JACOB Vs. DIVISIONAL FOREST OFFICER

JUDGEMENT

(1.) The petitioners in these two original petitions are the Directors of a Company by name Veneers and Laminations (India) Ltd. The company was the highest bidder at an auction sale of rosewood conducted on 26-4-1983 by the first respondent, but the auction was not confirmed in its favour, because of default in complying with the requisite formalities. The rosewood was therefore reauctioned and the Government sustained a loss of Rs. 77,360-60 at the reauction. When proceedings were initiated for recovery of the amounts under the Revenue Recovery Act (the RR Act) the company filed writ petition O.P.No. 1790 of 1989 challenging the proceedings as incompetent. That was dismissed. Subsequently the movable assets of the company were attached and sold. The amount fetched being insufficient to discharge the loss sustained by government, proceedings were initiated again under the RR Act, but this time, against the Directors of the company, viz. the petitioners as if they were liable to make good the amount. All of them were served with notice, Ext; P4, under S.7 of the said Act. The Directors of the company have thereupon filed these original petitions contending that they have no liability for the amount in question and that the proceedings initiated against them for recovery of the amount are incompetent.

(2.) No counter affidavit has been filed on behalf of the respondents. There is no dispute that the amount sought to be recovered is that due from the company, Veneers and Laminations (India) Ltd. to government. There is also no case for the respondents that as per the conditions of the auction, personal liability is cast on the Directors of the company to make good the loss sustained by the government in such circumstances. As such no liability can be cast on the petitioners for payment of the amount to the government.

(3.) A company is a distinct legal entity, a corporate body, separate from its members. It is a juristic person entirely distinct from its shareholders. (vide Salomon v. Salomon & Co. Ltd. (1897) AC 22, Bacha F. Guizdar v. Commissioner of Income Tax, AIR 1955 SC 74 ). Any liability of the company is liable to be recovered from it or its assets. It is not liable to be recovered from its Directors unless such a liability is cast on them by any provision of law or they .have, by any act of theirs, made themselves personally liable for the amount. There is no case for the respondents that either under the terms and conditions of the auction, or under any provision of law, or contract, the petitioners-directors are bound to reimburse the Government for any loss that may be sustained in respect of the bid made by the company. S.78 of the Forest Act, to which reference was made by the respondents, does not support their action for recovery of the amount from the petitioners. All that S.78 provides is that the contractors engaged by the Officers of the Department to fell, remove or deliver timber will be responsible for any loss or damage caused by any act or omission on the part of any of their subordinates, servants or agents infringing any of the provisions of this Act or of any rule framed thereunder. The section is enacted to cast vicarious liability on the contractors for the acts of their subordinates, servants or agents, resulting in infringement of the provisions of the Act or the Rules. I do not see anything in the section casting any personal liability on the Directors of a distinct juristic entity like a company to make good the loss caused by the act of the company, apart from the fact that non compliance with the requisite formalities relating to an auction is no infringement of any of the provisions of the Forest Act or the Rules. The proceedings against the petitioners are therefore misconceived and unauthorised. Similar view relating to the liability of the Directors of a company has been taken by this court in the matter of arrears of sales tax due from a company. In the decision in Ramachandran v. State of Kerala, ( 1983 KLT 1024 ) it was held that the Directors of a company cannot be made personally liable for the arrears of sales tax due from the company. This was reiterated in the decision in Punalur Paper Mills Ltd. v. District Collector, Quilon. 1985 KLT 758 . Since the company has a distinct legal personality of its own, the Directors cannot be held personally liable for the dues of the company, in the absence of any law or contract making them so liable. The proceedings initiated against the petitioners for realisation of the amount of Rs. 77,360-60 due to the Government from the company are therefore unsustainable in law.