C.M. Mathew v. State of Kerala and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE** **WEDNESDAY, THE 22ND DAY OF NOVEMBER 2017/1ST AGRAHAYANA, 1939** ## **WP(C).No. 12095 of 2012 (J)** **------------------------------------------** **PETITIONER(S) :** **--------------------------** **C.M.MATHEW, CHOWATTUKUNNEL, MOONNILAVU POST, PALAI, KOTTAYAM-686 585.** ## **BY ADVS. SRI.C.K.KARUNAKARAN SMT.T.P.LEKSHMI VARMA SRI.ANOOP JOSE (PALAMATTAM)** **RESPONDENT(S) :** - **----------------------------** **1. STATE OF KERALA, REP. BY SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM- 695 001.** **2. ASSISTANT COMMISSIONER (ASSMT), SPECIAL CIRCLE, COMMERCIAL TAXES, PALAKKAD.- 678 001.** **3. FAST TRACK TEAM-1, DEPARTMENT OF COMMERCIAL TAXES, REP. BY DEPUTY COMMISSIONER, COMMERCIAL TAXES, PALAKKAD- 678 001.** **4. S.RAMADOSS, 21/600, SABARMATHI, EAST VENNAKKARA, NURANI P.O., PALAKKAD- 678 001.** **5. P.HARINDRANATH, SREE RANJINI, FORT COLONY, PALAKKAD-678 013.** - **6. DEEPAK CHANDRAN, “DEEPAK”, THIRUVANGAD, TELLICHERRY-3, KANNUR DISTRICT(DELETED)** - **6TH RESPONDENT IS REMOVED FROM THE PARTY ARRAY AT THE RISK OF THE PETITIONER AS PER ORDER DATED 19.12.2012 IN I.A.NO.17032/2012.** **..2/-** **..2..** **WP(C).No. 12095 of 2012 (J)** **------------------------------------------** **** 7. M.KANNAN, 438, NAJUNDAPURAM ROAD, NEELA NIVAS BUILDING, RAMANATHAPURAM, COIMBATORE-35.(DELETED)** - **** 7TH RESPONDENT IS REMOVED FROM THE PARTY ARRAY AT THE RISK OF THE PETITIONER AS PER ORDER DATED 14.09.2012 IN I.A.NO. 12289 OF 2012.** **8. M/S. ATHULYA CEMENTS (P) LTD., REP. BY ITS MANAGING DIRECTOR, P.HARINDRANATH, SREE RANJINI, FORT COLONY, PALAKKAD-678 013.** **R1 TO R3 BY SR.GOVERNMENT PLEADER SRI.C.K.GOVINDAN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 22-11-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **Msd.** ## **WP(C).No. 12095 of 2012 (J)** ## **------------------------------------------** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS :** - **EXHIBIT P1: TRUE COPY OF THE MEMORANDUM OF WRIT PETITION NO. 8188 OF 2012 ALONG WITH ALL EXHIBITS.** - **EXHIBIT P2: TRUE COPY OF THE JUDGMENT DATED 02-04-2012 IN W.P(C).NO. 8188/2012.** - **EXHIBIT P3: TRUE COPY OF THE LETTER DATED 21-04-2012 OF THE PETITIONER WITH ACKNOWLEDGMENT OF RECEIPT BY 2ND RESPONDENT.** - **EXHIBIT P4: TRUE COPY OF THE PETITIONER'S LETTER DATED NIL WITH ACKNOWLEDGMENT OF RECEIPT ON 15-02-2012 BY THE 2ND RESPONDENT.** - **EXHIBIT P5: TRUE COPY OF THE PETITIONER'S LETTER DATED 20-02-2003.** - **EXHIBIT P6: TRUE COPY OF THE LETTER DATED 25-03-2003 OF THE 5TH RESPONDENT ADDRESSED TO THE 2ND RESPONDENT.** - **EXHIBIT P7: TRUE COPY OF LETTER DATED 29-04-2000 OF THE 5TH RESPONDENT ADDRESSED TO THE 2ND RESPONDENT.** - **EXHIBIT P8: TRUE COPY OF ORDER DATED 24-04-2012 ISSUED BY THE 3RD RESPONDENT.** - **EXHIBIT P9: TRUE COPY OF THE DEMAND NOTICES DATED 24-04-2012 DEMANDING FOR A SUM OF RS. 2,38,18,891.00 AND FOR INTEREST THEREON OF RS. 3,07,26,369.00.** - **EXHIBIT P10: TRUE COPY OF LETTER DATED 21-05-2012 OF THE PETITIONER ADDRESSED TO THE 2ND RESPONDENT WITH ACKNOWLEDGMENT OF RECEIPT.** - **EXHIBIT P11: TRUE COPY OF THE CERTIFICATE DATED 07.11.2015 FROM PRACTICING COMPANY SECRETARY.** ## **RESPONDENT(S)' EXHIBITS :** **//TRUE COPY//** **P.S.TO JUDGE.** **NIL** **Msd.** ## **A.MUHAMED MUSTAQUE, J.** ========================= ## **W.P.(C).No.12095/2012** ~~~~~~~~~~~~~~~~~~~~~~~~~ Dated this the 22[nd] day of November, 2017 ## **J U D G M E N T** 1. The short issue in this writ petition is whether a Director of a private company is liable for any tax assessed under the Kerala General Sales Tax Act, 1963, for an assessment year after his resignation as the Director, even if he had not intimated about his resignation to the Sales Tax Department. I have to answer this question in negative for more than one reason. However, before adverting to the question of law, the brief facts involved in this case have to be stated, which are as follows: 2. The petitioner was admittedly, the Managing Director of Athulya Cements (P) Ltd. He resigned from the directorship of the company on 1/4/2000. This is seen from the minutes as well as the annual return submitted by the company. As seen from the annual return of the year 1999-2000, there were only two directors, namely, P.Harindranath and S.Ramadass. The assessment year in ## **`WPC 12095/2012`** ## **`-:2:-`** question is 2001-2002. The petitioner was directed to be heard pursuant to the direction of this court in W.P.(C). No.8188 of 2001. Though, he was heard, he was not absolved from the liability. Section 26C of the KGST Act fastens liability on the Director of a private company during the period for which the tax or other amount is due under the Act. Therefore, if the petitioner was holding the directorship of the company, certainly, he would be liable. However, if the petitioner was not the Director, certainly, he cannot be made liable. 3. The learned Government Pleader argued that the petitioner, even if, resigned from the directorship, unless and until he intimates his resignation or relinquishment to the Department, he cannot be resolved. He relied upon the judgment of the Division Bench of this Court in **Nazeer v. State of Kerala [2000 (2) KLT SN 92 (C.No. 98)]** _._ 4. The precedent relied upon by the learned Government Pleader is, in fact, arising from the liability of a partnership. There are similar provisions related to partnership. The provision is Section 21 of the KGST Act which says that a partner of the firm is also liable jointly ``` WPC 12095/2012 ``` ``` -:3:- ``` or severally for any tax due upto their date of retirement. Rule 8(b) of the KGST Rules, 1963, applies to a partner, who retires without partnership being dissolved. Under the said Rule, he has an obligation to intimate the registering authority in Form 3 within 30 days of his retirement, along with a copy of the deed of retirement. Therefore, even if a partner ceases to be partner of the partnership firm, unless and until he has intimated the registering authority within 30 days, he will be deemed to be the partner as far as the Department is concerned. The law creates a fiction in such a situation for recovery of tax due. However, there are no similar provisions as such referable in the case of a company. In law, there is a distinction between a company and a partnership firm. The partnership firm is a compendious personality formed by persons. The company, on the other hand, is a juridical entity, different from the persons who composite it. A liability can be fastened on the Director of a company only based on Section 26C of the KGST Act. Therefore, the moment such Director ceases to be the Director, he cannot be fastened with the liability even if he fails to intimate the registering authority. The question in such a ## **`WPC 12095/2012`** ## **`-:4:-`** situation is only whether the person against whom recovery is sought, ceased to be Director at the relevant time or not. For that purpose, necessarily, the relevant records have to be examined. It is appropriate in this context to refer the judgment of the Hon'ble Bombay High Court in **Saumil Dilip Mehta vs State Of Maharashtra And Others.[AIR 2002 Bom 194],** wherein it was held at paragraphs 6 and 7 as follows: “6. The submissions advanced by the litigating parties are touching an important point involved in this matter which make us to express our views on the point whether a director of a public or private limited company can resign unilaterally and that too by writing a letter to the chairman of the said company or its secretary. Is it necessary for such a director to fill up form No. 32 and is obliged to give a notice or intimation to that effect to the Registrar of Companies? The question arises for our adjudication is whether that particular director is obliged to give such information to the Registrar of Companies and whether he cannot retire without complying with the said requirement. Keeping in view the provisions of the Companies Act the relevant articles of the Constitution of India, we come to the conclusion that a director of the public limited company or private limited company can tender his resignation unilaterally and without filling in form 32 and without sending a notice to the Registrar of Companies. It is clear that the filling in the said form and giving due intimation and information to the Registrar of Companies is the duty of the Company Secretary and not of an ``` WPC 12095/2012 ``` ## **`-:5:-`** individual director. Suffice it to say that what he has to do is to send in writing a letter informing either the Chairman or the Secretary of the Company, as the case may be, his intention to resign from the post of the Director of the said company. Thereafter the said letter has to be moved in the meeting of the directors of the company, may be ordinary meeting or may be extra-ordinary or special meeting, as the case may be, and the Board of Directors have to take a decision whether the Board is accepting his resignation or not. An intimation should be sent to such director and after such resolution is passed, the Company Secretary is under the obligation to comply with the legal formalities for giving a finishing touch to the resolution which has been passed in the said meeting of the Board of Directors. It is for the Company Secretary to fill in the forms as prescribed and to give due information and intimation to the Registrar of Companies, as the law requires. Thereafter, it has to be so mentioned in all prescribed registers of the company, accounts and balance sheet of the company and thereafter the said fact is to be brought to the notice of the members of the company as early as possible and at the latest in annual general meeting. 7. When a director has tendered his resignation and the Board of Directors has accepted it and has acted on it, such director cannot be held liable for the liability incurred by the said company after the date of acceptance of his resignation except the liability which has been incurred by him for purchase of shares of the said company and nothing more.” 5. Further, it is recorded in Exhibit-P11 that the petitioner is not in a position to produce Form 32 for the reason that the Registrar of ## **`WPC 12095/2012`** ## **`-:6:-`** Companies is not keeping records beyond the prescribed time of eight years from the date of filing of the form. Therefore, the only question now to be considered is whether, with the relevant records, the petitioner can be absolved from the liability or not. The petitioner is now banking upon the annual returns. The Hon'ble Supreme Court in **M.S. Madhusoodhanan & Another v. Kerala** **Kaumudi (P) Ltd. & Others [(2004) 9 SCC 204]** had an occasion to consider legal validity of the annual return and, at paragraph 38, it was observed as follows: "38.This was again done in the Annual Return of Kerala Kaumudi filed under the signature of Ravi and Srinivasan dated 28-7-1987 [Ext.P-131(a)]. Madhusoodhanan is shown as holding 612 shares and Mani is shown as holding only one share. Under Section 164 of the Companies Act, 1956, the annual returns, the certificates and statements therein, "shall be prima facie evidence of any matters directed or authorised to be inserted therein" under the Act." 6. Since the authority had no occasion to consider these aspects, this Court is of the view that the matter has to be remitted back for reconsideration as regards the petitioner's claim for exoneration. It is made clear that merely for the reason that the petitioner had not intimated relinquishment of directorship, it cannot be a reason to ``` WPC 12095/2012 ``` ## **`-:7:-`** fasten liability. However, the authority has to find out the genuineness of the claim of the petitioner based on annual returns and other documents related to the petitioner. It is also open for the Department to inquire with the Registrar of Companies regarding annual returns and other details regarding relinquishment of directorship. Accordingly, the impugned order is set aside to the extent as above. Since there is no question regarding assessment and as the assessment was completed by the Fast Track Team, this Court is of the view that the petitioner's claim for exoneration shall be considered by the second respondent within a period of three months after notice to the petitioner. The writ petition is disposed of as above. **==> picture [25 x 11] intentionally omitted <==** ## **A.MUHAMED MUSTAQUE, JUDGE** ms