2004 (5) TMI 572

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....uant thereto the recovery proceedings were initiated against the petitioners. 4. It is alleged by learned counsel for the petitioners Sri M. Manglik that the petitioners being Directors of the Company are not personally liable to pay the dues of the Company. 5. We have carefully considered the submissions of the parties. It is true that the legal principle is that a Company is a separate legal entity distinct from its Directors and shareholders vide Solomen v. Solom & Co. Ltd. 1897 AC 22 (HL). However, the principle of piercing the veil of corporate personality has also been evolved by the Court, vide Subhra Mukherjee v. Bharat Coking Coal Ltd. 2000 (3) SCC 312, Calcutta Chromotype Ltd. v. Collector of Central Excise AIR 1998 SC 1651, New....

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....ing illegality or for defrauding others, the Court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The Supreme Court also observed quoting 'Gower's Modern Company Law'- "Where the protection of public interest is of paramount importance or where the company has been formed to evade obligation imposed by the law, the Court will disregard the corporate veil." 9. In State of U.P. v. Renusagar Power Co. 1988 (4) SCC 59 the Supreme Court observed : "It is high time to reiterate that in the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. Its fronti....

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....ure failed (due to competition; recession etc.) their personal assets e.g. house, car, furniture, clothing savings etc could be attached and sold for the recovery in respect of the dues against the company or society. This principle was not made to help tax evaders as stated in the aforesaid decisions. As observed by the Supreme Court in Tata Engineerings case (supra), the concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character ii employed for the purposes of committing illegality or for defrauding others the court will ignore the corporate character and will look at the reality behind the corporate veil so as to enable....

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....ners, we can reasonably assume that the assets of the Company have been diverted or siphoned off by the petitioners for their own benefit. Tax dues have to be paid and we will not permit the use of the doctrine of corporate personality to help anyone to evade tax recoveries. 17. On the facts of the present case we are of the opinion that the petitioners were really managing the Company and had control over its operations. They are only seeking to use the corporate character of the Company for evading tax. 18. Moreover writ is a discretionary remedy vide J.T. 2003 (6) SC 20, 1997 (1) SCC 134, 2004 A.L.J. 924 etc. We are not inclined to exercise our discretion under Article 226 in favour of such persons like the petitioners who wish to evad....