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of <h1>Directors Shielded from Personal Tax Recovery During Company Liquidation Under Section 230 Bankruptcy Code</h1> <h3>Smt. K. Malathi Versus State Tax Officer, A.R. Ramasubramania Raja</h3> HC allowed writ petitions challenging tax recovery orders against ex-director during company liquidation. Court determined recovery proceedings should be ... Violation of principles of natural justice - ultra vires the provisions of Section 14, 33(5) and 238 of the IBC and Section 88 of the CGST Act and SGST Act or not - alleged irregularities that had taken place prior to the period of commencement of Corporate Insolvency Resolution process against M/s. SKMPL and served on the petitioner - HELD THAT:- The right course available for the respondents is to file appropriate claim before the Official Liquidator. In case there are no funds available with the company in liquidation, in which case, it is not possible to recover the sales tax dues from the Company in liquidation, in such circumstances, a new cause of action would arise to recover the sales tax dues from the Ex.Directors of the Company in liquidation. In the present case, the issue of non-availability of the funds with the Official Liquidator for disbursement of the claims, is yet to be decided. Therefore, at present there is no cause of action arose to initiate against the Ex. Directors to recover the sales tax dues payable by the Company in liquidation. The present action taken by the respondents in passing the impugned orders of demand in the name of M/s. SKMPL, which is in liquidation and serving on the petitioner, is not sustainable - Impugned order set aside - petition allowed. 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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