Case Note & Summary
The petitioner, Purshottam Das Gupta, an 86-year-old senior citizen, was formerly a director of Sujata Verbatim Limited (later renamed PDG Infotech Limited). The company was incorporated on 24 December 1985 and changed its name in April 2004. The petitioner ceased to be a director and had no further association with the company. On 28 December 2018, the Assistant Commissioner of Customs (Import-I), Tax Recovery Cell, issued a demand notice under Section 142(1)(c)(ii) of the Customs Act, 1962, read with Rule 4 of the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995, directing the petitioner to pay outstanding customs duty dues of the company amounting to Rs. 2,49,10,040/- along with interest and costs, failing which the respondents would attach his property. The petitioner challenged the notice by way of a writ petition before the Bombay High Court. The main legal issue was whether a former director could be held personally liable for the company's customs duty dues under the said provision. The petitioner argued that he had no connection with the company at the time of the demand and that the provision does not impose personal liability on directors. The respondents contended that the provision allows recovery from any person who is or was a director. The court analyzed Section 142(1)(c)(ii) and held that it does not create any personal or vicarious liability on a director who has ceased to be associated with the company. The provision only permits attachment of property of the defaulter, i.e., the company, and not of its former directors. The court quashed the demand notice and allowed the petition, holding that the notice was without authority of law.
Headnote
A) Customs Law - Recovery of Dues - Personal Liability of Director - Section 142(1)(c)(ii) Customs Act, 1962 - The court considered whether a demand notice under Section 142(1)(c)(ii) could be issued against a former director for recovery of company's customs duty arrears. The petitioner had resigned as director and had no connection with the company at the time of demand. The court held that the provision does not create personal or vicarious liability on a director who has ceased to be associated with the company. The demand was quashed as without authority of law. (Paras 1-21) B) Customs Law - Attachment of Property - Defaulter's Property - Section 142(1)(c)(ii) r/w Rule 4 of Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995 - The court examined the scope of the power to attach property of a defaulter. It held that the provision applies only to the defaulter himself, not to persons who were once directors but have no present liability. The notice was set aside. (Paras 7-21)
Issue of Consideration
Whether a former director of a company can be held personally liable for the customs duty dues of the company under Section 142(1)(c)(ii) of the Customs Act, 1962, after he has ceased to be a director and has no association with the company.
Final Decision
The court allowed the writ petition and quashed the demand notice dated 28 December 2018 issued under Section 142(1)(c)(ii) of the Customs Act, 1962. Rule made absolute.
Law Points
- Personal liability cannot be imposed on a former director for company's customs dues in absence of specific statutory provision
- Section 142(1)(c)(ii) of Customs Act
- 1962 does not create vicarious liability
- Director's liability ceases upon resignation and cessation of association with company
