Corporate veil and director liability: tax dues cannot be recovered from personal assets without statutory authority or proven fraud.

Personal recovery of a company's tax dues from former directors is not automatic and requires express statutory authority or proven exceptional facts. The Allahabad HC noted that Section 8 of the U.P. Trade Tax Act, 1948 did not itself authorise recovery from directors' personal assets. It also reiterated that lifting the corporate veil requires positive material showing the company was used as a sham or cloak to evade liability, or that the directors committed fraud, misfeasance, or similar misconduct. Mere non-payment of corporate dues was insufficient, and absent such findings the revenue could proceed only against the company's assets.

---

---

Issues: Whether the tax dues of a company could be recovered from the personal assets of its former directors in the absence of statutory authority or material showing that they had used the corporate entity as a sham or had committed fraud, misfeasance, or similar misconduct.

Analysis: Recovery from the personal assets of directors is an exception and cannot be sustained merely because company dues remain unpaid. The statutory scheme under Section 8 of the U.P. Trade Tax Act, 1948 did not, by itself, authorise automatic recovery from directors. The doctrine of piercing the corporate veil requires positive material showing that the corporate personality was used as a cloak or mask to evade liability, and the burden lies on the revenue to establish the special facts justifying such course. The orders relied upon by the revenue did not record any finding that either petitioner had operated the company as a shell entity for personal gain, nor was there evidence of fraud or misfeasance attributable to them. The Court also followed the settled position that directors are not personally liable for corporate tax dues unless the statute so provides or the exceptional facts warrant lifting the veil.

Conclusion: The recovery from the personal assets of the petitioners could not be sustained and the writ petition succeeded in their favour.

Final Conclusion: The revenue may proceed against the company's assets in accordance with law, but not against the personal assets of the petitioners on the facts proved in the case.

Ratio Decidendi: Personal recovery of a company's tax dues from directors is permissible only where the statute expressly authorises it or where the revenue proves special facts justifying lifting of the corporate veil, such as fraud, sham, or misfeasance; unpaid dues by themselves are insufficient.

---