TMI Blog2014 (7) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... c personality of the Company. The principle of lifting the corporate veil is to find out as to who was responsible for committing the fraud and diverting the assets of the Company. It is not necessary that recovery has to be made against the Director or a promoter shareholder. The purpose of lifting the veil is to find out the person, who was operating behind the corporate personality for his personal gain. Company has filed an appeal against the ex parte assessment order, which is pending consideration. Consequently, the Company is still in existence. The substratum of the Company has not eroded. The mere fact that the Company has failed to pay the dues is by itself insufficient to invoke the doctrine of lifting the corporate veil and is not sufficient to ignore the statutory corporate personality conferred upon the Company - Company has filed an appeal against the ex parte assessment order, which is pending consideration. Consequently, the Company is still in existence. The substratum of the Company has not eroded. The mere fact that the Company has failed to pay the dues is by itself insufficient to invoke the doctrine of lifting the corporate veil and is not sufficient to ig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Bulandshahr, 1955 (6) STC 399 it was held that recovery proceedings against a Company under the Sales Tax Act cannot be pursued against the private assets of the Directors of the Company. The Court restrained the authorities from proceeding against the private assets of the Directors of the Company. The said decision was followed in Satish Chand Singhal Kanpur and others Vs. Assistant Commissioner (Assessment) I Sales Tax, Kanpur and others, 1987 UPTC 473. In Shri Puroshottam Das Beriwal, Kanpur Vs. Deputy Collector (Collections), Sales Tax, Kanpur 1989 UPTC 456 a Division Bench of this Court held that the liability against a Company can only be enforced against the assets belonging to the Company and not against the personal assets of the Directors. The Court held:- The cardinal principle of law is that when there is a liability against a company, no recovery can be made from personal assets of its Director, unless it is specifically provided in the Statute or warranted by law. It is not brought to our notice that there is any specific provision in the U.P. Sales Tax Act, whereunder recovery of the liability outstanding against a company can be made against the personal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d another Vs. Deputy Commissioner (Assessment) and others, 2009 NTN (41) 132 wherein the Division Bench went further to hold that if the tax dues are to be recovered from a corporate body, the Directors of such corporate body would not be automatically responsible unless the doctrine of lifting the veil was found to be applicable in the facts and circumstances of the affairs of the company. The Division Bench held that the Director of a shareholder cannot be made personally responsible for the dues of the company except in those cases where such a provision was made for in the statute or otherwise warranted by law. Recently, a Division Bench of this Court has again reiterated the aforesaid view in Kanwar Hasan Vs. State of U.P. and 2 others, 2014 NTN (54) 308 in which the Division Bench held that following the well settled principles of law, a Company has a separate juristic personality and since there is no provision in the U.P. Trade Tax Act, the dues of the Company could not be recovered from the personal assets of a Director. On the other hand, the stand of the State is, that petitioner no.1 is not a guarantor but, being a Director and responsible to run the affairs of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets of the shareholders of the Company and similarly, the shareholders have no right to the assets of the company. This position was recognized in Salomon Vs. Salomon and company Ltd., 1897 A.C. 22 HL and, since then, this principle has been consistently being followed till date. In due course of time, certain exceptions were carved out in the doctrine of separate juristic personality of the company. The doctrine of lifting the corporate veil was carved out to be used whenever and wherever the situation so warranted. Lord Denning in Littlewoods Stores Vs. I.R.C., 1969 (1) WLR 1241 held:- The doctrine laid down in Salomon's case has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the Courts cannot see. But that is not true. The Courts can, and often do, draw aside the veil. They can, and often do, pull off the mask. They look to see what really lies behind. The legislature has shown the way with group accounts and the rest. And the Courts should follow suit...... Since then, the doctrine of lifting of the corporate veil has been firmly established in a series of cases. The corporate veil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Authority Vs. Skipper Co. (P) Ltd. AIR 1996 SC 2005 (vide para 28):- The concept of corporate entity was evolved to encourage and promote trade and commence, but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the Court would ignore the corporate character and will look at the reality behind the corporate veil. 5. The principle of lifting the veil of corporate personality has been upheld in Subhra Mukharjee another v. Bharat Cooking Coal Ltd. another (2003) 3 SCC 312; Calcutta Chromotype Ltd. vs. Collector of Central Excise Kolkata AIR 1998 SC 1631; New Horizon Ltd. another vs. Union of India and others 1995 (1) SCC 478; C.I.T. vs. Meenakshi Mills Ltd. Madurai AIR 1967 SC 819; Telco ors. vs. State of Bihar AIR 1965 SC 40; Juggilal Kamlapat vs. CIT, AIR 1969 SC 932. The legal position is, that in a case where the corporate personality has been obtained by certain individuals as a mask to prevent tax liability or to divert the funds of the Company for some illegal purpose, the corporate veil can be lifted so that the persons can be identified a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment, which they have failed miserably. On the other hand, they have placed the burden upon the petitioner to indicate that the Company still has assets from which the department could recover. Such stand taken by the department is wholly misplaced and cannot be sustained. From the pleadings it is apparently clear that the Company has filed an appeal against the ex parte assessment order, which is pending consideration. Consequently, the Company is still in existence. The substratum of the Company has not eroded. The mere fact that the Company has failed to pay the dues is by itself insufficient to invoke the doctrine of lifting the corporate veil and is not sufficient to ignore the statutory corporate personality conferred upon the Company. 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 Com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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