Liability of directors for company tax in liquidation and limits on attaching directors bank accounts pending relief

Liability of directors for corporate tax in liquidation is addressed with emphasis on control by the liquidator and availability of company funds for recovery. The legal position recognises that tax, interest and penalty may be recovered from the company credit ledger maintained during liquidation; consequently individual directors bank accounts cannot be attached under the statutory mandate where the liquidator controls company affairs. Directors are permitted to apply to the tax authorities to be extricated from personal liability and seek vacatur of attachments; the court granted liberty to file such an application and ordered provisional vacatur of the bank account attachment pending determination.

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Issues: Whether the attachment of the petitioners' bank accounts and the imposition of liability on the petitioners, who were directors of a company in liquidation, under Section 88(3) of the GST enactment was justified and whether the petitioners could be permitted to seek relief from such liability and attachment.

Analysis: Section 88(3) of the GST enactment imposes joint and several liability on persons who were directors of a private company during the relevant period for recovery of tax, interest or penalty where such amounts cannot be recovered from the company, subject to proof that non-recovery is not attributable to gross neglect, misfeasance or breach of duty by the director. The record shows that tax has been recovered from the company's credit ledger and that liquidation proceedings were in effect with an appointed liquidator. The available material does not establish that the petitioners, as individual directors, cannot seek to displace liability by making an application under the statutory framework; procedural opportunity to investigate and determine whether non-recovery is attributable to gross neglect, misfeasance or breach of duty remains available to the assessing authority. The impugned attachment was executed without final adjudication of the directors' personal liability under the statutory test and without affording the procedural opportunity contemplated by the statute.

Conclusion: In favour of the Assessee. The petitioners are entitled to file a suitable application to the respondents to seek exclusion from liability under Section 88(3); the attachment of the petitioners' bank accounts is to stand vacated subject to the outcome of the application, and the respondents are to decide the application on merits after hearing the petitioners within the directed timeframe.

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