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

2. The senior citizen/petitioner before us was at one time a Director of a limited company, Sujata Verbatim Limited. The company has now changed its name and is now known as PDG Infotech Limited.This company was incorporated on 24-12-1985 and its name underwent a change sometime in April, 2004. The nature of business and the place from which the company carried out its activities are mentioned in para 5, and then it is stated that the company stopped its manufacturing activities and thereafter even the petitioner ceased to be a Director of the company. Reliance is placed upon documents and records available in the office of the Registrar of Companies, State of Maharashtra, which, according to the petitioner, prove the point that the petitioner has no association with the company.It is then alleged that there was an adjudication and stated to be into the matter of recovery of taxes, particularly the customs duty.The fact that there were some legal proceedings became known to the petitioner only after he was confronted with a communication from the respondents.He says that a demand notice dated 28-12-2018, copy of which is at Exhibit-A, was served on him under which the 3rd respondent directed him to pay outstanding dues of the company, amounting to Rs.2,49,10,040/- along with interest and costs.On failure to pay, it was stated that the respondents would resort to the power conferred by Section 142(1)(c)(ii) of The Customs Act, 1962or short) r/w Rule 4 of The Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995or short). The demand notice was received on 3-1-2019 and challenging this demand notice and claiming a declaration to the effect that, the dues of the company cannot be recovered from the petitioner even if it is outstanding, this writ petition is filed.

Reasoning: 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.