Prasanna karunakar shetty versus state of maharashtra, commissioner of state tax, mumbai, state tax officer
Citation: 2024 taxo.online 695
The case revolves around the petitioner, who served as a director for Universeus Impex Pvt. Ltd. until November 2017 when their Director Identification Number (DIN) was disqualified under Section 164(2)(a) of the Companies Act, 2013. After this disqualification, the petitioner ceased participation in the company's affairs. Eventually, in June 2018, a new director was appointed to replace the petitioner, and formally, on May 25, 2019, the petitioner resigned from their position as director.
However, despite resigning and no longer being actively involved in the company, the petitioner found themselves embroiled in legal proceedings. In August 2020, a show cause notice was issued against the company, demanding a significant sum of Rs. 5,53,87,442. Then, in July 2023, recovery proceedings were initiated against the company, which led to the petitioner facing additional legal troubles.
In November 2022, the petitioner received a summons indicating that a First Information Report (FIR) had been lodged against them by the Maharashtra State GST Department. Subsequently, the petitioner applied for anticipatory bail, which was granted in December 2022.
The situation escalated further when, in December 2023, the petitioner received notification from their bank that their current account had been attached, followed by the attachment of their flat in January 2024.
The crux of the petitioner's argument lay in the illegality of these proceedings. The petitioner contended that since they had ceased to be a director and were not involved in the company's operations during the relevant period, the recovery proceedings against them were unjustified. They argued that such actions breached their rights under Article 14, read with Article 300A, of the Constitution.
The court delved into the relevant sections of the Maharashtra Goods and Service Tax Act, 2017, particularly Section 79 and Section 89. These sections delineate the circumstances under which recovery proceedings against directors of private limited companies can be initiated. Notably, Section 89 mandates that a director's liability for recovery is contingent upon their active involvement in the company during the relevant period.
The court found merit in the petitioner's argument, emphasizing that recovery proceedings against the petitioner were illegal and in violation of their constitutional rights. Despite the respondents' arguments, which sought to justify the attachment orders, the court held that such actions were unwarranted, given the petitioner's non-involvement in the company post-resignation.
This judgment highlights the importance of procedural fairness and adherence to legal provisions in recovery proceedings. It underscores the need for authorities to thoroughly assess a director's involvement before subjecting them to liability, thus safeguarding individuals' rights against arbitrary actions by the state.
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