Krishna Lal Chachra (Director) 07 July 2012

Pendin law suits against directors of a liquidated company

A widely held company has been liquidated by order of high court on recommendation of BIFR due to non viability. Both BIFR as well Liquidater did not find any malpractice by directors. There were pending PF and sales tax dues of past and Respective departments had filed cases in local courts for recovery of dues against the company and all directors. Will these cases against directors continue even though the company has been liquidated. Are there any case laws where the cases against directors are extinguished once the company is liquidated?

K L Chachra,

B. Tech. Hons., PGDBM, XLRI

Ex Director of liquidated company

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Prakash Yedhula (Lawyer) 07 July 2012

Under the Central Sales Tax Act and certain state Sales Tax laws, liability may be fastened on Directors of a company, which is wound up, for recovery of sales taxes due from such liquidated company.For ex, section 18 of CST is as follows:

Liability of directors of private company in liquidation

Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), when any private Company is wound up after the commencement of this Act, and any tax assessed on the company under this Act for any period, whether before or in the course of or after its liquidation, cannot be recovered, then, everyperson who was a director of the private company at any time during the period for which the tax is due shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company