Section 89 - Liability of directors of private company
Section 89 - Directors' Liability for Unpaid Taxes in Private Companies
Section 89 outlines the responsibilities of directors in a private company concerning unpaid taxes, interest, or penalties. If a private company fails to pay taxes or related charges for any goods or services, all directors who served during the period in question are held responsible for these payments. They are liable jointly and individually unless they can prove that the non-payment was not due to their negligence, misconduct, or breach of duty in managing the company's affairs.
Furthermore, if a private company transitions into a public company and there are still outstanding taxes or penalties from when it was a private company, the directors from the private company period are not held liable for those amounts. However, this exemption does not cover any personal penalties that might be imposed on the directors themselves. Essentially, this section ensures that directors cannot escape liability for unpaid taxes by converting the company into a public entity, although they are protected from corporate liabilities once the company status changes unless personal penalties are involved. This aims to ensure accountability and prevent directors from evading financial responsibilities through company restructuring.
Note: It is an AI generated summary for reference purpose only.
89. Liability of directors of private company
(1) Notwithstanding anything contained in the Companies Act, 2013 (18 of 2013), where any tax, interest or penalty due from a private company in respect of any supply of goods or services or both for any period cannot be recovered, then, every person who was a director of the private company during such period shall, jointly and severally, be liable for the payment of such tax, interest or penalty 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.
(2) Where a private company is converted into a public company and the tax, interest or penalty in respect of any supply of goods or services or both for any period during which such company was a private company cannot be recovered before such conversion, then, nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax, interest or penalty in respect of such supply of goods or services or both of such private company:
Provided that nothing contained in this sub-section shall apply to any personal penalty imposed on such director.
