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of <h1>Directors not personally liable for company's tax debts; court upholds limited liability principle.</h1> The court ruled that directors of a private limited company cannot be held personally liable for the company's sales tax dues. The judgment emphasized ... - Issues involved:Validity of certificate proceedings against directors of a private limited company for sales tax dues.Analysis:The judgment addresses the issue of whether directors of a private limited company can be held personally liable for the sales tax dues of the company. The petitioners, who are directors and shareholders of the company, argued that they cannot be proceeded against for the company's dues. The court examined the requisitions which initially named the company but later included the names of the petitioners as directors. The petitioners contended that the proceedings against them were void ab initio as they were not personally liable for the company's debts.Upon reviewing the submissions and the counter-affidavit, the court found the petitioners' argument to be correct. The court referred to section 5 of the Companies Act and clarified that the liability of whole-time directors does not extend to personal liability for the company's debts in proceedings under the Public Demands Recovery Act. The court emphasized that a company is an independent legal entity and its liability does not automatically extend to its directors or shareholders.The judgment cited previous decisions of the court, such as Harihar Prasad v. Bansi Missir and Kanhaiya Lal v. State of Bihar, to support the principle that directors cannot be held personally liable for the company's debts. The court concluded that the petitioners, as directors, could only represent the company in the proceedings but could not be held personally liable. Consequently, the court quashed the proceedings against the petitioners and allowed both writ applications.In summary, the judgment clarifies that directors of a private limited company cannot be held personally liable for the company's sales tax dues. The court upheld the principle that a company is a separate legal entity, and its directors are not automatically responsible for the company's debts. The judgment provides a comprehensive analysis based on legal provisions and precedents, ultimately ruling in favor of the petitioners and quashing the proceedings against them.
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