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  • Liability of A Director

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    Section 179 of the Companies Act holds directors of private companies jointly and severally liable for any unpaid taxes of the company, unless they can prove the non-payment was not due to gross neglect, misfeasance, or breach of duty on their part. Case law has established that section 179 applies whether the company is in liquidation or not. The courts have also granted relief to directors not directly involved in defaults or breaches, as long as they acted honestly and reasonably. The Supreme Court of India has held directors can be held vicariously liable for violating statutes if provisions allow for it, so directors must understand their duties and exercise due care and diligence.

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    Section 179 of the Companies Act holds directors of private companies jointly and severally liable for any unpaid taxes of the company, unless they can prove the non-payment was not due to gross neglect, misfeasance, or breach of duty on their part. Case law has established that section 179 applies whether the company is in liquidation or not. The courts have also granted relief to directors not directly involved in defaults or breaches, as long as they acted honestly and reasonably. The Supreme Court of India has held directors can be held vicariously liable for violating statutes if provisions allow for it, so directors must understand their duties and exercise due care and diligence.

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    13 views2 pages

    Liability of A Director

    Uploaded by

    Amitansh
    Section 179 of the Companies Act holds directors of private companies jointly and severally liable for any unpaid taxes of the company, unless they can prove the non-payment was not due to gross neglect, misfeasance, or breach of duty on their part. Case law has established that section 179 applies whether the company is in liquidation or not. The courts have also granted relief to directors not directly involved in defaults or breaches, as long as they acted honestly and reasonably. The Supreme Court of India has held directors can be held vicariously liable for violating statutes if provisions allow for it, so directors must understand their duties and exercise due care and diligence.

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    Liability of a Director

    Section 179 of companies act- Liability of directors of private company in liquidation.--

    (1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), (where any
    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.

    1)According to Gurudas Hazra vs P.K. Chowdhury And Ors.-

    Section 179 applies now to companies, whether those are in liquidation or not.

    2)Prakash Khaitan v. Shree Keshariya Investment Ltd (Bombay High court, 1977)
    Court granted relief to directors for the consequences of defaults and the breaches when they
    were not directly involved in the acts or omission or have otherwise not acted honestly or
    reasonably or had financial involvement in the company.

    3)Maksud Saiyed Vs. The state of Gujarat and Ors (SC, 2007)
    The  Supreme court held that if there are provisions in any of the statutes that would hold the
    Directors vicariously liable when they have violated provisions of any of the statutes. It is
    most important for the Directors to understand their duties and liabilities then they act
    honestly and diligently with the right applicant in mind. Being a director, they have to know
    the standard due diligence and care required to perform their duties. However, in the
    Companies Act 2013, the liability of the directors is not limited but is unlimited.

    4)Contex Drouzhba v Wiseman 2007, 


    The English court held that in the Insolvency Law a claim can be raised against a director for
    false representations and unlawful trade practices so they shall be liable to pay the damages.

    Liability of a Director 1
    Liability of a Director 2

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