Case: Purshottam Das Gupta Vs. The Union of India and Others

duty, drawback to be recovered from any person or any interest or penalty payable by any person under the Act and has not been paid. The word defaulter has also been defined to mean any person from whom government dues are recoverable under the Act. Rule 3 deals with the issuance of recovery certificate; whereas, Rule 4 provides for issuance of notice. Notice is required to be issued and served upon a defaulter requiring him to pay the amount specified in the certificate issued under Rule 2(iii) within seven days from the date of the service of the notice. As already stated defaulter means a person from whom government dues are recoverable under the Act. None of the provisions under the Rules of 1995 makes the former director responsible to pay the dues of the government. The absolute liability created under the Act and the Rules is of that person who is an assessee i.e. a person engaged in production or manufacture of any specified goods included in I schedule of the Act (now the new Central Excise Tariff). In this view of the matter, in our opinion none of the petitioners were and are liable to pay the alleged government dues either under the provisions of the Act or Rules of 1995.26. In view of the above findings, it is not necessary for us to deal with the alternate contention raised by Mr. Nankani. However, since both the parties have addressed us on that aspect in detail, we propose to deal with the submission made in this behalf. Mr. Nankani, in our opinion, is perfectly justified in contending that the order passed by the CEGAT in the case of Mr. S.P. Mittal binds the respondents since a specific finding has been recorded by the Tribunal holding that the order of confirming duty and imposing penalty was only against the company and not against the director Mr. S.P. Mittal. Consequently, his appeal was dismissed for want of locus standi. This order has been accepted by the Revenue. The order has become final and conclusive. The Supreme Court has explained the concept of res judicata in the case of Sulochana Amma v. Narayanan Nair [1995 (77) E.L.T. 785 (S.C.)]. The principle operates as a bar to try the same issue once over. It aims to prevent multiplicity of proceedings and accords finality to an issue, which directly and substantially had arisen in the former suit between the same parties or their privies, decided and became final, so that parties are not vexed twice over; vexatious litigation is put an end to and the valuable time of the Court is saved. It is based on public policy as well as private justice. The principle would very much apply, to all judicial proceedings whether civil or otherwise. It equally applies to quasi-judicial proceedings of the Tribunals other than the Civil Courts. In this view of the matter, the respondents cannot set up any demand against Mr. S.P. Mittal based on the order dated 22-6-2000 passed against the company - M/s. GTL. The reasons recorded by the CEGAT while rejecting appeal filed by Mr. S.P. Mittal holds good even in the case of Mr. K.T. Shah.”20. This Judgment only follows what has been held earlier and subsequently.21. The reliance on the Judgment in the case of the Employees State Insurance Corporation (supra) indicates that this decision of the Supreme Court was rendered while dealing with the provisions of a distinct statute – The Employees State Insurance Act, 1948. There Section 2(17)(i) & (iii), and Sections 40 and 41 outline the concept of a Principal employer. In the case of a private limited company having its factory and duly naming an occupier, as also having a Manager, it was still held that the provision is not applicable to the Directors and the company was held to be liable. In the event there being an occupier, such occupier would be personally liable. 22. We do not think that any assistance can be derived by Mr. Jetly from this Judgment or from the general principle that it is possible to pierce the veil of a corporate entity and find out whether it is a glorified partnership. In the present case, according to Mr. Jetly, the piercing of veil has been done and that is why notices have been issued. We are sorry we cannot accept his contention and for more than one reason. This conclusion must be clearly discernible from the orders in the adjudication proceedings, in the sense the show cause notices must be directed to the Director personally and in addition to the corporate entity. Secondly, such corporate entity together with the Director must be heard and the Director must be granted an opportunity to satisfy the Adjudicating Authority that insofar as the company and its business is concerned, the Director may, as a part and parcel of the Board, lay down broad policies and take decisions in relation thereto but the day-to-day business is not discharged by him. That is carried out by other salaried persons, duly appointed for that purpose. The responsibilities are fixed and it is they who have to discharge their obligations and duties by pointing out to the persons in charge of the finances or in the management of finances, so that the liabilities of the company can be met or dues payable by the company can be paid. Thus there is a team of officials which takes a decision in relation to the day-to-day activities and management so also administration of the policy decisions. Something more than this and proof of involvement not only in the day-to-day activities but all affairs will also have to be placed on record to establish the piercing of veil. The argument now built, only on the basis of this principle and referred in the affidavit in reply is thus of no avail to Mr. Jetly. On that basis, we cannot hold that the petitioner is also liable for the dues of the company.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]22. We do not think that any assistance can be derived by Mr. Jetly from this Judgment or from the general principle that it is possible to pierce the veil of a corporate entity and find out whether it is a glorified partnership. In the present case, according to Mr. Jetly, the piercing of veil has been done and that is why notices have been issued. We are sorry we cannot accept his contention and for more than one reason. This conclusion must be clearly discernible from the orders in the adjudication proceedings, in the sense the show cause notices must be directed to the Director personally and in addition to the corporate entity. Secondly, such corporate entity together with the Director must be heard and the Director must be granted an opportunity to satisfy the Adjudicating Authority that insofar as the company and its business is concerned, the Director may, as a part and parcel of the Board, lay down broad policies and take decisions in relation thereto but the day-to-day business is not discharged by him. That is carried out by other salaried persons, duly appointed for that purpose. The responsibilities are fixed and it is they who have to discharge their obligations and duties by pointing out to the persons in charge of the finances or in the management of finances, so that the liabilities of the company can be met or dues payable by the company can be paid. Thus there is a team of officials which takes a decision in relation to the day-to-day activities and management so also administration of the policy decisions. Something more than this and proof of involvement not only in the day-to-day activities but all affairs will also have to be placed on record to establish the piercing of veil. The argument now built, only on the basis of this principle and referred in the affidavit in reply is thus of no avail to Mr. Jetly. On that basis, we cannot hold that the petitioner is also liable for the dues of the company.