Property Transferred Prior to Attachment, Director Not Liable While Company Is in Existence: Madras HC Directs Registration Without NOC [Read Order]

The Madras High Court held that an attachment order issued after the transfer of the property cannot be sustained in law and that no personal liability arises on the director of the company when the company is still in existence. The court directed the Sub-Registrar to register the property without a No Objection Certificate (NOC).

The Petitioner, Lambogreen Agro Private Limited, represented by its authorised signatory M.Dhanuskodiya Pillai, had purchased property situated at Mailadi and Azhagappapuram Village, Agestheewaram taluk, from K.V. Brindha through a registered sale deed on 20.02.2024

K.V. Brindha acquired the properties under the settlement deed document No.344/2018 from her father, Krishnapillai. At the time of purchase by the petitioner, there was no encumbrance over the property.

The petitioner sold the property to Kappidurai. When the sale deed dated 25.02.2025 was presented for registration before Sub Registrar, Kanyakumari District, registration was refused on the ground that the State Tax Officer had issued a prohibitory order dated 21.01.2025 and directed the petitioner to produce a NOC from the State Tax Officer.

The petitioner’s counsel, Cibi Vishnu, submitted that Krishnan Pillai was the Director of Cape Engineering Private Limited and that the attachment order dated 21.01.2025 was passed long after the property had already been settled in favour of K.V.Brindha and thereafter sold to the petitioner on 20.02.2024.

It was further submitted that the VAT assessment order was passed on 17.10.2018 and GST assessment orders were passed on February 2024. However, at the time of settlement and subsequent sale, no attachment or crystallised liability existed over the property.

It was contended by the petitioner counsel that under section 37 of the VAT Act, Directors become personally liable only when the Company is wound up and its assets are insufficient to discharge tax liability. The Company, Cape Engineering Private Limited, is still in existence and not wound up. Hence, personal liability of the Director does not arise.

Suresh Kumar, the counsel for the respondent, contended that under section 43 of the VAT Act, transfers made after initiation of proceedings may be treated as void if intended to defeat revenue, and that questions relating to bona fide purchase involve disputed facts.

Justice Krishnan Ramasamy observed that the property had been transferred before the attachment order. The Court noted that under Section 37 of the VAT Act, joint and several liability of a Director arises only upon winding up of the company and failure to recover dues from the company.

The court held that the company, Cape Engineering Private Limited, was still in existence and the attachment order was issued on 21.01.2025 after the transfer of the property. Therefore, attachment order could not be sustained under the law.

Accordingly, the Court set aside the attachment insofar as the subject property was concerned and directed the Sub-Registrar to register the sale deed dated 25.02.2025 without insisting on a No Objection Certificate from the State Tax Officer.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates