Allowed

Satish D. Sanghvi v. the Union of India and 2 Ors.

Bombay HC22 Sept 2009NMW/440/2009

Case brief

AI extract

What is this about?

The Court quashed the attachment order and demand notice issued against the petitioner's personal assets. It held that company duty liability cannot be fastened on directors absent specific statutory provision. A bank guarantee was ordered pending future recovery proceedings following due procedure.

What did the court decide?

Demand notice and attachment order quashed. Petitioner directed to furnish bank guarantee for Rs. 10,00,000/- within six weeks.

Satish D. Sanghvi Vs the Union of India and 2 Ors. — Company and Corporate | Bombay HC (2009)

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acd

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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NOTICE OF MOTION NO. 440 OF 2009 WITH WRIT PETITION NO. 2087 OF 2006

Satish D. Sanghavi

...Petitioner

Vs.

Union of India & Ors. ...Respondents

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Mr. Prasad Batavia i/b India Law Alliance, for the Petitioner. Mr. M.I. Sethna, senior Advocate with Mr. J.B. Mishra, for Respondent No.1.

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Ms. S.M. Dandekar, AGP for Respondent No.2.

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CORAM : F.I. REBELLO & D.G. KARNIK, JJ. DATED : 22ND SEPTEMBER, 2009

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P.C .

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1. Considering the the motion and the controversy, with consent of parties, both the motion and Petition are taken up for final hearing.

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In the writ petition no.2087 of 2006, the petitioner has approached this court against the demand notice made by the respondents in respect of personal assets of the petitioner who was a director of a company known as M/s Twin City Organics Pvt.Ltd. which

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is now before the B.I.F.R., in respect of which an order has been passed

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by the B.I.F.R. in respect of duty owed by the said company. The respondents had issued an order of attachment. That order had been given effect to, by attaching the flat which is the subject matter of the present petition.

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2. When the matter came up before this court for consideration, an order came to be passed on 28.09.2006, when on behalf of revenue the learned counsel drew the attention of the court to section-9AA of the Central Excise Act, 1944. Section 9AA sets out that “ where an offence is committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. ” Section-9 pertains to offences and penalties.

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There was a duty demand in respect of the company under section-11-A(a). As the said amount was not paid the order of attachment came to be issued. Sections-9 and 9AA are in respect of criminal liability whereas duty is in respect of civil liability. Penalty imposed for breach of civil liability partakes of a different character from a criminal offence under section-9AA. This distinction has been noted and reiterated by the Supreme Court in the case of Union of

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India Vs. Dharmendra Textile Processors {2008 (231) E.L.T.3(S.C)

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3. The settled position in law is that liability for duty of the company cannot be fastened upon the director of a company unless there is a statutory provision to that effect. Such an issue came up for consideration before this court in the matter of of Sunil Parmeshwar Mittal Versus Dy. C.(Recovery Cell), C.EX, Mumbai-I, wherein the court took a view that liability of members is limited to the extent of face value of shares subscribed by each member and amount remaining unpaid on them for time being, former director of the company cannot be held responsible for payment of liabilities of company in the absence of any specific provision. This was reiterated in unreported judgment delivered on 5.5.2009 in the case of Chandrakant Bhalchandra Garware Versus Union of India & Ors. In writ petition no. 4117 of 2009. We are of the opinion that duty demand of the company cannot be recovered from the director in the absence of statutory provisions in the Central Excise Act, 1944.

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4. The learned counsel for the petitioner, however, submits that another company known as Dyes Distribution India Ltd., which is/was also before B.I.F.R. and in respect of which the penalty at Rs. 10,00,000/- has been imposed personally on the director, the Petitioner herein.

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The learned counsel for the petitioner points out that to their knowledge they have not received any such notice.

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5. On the facts and circumstances, the present writ petition is disposed of by the following order:

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Demand Notice being Exh.C’ and Notice of Attachment being Exh.D’ to the Petition are quashed and set aside;

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Petitioner, however, will furnish a bank guarantee within six weeks from today for the sum of Rs.10,00,000/-. The said bank guarantee to continue for a period of six months from today. It will be open to the respondents to take steps in law for recovery of the penalty after notice to petitioner.

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We make it clear that the said bank guarantee will not be invoked without following due procedure and notice to the petitioner. Rule made absolute, with no order as to costs.

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In view of the disposal of the writ petition, the notice of motion has become infructuous and is disposed of accordingly.

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A copy of the said order to be made available to the petitioner.

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(D.G. KARNIK, J.)

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(F.I. REBELLO, J.)

Satish D. Sanghvi v. the Union of India and 2 Ors.

Case brief

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Satish D. Sanghvi v. the Union of India and 2 Ors.

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