JUDGMENT
G. Patri Basavana Goud, J.
1. M/s. Ajanta Sea Foods Private Limited (“company”, for short), is a company incorporated under the Companies Act, 1956. The present petitioners, husband and wife, are among the directors of the said company. The said company is a “dealer” within the meaning of Section 2(k) of the Karnataka Sales Tax Act, 1957 (“the Act” for short). For recovery of arrears of sales tax for the period from 1991-92 to 1993-94 amounting to Rs. 1,91,390 (the quantum is disputed and an appeal in that regard is said to be still pending), a proceeding under Section 13(3)(b) of the Act was initiated against the company at Criminal Misc. No. 81 of 1997 before the learned JMFC Kumta. Fine levy warrant was issued against the company initially. But, subsequently, the Commercial Tax Authorities furnished the address for execution of the fine levy warrant as follows : “M/s. Peter J.R. Prabhu, Chairman and Managing Director, Skyline Group of Companies, No. 80, 3rd Cross, Lavelle Road, Bangalore”.
2. While the address thus is shown to be of the first petitioner herein, the premises at which he is shown to be residing, namely, “No. 80, 3rd Cross, Lavelle Road, Bangalore” is stated to be the exclusive property of the second petitioner Mrs. Carmel Prabhu, wife of the first petitioner. The tax authorities (“Revenue”, for short) furnished this address on the footing that for the arrears of sales tax due from the company, its directors are also personally liable, and, as such, the fine levy warrant could be executed and the arrears of tax due may be recovered from them personally by means of attachment and sale of moveables found in the said premises. That the Revenue furnished this address with that understanding is apparent from the fact that before the magistrate, it was contended on behalf of the present petitioners that warrant cannot be issued against an individual director, the proceeding initiated under Section 13(3)(b) of the Act being against the company. The order sheet of June 11, 1999 in Criminal Misc. No. 81 of 1997, indicates that the Revenue had not agreed with this contention. By the order impugned herein, the learned magistrate proceeded to reject the submission as against the non-liability of an individual Director, as being untenable, and directed issuing of fine levy warrant as against the first petitioner at the address of the second petitioner’s residence. The petitioners, therefore, have approached this court under Section 397, Criminal Procedure Code, 1973, read with Section 13(4) of the Act as against the said order of the learned magistrate dated June 11, 1999.
3. The question that arises is whether, in a proceeding under Section 13(3)(b) of the Act, arrears of sales tax due from the company can be recovered from the individual directors personally.
4. Sri Bhavani Singh, learned High Court Government Pleader for the Revenue would submit thus : The amount recoverable under Section 13(3)(b) of the Act is as if it were a fine. That an individual director of a company is also personally liable to pay fine is evident from Sections 29 and 31A of the Act. There is no distinction between fine payable by the director under Section 29 read with Section 31A of the Act and the amount of tax recoverable under Section 13(3)(b) of the Act as if it is a fine. The learned magistrate was therefore right in directing recovery of arrears of sales tax due from the company even from the personal assets of the directors of the company.
5. Learned counsel for the petitioners Sri Srinivas Raghavan would however submit otherwise, and, since I am agreeing with his submission, I am referring to his submission as part of the discussion leading to the conclusion. It is as follows :
The definition of “dealer” under Section 2(k) of the Act is inclusive and the company like M/s. Ajarita Sea Foods Private Limited would be included therein. In the entire Act, there is no provision under which an individual director of the Company, where company is a “dealer”, would be personally
liable to pay arrears of sales tax due from the company. In Lalita Shivaram Ubhaykar v. Commercial Tax Officer , dealing with a similar situation, his Lordship Justice E. S. Venkataramaiah, as he then was, held that there is no provision in the statute, i.e., the Karnataka Sales Tax Act, 1957, which authorises recovery of arrears due from a company by proceeding against its director. Dealing with analogous provisions of the Kerala General Sales Tax Act, 1963, and the Revenue Recovery Act, his Lordship Justice K.S. Paripoornan, as he then was, in Ramachandran v. State of Kerala [1984] 55 STC 209 (Ker) held that there was no provision which enabled the Revenue to proceed against the petitioner therein who was only a director of the company personally for arrears of sales tax due from the company, which was a distinct and different legal entity.
I am therefore of the opinion that for recovery of sales tax arrears due from the company its directors, petitioners herein, cannot be proceeded against personally.
6. Of course, as Sri Bhavani Singh, learned High Court Government Pleader points out, where an offence is committed by a company under Section 29 of the Act and where penalty is to be imposed, in view of Section 31A of the Act, individually, the directors like the petitioners herein could also be made liable and the fine imposed can be recovered from the said individual directors. The logical conclusion of this position, as submitted by Sri Bhavani Singh, learned High Court Government Pleader, is that since the fine levied for the offence under Section 29 of the Act thus is recoverable from an individual director where such director is found liable in the circumstances narrated under Section 31A of the Act, then, the amount recoverable under Section 13(3)(b) of the Act should be held no different from the fine so levied under Section 29 of the Act, for the reason that even the said amount recoverable under Section 13(3)(b) of the Act is nothing but fine so far as the proceeding before the learned magistrate is concerned. It is true, in so far as the proceeding under Section 13(3)(b) of the Act before the learned magistrate is concerned, the amount to be recovered shall have to be as if it were a fine imposed by him. As pointed out by Sri Srinivas Raghavan, learned counsel for the petitioners, and rightly in my opinion, the character of fine the amount so recoverable by the magistrate is clothed with, is for the limited purpose of procedure for recovery of the amount, and the said character does not extend to the extent of terming the very amount recoverable under the said proceeding as fine. In this context, what is of significance is the wording of Sub-section (3) of Section 13 of the Act as also Clause (b) thereof, which I shall extract as under :
“Section 13(3) Any tax assessed, or any other amount due under this Act from a dealer or any other person may without prejudice to any other mode of collection, be recovered–
(a) ….
(aa) ….
(b) notwithstanding anything contained in the Code of Criminal Procedure, 1973 (Central Act 2 of 1974), on application to any magistrate, by such magistrate as if it were a fine imposed by him.”
7. The opening words of Sub-section (3) of Section 13 of the Act make it clear that what is recoverable in a proceeding thereunder is any tax assessed or any other amount due under the Act from a dealer. It is to recover this amount, i.e., tax assessed or any other amount due under the Act that a procedure is provided for as one of the procedures in Clause (b) of the said Sub-section (3) of Section 13, the said procedure being as though it is for recovery of fine imposed by the learned magistrate. This mere procedure for recovery, therefore, cannot be confused with the character of the amount sought to be recovered, the, said character being the tax assessed or any other amount due under the Act.
8. There is also another reason as to why the procedure provided for under Clause (b) of Sub-section (3) of Section 13 of the Act for recovery of the amount thereunder as if it is fine imposed by the learned magistrate, should not be confused with the character of the amount recoverable, it being very much the tax assessed or any other amount due. Section 29, Criminal Procedure Code, 1973, speaks of the extent of, and imposes limitations on, the power of the magistrate, inter alia, with regard to imposing sentence or fine. If Clause (b) of Sub-section (3) of Section 13 of the Act is to be taken as relating to imposition of fine by the Magistrate of the First Class, then, in view of Section 29(2), Criminal Procedure Code, 1973, the learned JMFC, Kumta would not be in a position to recover any amount in excess of Rs. 5,000, because, that is the extent of limitation that is provided for imposition of fine by a Magistrate of First Class. In that view of the matter, in any proceeding under Section 13(3)(b) of the Act, it is not the entire amount of tax assessed that is possible to be recovered, but, it would only be the said amount not exceeding the limit of fine that a Magistrate of First Class can impose under Section 29(2) of the Criminal Procedure Code. That is hardly the scheme of Section 13(3)(b) of the Act. As said earlier, the opening words of Sub-section (3) of Section 13 make it clear that it is the entire arrears of tax for which the proceeding under Section 13(3)(b) is initiated, that needs to be recovered irrespective of the fact as to whether the said amount is up to Rs. 5,000 or in excess of Rs. 5,000, for example, nearly two lakhs of rupees in this case. What is recoverable is the tax. The procedure relating to recovery of the said amount of tax, viz., as if it were a fine imposed by the learned magistrate, is for the limited purpose of providing for the procedure for recovery of the said amount, namely, as if it were a fine imposed by him by following the procedure provided for in Section 421 of the Criminal Procedure Code. If thus, the amount recoverable under a
proceeding under Section 13(3)(b) of the Act is not actually a fine imposed by the learned magistrate, but is only deemed to be fine for the limited purpose of “procedure” for recovery of fine, then, any reference to personal liability of a director of a company in relation to Sections 29 and 31A of the Act, would be inappropriate when it comes to recovery of arrears of sales tax due from a company. I have to therefore conclude that for recovery of the arrears of sales tax due from the company, namely, M/s. Ajanta Sea Foods Private Limited, the directors like the present petitioners personally are not liable to be proceeded against. In this view of the matter, the impugned order needs to be set aside. While doing so, it needs to be clarified, as had been done by His Lordship Justice Paripoornan of the Kerala High Court, as he then was, in Rama-chandran v. State of Kerala [1984] 55 STC 209 referred to above, that this would not come in the way of proceeding against any assets of the company that may be there in the hands of any of the directors of the said company.
9. Whenever the magistrate proceeds to recover the sales tax arrears in the manner provided under Section 421(1)(a) of the Criminal Procedure Code by issuing a warrant for levy of the amount by attachment and sale of any move-able property belonging to the dealer, or whenever any court issues warrant under Section 421(1)(a) of the Criminal Procedure Code for recovery of fine, the said magistrate/court must bear in mind rule 3 of Chapter IX of the Karnataka Criminal Rules of Practice, 1968 made by the High Court of Karnataka in exercise of the power conferred by article 227 of the Constitution. In the context of Section 421(1)(a) of the Criminal Procedure Code, the said rule 3 provides that all warrants issued under Section 421(1)(a) of the Criminal Procedure Code for recovery of fine shall be addressed to the District Superintendent of Police concerned for execution by himself or by such officer as he may, by writing, appoint in that behalf. In today’s context, wherever there is Commissioner of Police, reference to the District Superintendent of Police may be taken as reference to the Commissioner of Police. Responsibility in the matter of execution of warrant issued under Section 421(1)(a) of the Criminal Procedure Code is, under the said rule 3 of the Rules of Practice, placed on a very highly responsible officer. Even if he appoints somebody else in that behalf, the said Rules require that such other person shall be an officer appointed in that behalf in writing by the said District Superintendent of Police or the Commissioner of Police, as the case may be. Even then, it is possible that, at times, in the course of execution of the said warrant, moveables of the third party may be attached and sold. Sub-section (2) of Section 421 of the Criminal Procedure Code provides that the State Government may make rules regulating the manner in which the warrants under Clause (a) of Sub-section (1) of Section 421 are to be executed, and for the summary determination of any claim made by any person other than the offender (in this context, the dealer) in respect of any property attached in execution of such warrant. Sub-section (2) of Section
421 of the Criminal Procedure Code requires the rules to cover two aspects. First one is to regulate the manner in which the warrant concerned is to be executed. The second one is to provide for the summary determination of any claim made by any person other than the offender (or the dealer, as the case may be) in respect of any property attached in execution of such warrant. These aspects have not been taken care of till today by the State Government making rules in that regard. Any number of occasions have arisen wherein the moveable properties of someone other than the offender [or the dealer in a proceeding under Section 13(3)(b) of the Act, as the case may be] have been attached and sold, with no immediate remedy available for the said third party whose property is so attached. It is unfortunate that the State Government has not framed rules in that regard. This lapse on the part of the State Government concerned is not new. Way back in 1932, a Division Bench of the Bombay High Court, with reference to the corresponding provisions of Criminal Procedure Code of 1898, had to feel the same difficulty and it observed therein that it would seem to be desirable that the rules should be made by the local Government to obviate unnecessary litigation and possible hardships. That was in Pandurang Venkatesh Malgi, In re, AIR 1932 Bom 476. Whenever the absence of such rules are noticed by the court, some interim measure is thought of since any court could not shut its eyes when there is no minimum compliance with even the principles of natural justice. It is therefore that the Bombay High Court, in the said case, following its earlier decision, directed that the sale of the property attached be stayed by the Magistrate for such time as, in his opinion, will be sufficient to give the claimant time to establish his right thereto in a civil court. Sri Srinivas Raghavan for the petitioners refers to the decisions of other High Courts also, wherein a different procedure was thought of because of the absence of rules framed by the State Government concerned. In Sheth Chhaganlal Madhavji v. Bai Memunabi Amadmiya, AIR 1955 Saurashtra 86, a Division Bench of the said court, after referring to the abovesaid decision of the Bombay High Court in Pandurang Venkatesh Malgi, In re, AIR 1932 Bom 476, and certain other decisions, felt that the fact that the State Government has not made rules for summary determination of claims under Section 386(2) of the old Criminal Procedure Code [corresponding to Section 421(2) of the present Criminal Procedure Code] should not deprive the claimant of the remedy open to him under the said provisions because, to deny that remedy on the ground that the rules have not been made would amount to rendering into the sub-section a dead letter till the rules are framed. The Division Bench further observed that if a strict view were to be taken, then, it becomes difficult to see how the warrant itself can be executed in the absence of rules. Therefore, agreeing with the view taken by the Madras High Court in Marina Narasanna v. Emperor, AIR 1932 Mad 538, it was held that in the absence of rules made by the State Government, the
magistrate should follow the procedure under Section 88 of Criminal Procedure Code (corresponding to Sections 83 and 84 of the present Criminal Procedure Code) and should determine the claim of the third party.
10. The Madras decision that was followed in Sheth Chhaganlal Madhavji v. Bai Memunabi Amadmiya, AIR 1955 Saurashtra 86, referred to above, was in Marina Narasanna v. Emperor, AIR 1932 Madras 538. The Madras High Court, in a similar situation, held therein that in the absence of rules under Section 386(2) of the old Criminal Procedure Code [corresponding to Section 421(2) of the present Criminal Procedure Code], the procedure laid down in Section 88 of the old Criminal Procedure Code (corresponding to Sections 83 and 84 of the present Criminal Procedure Code) must be followed, and that the onus in such a case should be regarded as lying in the same way as it does upon the claimants to attached property under the Civil Procedure Code, that is to say, the mere fact of attachment throws the onus upon the claimants and that the said claimants should be allowed to adduce evidence, upon which the order of the court should rest.
11. A similar view, namely, that in the absence of rules under Section 421(2) of the Criminal Procedure Code the procedure prescribed for the enquiry in the claims, etc., under Section 83 of the Criminal Procedure Code should be adopted, was taken by the Lucknow Bench of the Allahabad High Court in Ateeq Mohammad v. Amanullah [1986] All LJ 308.
12. In the absence of rules under Section 421(2) of the Criminal Procedure Code therefore, in so far as summary determination of claims made by the third party in respect of the property attached in execution of the warrant issued under Section 421(1)(a) of the Criminal Procedure Code is concerned, two views have thus been taken–one to the effect that the magistrate should order stay of sale of the said property until the person concerned establishes his right in a civil court, the other view being that the procedure provided for under Section 83, Criminal Procedure Code, should be followed. I would once again urge that the State Government may take immediate steps to frame necessary rules in this regard under Section 421(2), Criminal Procedure Code. In fact, where a different mode is adopted for recovery of the sales tax arrears, namely, the one provided in Clause (aa) of Sub-section (3) of Section 13 of the Act, i.e. the Karnataka Sales Tax Act, 1957, exhaustive rules have been framed in Part V-B of the Karnataka Sales Tax Rules, 1957. Rule 38-N occurring in the said Chapter V-B is of significance in this regard. While thus urging that the State Government may immediately frame rules, I am also of the opinion that, taking note of the alternatives that the different High Courts have thought of as referred to above, to meet the situation until the said rules are framed, an alternative should be thought of by us also. Any such alternative need not be confined to warrants issued under Section 421(1)(a) of Criminal Procedure Code for recovery of sales tax arrears in a proceeding under Section 13(3)(b) of
the Act, but may hold the field in respect of every warrant issued under Section 421(1)(a) of Criminal Procedure Code for levy of fine. The procedure so thought of, until the rules under Section 421(2) are framed, shall be as follows : Whenever the court issues warrant under Section 421(1)(a) of Criminal Procedure Code, where, in the course of execution of the said warrant by the officer concerned, moveable property is attached and sought to be sold, if the third party, i.e. other than the offender from whom fine is to be recovered or the dealer from whom sales tax arrears are to be recovered, claims the said property as his own, then, the officer concerned shall abstain from selling that property for a period of seven days from the date such claim is made, and shall direct the said claimant to approach the court which has issued warrant within the said period of seven days. If the claimant so approaches the court by way of filing an application in the very proceeding in which the warrant is issued, whether the said proceeding is pending or is already disposed of, and notwithstanding the fact that the said claimant is or was not a party to the said proceeding, the court shall immediately pass an order staying the sale of the property concerned and shall communicate the said order to the officer concerned. The court shall then have the matter posted to an early date, even by having it advanced if necessary, with due notice thereof to both the parties to the proceeding, and, within fifteen days from the date of making such claim before it, the court shall make summary determination in that regard, and shall communicate its order to the officer concerned, who shall act accordingly. The court shall have due regard to the principles of natural justice when it makes such summary determination, and that shall include an opportunity to the claimant to adduce evidence in respect of his claim, and an opportunity to either of the parties to the proceeding to lead evidence to rebut the same. Claimant, in the event he is aggrieved by such determination, may approach the Civil Court to establish his title to the property concerned.
13. Petition allowed. Impugned order set aside.
14. The State Government may take note of the observations made above in the matter of making rules under Section 421(2) of Criminal Procedure Code. Till such time the State Government makes Rules under Section 421(2) of Criminal Procedure Code the courts that issue warrants under Section 421(1)(a) of Criminal Procedure Code, and the officers who execute the said warrants, shall comply with the directions issued above in that regard.