Corporate veil limits tax recovery: company dues may be enforced, but a director's personal assets need statutory authority.

Trade tax recovery could continue against the company because BIFR proceedings had ended with a recommendation for winding up, leaving no pending rehabilitation bar to coercive recovery. The company's admitted liability and default supported enforcement, so recovery against it was upheld. By contrast, trade tax dues could not be recovered from the Director's personal assets in the absence of any express statutory provision or pleaded facts justifying piercing of the corporate veil. The company remained a separate legal person with limited liability, and mechanical issuance of notice against the Director was impermissible. Personal recovery was quashed for want of authority of law.

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Issues: (i) whether recovery proceedings for trade tax dues could validly continue against the company notwithstanding the BIFR proceedings having ended with a recommendation for winding up; and (ii) whether the company's trade tax dues could be recovered from the personal assets of its Director in the absence of a specific statutory provision or facts justifying piercing of the corporate veil.

Issue (i): whether recovery proceedings for trade tax dues could validly continue against the company notwithstanding the BIFR proceedings having ended with a recommendation for winding up.

Analysis: The company had admitted the tax liability, sought instalment facilities, and remained in default. The protection under the sick company regime was unavailable after the BIFR proceedings ended on 14.03.2003 with the finding that rehabilitation was not possible and the company should be wound up. Once no proceeding remained pending before BIFR, there was no legal impediment to coercive recovery against the company.

Conclusion: The recovery proceedings against the company were held to be valid and were not interfered with.

Issue (ii): whether the company's trade tax dues could be recovered from the personal assets of its Director in the absence of a specific statutory provision or facts justifying piercing of the corporate veil.

Analysis: A company is a separate juristic person with limited liability, and its assets are distinct from those of its shareholders and directors. The corporate veil may be lifted only exceptionally, such as where the company form is used as a cloak for fraud, evasion, or other improper purpose, or where a statute expressly permits such recovery. The Trade Tax Act contained no provision making a director personally liable merely because he was a director. The notice was issued mechanically without any pleaded or proved factual basis for invoking the doctrine of piercing the veil. In the absence of statutory authority or special circumstances, personal recovery from the director would amount to deprivation of property without authority of law.

Conclusion: Recovery from the Director's personal assets was held impermissible and the notice against him was quashed.

Final Conclusion: The writ petition succeeded only to the extent of protecting the Director from personal recovery, while the company remained liable to face recovery proceedings for its admitted tax dues.

Ratio Decidendi: In the absence of an express statutory provision or proved facts justifying piercing of the corporate veil, tax dues of a company cannot be recovered from the personal assets of its Director merely because of his office in the company.

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