Electricity Dues – Liability of Directors

In a recent Judgment of the Allahabad High Court – Piyush Kumar v. State of U.P., it was held as under:
“A company is an artificial person and can only contract through agents. The normal mode of signing is to use the words ‘on behalf of the Company’ and if the Director, as an agent of the company signs the contract for the company, no personal liability is attached to him. The Directors thus under Section 46 of the Companies Act, 1956 can sign the contracts for the Company, which binds the Company, unless the Articles of Association of the Company or any resolution of the Board of Directors restricts or takes away such authority. The Directors are not personally liable, unless it appears that they take personal liability. The Directors may be made personally liable in damages, where they act beyond their powers; act by making negligent misrepresentation; acts in violation of the provisions of the Companies Act such as Section 77 or plays fraud representing the company.
Clause 4.3 (f) (iv) of The U.P. Electricity Supply Code, 2005 provides that outstanding dues will be first charge on the assets of the company and the licensee shall ensure that this is entered in the agreement with the new applicant. Sub-clause (v) provides that recovery proceedings against the defaulting consumer, and where the consumer is a company, from the directors of the Company, shall be ensured.
It is only after the assets of the Company are unable to meet the demand of the department then recovery proceedings may be initiated against the Directors of the Company. Clause (v) of Para 4.3 (f) of the Supply Code provides that where a financial institution has auctioned the property without consideration to licensee’s charge on assets, claims may be lodged with the concerned financial institution with diligent pursuance. The Directors manage the company for its shareholders. They are in charge of the management and the business of the Company for the benefit of the shareholders. They are not liable for the dues of the company on the ground that they have signed an agreement on behalf of the company, unless there is specific provision, or when they agree under the agreement or execute personal guarantees or bonds for due payment of the amount.”


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Filed under Electricity Laws, Liability of Directors

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