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of <h1>Court rules directors not personally liable for company debts, quashes auction notice</h1> The court held that respondents could not proceed against the personal property of the petitioner for recovery of sales tax arrears owed by a company. The ... Recovery of sales tax arrears - auction of personal property of petitioner to recover dues of Company - whether respondents 1 and 2 can proceed against the personal property of the petitioner for recovery of the sales tax arrears payable by the 3rd respondent/company? - Held that: - even as per the statement made by the first respondent, the company owns properties. Therefore, the impugned notice proposing an auction of the petitioner's personal property is wholly without jurisdiction - reliance placed in the case of Chamundeeswari Versus Commercial Tax Officer, Vellore Rural [2007 (1) TMI 254 - HIGH COURT OF MADRAS], where it was held that It is well-settled that a company is a legal entity by itself and it can sue or can be sued as a legal entity and any dues from the company have to be recovered only from the company and not from its directors - petition allowed - decided in favor of petitioner. Issues:1. Whether respondents can proceed against the personal property of the petitioner for recovery of sales tax arrears payable by a company.Analysis:The primary issue in this case is whether respondents have the authority to proceed against the personal property of the petitioner for the recovery of sales tax arrears owed by a company. The respondents invoked Section 19 (B) of the Tamil Nadu General Sales Tax Act to justify their actions. However, the court found that this provision did not apply to the case at hand since there was no evidence to indicate that the company had been wound up following the procedure under the Companies Act, 1956.The court noted that although the first respondent claimed the company had ceased business or wound up in December 1999, there was no official record confirming the winding up of the company. Consequently, the company remained a registered entity with the Registrar of Companies. Additionally, the court highlighted that the first respondent had obtained the petitioner's address from the Registrar of Companies, indicating that the company was still active and owned properties.Moreover, the court referenced a previous judgment to support its decision. The court cited the case of Chamundeeswari, where it was established that a company is a separate legal entity and any dues from the company must be recovered solely from the company itself, not from its directors. The court also referred to various High Court decisions emphasizing that directors cannot be held personally liable for the debts or taxes of a company unless specific legal provisions allow for such actions.In another case, R. Vasinathan and Ors. Vs. Commercial Tax Officer, the court reiterated that directors of a company are not personally liable for the company's debts unless they are found guilty of misconduct. The court further emphasized that in the absence of a winding-up order, Section 19B of the Act, which pertains to the liability of a private company on winding up, does not apply.Based on the legal principles and precedents discussed, the court concluded that the impugned notice seeking to auction the petitioner's personal property was without jurisdiction and unsustainable in law. Therefore, the court allowed the writ petition, quashed the impugned notice, and closed the connected miscellaneous petition. No costs were awarded in the matter.
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