Prasanna Karunakar Shetty Vs State of Maharashtra (Bombay High Court)
Before taking any action of recovery against the directors of the company, a subjective satisfaction is required to be achieved by the concerned officer in regard to whether a person concerned against whom recovery is sought to be made was a director of a Private Limited Company for the concerned period.
In a recent judgment, the Bombay High Court emphasized the importance of ensuring procedural fairness before initiating recovery proceedings against directors of a company for Goods and Service Tax (GST) liabilities. The case, Prasanna Karunakar Shetty Vs State of Maharashtra, delved into the nuanced legal framework governing such actions and underscored the necessity for subjective satisfaction regarding the director’s involvement during the relevant period.
The petitioner, Mr. Prasanna Karunakar Shetty, had served as a Director in Universeus Impex Pvt. Ltd. for a specific period before resigning from the position. Despite ceasing to be actively involved in the company’s affairs, Mr. Shetty found himself embroiled in recovery proceedings initiated by the Maharashtra State GST Department.
The crux of the petitioner’s argument rested on the provision under Section 89 of the Maharashtra Goods and Service Tax Act, 2017 (MGST Act), which delineates the liability of directors of private limited companies. Section 89 stipulates that recovery proceedings against directors can only be initiated if they were indeed serving as directors during the period for which GST liabilities remain outstanding.
The court meticulously analyzed the facts of the case and observed that Mr. Shetty had resigned as a director before the period in question. Furthermore, it highlighted the absence of any show cause notice or opportunity for Mr. Shetty to present his case before the attachment orders were issued against him.
Relying on Section 79 of the MGST Act, the court emphasized the necessity of establishing a director’s liability through a thorough examination of factual circumstances. It noted that recovery proceedings against individuals, especially former directors, must be founded on concrete evidence of their involvement during the relevant period.
The judgment reaffirmed the principles of natural justice and constitutional rights, particularly the right to property enshrined under Article 14 and 300A of the Indian Constitution. By quashing the impugned attachment orders against Mr. Shetty’s property and bank account, the court upheld the fundamental tenets of fairness and due process.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
