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of <h1>Directors not personally liable for company debts without specific laws</h1> <h3>Satish D. Sanghavi Versus Union of India</h3> The court quashed the demand notice and attachment order for personal assets due to a company's liabilities, citing that directors cannot be held liable ... Demand and penalty - Recovery from the Director - Personal liability - held that:- The settled position in law is that liability for duty of the company cannot be fastened upon the director of a company unless there is a statutory provision to that effect. Such an issue came up for consideration before this court in the matter of Sunil Parmeshwar Mittal v. Dy. (Recovery Cell), CE [2005 (8) TMI 116 - HIGH COURT OF BOMBAY], wherein the court took a view that liability of members is limited to the extent of face value of shares subscribed by each member and the amount remaining unpaid on them for time being, former director of the company cannot be held responsible for payment of liabilities of company in the absence of any specific provision. - We are of the opinion that duty demand of the company cannot be recovered from the director in the absence of statutory provisions in the Central Excise Act, 1944. Issues:Challenge against demand notice for personal assets due to company's liabilities. Interpretation of Sections 9 and 9AA of the Central Excise Act, 1944. Liability of directors for company's duty demand. Validity of order of attachment on director's personal assets.Analysis:The petitioner approached the court against a demand notice by the respondents regarding personal assets due to the liabilities of a company before the BIFR. The order of attachment was issued and executed on the flat owned by the petitioner. The court considered Section 9AA of the Central Excise Act, 1944, which states that individuals responsible for a company's conduct can be held liable for offenses committed by the company. However, it was noted that civil liability for duty is distinct from criminal liability under Section 9AA, as highlighted in the case of Union of India v. Dharamendra Textile Processors.The court emphasized that the liability for the company's duty cannot be imposed on a director unless there is a specific statutory provision to that effect. Citing previous judgments, the court reiterated that directors cannot be held responsible for a company's liabilities in the absence of clear legal provisions. The petitioner mentioned a penalty imposed on them in relation to another company, but denied receiving any notice regarding the same.Ultimately, the court quashed the demand notice and attachment order, but directed the petitioner to provide a bank guarantee for the penalty amount. It was clarified that the bank guarantee should not be enforced without proper procedure and notice to the petitioner. The writ petition was disposed of with no costs, and the notice of motion was also deemed irrelevant and disposed of accordingly.
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