2024 (12) TMI 1079 - HC - GST

Attachment/freezing of demat accounts even though ceased to remain the director of the company - violation of principles of natural justice - HELD THAT - At least prima facie, if the petitioner is held liable after the action in terms of Section 89 of the MGST Act, which will essentially involve compliance with principles of natural justice and fair play, only then could action for attachment/freezing of the petitioner s demat accounts have been initiated. In terms of the statement, relief in terms of prayer clauses (a) and (b) of the petition stands granted. This will, however, not preclude the respondents from proceeding in accordance with law, including issuing notices in terms of Section 89 of the MGST Act and complying with principles of natural justice if any precipitative action is proposed against the petitioner. All contentions of all parties are left open should any action be proposed to be taken in terms of Section 89 of the MGST Act. Application disposed off.

Summary

Issues:
Violation of principles of natural justice in the attachment of demat accounts without proper legal basis.

Analysis:
The petitioner resigned as a nominee/non-executive director of a company, following which the company accepted the resignation and filed the necessary forms with the Ministry of Corporate Affairs. Subsequently, the respondent attached/froze the petitioner's demat accounts due to the company's default in GST payment, even though the petitioner was no longer a director. The petitioner sought relief through a writ petition, challenging the legality of the attachment and lack of compliance with natural justice principles.

The petitioner argued that the attachment of demat accounts violated natural justice principles and statutory provisions of the Maharashtra Goods and Services Tax Act. The petitioner relied on a previous decision to support the contention that the action was unjustified. On the other hand, the respondent defended the attachment under Section 83 of the MGST Act, claiming it was provisional and related to the period when the petitioner was a director.

The court held that the provisional attachment of demat accounts under Section 83 of the MGST Act was not justified in this case. The court emphasized the importance of complying with natural justice principles and fair play before taking such actions. It was noted that no proceedings had been initiated against the petitioner under relevant chapters of the Act, rendering the attachment unlawful based on a lack of legal basis.

The court directed the respondent to withdraw the impugned communications and issue notices under Section 89 of the MGST Act to the petitioner, granting them a full opportunity to respond. The court emphasized that any future action must adhere to principles of natural justice. Relief was granted to the petitioner in terms of the prayer clauses of the petition, without imposing any costs. The court left all contentions open for both parties in case further action was proposed under the MGST Act.

In conclusion, the court found the attachment of demat accounts to be unjustified and ordered the withdrawal of the attachment, emphasizing the importance of following legal procedures and principles of natural justice in such matters.