Zhudao Infotech Private Limited vs. The Principal Additional Director General & Anr.

Facts

The petitioner, Zhudao Infotech Private Limited, a payment gateway service provider, filed a writ petition before the Delhi High Court challenging orders dated 10.10.2022 and 06.10.2022 passed by the Principal Additional Director General and the SIO of DGGI, respectively. These orders froze the petitioner's escrow bank account and current bank account maintained with Yes Bank and HDFC Bank. The petitioner collects money from subscribers, retains a service charge of 1-3%, and transfers the remaining funds to merchants. The freezing of accounts has halted its business operations. The petitioner argued for the urgent release of funds to continue business and meet GST liabilities. The respondents expressed apprehension regarding the genuineness of merchants but conceded that disbursement of funds belonging to genuine merchants should not be interdicted.

Held

The Court disposed of the writ petition with a liberty to the petitioner to apply afresh if aggrieved by the order that may be passed in respect of its objections. The Court noted the respondents' statement that objections filed by the petitioner would be considered, and a speaking order would be passed within two weeks. This implies that the immediate issue of account freezing was deferred pending the decision on the petitioner's objections. The Court clarified that all rights and contentions of the parties are reserved. The core issue of the legality of freezing the accounts, especially concerning funds belonging to genuine merchants, was not definitively decided but was implicitly addressed by directing the authority to pass a speaking order on the petitioner's objections. The ratio decidendi is that in cases involving potential attachment of funds, especially those belonging to third parties, a proper adjudication process involving the filing and consideration of objections is crucial before a final decision is taken.

Key Issues

1. Whether the freezing of the petitioner's escrow and current bank accounts by the DGGI authorities is legally sustainable, particularly concerning the funds belonging to genuine merchants, under the relevant provisions of the CGST Act, 2017 and the CrPC, 1973? Petitioner's Contentions: The petitioner argued that the freezing of its bank accounts, including the escrow account which holds funds not belonging to the petitioner but to various merchants, is causing severe prejudice and is preventing it from carrying on its business and discharging its GST liabilities. They emphasized the grave urgency and the potential for business revival if the accounts are unfrozen. They relied on the principle that funds belonging to third parties should not be attached arbitrarily. Respondents' Contentions: The respondents stated there was a serious apprehension that the merchants might not be genuine. However, they conceded that disbursement of monies belonging to genuine merchants cannot be interdicted. They also informed the court that objections filed by the petitioner would be considered and a speaking order would be passed within two weeks.