Court’s Decision
In Writ Petition (L) No. 13949 of 2025, the Bombay High Court quashed the provisional attachment order dated 24 April 2025 that had frozen multiple bank accounts of the petitioner, Serenity Trades Private Limited. The Division Bench comprising Justices M.S. Sonak and Jitendra Jain held that in the absence of any adjudicated tax liability or demand, there was “no justification to impose any restraint” on the petitioner’s bank accounts. The Court permitted the operation of all accounts subject to maintenance of ₹36 lakhs in one account, to secure any future pre-deposit that may arise.
Facts
The petitioner challenged the provisional attachment of four HDFC Bank accounts under a notice dated 24 April 2025. The accounts were frozen without any adjudicated demand. Although two show cause notices were later issued on 5 June 2025, no final orders or quantified liabilities had been passed at the time of the hearing. The petitioner submitted that the attachment was arbitrary, as no proceedings had matured into a demand under any statutory provision.
Issues
- Whether a bank account can be provisionally attached in the absence of any adjudicated demand or liability.
- Whether the Revenue’s action of freezing bank accounts prior to adjudication violates the principles of proportionality and fairness.
- What safeguards can be imposed by the Court pending outcome of proceedings.
Petitioner’s Arguments
The petitioner, represented by Senior Counsel, argued that:
- No final adjudication or demand had been passed as on the date of the attachment.
- Two show cause notices were issued only after the writ petition was filed, indicating that the attachment was premature.
- The company was willing to maintain a balance of ₹36 lakhs in one bank account, equivalent to 10% of the potential tax demand (₹3.56 crores), in anticipation of a future appellate requirement.
- The attachment has caused serious hardship to operations and violated their fundamental rights under Article 19(1)(g) of the Constitution.
Respondent’s Arguments
The State, represented by the Additional Government Pleader, defended the action of provisional attachment under the applicable tax laws. However, no adjudicated demand or material justifying urgency or apprehension of asset dissipation was placed on record. The State did not oppose the petitioner’s voluntary proposal to maintain ₹36 lakhs in one account for future pre-deposit purposes.
Analysis of the Law
The Court implicitly relied on established principles under Article 226 of the Constitution, the doctrine of proportionality, and jurisprudence on provisional attachments. It noted that in the absence of any crystallized demand, freezing an entity’s bank accounts—especially those necessary for its operations—amounts to an unjust and premature exercise of power. The Court found that mere issuance of show cause notices post-attachment did not retrospectively justify the action.
Precedent Analysis
While no case names are cited in the text, the judgment aligns with principles laid down in:
- Valerius Industries v. UOI (2019 SCC OnLine Guj 652): Provisional attachment is a drastic power that must be used sparingly and only where necessary to protect the interest of revenue.
- CIT v. Calcutta Discount Co. Ltd. (AIR 1961 SC 372): Courts have jurisdiction to intervene where proceedings are initiated without jurisdiction or prematurely.
- Radha Krishan Industries v. State of Himachal Pradesh (2021) 6 SCC 771: Attachment orders must be based on cogent reasoning and cannot be mechanical.
Court’s Reasoning
The Bench accepted the petitioner’s proposal to maintain ₹36 lakhs in Account No. 14448630000036. It found that:
- Since no demand had been raised, “we are doubtful whether the impugned orders provisionally freezing the Petitioner’s bank account could have been made.”
- The attachment order thus lacked legal foundation and was set aside.
- HDFC Bank was directed to allow operations on the accounts, except that ₹36 lakhs be retained.
- If an appeal becomes necessary, the petitioner may use the earmarked funds as pre-deposit.
Conclusion
The Court:
- Quashed the attachment order dated 24 April 2025.
- Directed HDFC Bank to restore normal operations on the petitioner’s accounts, except that ₹36 lakhs be preserved in one account.
- Allowed the respondents to use the ₹36 lakhs as pre-deposit if the petitioner files an appeal in future proceedings.
- Directed parties and the bank to act upon an authenticated copy of the order without waiting for a certified copy.
Implications
This judgment reaffirms judicial scrutiny over pre-emptive coercive actions by tax authorities. The Court made clear that attachment without demand is premature, and that commercial entities must not be paralysed without due process. By permitting continued operations with partial security, the Court achieved a balance between revenue protection and business continuity. This decision will influence future challenges to Section 83 GST Act or analogous provisional attachment provisions across statutes.
Cases Referred
Although no citations are mentioned in the order, the principles applied are consistent with: