Section 323 — Liability of directors of private company. Successor to s.179 of the 1961 Act.
Section 323 is in Chapter XVII — Special Provisions Relating to Certain Persons, which runs from section 302 to section 355.
It makes every person who was a director of a private company at any time during the relevant tax year jointly and severally liable for tax due from that company for that year which cannot be recovered from the company itself, notwithstanding anything in the Companies Act, 2013. The liability extends to any other company as well, in respect of income of a tax year during which that company was a private company. The director escapes only by proving 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. Sub-section (2) makes "tax due" include penalty, interest, fees or any other sum payable under the Act.
It pierces limited liability where a private company's tax cannot be collected, putting the burden on the directors of the year in question to show they were not at fault rather than on the department to prove they were.
Being a director for any part of the tax year is enough to be within the section — there is no requirement that you were in office when the tax fell due or when recovery failed. The liability is joint and several, so the whole amount can be demanded from any one of you, and it covers penalty, interest and fees as well as tax. The only way out is affirmative: you must prove the non-recovery is not attributable to your gross neglect, misfeasance or breach of duty in relation to the company's affairs, which means keeping evidence of what you did about the company's tax position while in office.
A private company is left owing Rs. 3 crore of tax, interest and penalty which cannot be recovered from it. A person who was a director for two months of the relevant tax year, and resigned well before the demand arose, is jointly and severally liable for the whole Rs. 3 crore: sub-section (2) puts penalty, interest and fees inside “tax due”, and the test in sub-section (1) is having been a director at any time during that tax year. He gets out only by proving affirmatively that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part, and the Companies Act, 2013 is no shelter, the section opening with a non obstante clause over it.
As recovery proceedings and a demand pressed against you personally once recovery from the company has failed, in which the defence has to be made out by you. The section names no form and no authority; a director of a company that is no longer private is reached the same way for a tax year during which it was private.
every person, who was a director of the private company at any time during the relevant tax year, shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part
See the full 1961 to 2025 concordance.