CA and Trader Previously Arrested in Ongoing Fake Firm Case: Delhi HC Refuses to Intervene in Challenge to Quash SCN [Read Order]

In a recent ruling, the Delhi High Court refused to interfere with a show cause notice issued to a Chartered Accountant and a trader who had previously been arrested during a fake firm investigation.

The petitioners, Sulender Shah (a Chartered Accountant) and Atul Aggarwal (a trader) had challenged the validity of the notice and associated GST Forms DRC-01 and DRC-02, but the court allowed the adjudication process to continue, stating that the matter was still at a preliminary stage and should be addressed through proper legal proceedings.

The petitioners filed the writ under Article226 of the Constitution of India, seeking to quash the SCN dated 2 August 2023. They also raised objections regarding the DRC-01 and DRC-02 forms, arguing that these were not issued in accordance with the law and did not specify any tax or penalty amounts separately for either of them.

This was the second writ petition by the same petitioners. In an earlier order dated 7 December 2023, the Delhi High Court had directed the GST department to issue DRC-01 and DRC-02 electronically. According to the department, these forms were later issued on 26 September 2023 but to the Petitioners, they were served only on 7 December 2023.

The petitioners’ counsel argued that the forms lacked clarity, did not calculate liability against each individual separately, and that their issuance had triggered disciplinary proceedings against Sulender Shah by the Institute of Chartered Accountants of India (ICAI).

On perusal of the records, the court found that the petitioners were found connected with persons allegedly involved in running fake firms and that these links were reflected in their recorded statements. The court observed that the forms clearly referenced the SCN which contained the required details of tax, interest, and penalty.

The Division Bench comprising Justice Prathiba M. Singh and Justice Rajneesh Kumar Gupta observed that the petitioners themselves had acknowledged their connections with the individuals named in the investigation.

The court explained that when multiple people are involved in a complex chain of transactions, it is acceptable for the show cause notice to contain consolidated figures and that individual liabilities can be addressed during adjudication. The court also stated that the matter was still at the show cause stage and that adjudication was ongoing.

The court clarified that it could not examine the truthfulness of the petitioners' statements at this stage, as such issues fall outside the limited scope of writ jurisdiction under Article 226 of the Indian Constitution. The court refused to quash the SCN and disposed of the petition. The proceedings related to the show-cause notice were allowed to continue as per the law.

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