The Madras High Court has granted interim protection to four erstwhile directors of a company undergoing liquidation, holding that GST recovery proceedings against individual directors under Section 89 of the applicable GST enactments cannot proceed without first giving the concerned directors an opportunity to show cause.

The bench of Justice Senthilkumar Ramamoorth observed that liability under Section 89 is contingent upon the inability to recover the dues from the company and upon the concerned individuals having been directors of the entity during the relevant period. The provision also permits a director to resist such liability by establishing that the failure to recover the dues cannot be attributed to the director’s gross neglect, misfeasance or breach of duty in relation to the affairs of the company.

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The four writ petitions challenged orders issued under Section 89 of the GST enactments in relation to Sri Paranthaman Textiles Private Limited, which is presently under liquidation. The respondents included GST and Central Excise authorities and, in certain petitions, the National Securities Depository Limited and the company’s liquidator.

The petitioners contended that personal liability under Section 89 is not automatic and depends upon the satisfaction of several statutory conditions. According to their submissions, the authorities had threatened recovery measures against the individual directors without first providing them an opportunity to explain why such liability should not be imposed.

The central grievance, therefore, was not merely against the proposed recovery but against the procedure adopted by the department before proceeding against the directors personally.

The High Court examined the statutory framework governing liability of directors where tax dues of a company cannot be recovered.

These statutory conditions were central to the Court’s decision to intervene at the interim stage.

The court held that a prima facie case had been made out that recovery measures could not be undertaken against the directors without giving them an opportunity to show cause.

The Court noted that the statutory scheme itself contemplates circumstances in which an individual director may contest personal liability. Consequently, the concerned director must be afforded an opportunity to explain why the statutory conditions for fastening liability are not satisfied in his or her case.

The High Court therefore ordered an interim stay of the impugned communications and the recovery measures pursuant to those communications until the next date of hearing.

The order is significant because it underscores the distinction between the tax liability of a company and the circumstances in which such liability may be pursued against its directors personally.

The Court’s observations indicate that the mere fact that a company has outstanding GST dues and is unable to meet those dues does not, by itself, justify immediate recovery action against every person who served as a director during the relevant period.

Instead, the statutory requirements governing director liability must be considered, including whether the company dues are actually unrecoverable and whether the director can demonstrate that the non-recovery was not attributable to gross neglect, misfeasance or breach of duty.

The Court’s reasoning also gives procedural significance to the director’s statutory right to contest such attribution before recovery measures are taken.

The common order covers four separate writ petitions involving four erstwhile directors of Sri Paranthaman Textiles Private Limited.

The High Court directed issuance of notice to the other respondents in the relevant writ petitions and made the notices returnable on September 22, 2026.

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