R. Suresh Mohan v. Assistant Commissioner III, Commercial Taxes, Special Circle, Kollam and Deputy Commissioner, Commercial Taxes, Kollam

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON** **TUESDAY, THE 10TH DAY OF APRIL 2012/21ST CHAITHRA 1934** ## **WP(C).No. 5073 of 2008 (D)** **--------------------------** **PETITIONER(S): -----------------------** **R. SURESH MOHAN, A21, JAWAHAR NAGAR KAWDIAR, THIRUVANANTHAPURAM.** **BY ADVS. SRI.K.ANAND, SMT.LATHA KRISHNAN.** ## **RESPONDENT(S):** **---------------------------** **1. ASST. COMMISSIONER III,** **COMMERCIAL TAXES,** **SPECIAL CIRCLE, KOLLAM.** **2. DEPUTY COMMISSIONER,** **COMMERCIAL TAXES, KOLLAM.** ## **BY GOVT. PLEADER MR.SHAIJ RAJ.** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 10-04-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **rs.** ## **WP(C).No. 5073 of 2008 (D)** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:-** **EXT.P1 COPY OF THE RESIGNATION LETTER DATED 24/06/1993 OF THE PETITIONER. EXT.P2 COPY OF THE JUDGMENT IN O.P. NO. 1166/2002. EXT.P3 COPY OF THE REPRESENTATION SUBMITTED BY THE PETITIONER TO THE 1ST RESPONDENT. EXT.P4 COPY OF THE SEARCH REPORT DATED 30/10/2003. EXT.P5 COPY OF THE COMMUNICATION DATED 19/12/2007 OF THE 1ST RESPONDENT TO THE PETITIONER.** ## **RESPONDENT'S EXHIBITS:NIL.** **//TRUE COPY//** **P.S. TO JUDGE** **rs.** ## **P.R. RAMACHANDRA MENON, J.** .............................................................................. **W.P.(C) No.5073 OF 2008** ......................................................................... **Dated this the 10th April, 2012** ## **J U D G M E N T** Recovery proceedings pursued against the petitioner under the Revenue Recovery Act, invoking the power and jurisdiction under Section 26C of the KGST Act in respect of the amounts allegedly due from a Public Limited Company for the assessment year 1995-96, is the subject matter involved. 2. The case of the petitioner is that he is a practising Chartered Accountant and in the course of his professional career, he had acquainted with various companies in the public as well as private sector. While so, he was also made to function as an 'Alternate Director' of a public limited company by name 'M/s Pace International', in accordance with the provisions under Section 313 of the Companies Act for a short spell, in place of a Foreign Director by name L. Mason. According to the petitioner, this lasted only for a short spell from 1992 and he resigned from the 'Alternate Directorship' on 24.06.1993. **2** ## **W.P.(C) No.5073 OF 2008** 3. While so, alleging that huge liability was there, to be cleared by the above Public Limited company, by way of sales tax arrears for the year 1995-96, recovery notice was issued to the petitioner under the Revenue Recovery Act, in the year 2002. Being left with no other alternate remedy, the petitioner approached this Court by filing O.P.1166/2002, which culminated in Ext. P2 judgment dated 25.08.2005. Taking note of the contentions of the petitioner that Section 26C of the KGST Act was never applicable to the case of the petitioner and also as to the scope of engagement as an 'Alternate Director' under Section 313 of the Companies Act, the learned Judge observed in paragraph '8' that the petitioner would be liable under Section 26C of the Act, if and only if he had been an Alternate Director of the Company during the period, for which the impugned order was issued, which in fact was a 'question of fact' to be determined by the concerned authorities before proceeding against him under Section 26C of the KGST Act. Accordingly, the Original Petition was disposed of, with liberty to the petitioner to produce the relevant materials before the assessing authority (4[th] **3** ## **W.P.(C) No.5073 OF 2008** respondent therein); simultaneously directing the said authority to consider whether the petitioner was actually a 'Director / Alternate Director' during the period in question and to pass appropriate orders, in accordance with law, of course, after giving an opportunity of hearing . It is contended by the petitioner that though the correct factual position, was brought to the notice of the concerned authority by filing Ex.P3, also producing the relevant materials including Ext.P4 search report of the authorities under the Companies Act, to show that the petitioner was never functioning as an 'Alternate Director' during the relevant time, the same was simply given a 'go-bye' and the first respondent passed Ext.P5 order on 19.12.2007 rejecting the claim put forth by the petitioner and mulcting the liability relying on Section 26C of the KGST Act, which in turn is under challenge. 4. The main contention of the petitioner is that, inspite of the specific direction given by this Court, as per Ext. P2 judgment, to grant an opportunity of hearing, the petitioner was never heard by the first respondent before passing Ext.P5. The next contention is that Section 26C was brought into the statute **4** ## **W.P.(C) No.5073 OF 2008** only w.e.f. 01.04.1999 and since the same did not have any retrospective application; the liability sought to be enforced being in respect of the assessment year 1995-96, the petitioner could not have been proceeded against, under any circumstance. The next contention, which is also raised with equal vehemence is that Section 26C can be invoked only in the case of a Director of a 'Private Limited Company' and the petitioner's Company being a 'Public Limited Company', the said provision could not have been pressed into service by the Department . 5. A counter affidavit has been filed by the first respondent seeking to sustain the impugned order, wherein it has been stated in paragraph '3' that in the first week of December, 2007, the petitioner appeared before the first respondent and explained the nature of the contentions, especially as to the absence of any liability to satisfy the claim. It was after considering the same and also on comparing the particulars of Ext.P4 search report with Form I Declaration/application for registration under the KGST Act, that a finding was rendered fixing the liability upon the petitioner, in view of the mandate **W.P.(C) No.5073 OF 2008** **5** under Section 26C of the KGST Act. 6. Heard the learned counsel for the petitioner as well as the learned Government Pleader appearing for the respondents. 7. Coming to the sequence of events, there is no dispute that a specific direction was given by this Court as per Ext. P2 judgment to pass appropriate orders _only after affording an opportunity of hearing to the petitione_ r, with regard to the nature of the contentions raised by him. Ext. P5 order passed by the first respondent refers to Ext. P2 judgment and so also, Ext. P3 representation preferred by the petitioner as to the case projected by him. There is absolutely no reference anywhere in Ext. P5 as to the notice, if at all any, issued to the petitioner giving opportunity of hearing. Even the concerned respondent is not sure enough to say, on what date such a hearing was given. The affidavit filed by the first respondent in this regard is rather vague. The deponent casually says in paragraph '3' of the counter affidavit that the petitioner appeared somewhere in December, 2007 (in between 03.12.2007 and 07.12.2007) and explained about Ext.P2 decision of this Court and the **6** ## **W.P.(C) No.5073 OF 2008** background of revenue recovery proceedings. But, but for the vague avernment as to the hearing of the petitioner, no details have been given, especially with regard to the date on which notice of hearing was sent, the date of service of said notice, the date scheduled for hearing and such other particulars in support of the said stand, which are very relevant, also for the obvious reason that nothing in this regard is mentioned in Ext.P5 order as well. To put it short, on filing the writ petition stating that no opportunity of hearing was give, inspite of the specific direction given by this Court in Ext. P2 judgment, the concerned respondent has sought to improvise the impugned order, i.e., Ext. P5, by adding something more as to the alleged granting of opportunity of hearing, which cannot but be deprecated . 8. Yet another important aspect to be noted is that, Section 26C makes it explicitly clear that the said provision is applicable only in the cases of 'Private Companies'. Section 26C reads as follows: _“26C. Liability of Directors of a Private Company:- Subject to the provisions of the Companies Act, 1956 (Central Act 1 of_ **7** ## **W.P.(C) No.5073 OF 2008** _1956) where any tax or other amount recoverable under this Act from any private company, whether existing or wound up or under liquidation, cannot be recovered for any reason whatsoever, every person who was a director of such company at any time during the period for which the tax or other amount is due under this Act shall be jointly and severally liable for the payment of such tax or other amount.”_ There is an observation made by the first respondent under paragraph 2(k) of Ext. P5 order in the following terms” _“k) Section 26C of the KGST Act, 1963 has fixed joint and several liability on each and every director of a private company (_ _**whether it is Private Ltd. Or Public Ltd** .)”._ From where the concerned officer got such an idea, that the provision is equally applicable to both 'Private Company' as well as a 'Public Company' rather remains to be a matter of mystery. The position can be explained in the following terms: 9. Section 26C starts with the words: “Subject to the **8** ## **W.P.(C) No.5073 OF 2008** provisions of the Companies Act”. The term 'private company' is defined under Section 3(1)(iii) of the Companies Act, which reads as follows: _“3. Definitions of 'company','existing company', 'private company' and 'public company'.........._ _(iii) 'private company' means a company which has a minimum paid -up capital of one lakh rupees or such higher paid-up capital as may be prescribed and by its articles_ - _(a) restricts the right to transfer its shares, if any;_ - _(b) limits the number of its members to fifty not including -_ - _(i) persons who are in the employment of the company and_ _(ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and_ **W.P.(C) No.5073 OF 2008** **9** _© prohibit any invitation to the public to subscribe for any shares in, or debentures of, the company,_ _(d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives._ _Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definition, be treated as a single member;_ In contra distinction to a Private Company, the term 'Public Company' is defined under Section 3(iv) of the Companies Act in the following manner: . _..”(iv) 'public company' means a company which--_ ## _(a)_ _**is not a private company;**_ _(b) has a minimum paid-up capital of five lakh rupees or such higher paid-up capital, as may be prescribed ;_ _© is a private company which is a subsidiary of a company which is not a private company.”_ From the above, it is very much evident that a Public Company **10** ## **W.P.(C) No.5073 OF 2008** is something which is not a Private Company and this being the position, a 'Public Company' can never be regarded as having brought within the purview of Section 26C, in view of the very nature of the wordings used. It cannot be presumed that the legislature was not aware or ignorant of the statutory prescription, particularly as to the difference between a 'Public Company' and a 'Private Company', when the legislature itself was conscious enough to incorporate the provisions of Section 26C w.e.f. 01.04.1999 with the starting words: “Subject to the provisions of the Companies Act”. That apart, whether the said provision could be invoked in the case of a 'Public Limited Company', had come up for consideration before this Court on an earlier occasion and as per the decision reported in **2009(4) KLT 704** _**(Thomas George vs. Deputy Tahsildar**_ **),** it has been categorically held that the said provision can be pressed into service only in the case of the Director of a Private Ltd. Company and not in respect of the Director of a Public Limited Company. 10. Coming to the case in hand, there is a specific averment for the petitioner that he was an 'Alternate Director' of **11** ## **W.P.(C) No.5073 OF 2008** a Company, which was a Public Limited Company. The factual position in this regard has not been rebutted either in Ext. P5 order passed by the first respondent or in the counter affidavit filed by the said respondent. This Court finds that there is absolutely no rationale in proceeding against the petitioner in respect of the arrears of sales tax due from M/s. Pace International Company, which is a Public Limited Company, for the assessment year 1995-96, with reference to the source of power under Section 26C of the KGST Act. In the above circumstances, the petitioner is entitled to succeed. Ext.P5 is set aside and the writ petition is allowed. No cost. **P.R. RAMACHANDRA MENON, JUDGE.** lk