Directors Shielded from Personal Tax Recovery During Company Liquidation Under Section 230 Bankruptcy Code

HC allowed writ petitions challenging tax recovery orders against ex-director during company liquidation. Court determined recovery proceedings should be directed to Official Liquidator, not individual directors. Impugned orders dated 28.09.2020 were set aside, with respondents instructed to approach Official Liquidator for further proceedings. No costs were awarded.

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Issues involved:
Challenging impugned orders related to liquidation, violation of natural justice, and provisions of IBC, CGST Act, and SGST Act.

Details of the judgment:
The Writ Petitions were filed to challenge the impugned orders related to liquidation, dated 28.09.2020, as being arbitrary, illegal, and in violation of natural justice and various acts. The petitioner, a Director of a company in liquidation, argued that she had no standing to represent the company after the NCLT order. The State GST Officers issued a show cause notice based on seized documents, demanding taxes and penalties. The Official Liquidator did not respond, leading to ex parte orders by the first respondent. The petitioner contended that the orders were unsustainable due to lack of response from the Official Liquidator.

Section 88(3) of the CGST Act establishes vicarious liability for Directors of a debtor company in case of liquidation. The impugned orders were based on alleged irregularities predating the insolvency resolution process of the company. It was emphasized that any recovery action should be directed towards the Official Liquidator, especially if the company lacks funds. As there was no cause of action against the Ex.Directors at present, the action taken by the respondents in serving the orders on the petitioner was deemed unsustainable.

The Writ Petitions were allowed, setting aside the impugned orders of 28.09.2020. The respondents were directed to approach the Official Liquidator for further proceedings. If the Official Liquidator determines insufficient funds to settle the dues, a new cause of action would arise to proceed against the Ex.Directors in accordance with the law. No costs were awarded, and connected WMPs were closed.

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