Anil Kr Garg (Business) 17 May 2012

Law on recovery of company dues from directors property

There are frequent cases where a company goes sick, has some outstanding to govt power supply companies, not because of any power actually supplied but because of their monopolistic condition in agreement to keep demanding minimum charges for 2 years of commencement of power supply.

Normally, action for recovery would lie against company and its property but practically, these monopolistic govt companies use coercive methods to force directors/shareholders to pay up (like disconnecting power supply to their residences despite regular bill payments etc). I do not think there is any law that permits them to do it. They have not produced any such legal authority in favour of such action (pending in high court after interim relief of resuming power supply). Even my application under RTI is being frustrated on one pretext or another.

Even MPERC has not given any info in response to RTI application as to whether there is any legal authority to force directors to pay up company dues and to disconnect their residential electricity supply.

Kindly advise if there is any such law and whether there have been any case laws wheher in favour of such recovery or against such efforts for forceful recovery.

My state is MP.

Thanking you,

Reply Follow

4 Replies

Som Bathla (In-house Legal Counsel) 17 May 2012

Company is constitued as a separate legal entity with a limited liability i.e. liability of shareholders is only upto the amount of money remaining unpaid on the shares issued to them, nothing further. Directors are under fiduciary duty to company to take reasonable care and diligence, while exercising their duty. If they are negligent in performance of their duties, the directors may be made liabilty to make the loss of the company good.

But in the present case, this action seems to be a mere pressure tactics to recover the money, more specifically, when after reference being made to BIFR, there can't be any proceedings launched against the Company. their action seems to be arbitrary and should be challenged by way of writ petiion, as you rightly did..

S Jadhav 98336 98330 (Jadhav & Associates) 17 May 2012

Mr. Garg,

If you wish to take the legal route, you will have to appoint an advocate who will cite the relevant case law.

I agree with Mr. Som that you have a strong case against anyone who is trying to bring a dispute with the company to its directors personal property without any legal backing.

S Jadhav

Anil Kr Garg (Business) 18 May 2012

Thanks. Yes I've already engaged a lawyer who is handling my petition in highcourt, but we do not have any caselaw and are fighting on the principle that company being a juristic person, is separate from directors and directors/shareholders are not liable for the dues of a company. So far, electricity board has not shown any law in their favour but I am sure, they must have tried this with several consumers before, and must have got some judicial ruling as well. It is highly improbable that no such case ever came to judiciary.

Kindly give me some citations for dealing with this case properly and taking the babus to task who show no respect to the spirit of law anyway. They believe that they are the rulers and rest of public is their subject.

Rgds,

Rohan Sumungal (na) 27 June 2012

This is pretty much fundamental principles of Company law stuff. Landmark decision (and the first decision on this) is Saloman v. Saloman from 1897, all subsequent decisions follow the principle in this case.