para 10 of writ petition that petitioner has not given any personal guarantee for clearing dues of Company, respondents in para 17 of counter affidavit have not disputed, but, their assertion is that Directors have not agreed to pay tax dues to respondents and therefore respondents are entitled to make recovery of tax dues from the assets of directors also.
7. Learned counsel for petitioner placed reliance on a Division Bench judgment of this Court in M/s Meekin Transmission Ltd., Kanpur Nagar vs. State of U.P. and others 2008(4) ADJ 360, wherein similar issue has been considered including doctrine of lifting of veil, which was argued therein and in paras 77 to 86, Court said as under :
77. In the nutshell, the doctrine of lifting of veil or piercing the veil is now a well established principle which has been applied from time to time by the Courts in India also. There is no doubt about the proposition that whenever the circumstances so warrant, the corporate veil of the company can be lifted to look into the fact as to whose face is behind the corporate veil who is trying to play fraud or taking advantage of the corporate personality for immoral, illegal or other purpose which are against public policy. Such lifting of veil is also has to implemented whenever a statute so provided. However, it is not a matter of routine affair. It needs a detailed investigation into the facts and affairs of the company to find out as to whether the veil of the corporate personality needs to be lifted in a particular case. After lifting the veil, in a case where it is so required, it is not always that the Directors would automatically be responsible but again it is a matter of investigation as to who is/are the person/s responsible and liable who had occasioned for application of said doctrine.
Initial burden for application of the doctrine of "Piercing of Veil":
78. Whether in respect to 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. A personality conferred by the statute cannot be overlooked or ignored lightly and in a routine manner or on a mere asking. In fact whenever the veil is to be pierced, it would mean that somebody, individual or group of individuals, have obtained the shell of corporate personality as a pretext or mask to cover up a transaction or intention of those individual/individuals is neither legal nor otherwise in public interest. In effect the attempt of those individuals have to be shown akin to fraud or misrepresentation. The legal personality of the corporate body thus can be ignored in such cases since it is well settled that fraud vitiates everything and, therefore, the benefit of legal personality obtained by someone for purposes other than those which are lawful or even if lawful but not otherwise permissible, the corporate personality being the result of such fraudulent activity would have to be discarded but not otherwise. These are the things based on positive factual material and cannot be presumed in the absence of proper pleadings and material to be placed by the person who is pleading to invoke the doctrine of piercing the veil and to ignore the juristic personality of the corporate body. Once relevant material is made available by the authority or person concerned, thereafter it would be the responsibility of the other side to place material to meet the aforesaid facts but the mere fact that the company has failed to pay the Government dues or pubic revenue, that by itself would not invite the doctrine of piercing the veil and is not sufficient to ignore the statutory corporate personality conferred upon a company and make its Directors or shareholders responsible personally.
79. In the case in hand we do not find that any such attempt has been made by the respondents before issuing the impugned notice dated 23.05.2003 to the petitioner no. 2 requiring him to pay dues of petitioner no. 1 from his personal assets. We are informed by learned Standing Counsel that pursuant to the judgment of this Court in Naresh Chander Gupta (Supra) the Commissioner, Trade Tax has issued a circular directing various authorities to initiate recovery proceedings against the Directors of the companies where the dues have not been recovered from the companies and it is pursuant to such circular the authorities are proceeded accordingly. However, no such circular has been placed before the Court and it is not part of the record. We are not making any observation with respect to the validity of said circular but it is suffice to us to make it clear that even when the tax dues are to be recovered from a corporate body, the Directors of such corporate body would not automatically be responsible unless the doctrine of lifting of veil is found to be applicable in the facts and circumstances of the affairs of that company and thereafter it is further found as to who are the persons who were operating behind the veil. Otherwise, a Director or shareholder cannot be made personally responsible for the dues of a company except of those cases where such a provision is made in the statute or otherwise warranted in law.
80. Neither in the notice nor in the counter affidavit filed in the present case any such case has been made out by the respondents and in a mechanical manner, the impugned notice has been issued to petitioner no. 2 on the analogy that responsibility of the Director personally operates suo moto whenever tax dues of company are not paid. The said assumption on the part of the respondents is thoroughly misconceived and we express our dissatisfaction with the manner in which the respondents have proceeded without understanding legal position in this regard in correct perspective.
81. In the last we propose to consider the submission of learned Standing Counsel made vehemently that this is not a fit case in which this Court may exercise its discretion under Article 226 of the Constitution since huge public revenue has not been paid by the petitioners and, therefore, even petitioner no. 2 is not entitled for any indulgence in equitable and discretionary jurisdiction.
82. So far as the petitioner no. 1 is concerned, we have already held that there is no fault in making recovery against it and the writ petition to that extent is liable to be dismissed.
83. However, so far as petitioner no. 2 is concerned, it is not disputed that he is not the dealer under the U.P. Trade Tax Act and, therefore, the amount of tax recoverable from petitioner no. 1 is not liable to be paid by the petitioner no. 2 under the aforesaid Act. The liability of the petitioner no. 2 is being extended only on the ground that he being Director of petitioner no. 1 is liable to pay tax dues of petitioner no. 1 from his own personal assets and if not paid the same may be recovered from him personally by coercive methods. For the aforesaid purpose the respondents have not been able to show any statutory provision under which the petitioner no. 2, as Director of the petitioner no. 1, is personally liable to pay the dues of petitioner no. 1. The entire reliance is on the judgement of this Court in Naresh Chander Gupta (Supra) which we have already dealt with and shown that it does not lay down any such proposition of law. Besides, we have not been shown any provision or legal proposition whereunder the petitioner no. 2 can be held personally responsible to clear the dues of petitioner no. 1. That being so, any liberty to the respondents, still to proceed against the property of petitioner no. 2, would amount to depriving the petitioner no. 2 of his property without any authority of law and it would be a direct infringement of the constitutional right conferred upon the petitioner no. 2 vide Article 300-A of the Constitution which reads as under:
"300-A. Persons not to be deprived of property save by authority of law.- No person shall be deprived of his property save by authority of law."
84. The Constitutional right conferred upon a person cannot be allowed to be infringed in such manner as is sought to be argued by the respondents. Whenever the State proceed to infringe constitutional protection of any person, this Court being the constitutional protector is bound to protect such person from such infringement, is bound to act upon and come to rescue to such person, and, against such unconstitutional act of the State. The apparent infringement of constitutional protection cannot be allowed to perpetuate on the mere asking of the State and this Court under Article 226 of the Constitution would be duty bound to interfere and protect a person from such infringement unless it has satisfied that such person is guilty of concealment of material facts or has come to the Court with unclean hands and, therefore, is not entitled for discretionary exercise of power under Article 226 of the Constitution. In the case in hand, neither there is any pleadings on the part of the respondents nor even a suggestion that the petitioner no. 2 is guilty of either concealment of any material fact or has come this Court with unclean hands or his otherwise is entitled not to have any discretionary jurisdiction to be exercised in his favour. Any other view would encourage the public authorities to indulge in misuse of power and corruption by harassing the much weaker individual. We, therefore, are not inclined to accept the contention of the respondents as above and the same is hereby rejected.
85. In the result, the writ petition succeeds partly. The impugned notice dated 23.05.2003 (Annexure-7 to the writ petition) is hereby quashed. However, it is made clear that the recovery proceedings against the petitioner no. 1 would not be affected in any manner by this judgement and may proceed in accordance with law.
86. However, there shall be no order as to costs."
8. Above judgment has been followed by different Division Benches of this Court in Writ-C No.24623 of 2003 Sri Piyush Kumar vs. State of U.P. and others decided on 27.3.2012; Writ Tax No.165 of 2014 Kanwar Hasan vs. State of U.P. and 2 ors. decided on 13.3.2014; Writ Tax No.229 of 2014 Anupam Jalan vs. State of U.P. and 4 ors. decided on 09.4.2014; Writ Tax No.523 of 2014 Manu Garg and anr. vs. State of U.P. and 4 ors. decided on 24.8.2016; Writ Tax No.1640 of 2008 Pratap Chandra Agrawal and others vs. State of U.P. and others decided on 15.9.2016; Writ Tax No.25 of 2016 Ashok Sharma vs. State of U.P. and 2 Ors. decided on 19.9.2016; and, Writ -C No.39617 of 2015 Alok Kumar Mittal and another vs. State of U.P. and 4 Ors. decided on 8.11.2017.
9. Similar issue has been taken by another Division Bench in R.K.Chaddha and another vs. State of U.p. and others 2016 (332) ELT 650 (All.) wherein Court has said as under :
"The Court is of the opinion that when tax dues are to be recovered from the Company, the Directors would not automatically be responsible unless there is a statutory provision under the Act, which in the instant case is non-existent. In the instant case, the Court is further of the view that the doctrine of lifting the corporate veil is not applicable and that the petitioners cannot be made personally responsible for the dues of the Company." (emphasis added)
10. Learned Standing Counsel, when questioned, could neither show any provision under which Directors' personal assets could have been proceeded to recover dues of Company nor any binding precedent, which has taken any different view.
11. In view thereof, writ petition is allowed. Recovery certificate dated 05.03.2014 as well as modified recovery certificate dated 11.09.2015 (Annexures 3 and 4 to the writ petition) are hereby set aside.
12. However, it is made clear that this order will not preclude respondents from proceeding to recover outstanding dues from assets of Company in accordance with law or to follow such other procedure or by resorting to such mode and manner, as permissible in law.
Order Date :-09.7.2019
KA
