Court rules directors not personally liable for trade tax dues, upholding limited liability under Companies Act.

The court ruled that the Trade Tax Department could not recover trade tax dues from the personal assets of the directors of a company, emphasizing the limited liability of directors under the Companies Act, 1956. The petitioners' resignation status as directors was deemed irrelevant to this liability protection. As there was no evidence of fraudulent conduct or personal guarantees, the court granted relief by restraining the department from pursuing recovery from the directors' personal assets. The writ petition was allowed in favor of the directors.

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Issues involved:
The issues involved in the judgment are the recovery of trade tax dues against a company by the Trade Tax Department and the liability of the directors of the company for such dues.

Liability of Directors for Trade Tax Dues:
The petitioners, who were directors of the company in question, contested the attempt by the respondents to recover trade tax dues from them personally. They argued that even if they continued as directors, the liability for trade tax dues could not be enforced against their personal assets due to the limited liability of directors. The Trade Tax Department's defense included the claim that the petitioners did not timely intimate their resignation from directorship and relied on a previous court judgment allowing recovery from directors' personal assets.

Interpretation of Companies Act, 1956:
The court noted that under the Companies Act, 1956, the liability of shareholders and directors is limited by shares. Referring to a previous court decision, it clarified that the Trade Tax Department could assert its claim as a secured creditor in liquidation proceedings but emphasized that recovery of trade tax dues from directors' personal assets was not permissible based on that decision.

Conclusion and Relief Granted:
The court concluded that regardless of whether the petitioners had resigned as directors or not, the Trade Tax Department could not recover the trade tax dues from their personal assets. It was highlighted that there was no evidence of fraudulent transfer of company funds by the petitioners or that they were personal guarantors for the company's dues. Consequently, the respondents were restrained from making any recovery from the personal assets of the directors, and the writ petition was allowed with this ruling.

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