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Allahabad High Court · body

2012 DIGILAW 732 (ALL)

PIYUSH KUMAR v. STATE OF U. P.

2012-03-27

PANKAJ NAQVI, SUNIL AMBWANI

body2012
JUDGMENT By the Court.—We have heard Sri Rohit Agarwal for the petitioner. Sri Pankaj Kumar Shukla appears for the U.P. Power Corporation Ltd through Executive Engineer, Distribution Division, Bijnor. 2. The petitioner was a Director of the U.P. Lime Chem. Ltd - a public limited Company registered under the Companies Act 1956, with its registered office situated at Haridwar Road, Bijnor. 3. The Company entered into an agreement with the Executive Engineer, Electricity Distribution Division-I Bijnor on 22.2.1990, for supply of 335 KVA electricity load. The agreement was signed by the petitioner as a director of Company. Clause 13 of the agreement provided that any notice by the supplier to the consumer shall be deemed to be duly given and served, if it is addressed to the consumer and delivered by hand at, or sent by registered post to the address specified in the consumer’s application or as subsequently notified to the supplier. Clause 14 provides that consumer shall pay in advance an estimated amount to be intimated by the supplier to the cost of providing and installing the line, connecting mains and apparatus excluding transformer and O.C.B payable by the supplier but such line, mains and apparatus shall remain the property of the supplier, even though the cost thereof has been paid by the consumer. The agreement does not define the consumer or imposes any personal liability on the director of the company. 4. It is stated that the directors of the Company have not given any personal guarantee, or undertaking to pay the amount due from the Company as a consumer to the Power Corporation. 5. It is alleged that electricity connection was given in the year 1990, to the factory of the Company for running a plant for manufacture of calcium carbonate. Since the Company did not pay the bills, a notice dated 30.6.2001, under Section 3 of U.P. Government Electricity Undertaking (Recovery of Dues) Act 1958, was issued to the petitioner, raising a demand of Rs. 19,91,351.30. The petitioner filed objections to the notice sent to him alleging that he is only a Director of the Company, and is not liable to pay the outstanding dues of the Company. After two years, the petitioner received a citation dated 8.5.2003, for a sum of Rs. 15,41,685/-, as electricity dues, without giving the break-up. 6. 19,91,351.30. The petitioner filed objections to the notice sent to him alleging that he is only a Director of the Company, and is not liable to pay the outstanding dues of the Company. After two years, the petitioner received a citation dated 8.5.2003, for a sum of Rs. 15,41,685/-, as electricity dues, without giving the break-up. 6. Sri Rohit Agarwal, learned counsel for the petitioner submits that the ‘consumer’ is defined under clause 2 (b) of the Electric Supply (Consumers) Regulations 1984, as follows : “2 (b): ‘consumer’ means any person who is supplied with energy by the Board and include any person whose premises are for the time being connected with the works of the board for the purpose of receiving electrical energy and also includes an intending consumer and a consumer who has been disconnected.” 7. Sri Agarwal submits that the demand was raised prior to enforcement of Electricity Act 2003, and the notification of U.P. Electricity Supply Code 2005. The ‘consumer’ in the present case would be the ‘Company’ and not the ‘Directors of the Company’, who are not liable personally for payment of any amount due to the electricity department. He further submits that even under the Electricity Act 2003, the word ‘consumer’ is defined as a person who has been supplied with electricity for his own use, or the Government and that the ‘consumer’ in such a case would be the Company and not the directors, who are not personally liable for the dues of the Company. 8. Section 2 (15) of the Electricity Act, 2003, defines ‘consumer’ as follows : “(15) “consumer” means any person, who is supplied electricity for his own use by a licensee or the Government or by any other person engaged in the business of supplying electricity to the public under this Act or any other law for the time being in force and includes any person whose premises are for the time be connected for the purpose of receiving electricity with the works of a licensee, the Government or such other person, as the case may be” 9. Sri Rohit Agarwal relied upon judgments of the Court in Adesh Kumar Jain v. UPSEB, 1998 (1) LBESR 677 and M/s. Meekin Transmission Ltd., Kanpur and another [Writ Tax No. 749 of 2003, decided on 14.2.08], in support of his case. Sri Rohit Agarwal relied upon judgments of the Court in Adesh Kumar Jain v. UPSEB, 1998 (1) LBESR 677 and M/s. Meekin Transmission Ltd., Kanpur and another [Writ Tax No. 749 of 2003, decided on 14.2.08], in support of his case. In both the cases, this Court, after referring to various provisions of the Acts and Regulations namely Indian Electricity Act 1910, U.P. Government Electricity Undertaking (Recovery of Dues) Act 1958, Electric Supply (Consumers) Regulations, 1984 as well as U.P. Trade Tax, and other Acts, held that the Directors of the Company could not be made personally liable for the electricity dues of the consumer Company unless and until the director gives such an undertaking or personal guarantee for recovery of the dues from his personal assets. 10. Sri Pankaj Kumar Shukla, submits that the petitioner had entered into agreement on behalf of the Company as a Director of Company. He has filed a civil suit and prayed for stay of recovery certificate. An order was passed by the trail Court to make the payment in instalment. The petitioner, however, failed to deposit the due amount. 11. Sri Shukla further submits that position has now been clarified in clause 4.3 (f) (i) to (vi) of the U.P. Electricity Supply Code 2005. Clause (v) of para 4.3. (f) provides that the director of the company shall be liable for the dues of the company. 12. A Company is an artificial person, and can only contract through agents. The normal mode of signing is to use the words ‘on behalf of the Company’, and if the Director, as an agent of the Company signs the contract for the Company, no personal liability is attached to him. The Directors thus under Section 46 of the Companies Act 1956, can sign the contracts for the Company, which binds the Company, unless the Articles of Association of the Company or any resolution of the Board of Directors restricts or takes away such authority. The Directors are not personally liable, unless it appears that they take personal liability (Palmer’s company Precedents p. 511). The Directors may be made personally liable in damages, where they act beyond their powers; acts by making negligent misrepresentation; acts in violation of the provisions of the Companies Act such as Section 77 or plays fraud representing the Company. 13. The Directors are not personally liable, unless it appears that they take personal liability (Palmer’s company Precedents p. 511). The Directors may be made personally liable in damages, where they act beyond their powers; acts by making negligent misrepresentation; acts in violation of the provisions of the Companies Act such as Section 77 or plays fraud representing the Company. 13. We do not find that there is any provision in the U.P. Government Electricity Undertaking (Dues Recovery) Act 1958 or Electric Supply (Consumers) Regulations 1984, for recovery of the dues from the individual assets of the directors. This Court has held in the aforesaid cases that the definition of ‘consumer’ would include the Company and not the Director of the Company in his personal capacity. The U.P. Electricity Supply Code 2005, came into force, after recovery citation was issued, and in any case clause 4.3 (f) (iv) provides that outstanding dues will be first charge on the assets of the company, and the licensee shall ensure that this is entered in the agreement with new applicant. Sub clause (v) provides that recovery proceedings against the defaulting consumer, and where the defaulting consumer is a company, from the Directors of the Company, shall be ensured.. 14. In our view, firstly these clauses are not applicable in as much as the U.P. Electric Supply Code 2005, made under Section 50 of the Electricity Act 2003, was notified after the dues were ascertained and recovery citation was issued; and secondly para 4.3 (f) (iv) of the Electricity Supply Code 2005 provides that outstanding dues is the first charge of the company. It is only after the assets of the Company are unable to meet the demand of the department then recovery proceedings may be initiated against the Directors of the Company. Clause (v) of para 4.3 (f) of the Supply Code provides that where a financial institution has auctioned the property without consideration to licensee’s charge on assets, claims may be lodged with the concerned financial institution with diligent pursuance. The Directors manage the Company for its shareholders. They are in-charge of the management and the business of the Company for the benefit of the shareholders. The Directors manage the Company for its shareholders. They are in-charge of the management and the business of the Company for the benefit of the shareholders. They are not liable for the dues of the company only on the ground that they have signed an agreement on behalf of the company, unless there is specific provision, or when they agree under the agreement or execute personal guarantees or bonds for due payment of the amount. 15. We do find that there is any averment in the counter-affidavit that the U.P. Power Corporation had first proceeded against the assets of the company, for recovering its dues, and thereafter issued the recovery certificate for recovering the balance amount from the personal assets of the petitioner. 16. For the aforesaid reasons, the writ petition is allowed partly. The citation 8.5.2003 is hereby quashed. The respondents are restrained from recovery of the dues of the U.P. Lime Chem. Ltd from the personal assets of the petitioner. It will be open to the respondent Power Corporation, to proceed with the recovery proceedings against the U.P. Lime Chem. Ltd in accordance with law. ——————