JUDGMENT By the Court.—Aggrieved by the notice dated 23.5.2003 (Annexure-7 to the writ petition) issued by the Assistant Collector (Collection) Trade Tax, Kanpur to the petitioner No. 2, the present writ petition has been filed by the petitioners seeking a writ of certiorari for quashing the said notice. Further a writ of mandamus has been sought directing the respondents not to realise any amount of trade tax from the petitioners till finalization of winding up proceedings pending before the respondents authorities. 2. The petitioner No. 1, M/s. Meekin Transmission Ltd. (hereinafter referred to as the “Company”) is a company registered under the Indian Companies Act, 1956 (in short the “Act”) and engaged in the business of manufacturing of Automotive Gears. Initially it was incorporated as a Private Limited Company on 31.3.1983 and was converted in a Public Limited Company subsequently. In 1991 it became a sick unit and made a reference under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the “1985 Act”) to the Board for Industrial and Financial Reconstruction (hereinafter referred to as “BIFR”) which was registered as Case No. 109 of 1991. The Industrial Development Bank of India (hereinafter referred to as the “IDBI”) was appointed as operating agency for submitting rehabilitation scheme vide order dated 2.6.1992. However, it appears that during the period rehabilitation matter was pending before BIFR, the petitioner-Company continued with the business but did not pay sales tax (now termed as trade tax) for the period of 1993-94 to 1997-98 which comes to about Rs. 42.88 lacs. The aforesaid tax was allowed to be paid in instalments. The petitioner No. 1 deposited first instalment of Rs. 5.36 lacs on 30.4.1998 but thereafter no subsequent instalment was paid. However, on its request, the respondent-State of U.P., vide letter dated 1.11.1999, rescheduled instalments commencing from 30.10.1999 and onwards, and, the petitioner No. 1 was required to pay the entire balance amount in five annual approximately equal instalments. The petitioner No. 1 still failed to deposit any of such instalment. Consequently, a recovery certificate was issued against the petitioner No. 1 on 24.2.2003. The petitioner No. 1 still failed to deposit any of such instalment. Consequently, a recovery certificate was issued against the petitioner No. 1 on 24.2.2003. The respondent No. 5 also sent a letter dated 24.2.2003 to the petitioner No. 2 stating that he is the Director of the Company and in view of the law laid down by this Court in Writ Petition No. 138 of 1994, M/s. Raghunath Talwar v. State of U.P., decided on 4.3.1998, the dues of the Company can be recovered from the Directors therefore, the petitioner No. 2 should pay the entire amount failing which recovery proceeding shall be initiated against him. The petitioner No. 2 sent reply dated 10.3.2003 stating that the recovery from the Directors of the Company is not permissible in law, therefore, notice dated 24.2.2003 be revoked. However, the respondent No. 5 issued another notice dated 23.5.2003 referring to this Court’s judgment dated 13.3.2003 in Writ Petition No. 382 of 2003, Naresh Chander Gupta v. District Magistrate and others, 2003 (22) NTN 358, stating that the recovery can be made from the Directors of the Company, therefore, the petitioner No. 2 is liable to pay entire trade tax dues of the Company. Aggrieved of the said notice, the present writ petition has been filed. 3. Learned Counsel for the petitioners vehemently contended that the petitioner No. 2 is only a Director of the Company and as such, is not personally liable for the payment of dues of the Company. As shareholder his liability is limited to the extent of shares which he held and, therefore, no recovery of dues of the Company can be made from the personal assets of the petitioner No. 2. Placing reliance on Division Bench decisions of this Court in Bhikhu Ram Jain, Delhi v. State of U.P. and others, 2001 U.P.T.C. 364 and G.C. Mehrotra v. Dy. Collector (Collection), Sales Tax, 1997 U.P.T.C. 1217, he contended that the dues of the Company cannot be recovered from the personal assets of the Directors of the Company. Placing reliance on Division Bench decisions of this Court in Bhikhu Ram Jain, Delhi v. State of U.P. and others, 2001 U.P.T.C. 364 and G.C. Mehrotra v. Dy. Collector (Collection), Sales Tax, 1997 U.P.T.C. 1217, he contended that the dues of the Company cannot be recovered from the personal assets of the Directors of the Company. He further contended that since the petitioner No. 1 was a sick Company under the provisions of 1985 Act and, therefore, during the pendency of the matter before BIFR recovery cannot be made against him in view of Section 22 of 1985 Act and placed reliance on the decision of the Apex Court in Tata Davy Ltd. v. State of Orissa and others, AIR 1998 SC 2928 . 4. Per contra, learned Standing Counsel placing reliance on the Division Bench decision of this Court in Naresh Chander Gupta (supra) and Sri Ram Gupta v. Assistant Collector, 2003 (23) NTN 995, contended that in respect to the tax dues outstanding against a Company, recovery can be made from the personal assets of the Directors of the Company by applying the doctrine of ‘piercing the veil’ i.e. ‘lifting of veil of the corporate personality’ and, therefore, the demand made by the respondents from the petitioner No. 2 is valid. He further contended that proceedings before BIFR came to an end on 14.3.2003. Having failed rehabilitation, the BIFR vide order dated 14.3.2003 held that the Company should be recommended for winding up, therefore, on and after 14.3.2003 it cannot be said that any matter is pending before BIFR. He further contended that in any case, at the instance of the petitioner No. 1, payment of tax dues in instalments was allowed and he had also paid first instalment on 13.4.1998, therefore, having agreed to pay the entire dues in instalments, the petitioner No. 1 now cannot be permitted to wriggle out of his undertaking of paying the entire trade tax dues by taking recourse to Section 22 of 1985 Act. He also contended that the recovery proceedings have been initiated in 2003 and on that date there was no legal obstruction or hurdle in respect to recovery proceedings against petitioner No. 1, therefore, no relief can be granted to the petitioner No. 1 against the recovery proceeding initiated by the respondents. He also contended that the recovery proceedings have been initiated in 2003 and on that date there was no legal obstruction or hurdle in respect to recovery proceedings against petitioner No. 1, therefore, no relief can be granted to the petitioner No. 1 against the recovery proceeding initiated by the respondents. Lastly, he said that having admitted the trade tax dues and also despite of repeated indulgence granted by the respondents permitting the petitioner No. 1 to pay tax dues in instalments, the petitioner No. 1 having defaulted in payment thereof is neither in equity nor otherwise entitled to invoke extraordinary equitable jurisdiction of this Court under Article 226 of the Constitution and, therefore, the writ petition is liable to be dismissed. 5. We have heard learned Counsel for the parties and perused the record. 6. First of all we propose to deal with the correctness of recovery proceedings against the petitioner No. 1. It is not in dispute that the petitioner Company was liable to pay the aforesaid tax dues but defaulted in payment thereof. Admitting the liability, it requested the trade tax authorities to allow payment in rescheduled instalments which was also allowed vide Government’s letter dated 1.11.1999. Even thereafter it failed to comply the same. It is true that the Company, claiming to have become sick, made reference to BIFR in 1992 but the said matter has come to an end on 14.3.2003 when the BIFR recorded a finding that rehabilitation of the Company is not possible and, therefore, it should be wound up. It is not the case of the petitioner No. 1 that any winding up matter is pending before the High Court. Therefore, on and after 14.3.2003 there was no hurdle before the respondent-authorities from taking coercive steps for recovery of the outstanding tax dues from the petitioner No. 1 and, therefore, writ petition, so far as the petitioner No. 1 is concerned, has no force and is liable to be dismissed. 7. Now the second aspect needs to be adjudicated in this matter is whether outstanding tax dues of petitioner No. 1 can be recovered from the personal assets of the petitioner No. 2 who is Director of the petitioner-Company. 8. 7. Now the second aspect needs to be adjudicated in this matter is whether outstanding tax dues of petitioner No. 1 can be recovered from the personal assets of the petitioner No. 2 who is Director of the petitioner-Company. 8. This question has to be considered in the light of the status of Company vis-a-vis its share holders, directors and other employees, their inter-relationship and the extent to which one or the other is liable in respect to the matter of the Company. Concept of Companies—History of Incorporation of Companies and relevant statutes : 9. The history of Modern Company Law can be traced back to 14th century (see Gower’s Principles of Modern Company Law 4th Edition at page 24) when in England, under the Royal Charters, the Merchant Organisations were allowed to be engaged in Foreign Trade and Settlement. Formal incorporation was not essential and each member of the association traded with his own stock and on his own account subject to obeying the Rules of the Company. The Charters were normally obtained to acquire the monopoly of trade for members of the Company, and, Governmental power over the territory, the Company got right to trade. Loosely, this kind of trade used to be known as trading on joint stock in partnership. They were more in the nature of trade protection association. In fact, the East India Company which received its first Charter in 1600 was granted monopoly of trade with the Indies. These kinds of Charters became more prevalent in 16th century. With the passage of time, since the number of foreign trading companies and Charters declined, there was a substantial growth in formation of such companies for domestic trade. With such increase, number of speculative enterprises increased. It was found that in a number of cases certain persons constituting an association, calling it to be Corporation or Company, and thereby had indulged in fraudulent and speculative activities defrauding the public at large. It resulted in enactment of Bubble Act, 1720 prohibiting generally the use of corporation unless the corporation was authorised to act as such by the Act of Parliament or Royal Charter. This enactment could not suppress formation of company. Moreover, unincorporated associations were formed, which, in law, were large partnerships but by ingenious legal devices, were approximated to the form of company having transferable shares. The Bubble Act, 1720 thus was repealed in 1825. This enactment could not suppress formation of company. Moreover, unincorporated associations were formed, which, in law, were large partnerships but by ingenious legal devices, were approximated to the form of company having transferable shares. The Bubble Act, 1720 thus was repealed in 1825. At that time the following three types of companies were known: (1) Companies incorporated by Royal Charter, (2) Companies incorporated by Special Act of Parliament; and (3) deed of settlement Companies. 10. British Parliament passed “Joint Stock Companies Act, 1844” which prohibited large unincorporated companies and admitted creation of Joint Stock Companies by registration. This Act, however, did not provide immunity to the members of incorporated company from direct liability and on the contrary expressly imposed on the members liability for the debts of the company akin to the partnerships. For the first time by virtue of Limited Liability Act, 1855, a company was allowed to secure limited liability of its members to the nominal amount of shares held by them but it depended on certain conditions, and, some of those were (1) the company should have atleast 25 members holding at least 3/4 of the nominal capital, each member having paid upto atleast 20% (2) the word limited’ should be the last component of the company’s name; (3) the auditor of the company should be approved by the Board of Trade. 11. The aforesaid Act of 1855 was superseded by the “Joint Stock Companies Act, 1856” and is considered to be the beginning of a new era in Company Law by certain recognised authors like Sir Francis Palmer in his Company Law’, 23rd Edition, page 10. This Act made formation of the company simpler providing that seven signatories to a document called `Memorandum of Association’ can proceed for incorporation of the company. The deed of settlement was done away but it was provided that in addition to the Memorandum of Association it should adopt the model articles attached to the Act and was to be registered in the register of the companies. The first Companies Act came to be enacted in 1862 which has been described by Sir Francis Palmer as the “Magnacarta of Cooperative Enterprise”. Since then the aforesaid Act has been replaced by several Companies Act in England as well as in India. 12. The first Companies Act came to be enacted in 1862 which has been described by Sir Francis Palmer as the “Magnacarta of Cooperative Enterprise”. Since then the aforesaid Act has been replaced by several Companies Act in England as well as in India. 12. Here, in India the first enactment was the Indian Companies Act, 1866 which was replaced by Indian Companies Act, 1913 and then the Companies Act, 1956 i.e. the Act which is holding the field till date. Status of Company, Directors and Shareholders—individually and inter se in Common Law as well in the Act 13. The Act mainly contemplates two kinds of companies namely, Private Company and Public Company. Besides, it also applies to existing companies namely, as were formed and registered under various enactments prior to enforcement of the Act as provided under Section 3(1)(ii) of the Act. A “Private Company” is a company which by its articles restricts the right to transfer its share, if any; limits the number of its member to 50 (not including the persons who are in the employment of company and persons who having been formerly in the employment of company were members of the company and have continued to be member after the employment cease); and prohibits any invitation to the public to subscribe for any shares, or debentures of, the company. A company which is not a “Private Company” is a “Public Company”. 14. For the purpose of the present case, we are concerned with the Public Company and, therefore, are confining our discussion to that only. 15. Section 12 of the Act provides that any seven or more persons associated for any lawful purpose may, by subscribing their names to a Memorandum of Association and by complying with the requirement of the Act in respect of registration, form an incorporated company with or without limited liability. For the companies incorporated with unlimited liability, the liability of the members like unincorporated company is unlimited but the difference is that an unlimited company registered under the Act is a legal person with perpetual succession and a common seal capable of borrowing, suing and being sued and holding property in its own name i.e. has its own legal personality; while in an unincorporated association, the individual members alone have right and duties; and the association has no legal entity. 16. 16. For the purpose of the present case, however, we are concerned with a company incorporated under the Act with limited liability. In respect to such companies, the memorandum is required to be submitted at the time of incorporation (Section 13). It shall specifically state that the liability of its members is limited by shares or guarantee, as the case may be. The persons who subscribe the memorandum of the company are “members” of the company and their names are required to be registered in the register of members (Section 41). 17. The subscribers, therefore, are deemed to be the first “members” of the company. The word `shareholder’ is synonymous to the term member’ since there can be no membership except through the medium of shareholding. (see Howrah Trading Co. Ltd. v. C.I.T., AIR 1959 SC 775 ; Balkrishan Gupta and others v. Swadeshi Polytex Ltd. and another, AIR 1985 SC 520 ). The position of shareholder in a company with limited liability by shares is that when the company earn profits and declare dividends, as per its articles, he is entitled to participate in it and get his share in the dividend. In the event of winding up, he has a further right to participate in the distribution of the companies assets in accordance with the rights given to him under the articles. Beyond this he acquires no interest in the assets of the company (See Mrs. Bacha F. Guzdar, Bombay v. Commissioner of Income Tax, Bombay, AIR 1955 SC 74 ). Besides, he has all such rights as available to a member namely, voting right. 18. For management of the affairs of the company, the Act requires for appointment of Directors who are collectively known as “Board of Directors” or “Board”. The term “Director” is defined under Section 2(13) of the Act and reads as under : “(13) “director” includes any person occupying the position of director, by whatever name called;” 19. Section 252 of the Act provides that every public company shall have atleast three Directors. Section 253 provides that the Director must be only an individual and no body, corporate, association or firm shall be appointed as Director. The purpose of such provision is evident. The entire business and management of the company is in the hands of the Directors. Section 252 of the Act provides that every public company shall have atleast three Directors. Section 253 provides that the Director must be only an individual and no body, corporate, association or firm shall be appointed as Director. The purpose of such provision is evident. The entire business and management of the company is in the hands of the Directors. They hold office of trust and, therefore, the legislature with a view to make them accountable thought it proper that some individual human being should be appointed as Director and not one who is not an individual human being. At the time of incorporation of the company the articles of the company must provide for the first Directors and in default, Section 254 provides that the subscribers of the memorandum who are individuals shall be deemed to be the Directors of the company until the Directors are appointed in accordance with Section 255 of the Act. Section 255 provides for appointment of Directors by the shareholders at Annual General Meeting. With respect to the procedure for appointment of Directors, the company wherein the major shareholding is of the Government and which is a Government Company under the Act, the provision of Section 255 is not applicable having been exempted by notification GSR 906 dated 30.6.1981. In Government companies, normally, under Article of Association, the power of appointment of Directors is vested with the Government. 20. One of the Directors of the company may be appointed as “Managing Director” who is entrusted with substantial power of management by the “Board of Directors” or the “company”. In Government companies, normally, under Article of Association, the power of appointment of Directors is vested with the Government. 20. One of the Directors of the company may be appointed as “Managing Director” who is entrusted with substantial power of management by the “Board of Directors” or the “company”. The term “Managing Director” is defined under Section 2(26) of the Act and reads as under : “(26) “managing director” means a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of Directors or by virtue of its memorandum or articles of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called : Provided that the power to do administrative acts of a routine nature when so authorised by the Board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on the account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within substantial powers of management : Provided further that a managing director of a company shall exercise his powers subject to the superintendence, control and direction of its Board of Directors;” 21. Besides the Directors and Managing Director, there may be some other persons namely, Manager or Managing Agent, Secretaries etc. who may also be responsible for management of the company, wholly or partially, as the case may be. Besides the Directors and Managing Director, there may be some other persons namely, Manager or Managing Agent, Secretaries etc. who may also be responsible for management of the company, wholly or partially, as the case may be. The terms ‘Manager’ and the ‘Managing Agent’ are defined under Section 2(24) and (25) of the Act and reads as under : “(24) “manager” means an individual (not being the managing agent) who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, and whether under a contract of service or not; (25) “managing agent” means any individual, firm or body corporate entitled, subject to the provisions of this Act, to the management of the whole, or substantially the whole, of the affairs of a company by virtue of an agreement with the company, or by virtue of its memorandum or articles of association, and includes any individual, firm or body corporate occupying the position of a managing agent, by whatever name called. Explanation I.—For the purposes of this Act, references to “managing agent” shall be construed as references to any individual, firm, or body corporate who, or which, was, at any time before the 3rd day of April, 1970 the managing agent of any company. Explanation II.—For the removal of doubts, it is hereby declared that notwithstanding anything contained in Section 6 of the Companies (Amendment) Act, 1969, this clause shall remain, and shall be deemed always to have remained, in force;” 22. Explanation II.—For the removal of doubts, it is hereby declared that notwithstanding anything contained in Section 6 of the Companies (Amendment) Act, 1969, this clause shall remain, and shall be deemed always to have remained, in force;” 22. All these are called “Officers” of the Company as defined under Section 2(30) of the Act which reads as under : “(30) “officer” includes any director, managing agent, secretaries and treasurers, manager or secretary, or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the director is or are accustomed to act, and also includes— (a) where the managing agent or the secretaries and treasurers is or are a firm, any partner in the firm; (b) where the managing agent or the secretaries and treasurers is or are a body corporate, any director or manager of the body corporate; but save in Sections 477, 478, 539, 543, 545, 621, 625 and 633 does not include an auditor;” 23. The position of a Director vis-a-vis company has been equated with an Agent inasmuch as, the company cannot act in its own person but has to act only through Directors who, therefore, have the relationship of an Agent qua company. However, the Managing Director has been held to have a dual capacity inasmuch as being a Director he is an agent of the company but he is also an employee. In Shri Ram Pershad v. C.I.T., AIR 1973 SC 637 , the Apex Court held : “It is again true that a director of a company is not a servant but an agent inasmuch as the company cannot act in its own person but has only to act through directors who qua the company have the relationship of an agent to its principal. A Managing Director may have a dual capacity. He may both be a Director as well as employee.......” 24. The work, performance and responsibility of Directors, Managing Directors and other Officers of the company is provided in the various provisions of the Act and it is not necessary for us to go in further details of those provisions for the purpose of present case. 25. From the above discussion the position as culled out is that the word “Company” imports an association of number of individuals formed for a common purpose. 25. From the above discussion the position as culled out is that the word “Company” imports an association of number of individuals formed for a common purpose. When such an association is incorporated, it becomes a body corporate, a legal entity, separate and distinct from such individuals. Such incorporation must owe its existence to a statutory authority. The corporation/Company, in law, is equal to a natural person and has a separate legal entity of its own. Once incorporated, the entity of the corporation is entirely separate from that of the its share holders. It bears its own name; has a seal of its own; its assets are separate and distinct from those of its members; it can sue and be sued exclusively for its own purpose; the liability of the members or share holders is limited to the capital invested by them; the creditors of the Company cannot obtain satisfaction from the assets of the share holders/members of the company and similarly creditors of the members/share holders have no right to the assets of the Company. This position was recognised in Salomon v. Salomon and Co., 1897 AC 22 and since then has always been well recognised as a principle of common law. The effect of registration of the company is provided under Section 34 of the Act. 26. The difference among the members/shareholders of a company and incorporated company to the understanding of a layman can be demonstrated by a simple illustration, that if the members of an incorporated company are collected in a room together we do not see the person of the company but the members. It has to be remembered that company is intangible; it exist only in contemplation of law; it has no physical body. Lord Chancellor Selborne said in one case “it is a mere abstraction of law”. 27. A Company being an artificial juridical person cannot act by its own. It acts through Directors. The executive authority of the Company is vested ordinarily in the Board of Directors which is responsible for the proper management of the Company. There are several duties and obligations of the Board of Directors and Directors of the Company which are enshrined in detail in various provisions of the Act. It acts through Directors. The executive authority of the Company is vested ordinarily in the Board of Directors which is responsible for the proper management of the Company. There are several duties and obligations of the Board of Directors and Directors of the Company which are enshrined in detail in various provisions of the Act. The Directors are paid remuneration for services they render but cannot claim remuneration as of right and, instead, if it is provided in the memorandum or Article of Association, they would be entitled for such remuneration as provided therein. The company is a separate entity qua Directors also inasmuch as, the Directors represent the company and may enter into a contract of employment with himself in his individual capacity and simultaneously acting for company. 28. Similarly, where same set of shareholders have formed two companies, both the companies are distinct and separate entities and it cannot be said that mere identity of shareholders would mean that both the companies are one and the same. A company can contract with its shareholders. Death, bankruptcy or lunacy of any or some of the members would not affect the life of the company in any manner for the reason that company is a distinct person. Today if the company has ten members holding the entire shareholding and tomorrow if they transfer their shares to ten other members, the company would retain the same person though the members would change. Similar is the position with respect to change of Directors. Perpetual succession means the company never dies until it is wound up. The company is not equated with the estate and undertakings owned by it though all are intangible. If the estate of the company is taken over by the Government, it would not constitute as taking over of the management of the company. 29. The juristic personality of the company is recognised for approaching the Courts under the Constitution of India also for protection of fundamental rights which are guaranteed to ‘persons’. However, they may not seek protection in respect to fundamental rights which are guaranteed to a ‘citizen’ for the reason that the company is a person but not a citizen (See State Trading Corporation of India Ltd. v. Commercial Tax Officer and others, AIR 1963 SC 1811 ). However, they may not seek protection in respect to fundamental rights which are guaranteed to a ‘citizen’ for the reason that the company is a person but not a citizen (See State Trading Corporation of India Ltd. v. Commercial Tax Officer and others, AIR 1963 SC 1811 ). Whenever, there is an infringement of fundamental right under Article 19 which are guaranteed to a ‘citizen’, causing a grievance to a shareholder of the company, it was held by the Apex Court in Bennett Coleman and Co. Ltd. and others v. Union of India and others, AIR 1973 SC 106 , that such shareholder may approach the Court for protection of such right, though the company itself cannot claim protection of such right. 30. It also leads to the conclusion that a company incorporated under the Act is not created by the Act but comes into existence in accordance with the provisions of the Act. Thus it is not a statutory body nor is not created by the statute but is a body created in accordance with the provisions of the statute (Sukhdev Singh and others v. Bhagatram Sardar Singh Raghuvanshi and another, AIR 1975 SC 1331 ). 31. It would be useful to refer the observations of Lord Diplock in Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd., 1915 AC 705, noticing the position of the Director as under : “A Corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. That person may be under the direction of the shareholders in general meeting; that person may be the board of directors itself, or it may be, and in some companies it is so, that that person has an authority co-ordinate with the board of directors given to him under the articles of association.” 32. That person may be under the direction of the shareholders in general meeting; that person may be the board of directors itself, or it may be, and in some companies it is so, that that person has an authority co-ordinate with the board of directors given to him under the articles of association.” 32. In brief, we can cull out the following : (1) Company is a distinct and separate juristic personality having its own rights of right to property etc.; (2) The shareholders have no interest in any particular asset of the company or the property of the company except of participating in profits, if any, when the company decides to divide them or to claim his share when the company is wound down in accordance with the articles of the company; (3) A company is distinct from its Board of Directors who cannot enforce a right in their individual capacity which belongs to the company (TELCO v. State of Bihar, AIR 1965 SC 40 ). (4) The liability of the company simultaneously is also not the liability of shareholders. The shareholders cannot be make liable under a decree against a company has held in Nihal Chand v. Kharak Singh Sunder Singh, (1936) 2 Comp Cas 418 and Harihar Prasad v. Bansi Missir, (1932) 6 Comp Cas 32. Doctrine of Piercing of Veil (Lifting the Corporate Veil): Exception to the Law of Separate Entity : 33. The aforesaid doctrine of separate juristic personality of the Company, however, with the passage of time has been subjected to certain exceptions, sometimes on account of specific provisions of the statute, and, sometimes by judicial pronouncements. 34. The most important exception in this regard is that of “piercing the veil” or “lifting the corporate veil” to find out who is the real person, beneficiary or in controlling position of the Company. The doctrine of “lifting the veil” has marked a change in the attitude the law had originally adopted towards the concept of separate entity or personality of the corporation but the same has not been applied in general or routine manner. It has been adopted exceptionally whenever and wherever the situation warranted. The circumstances in which the said doctrine has been invoked vary from case to case. 35. It has been adopted exceptionally whenever and wherever the situation warranted. The circumstances in which the said doctrine has been invoked vary from case to case. 35. Lord Denning M.R. in Littlewoods Stores v. I.R.C., (1969) 1 W.L.R. 1241, said : “The doctrine laid down in Salomon’s case has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the Courts cannot see. But that is not true. The Courts can, and often do, draw aside the veil. They can, and often do, pull off the mask. They look to see what really lies behind. The legislature has shown the way with group accounts and the rest. And the Courts should follow suit...” 36. One of the most important circumstance in which the veil has been lifted is the cases of fraud or improper conduct of the promoters. Where dummy companies were incorporated by a promoter and his family members to conceal profits and avoid tax liability, the separate entity of the company has been ignored by looking through the veil and identifying those individuals who have deviced such method for their own benefits. 37. In Juggilal Kamlapat v. Commissioner of Income Tax, AIR 1969 SC 932 : 1969(1) SCR 988 , it was found that three brothers who were partners in the assessee firm were carrying on the managing agency in a dominant capacity in the guise of a limited company. The Court held that the corporate entity has to be disregarded if it is used for tax evasion or to circumvent tax obligation or to perpetrate fraud. 38. In C.I.T. v. Associates Clothiers Ltd., AIR 1963 Cal. 629 , there was a sale by a company to another having some shareholders and the former company owning all shares in the latter. It was held that it would not escape the liability of tax under the Income Tax Act by taking recourse to the concept of separate legal entity. 39. The next category is where the entire shareholders belong to enemy country and permitting the company to trade would amount to trade with enemy country. It was held that the device of incorporation cannot be allowed to use for illegal and improper purpose i.e. benefit to enemy country. 40. In Gilford Motor Co. v. Horne, (1993) Ch. 39. The next category is where the entire shareholders belong to enemy country and permitting the company to trade would amount to trade with enemy country. It was held that the device of incorporation cannot be allowed to use for illegal and improper purpose i.e. benefit to enemy country. 40. In Gilford Motor Co. v. Horne, (1993) Ch. 935, (C.A.) one Horne covenanted not to solicit the customers of M/s. Gilford Motor Company. In his attempt to evade this obligation he formed a company which undertook the soliciting. The Court granted injunction against Home as well as the company formed by him describing the company formed by him “a device, a stratagem,” and a “mere cloak or sham”. 41. In Jones v. Lipman, (1962) 1 W.L.R. 832, the defendant, to avoid sale of his house to the plaintiff attempted to convey to a company formed by him for the said purpose. Granting specific performance in favour of the plaintiff, Russell, J. describe the said company as creator of the defendant, a device and sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity. 42. In Workmen Employed in Associated Rubber Industry Ltd., Bhavnagar v. Associated Rubber Industry Ltd., Bhavnagar and another, AIR 1986 SC 1 , the Court held where ingenuity is expended to avoid taxing and welfare legislation, it is the duty of the Court to get behind the smoke-screen and discover the true state of affairs. There, a new company was created wholly owned by the principal company without having assets of its own except of those transferred to it by the principal company and with no business or income of its own except of receiving the dividends from shares transferred to it by the principal company. The purpose evident from the entire action was to reduce the amount to be paid by way of bonus to workmen. In the circumstances, the Court lifted the veil and held principal company to be responsible for payment of bonus on the entire amount without making any distinction between the new company and the principal company. The purpose evident from the entire action was to reduce the amount to be paid by way of bonus to workmen. In the circumstances, the Court lifted the veil and held principal company to be responsible for payment of bonus on the entire amount without making any distinction between the new company and the principal company. It upheld application of lifting of veil to prevent device to avoid welfare legislation and said that it may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. The Court said that the list cannot be given exhaustively but lifting of veil must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc. 43. In L.I.C. of India v. Escorts Ltd. and others, AIR 1986 SC 1 370, it was held : “Generally and broadly speaking, it may be said that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc.” 44. In TELCO (supra) the Apex Court said that it would not be possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to when the veil of the corporation should be lifted or not. Broadly stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions. 45. Broadly stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions. 45. In C.I.T., Madras v. Meenakshi Mills Ltd., Madurai, AIR 1967 SC 819 , the Apex Court justified application of doctrine of lifting the veil of corporate entity for the reason that it found that there was an attempt for tax evasion or to circumvent tax obligation and to disregard the same, the Court pierced the veil and looked to the face who was behind the said veil. It said that in certain exceptional cases the Court is entitled to lift the veil of a corporate entity and to pay regard to the economic realities behind the legal facade. 46. In State of U.P. and others v. Renusagar Power Co. and others, 1988 (4) SCC 59 , principal company owned the entire share capital of the subsidiary company which was incorporated for generation of electricity and the entire generation was consumed by the principal company. The Apex Court pierced the veil in the present case in view of the fact that Renusagar Power Company was wholly owned subsidiary of Hindalco and completely controlled by the same to the extent of even day to day affairs. The entire generation of electricity of Renusagar Power Company was consumed by M/s. Hindalco and it was also found from the facts that the separate company was set up by the Hindalco to avoid any complication in future if power station is taken over by the State or Electricity Board. In order to avoid liability of electricity duty it sought to rely on the principle that two companies are different entities. The Court in the aforesaid facts and noticing that the device was sought to be relied to avoid liability of electricity duty, ignored the distinct juristic personality of the companies, lift the veil of the subsidiary and held that both companies are one and the same for the purpose of liability of electricity duty. The Court further held that in modern company jurisprudence the veil on corporate personality even though not lifted, sometimes is becoming more and more transparent. It was thus held that the consumption of electricity by Hindalco was taxable under Section 3(1)(c) of U.P. Electricity Duty Act, 1952. The Court further held that in modern company jurisprudence the veil on corporate personality even though not lifted, sometimes is becoming more and more transparent. It was thus held that the consumption of electricity by Hindalco was taxable under Section 3(1)(c) of U.P. Electricity Duty Act, 1952. The Court said : “It is high time to reiterate that in the expanding of horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of the legislation is to do justice to all the parties. The veil on corporate personality even though not lifted sometimes, is becoming more and more transparent in modern company jurisprudence. The concept of lifting the corporate veil is a changing concept and is of expanding horizons.” (Para 66) (emphasis added) 47. In New Horizons Ltd. and another v. Union of India and others, 1995 (1) SCC 478 , the Court noticed that on the basis of the judicial pronouncements, the attitude towards the corporate personality of the Company and ways in which its veil must be treated can be placed in four categories namely; (1) peeping behind the veil, (2) penetrating the veil, (3) extending the veil and (4) ignoring the veil. 48. In Calcutta Chromotype Ltd. v. Collector of Central Excise, Calcutta, AIR 1998 SC 1631 , the Court held that there is no bar on the authorities to lift the veil of a company, whether a manufacturer or a buyer, to see it as not wearing that mask, or not being treated as related person, when, both, the manufacturer and the buyer, are in fact the same persons. It held that tax planning may be legitimate provided it is within the framework of law but colourable devices cannot be part of tax planning. Dubious methods resorting to artifice or subterfuge to avoid payment of taxes on what really is income can today no longer be applauded and legitimised as a splendid work by a wise man but has to be condemned and punished with severest of penalties and for that purpose if a person is found to indulge therein the lifting of veil would also be justified. 49. 49. In Delhi Development Authority v. Skipper Construction Company (P) Ltd. and another, AIR 1996 SC 2005 : 1996(4) SCC 622 , the Court found that one Tejwant Singh and members of his family created several corporate bodies for committing illegalities and to defraud people. Discussing the circumstances in which the separate entity of the company must be discarded by lifting the corporate veil, it observed that when the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or protect knavery or crime, the Courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and-doing, men and women shareholders, and will do justice between real persons. Consequently in the aforesaid case the corporate character was ignored by the Court observing that Tejwant Singh and his family has evolved the said method not to encourage and promote trade and commerce but to commit illegalities and defraud peoples. 50. In Subhra Mukherjee and another v. Bharat Coking Coal Ltd. and others, 2000 (3) SCC 312 , it was observed that to look at the realities of the situation and to know the real state of affairs behind the facade of the principle of the corporate personality, the Court would pierce the veil of incorporation. In the said case some immovable property was alleged to be sold in favour of the wives of the Directors of the Company which is alleged to be collusive and, therefore, the Court applied the doctrine of piercing the veil to ascertain the true nature of the transaction, as to who were the real parties to the sale and whether it was a genuine or bona fide transaction or not. 51. In Kapila Hingorani v. State of Bihar, JT 2003 (4) SC 1, the Court said that a corporate veil can be pierced when the corporate personality is found to oppose justice, convenience and interest of revenue or workman or is against public interest. Therein the Court considered the liability of State Government for payment of dues of the employees of Government Companies in which it has 100% share holding but due to financial scarcity salary, wages and other dues of the employees could not have been paid. Therein the Court considered the liability of State Government for payment of dues of the employees of Government Companies in which it has 100% share holding but due to financial scarcity salary, wages and other dues of the employees could not have been paid. It was held that the State Government being the sole share holder is responsible for protection of the life and liberty of the employees of those companies which include their unpaid wages. Observing that liability can be fastened, both, upon owner and also the operator of the company, under certain situations particularly when the State Government, being a welfare State was liable to mitigate the sufferings of the employees of the public sector undertakings or the Government Companies. Consequently it issued directions to the State Government to provide necessary funds for payment of such dues. 52. In Sangramsinh P. Gaekwad and others v. Shantadevi P. Gaekwad (D) and others, JT 2005 (1) SC 581, while reiterating that the corporate veil can be lifted in certain situation the Court further observed that a distinction should also be kept in mind between a Family Company, Private Company and Public Limited Company. However, it refused to apply the said doctrine therein observing that once more than one family or several friends and relatives together form a company and there is no right as such agreed upon for active participation of members were sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked and the request to treat the limited company as quasi partnership was not accepted. 53. In recovery of tax dues this Court has also applied doctrine of lifting of veil and permitted recovery of dues from the Directors of the Company in several cases, some of which are Sri Ram Gupta (supra), M/s. Nand Auto Hire Purchase Pvt. Ltd. v. Regional Transport Officer/Licensing Authority, Kanpur and others, AIR 2004 All 404 ; Reflex Industries and another v. State of U.P. and others, 2004(4) AWC 3471 ; Sanjay Kumar Gupta v. District Magistrate, Fatehpur and others, 2002 (3) UPLBEC 2707 and Naresh Chander Gupta (supra). 54. In M/s. Nand Auto Hire Purchase Pvt. Ltd. (supra) the recovery of road tax was in dispute. 54. In M/s. Nand Auto Hire Purchase Pvt. Ltd. (supra) the recovery of road tax was in dispute. The petitioner contended that the truck was handed over to the financier M/s. Nav Instalments and, therefore, recovery should be made from the said financier which is a different legal entity. From the facts on record the Court found that the petitioner, M/s. Nand Auto Hire Purchase Pvt. Ltd. has its Managing Director, Sri Vishnu Bhagwan Agrawal who was also the managing partner of the firm M/s. Nav Instalments. In these circumstances not finding any substantial distinction between the person who was operating behind the said two bodies, and noticing that the entire attempt was to frustrate recovery of road tax, this Court recorded a finding of fact that Sri Vishnu Bhagwan Agrawal is really controlling both namely, the petitioner as well as M/s. Nav Instalments by invoking the doctrine of piercing the veil. In these circumstances, holding that writ is a discretionary remedy, the Court declined to interfere in writ jurisdiction. The aforesaid judgment cannot be said lay down proposition that whenever tax dues are to be recovered from a company, its Directors would also be personally responsible. 55. In Naresh Chander Gupta (supra) the dues of trade tax were sought to be recovered from M/s. Shiv Sewa Samiti, a society registered under the Societies Registration Act of which the petitioner, Naresh Chander Gupta was the secretary. Though recovery certificate was issued against the society but it was alleged by the petitioner that the revenue recovering authorities were proceeding against the assets of the petitioner himself. On the pleadings, the Court found that the petitioner has neither shown as to whether there are other office bearers of the society or not and as to who actually is running and controlling the society. Further the Court recorded a finding that the petitioner was really managing the entire society and had control over its operations and has created society for evading tax or for other extraneous reasons as is evident from the following : “18. On the facts of the present case we are of the opinion that the petitioner was really managing the entire society and had control over its operations. On the facts of the present case we are of the opinion that the petitioner was really managing the entire society and had control over its operations. He has only created the society for evading tax or for other extraneous reasons.” In these circumstances, the Court declined to exercise its discretionary remedy under Article 226 of the Constitution of India. The said judgment also is not an authority to hold that whenever the dues are to be recovered from a corporate body, the Directors etc. would be personally liable. 56. However, learned Standing Counsel sought to draw our attention to para 20 of the judgment which reads as under : “20. The Supreme Court has held in some of the above decisions that in tax matters the veil of corporate personality can be lifted so that the tax dues can be realized. The doctrine of piercing the veil of corporate personality has an expanding horizon. We are therefore expanding this doctrine and declare that ordinarily if there are tax dues against the corporate personality (or societies) they can be realized from the Directors, Secretary of the Society, or others who control the company or the society. This is necessary because in our country what is happening is that tax dues are often evaded by business under the cover of the doctrine of corporate personality. The petitioner society is not a charitable society doing social work but is doing business. Thus the petitioner is not entitled to the protection of the principle laid by the decision in Salomon v. Salomon and Co. Ltd. (supra).” We find that in para 19 of the judgment on the basis of the factual finding recorded in the said case the Court declined to exercise its discretionary remedy under Article 226 of the Constitution in favour of the petitioner. The observations made in para 20 of the judgment were thus not on an issue involved as such. The provisions of the Companies Act, the position of Directors qua company was neither in issue nor any argument was raised nor it can be said that such an issue was decided and the provisions of Companies Act having also not been referred to and considered, in our view, the said observations cannot be said to be a binding precedent and are per incurium. With great respect to the Bench we also notice that even the provisions of the Trade Tax Act which provides to what extent recovery can be made from persons, other than dealers who is registered under the Trade Tax Act, have not been noticed and considered. At this stage it would be appropriate to refer Section 8 sub-section (3) of the U.P. Trade Tax Act, 1948 which reads as under : “8(3) Notwithstanding anything contained in any law or contract to the contrary, the assessing authority may, at any time or from time to time, by notice in writing a copy of which shall be forwarded to the dealer at his last address known to the assessing authority, require— (a) any person from whom any amount is due or may become due to the dealer, or (b) any person who holders or may subsequently hold money for or on account of the dealer, to pay to the assessing authority— (i) forthwith upon the money becoming due or being held, or (ii) at or within the time specified in the notice not being before the money becomes due or is held. So much of the money as is sufficient to pay the amount due by the dealer in respect of arrears of tax or other dues under this Act, or the whole of the money when it is equal to or less than that amount. Explanation.—For the purpose of this sub-section, the amount due to a dealer or money held or on account of a dealer by any person shall be computed after taking into account such claim, if any, as may have fallen due for payment by such dealer to such person and as may be legally subsisting.” 57. The Court in para 21 of the judgment in Naresh Chander Gupta (supra) has rightly observed that the U.P. Trade Tax Act being Special Act so far as recovery of trade tax dues are concerned, and, therefore, would prevail over the general law like Societies Registration Act but thereafter the Court, with respect, has omitted to notice Section 8 sub-section (3) which permits assessing authority to realise the dues of a dealer from some other persons which does not include a person merely for the reasons that he is Director or shareholder or otherwise office bearer of the corporate body. Besides Section 8 sub-section (3), there is no other provision under the U.P. Trade Tax Act which empowers respondents to recover the dues of a dealer from the assets of any other person. In the present case it is not disputed that petitioner No. 1 who was registered under the provisions of U.P. Trade Tax Act, 1948 was a dealer for the purpose of liability of tax and not the petitioner No. 2. Wherever the legislature has intended, has provided statutory provision empowering tax authorities to recover the dues of a corporate body from its Directors, shareholders or others. For illustration, we may refer to Section 179 of the Income Tax Act, 1961 which reads as under : 179. (1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where by tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year 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. (2) Where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered, then, nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax due in respect of any income of such private company assessable for any assessment year commencing before the 1st day of April, 1962.” 58. A perusal of Section 179 shows that it has been given an overriding effect over the various provisions of the Act and makes Director of a Private Company responsible for payment of tax dues outstanding, of the period, he was Director, provided he proves that non-recovery is not attributed to any gross neglect, misfeasance or breach of duty on his part. The said provision, therefore, while making Director of the private company responsible for payment of tax dues jointly and severally, makes an exception that in case he proves that the assets of the company are not sufficient to meet tax dues and have reduced for reasons not attributable to him on account of any gross neglect, misfeasance or breach of duty, then such person would not be responsible. The legislature thus has also recognised even in the said statute the principle that the doctrine of lifting of veil in the matter of tax dues is to be applied to prevent fraud etc. and not where the company has suffered despite its normal bona fide function. The persons responsible for its management are not to be made responsible for normal depreciation of capital or assets merely because the dues are of Tax. Further even the said provision is applicable only to private companies and not to public companies other than those which are converted from private to public. 59. In fact some of the provisions have been made in the Act where the corporate veil has to be ignored. Section 45 provides where the number of members of a company reduce below seven, in the case of a public company, and the company continues to carry on business for more than six months with such reduced member, every person who knows this fact and is a member of the company is severally liable for the debts of the company contracted during that time. Section 147(4) of the Act provides that if an officer of a company signing bill of exchange, hundi, promissory note, cheque, if not mention the name of the company in the prescribed manner, such officer can be held personally liable to the holder of the bill of exchange, hundi etc. unless it is duly paid by the company. Section 542 of the Act provides that if during the course of winding up of a company it appears that any business of the company has been carried on with intent to defraud the creditors of the company or any other person or for any fraudulent purpose, the persons who were knowingly party to such carrying on business, shall be personally responsible without any limitation of liability for all or any of the debts or other liabilities of the company, as the Court may direct. 60. 60. We have not been shown that any similar provision exist in U.P. Trade Tax Act empowering recovery of dues of the company from the Directors or shareholders personally. At this stage it would be appropriate to notice another Division Bench decision of this Court in Adesh Kumar Jain and others v. U.P. S.E.B. and others, 1998 All. C.J. 266, the Court while rejecting a similar contention that the Director of the company would be personally liable for dues of the company held that though it is true that the Director of a company may be an agent of the company but that would not result in making the assets of the company to be the assets of the Director and vice versa. It further held that in the absence of any statutory provisions, recovery from the personal assets of the Director cannot be made. In para 7 of the judgment, the Court held : “7. Director’s liabilities in some of the enactments have already been dealt with in provisions contained in the relevant laws such as Employees State Insurance Scheme, Provisions of Food Prevention Act, Factories Act, Provident Fund Act, Industrial Disputes Act etc. etc. There is no provision in the U.P. Government Electricity Undertaking (Dues Recovery) Act, 1958 or Electric Supply (Consumers) Regulations, 1984 or even in the Indian Electricity Act, 1910 which may make it possible to read that a Director can be taken to be the successor of the Company which had entered into the agreement with the Board as a Consumer taking note of the definition of the word Consumer’ in any of the three laws referred to above.” 61. Where under the agreement or the statutory provisions, only the company is liable to pay the dues, in such cases the Directors would not be personally responsible and the doctrine of lifting the veil cannot be invoked in such case as is evident from following in the judgment of Adesh Kumar Jain (supra): “......In the instant case, there is an agreement between the parties and also the statutory provisions under which the only consumer company is liable for payment of the arrears of electricity dues and the Director of the company cannot be made personally liable. Hence the doctrine of lifting the veil cannot be invoked in the instant case.....” (Para 23) 62. Hence the doctrine of lifting the veil cannot be invoked in the instant case.....” (Para 23) 62. Therefore, in our view, the judgment of this Court in Naresh Chander Gupta (supra) cannot be said to be a precedent for holding that whenever the tax dues are to be recovered from a company, its Director would be personally responsible even though there is no such provision in the relevant statute. 63. In Sri Ram Gupta (supra) also the trade tax dues were sought to be recovered from the petitioner, a Director of a Private Limited Company. The Court after recording its inference that the assets of the company have been diverted or syphoned off by the petitioner for his own benefit and is left only a shell, refused to exercise its discretionary remedy. Thus the aforesaid judgment also does not lay down any legal proposition that whenever dues are to be recovered from a company, the Directors would be personally responsible. 64. In Reflex Industries (supra) one Smt. Poonam Suri purchased an industrial plot from its owner M/s. Wazid Sons Exports Ltd., New Delhi vide sale-deed dated 23.6.1987. The said premises was in tenancy of M/s. Krisons Electronics System Pvt. Ltd. Sri R.K. Suri, Managing Director of M/s. Krisons Electronics System Pvt. Ltd. was the husband of Smt. Poonam Suri. On purchase of land by Smt. Poonam Suri, it is said that M/s. Krisons Electronics System Pvt. Ltd. company became tenant of Smt. Poonam Suri. A fresh lease deed was executed between M/s. Krisons Electronics System Pvt. Ltd. and Smt. Poonam Suri on 17.7.1987. However, the possession of the said property was handed over by M/s. Krisons Electronics System Pvt. Ltd. to Smt. Poonam Suri on 10th April/July 1997. Smt. Poonam Suri executed a transfer cum sale-deed of the plot in question in favour of M/s. Reflex Industries, a proprietorship firm on 31.3.1998. For recovery of tax dues to the tune of Rs. However, the possession of the said property was handed over by M/s. Krisons Electronics System Pvt. Ltd. to Smt. Poonam Suri on 10th April/July 1997. Smt. Poonam Suri executed a transfer cum sale-deed of the plot in question in favour of M/s. Reflex Industries, a proprietorship firm on 31.3.1998. For recovery of tax dues to the tune of Rs. 2,35,90,606/- the authorities sealed the premises on 19.1.1999 whereagainst M/s. Reflex Industries filed the aforesaid writ petition claiming that neither the said petitioner nor Smt. Poonam Suri, the then owner of the plot in question, were defaulter and, therefore, the aforesaid premises could not be sealed for recovery of dues of M/s. Krisons Electronics System Pvt. Ltd. In the counter-affidavit, the facts as disclosed before this Court were that M/s. Krisons Electronics System Pvt. Ltd. was a private company owned by one family namely, Sri R.K. Suri who was also the Managing Director and was the husband of Smt. Poonam Suri. No outsider was involved in the said company. The land in question was purchased by Smt. Poonam Suri on behalf of her husband for business purpose as disclosed in the transfer deed dated 23.7.1987. M/s. Krisons Electronics System Pvt. Ltd. was already operating in the said plot before its purchase by Smt. Poonam Suri. The entire transaction was a novel tactics devised by Smt. Poonam Suri and her husband to dupe the huge Government revenue and the petitioner played an important role in the said game. It was pleaded that handing over possession was nothing but a transaction between husband and wife and a fraudulent one. Further it was also pointed out that the petitioner M/s. Reflex Industries purchased plot after recovery proceedings were already initiated against M/s. Krisons Electronics System Pvt. Ltd. for Rs. 1,65,18,777/-. Considering the pleadings and facts as brought, this Court accepted the contention of the authorities that there was a case of fraud on the part of petitioner as well as other persons for duping huge Government revenue and, therefore, the Court was inclined to pierce the veil of the corporate personality of M/s. Krisons Electronics System Pvt. Ltd. to find out the beneficiaries behind it and recorded a finding that fraud vitiates all proceedings. In the said case the whole transaction was to avoid tax recovery by playing fraud between the petitioner, Smt. Poonam Suri and M/s. Krisons Electronics System Pvt. Ltd. Therefore, in the facts of that case, as we have already noticed, the doctrine of piercing the veil could effectively been invoked. The said judgment is thus not an authority to lay down as a general proposition that whenever tax dues are recoverable from a company, its Directors would also be severally and jointly liable to pay the same and proceedings can be initiated against their personal assets. 65. In Sanjay Kumar Gupta (supra) also this Court in para 8 of the judgment proceeded by observing : “In our view, even if that is so it is not fit case for interference under Article 226 of the Constitution.” Therefore, in the facts of that case the Court declined to interfere under Article 226 of the Constitution as is also evident from para 19 of the judgment. Learned Standing Counsel sought to press the observations made in para 16 and 17 of the judgment where the Court observed that the doctrine of piercing the veil of corporate personality must be adopted by our Courts in the matter of electricity dues as this has assumed mammoth dimensions of hundreds or thousands of crores of rupees which unscrupulous businessmen are not paying under cover of the doctrine of corporate personality and the Court should not give shelter to the businessmen under the doctrine of corporate personality. We have no doubt, at all, in application of doctrine of piercing the veil even in respect of electricity dues whenever the circumstances and the facts so warrant. However, the said observations cannot be treated to be an exposition of law that whenever electricity dues are to be recovered from a company, the same can be proceeded against the personal assets of the Directors also without looking to the basic ingredients which would be necessary to invoke the doctrine of piercing the veil. No such proposition has been laid down by the Court. No such proposition has been laid down by the Court. So far as application of this doctrine is concerned, irrespective of the nature of dues, we are in respectful agreement with the Bench that whenever there is an attempt on the part of an individual or group of individuals to defraud the public revenue by taking recourse to corporate personality, the Court would always stand against such attempt by piercing the veil and finding out the real beneficiary behind the said design so as to make him responsible for payment of such dues. 66. On the contrary, in the absence of any statutory provisions, this Court has repeatedly held that the dues of a company cannot be recovered from personal assets of the Directors (See M/s. Malik Products India, Ghaziabad v. Sales Tax Officer, Ghaziabad, 1989 U.P.T.C. 458; Satish Chand Singhal, Kanpur and others v. Assistant Commissioner (Assessment) Sales Tax, Kanpur and others, 1987 U.P.T.C. 473; Chhedi Lal Gupta v. Additional Commissioner of Trade Tax, Varanasi and others, 2002 (20) NTN 20;G.C. Mehrotra, Allahabad (supra); Sudershan Kumar Gulati, Kanpur and others v. Deputy Collector (Collection), Sales Tax, Kanpur and others, 1994 U.P.T.C. 717; Purshottam Das Beriwal, Kanpur v. Deputy Collector (Collections), Sales Tax, Kanpur, 1989 U.P.T.C. 456; Yogendra Kumar Tyagi and others v. Collector, Muzaffarnagar and others, Writ Petition No. 8260 of 1996, decided on 20.3.1996; Surendra Kumar v. Collector, Muzaffarnagar, Writ Petition No. 35755 of 1993, decided on 16.12.1993; Jugal Kishore Paliwal v. Collector, Muzaffarnagar, Writ Petition No. Nil of 1994, decided on 10.5.1994; Bhiku Ram Jain v. State of U.P., 2001 U.P.T.C. 364; M/s. Shri Mahendra Kumar Jaipuria v. Commissioner of Trade Tax, U.P. Lucknow and another, VSTI 2007 All.H.C. 150; Ram Nath Gupta v. State of U.P. and others, 1999 U.P.T.C. 1289; Dr. Pawan Jain v. Commissioner, Trade Tax, U.P., Lucknow and another, VSTI 2007 All.H.C. 152; Devendra Prakash Goel and another v. Commissioner of Trade Tax, U.P., Lucknow and another, VSTI All.H.C. 153 and Smt. Uma Singhania and another v. Assistant Collector (Collection), Trade Tax, Kanpur and another, VSTI 2007 All.H.C. 157 [in which one of us (Hon’ble Sushil Harkauli, J.) was a member]. 67. 67. For the sales tax dues of the company the individuals are not responsible but it is the assets of the company which can be proceeded against as held in L. Parameshwari Das v. Collector of Bulandshahr, (1955) 25 Comp Cas 343 (All) and Desiraju Vankatakrishna Sarma, Re, AIR 1955 AP 26. 68. The cardinal principle which has been laid down in the aforesaid cases and expressly stated and reiterated in Purshottam Das Beriwal (supra) is as under: “The cardinal principle of law is that when there is a liability against a company, no recovery can be made from personal assets of its Director, unless it is specifically provided in the Statute or warranted by law. It is not brought to our notice that there is any specific provision in the U.P. Sales Tax Act, whereunder recovery of the liability outstanding against a company can be made against the personal assets of its Director.” 69. The legal position as discerned from the above is that in a case where the corporate personality has been obtained by certain individuals as a cloak or a mask to prevent tax liability or to divert the public funds or to defraud public at large or for some illegal purposes etc., to find out as to who are those beneficiaries who have proceeded to prevent such liability or to achieve an impermissible objective by taking recourse to corporate personality, the veil of the corporate personality shall be lifted so that those persons who are so identified are made responsible. However, this doctrine is not to be applied as a matter of course, in a routine manner and as a day to day affair so as to recover the dues of a company, whenever and for whatever reason they are unrecoverable, from the personal assets of the Directors. If such a course is permitted, it would lead to not only disastrous results but would also destroy completely the concept of juristic personality conferred by various statutes like the Act in the present case and would make several enactments and their effect to be redundant and illusory. Moreover, the shallowness of arguments in favour of making Directors personally responsible can be considered from another angle. In every case the Director may not be a shareholder of the company. Moreover, the shallowness of arguments in favour of making Directors personally responsible can be considered from another angle. In every case the Director may not be a shareholder of the company. He may have been appointed as Director for taking advantage of his expertise in his field of vocation or profession, and for achieving goals for which the company is incorporated. Such Director is paid remuneration, if any, for the services he rendered. Otherwise he is not at all a beneficiary of the business or trade etc., as the case may be, in which the company is engaged. Such benefit would be available only to the shareholders as they would only be entitled to share the profits earned by the company in the form of dividend as decided by the Board of Directors. In such case such Director, though is an agent of the company but he is more in the nature of an officer of the company and not in the capacity of limited ownership by way of shareholding. Such a Director, in our view, unless is guilty of misfeasance, fraud or acting ultra vires, we are not able to understand as to how he can be made responsible personally for the dues of the company even if we apply the doctrine of piercing the veil. If in such a case the veil is to be lifted, the persons behind the veil, at the best, would be the promoters of the company or those who have sought to obtain corporate personality as a sham or bogus transaction. Similarly, in some of the companies the financial institutions, who advances funds as loan etc., nominate their Director/s to keep some kind of monitoring over the functions of the company so that it may not go on liquidation on account of negligent and careless function of the Board of Directors. Such Directors also, in our view, cannot be included in the category of the persons who would be responsible personally for the dues of the company. 70. In order to find out as to who are the persons responsible personally when the veil is lifted it would be wholly irrelevant as to whether such person is a Director or a promoter shareholder or otherwise of the company since the purpose of lifting the veil is to find out the person/s who is operating behind the corporate personality for his personal gain. Such person may be individual or group of persons belonging to a family or relatives or otherwise a small group collected with a common objective of achieving some illegal, immoral or improper purpose etc. So long as no investigation is made into various aspects, we are not able to understand as to how and what manner a Director of a company can straightway be proceeded personally for recovering dues of a company unless it is so provided by some provision of the statute. 71. Recently considering a similar controversy with reference to the provisions of Payment of Wages Act, the Apex Court in P.C. Agarwala v. Payment of Wages Inspector, M.P. and others, AIR 2006 SC 3576 , has held as under : “17. It is trite law that liability of a person is dependent upon the Statutory prescriptions governing such liability. Sections 5 and 291 of the Companies Act, 1956 (in short Companies Act’) are to be noted in this regard. Section 5 refers to officer who is in default. Section 291 on the other hand relates to general powers of the Board of Directors. In order to attract the liability under the Act, it has to be seen as to on whom the Act fixes the liability. Section 3 speaks of the responsibility for payment of wages. It speaks of the “employer” which expression is defined in Section 2(ia). Section 15 refers to the claims arising out of deductions from wages or delaying payment of wages and penalty for malicious or vexatious claims. Statutorily no liability has been fixed on the Directors." 72. Further in para 24 of the judgment also the Court held as under : “Therefore, on a plain reading of the language of the governing statute, it cannot be held that the Directors had any personal liability......” 73. In the said judgment with respect to applicability of doctrine of lifting of veil, after referring to the learned authors like Palmer and Gower, the Court has clearly said that at present judicial approach in cracking upon the corporate shell is somewhat cautious and circumspect. It is only when the statute justifies adoption of such a course or in exceptional cases, where Courts have felt themselves satisfied to ignore the corporate entity and to treat the individual shareholder(s) liable for its acts, such a course has been adopted. It is only when the statute justifies adoption of such a course or in exceptional cases, where Courts have felt themselves satisfied to ignore the corporate entity and to treat the individual shareholder(s) liable for its acts, such a course has been adopted. Broadly, where fraud is intended to be prevented, or trading with enemy is sought to be defeated, the veil of corporation is lifted by judicial decision and the shareholders are held to be “persons who actually work for corporation”. 74. This judgment also goes to show that normally when the veil is lifted it is the promoters, shareholders or the shareholders who are found to be working behind the veil, responsible, and the Directors as such would not be taking to be responsible for meeting the liabilities of the company unless the statute so provides or it is found that the act of the Directors is ultra vires resulting in extinction of assets and funds of company making recovery from the company impossible. 75. 75. In brief, we can categories the cases in which the corporate personality of the incorporate body can be ignored and it would be better to refer the renowned author Palmer’s Company Law 23rd Edition where he has categorised the cases, in which the principle of separate entity of the Company has been discarded by adopting the doctrine of lifting the veil, in 15 categories and some of which are as under : “(1) where companies are in relationship of holding and subsidiary (or sub-subsidiary) companies; (2) where a shareholder has lost the privilege of limited liability and has become directly liable to certain creditors of the company on the ground that, with his knowledge, the company continued to carry on business six months after the number of its members was reduced below the legal minimum; (3) in certain matters pertaining to the law of taxes; death duty and stamps, particularly where the question of the “controlling interest” is in issue; (4) in the law relating to exchange control; (5) in the law relating to trading with the enemy where the test of control is adopted; (6) where a holding company or a subsidiary company were not working in an autonomous manner and thus were treated as forming an economic unit; (7) where the new company was formed by the members of an existing company holding 9/10 shares in the existing company and only with an object of expropriating the shares of minority share holders of the existing company; (8) where the device of incorporation is used for some illegal or improper purpose; (9) where several companies promoted by the same controlling share holders for defeating or misusing the loss pertaining to labour welfare; (10) where the facts or equitable considerations justify an exemption from the strict rule in Salomon v. Salomon and Co. Ltd.” 76. Another learned author L.C.B. Gower in his “Principles of Modern Company Law” 4th Edition, has also given such illustration where the veil of a corporate body has been pierced and has enumerated the same as fraudulent trading, misdescription of company, and taxation matters where the statute require etc. 77. In the nutshell, the doctrine of lifting of veil or piercing the veil is now a well established principle which has been applied from time to time by the Courts in India also. 77. In the nutshell, the doctrine of lifting of veil or piercing the veil is now a well established principle which has been applied from time to time by the Courts in India also. There is no doubt about the proposition that whenever the circumstances so warrant, the corporate veil of the company can be lifted to look into the fact as to whose face is behind the corporate veil who is trying to play fraud or taking advantage of the corporate personality for immoral, illegal or other purpose which are against public policy. Such lifting of veil is also has to implemented whenever a statute so provided. However, it is not a matter of routine affair. It needs a detailed investigation into the facts and affairs of the company to find out as to whether the veil of the corporate personality needs to be lifted in a particular case. After lifting the veil, in a case where it is so required, it is not always that the Directors would automatically be responsible but again it is a matter of investigation as to who is/are the person/s responsible and liable who had occasioned for application of said doctrine. Initial burden for application of the doctrine of “Piercing of Veil”: 78. Whether in respect to tax dues or other public revenue or in other cases, if one has to discard the corporate personality, then the initial burden would lie upon it to place on record relevant material and facts to justify invocation of doctrine of lifting of veil and to plead that the corporate shell be not made a ground of defence. A personality conferred by the statute cannot be overlooked or ignored lightly and in a routine manner or on a mere asking. In fact whenever the veil is to be pierced, it would mean that somebody, individual or group of individuals, have obtained the shell of corporate personality as a pretext or mask to cover up a transaction or intention of those individual/individuals is neither legal nor otherwise in public interest. In effect the attempt of those individuals have to be shown akin to fraud or misrepresentation. In effect the attempt of those individuals have to be shown akin to fraud or misrepresentation. The legal personality of the corporate body thus can be ignored in such cases since it is well settled that fraud vitiates everything and, therefore, the benefit of legal personality obtained by someone for purposes other than those which are lawful or even if lawful but not otherwise permissible, the corporate personality being the result of such fraudulent activity would have to be discarded but not otherwise. These are the things based on positive factual material and cannot be presumed in the absence of proper pleadings and material to be placed by the person who is pleading to invoke the doctrine of piercing the veil and to ignore the juristic personality of the corporate body. Once relevant material is made available by the authority or person concerned, thereafter it would be the responsibility of the other side to place material to meet the aforesaid facts but the mere fact that the company has failed to pay the Government dues or public revenue, that by itself would not invite the doctrine of piercing the veil and is not sufficient to ignore the statutory corporate personality conferred upon a company and make its Directors or shareholders responsible personally. 79. In the case in hand we do not find that any such attempt has been made by the respondents before issuing the impugned notice dated 23.5.2003 to the petitioner No. 2 requiring him to pay dues of petitioner No. 1 from his personal assets. We are informed by learned Standing Counsel that pursuant to the judgment of this Court in Naresh Chander Gupta (supra) the Commissioner, Trade Tax has issued a circular directing various authorities to initiate recovery proceedings against the Directors of the companies where the dues have not been recovered from the companies and it is pursuant to such circular the authorities are proceeded accordingly. However, no such circular has been placed before the Court and it is not part of the record. However, no such circular has been placed before the Court and it is not part of the record. We are not making any observation with respect to the validity of said circular but it is suffice to us to make it clear that even when the tax dues are to be recovered from a corporate body, the Directors of such corporate body would not automatically be responsible unless the doctrine of lifting of veil is found to be applicable in the facts and circumstances of the affairs of that company and thereafter it is further found as to who are the persons who were operating behind the veil. Otherwise, a Director or shareholder cannot be made personally responsible for the dues of a company except of those cases where such a provision is made in the statute or otherwise warranted in law. 80. Neither in the notice nor in the counter-affidavit filed in the present case any such case has been made out by the respondents and in a mechanical manner, the impugned notice has been issued to petitioner No. 2 on the analogy that responsibility of the Director personally operates suo moto whenever tax dues of company are not paid. The said assumption on the part of the respondents is thoroughly misconceived and we express our dissatisfaction with the manner in which the respondents have proceeded without understanding legal position in this regard in correct perspective. 81. In the last we propose to consider the submission of learned Standing Counsel made vehemently that this is not a fit case in which this Court may exercise its discretion under Article 226 of the Constitution since huge public revenue has not been paid by the petitioners and, therefore, even petitioner No. 2 is not entitled for any indulgence in equitable and discretionary jurisdiction. 82. So far as the petitioner No. 1 is concerned, we have already held that there is no fault in making recovery against it and the writ petition to that extent is liable to be dismissed. 83. However, so far as petitioner No. 2 is concerned, it is not disputed that he is not the dealer under the U.P. Trade Tax Act and, therefore, the amount of tax recoverable from petitioner No. 1 is not liable to be paid by the petitioner No. 2 under the aforesaid Act. 83. However, so far as petitioner No. 2 is concerned, it is not disputed that he is not the dealer under the U.P. Trade Tax Act and, therefore, the amount of tax recoverable from petitioner No. 1 is not liable to be paid by the petitioner No. 2 under the aforesaid Act. The liability of the petitioner No. 2 is being extended only on the ground that he being Director of petitioner No. 1 is liable to pay tax dues of petitioner No. 1 from his own personal assets and if not paid the same may be recovered from him personally by coercive methods. For the aforesaid purpose the respondents have not been able to show any statutory provision under which the petitioner No. 2, as Director of the petitioner No. 1, is personally liable to pay the dues of petitioner No. 1. The entire reliance is on the judgment of this Court in Naresh Chander Gupta (supra) which we have already dealt with and shown that it does not lay down any such proposition of law. Besides, we have not been shown any provision or legal proposition whereunder the petitioner No. 2 can be held personally responsible to clear the dues of petitioner No. 1. That being so, any liberty to the respondents, still to proceed against the property of petitioner No. 2, would amount to depriving the petitioner No. 2 of his property without any authority of law and it would be a direct infringement of the constitutional right conferred upon the petitioner No. 2 vide Article 300-A of the Constitution which reads as under : “300-A. Persons not to be deprived of property save by authority of law.—No person shall be deprived of his property save by authority of law.” 84. The Constitutional right conferred upon a person cannot be allowed to be infringed in such manner as is sought to be argued by the respondents. Whenever the State proceed to infringe constitutional protection of any person, this Court being the constitutional protector is bound to protect such person from such infringement, is bound to act upon and come to rescue to such person, and, against such unconstitutional act of the State. Whenever the State proceed to infringe constitutional protection of any person, this Court being the constitutional protector is bound to protect such person from such infringement, is bound to act upon and come to rescue to such person, and, against such unconstitutional act of the State. The apparent infringement of constitutional protection cannot be allowed to perpetuate on the mere asking of the State and this Court under Article 226 of the Constitution would be duty bound to interfere and protect a person from such infringement unless it has satisfied that such person is guilty of concealment of material facts or has come to the Court with unclean hands and, therefore, is not entitled for discretionary exercise of power under Article 226 of the Constitution. In the case in hand, neither there is any pleadings on the part of the respondents nor even a suggestion that the petitioner No. 2 is guilty of either concealment of any material fact or has come this Court with unclean hands or his otherwise is entitled not to have any discretionary jurisdiction to be exercised in his favour. Any other view would encourage the public authorities to indulge in misuse of power and corruption by harassing the much weaker individual. We, therefore, are not inclined to accept the contention of the respondents as above and the same is hereby rejected. 85. In the result, the writ petition succeeds partly. The impugned notice dated 23.5.2003 (Annexure-7 to the writ petition) is hereby quashed. However, it is made clear that the recovery proceedings against the petitioner No. 1 would not be affected in any manner by this judgment and may proceed in accordance with law. 86. However, there shall be no order as to costs. ————