Bombay High Court
Hemang Bipin Varaiya vs The State Of Maharashtra Through The ... on 18 March, 2026
Author: G. S. Kulkarni
Bench: G. S. Kulkarni
2026:BHC-AS:14994-DB WP 3452-26.DOC
IN THE HIGH COURT JUDICATURE AT BOMBAY
LAXMI
SUBHASH CIVIL APPELLATE JURISDICTION
SONTAKKE
Digitally signed by
LAXMI SUBHASH
SONTAKKE
Date: 2026.03.30
WRIT PETITION NO. 3452 OF 2026
11:21:31 +0530
Hemang Bipin Varaiya
Proprietor of M/s. Mahavir Metal Industries ...Petitioner
Versus
The State of Maharashtra & Ors ...Respondents
_______
Mr. Nirmal Pagaria for Petitioner.
Ms. Shruti D. Vyas, Addl.G.P a/w Aditya Deolekar, AGP for the State.
_______
CORAM: G. S. KULKARNI &
AARTI SATHE, JJ.
DATE: 18th MARCH 2026
P.C.
1. Rule. Rule made returnable forthwith. By consent of parties heard finally.
2. This petition under Article 226 of the Constitution of India is filed praying
for the following substantive reliefs: -
"a) This Hon'ble Court be pleased to issue any appropriate Writ or
order or direction under Article 226 of the Constitution of India
thereby calling for relevant record and proceedings from the office of
respondent no. 3 and after going through the same, be pleased to quash
and set aside impugned order dated 19.6.2025 which has been passed
by the Respondent no.3 in violation of principle of Natural Justice and
the Act.
b) This Hon'ble Court be pleased to issue an appropriate writ of
Certiorari, or a Writ in the nature of Certiorari, or any other
appropriate writ Order or direction to the Respondents to unblock the
Input Tax Credit to the tune of Rs. 4.82 Crore blocked by Respondent
no.3.
c) This Hon'ble Court be pleased to issue any appropriate Writ or order
or direction under Article 226 of the Constitution of India to
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Respondents to remove negative balance of Rs. 4.38 Crore of
Electronic Credit Ledger which is not permissible under Rule 86A of
the Rules.
d) Pending the hearing and final disposal of this writ petition be
pleased to order to Respondents to remove negative balance of
Electronic Credit Ledger which is impermissible under Rule 86A of the
Rules."
2. In the present petition, the Petitioner has challenged the order dated 19 th
June 2025 passed by Respondent No. 3 under Rule 86A of Central/Maharashtra
Goods and Services Tax Rules (hereinafter referred to as the "Rules") read with
Central/Maharashtra Goods and Services Tax Act (hereinafter referred to as the
"Act") on the ground that the same has been passed in breach of principles of
natural justice and in contravention of Rule 86A of the Rules.
3. Briefly the facts are: -
i. The Petitioner is an individual and proprietor of M/s. Mahavir Metal
Industries having registration no. 27ACWPV6853C1ZV and is inter alia engaged
in the manufacture of copper and brass utensils, which is a registered brand as
'CUBRAL' and trades in non-ferrous metals like copper scrap, brass scrap, brass
ingot, aluminum scrap and zinc ingot.
ii. On 22nd April 2025, Respondent No. 3 issued a show-cause notice of the
even date for blocking Input Tax Credit (ITC) Of Rs. 4.82 Crores for the Financial
Year 2022-23 and 2023-24. It is the Petitioner's contention that the aforesaid
show cause notice was forwarded on a wrong email-id, and only when the
Petitioner visited the office of Respondent No. 3 on 5 th June 2025 to verify certain
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documents, he was made aware of the aforesaid show-cause notice. In the said
show-cause notice, Respondent No. 3 blocked ITC of Rs. 4.82 Crores on the basis
of information received from Economic Intelligence Unit (EIU) for ITC
verification claim from suppliers whose registration was cancelled and were non-
genuine suppliers. In response to the aforesaid show-cause notice, the Petitioner
filed his reply on 19th June 2025, and on the same date, Respondent No. 3 passed
the impugned order dated 19th June 2025 blocking the ITC to the tune of Rs. 4.82
Crores and showed a negative balance of ITC in the electronic credit ledger the
Petitioner. It is against this blocking that the Petitioner is aggrieved and has filed
the present petition.
4. Learned counsel Mr. Nirmal Pagaria appeared on behalf of the Appellant.
Learned counsel Ms. Shruti Vyas, along with Mr. Aditya Deolekar appeared on
behalf of the Respondent Department. It is the Petitioner's contention that in the
present case the conditions as mandated under Rule 86A of the Rules have not
been followed inasmuch as Respondent No. 3 has not recorded any reasons in the
impugned order dated 19th June 2025 to block the ITC. It is further the Petitioner's
submission that Respondent No. 3 has also not considered the documents
submitted by the Petitioner prior to the passing of the impugned order. Further, the
most crucial submission of the Petitioner is that there was no balance available of
ITC at the time of blocking, and there cannot be negative blocking of ITC as per
Rule 86A of the Rules. It is the Petitioner's contention that the amount of blocking
cannot be higher than the balance available in the electronic credit ledger of the
ITC. This negative blocking is not sustainable in law and not as per the mandate of
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Rule 86A of the Rules.
5. Learned Counsel on behalf of the Petitioner also pointed out the electronic
credit ledger (ECL), which is attached at Page 38 of the Petition, clearly shows that
when the ITC was blocked on 19 th June 2025 and 24 th July 2025, there was a
consistent negative balance in the ECL and particularly on 19 th June 2025 and 24th
July 2025, there was a debit balance in the ECL. In view thereof, this negative
blocking was arbitrary and hence the impugned order was liable to be set aside.
6.Per contra, learned counsel on behalf of Respondent Department Ms. Vyas
submitted that at the time of blocking, the ECL of the Petitioner did not show a
negative balance and in fact an amount of Rs. 43,19,259/- was available in so far as
the ITC was concerned. It is further her submission that the blocking of the ECL
was done in view of the fact that the ITC which the Petitioner had availed was in
respect of suppliers who were either non-existent, or their registration had been
cancelled, and hence the provisions of Rule 86A of the Rules have been rightly
invoked in the facts of the present case.
7. We have heard learned counsel on behalf of the parties and perused the papers
and proceedings with their assistance. We are of the view that negative blocking of
ITC under Rule 86A of the Rules cannot be made in as much as the section itself
mandates that there has to be credit available in the ECL for the purposes of
blocking the same. If there is no balance available/negative balance is available in
the ECL, then the same cannot be blocked. We are therefore in agreement with the
contention as raised on behalf of the Petitioner that in the present case the blocking
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which was done is against the mandate of law. However, as pointed out by learned
AGP Ms. Vyas, appearing on behalf of the Respondent Department, it is seen that
on 15th May 2025, a positive balance of Rs. 43,19,259/- was available in the ECL,
and the same was available to be blocked pursuant to the investigations that had
been carried out, and to that extent the impugned order has been correctly passed.
It is her submission that for the balance amount of Rs. 4,38,80,741/- (Rs. 4.82
Crores - Rs. 43,19,259/-), the Department would issue a show-cause notice to
adjudicate whether the ITC has been rightly availed by the Petitioner. Learned
Counsel on behalf of the Petitioner fairly submits that the ITC could be blocked to
the extent of Rs. 43,19,259/- and so far as the remaining amount of Rs.
4,38,80,741/- (Rs. 4.82 Crores - Rs. 43,19,259/-) is concerned, he would face
adjudication proceedings post the issuance of show-cause notice by the Respondent
Department.
8. A coordinate bench of this Court in the case of Rawman Metal & Alloys vs. The
Deputy Commissioner of State Tax, Thane 1 has also taken a view, while
interpreting the provisions of Rule 86A of the Rules, that if on the date of issuing
the impugned order or on the date of making an order under Rule 86A blocking
the ITC in the ECL, if no ITC was found to be available there, then, there would
be no question of exercising the powers under Rule 86A or making any order
under Rule 86A to block such non-available ITC in the ECL. Relevant paras of the
aforesaid judgment are reproduced below:-
11. The question of adverting to legislative intent or executive intent would
1 WRIT PETITION (L) NO. 10928 OF 2025
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arise only if there was any ambiguity in the provision. In the absence of
ambiguity, it is ordinarily not open for the Court to adopt a construction or an
interpretation that allegedly aligns with the intention, though not with the
expressed or plain words employed to express such intention.
12. Further, the Rule with which we are concerned relates to taxes. Ordinarily,
such a provision must be strictly construed, and there is no scope for
implication. Nothing is to be read in such a provision unless there are
exceptional circumstances. The argument that the Rule would be rendered
otiose cannot be accepted because the Rule enables the proper officer to block
the ITC as may be available in the Electronic Credit Ledger, upon there being
reasons to believe that the same had been fraudulently availed or was
ineligible. If the intention of the legislature or the rule makers was to enable
the blocking of any future credit that might be available in the Electronic
Credit Ledger, then the Rule would have been differently worded to expressly
enable or permit such a consequence.
13. The Division Bench of the Gujarat High Court, comprising Hon'ble Mr
Justice J. B. Pardiwala (as His Lordship then was) & Hon'ble Ms Justice Nisha
M. Thakore, has analysed the provisions of Rule 86-A in detail and rejected
contentions almost identical to those now raised by Ms Chavan before us. The
Court has held that if no input tax credit was available in the ledger, the
blocking of the electronic credit ledger under Rule 86-A and insertion of a
negative balance in the ledger would be wholly without jurisdiction and illegal.
The Court held that on a plain reading of the opening part of Rule 86-A (1),
powers can be exercised only if the credit of input tax is available in the
electronic credit ledger and not when there is nil credit in the ledger.
14. The argument about the Rule being rendered otiose or toothless was
considered in detail by the Gujarat High Court in paragraphs 38 to 44, and
the said paragraphs are transcribed below for the convenience of reference:-
"38. The revenue may legitimately argue that such an
interpretation may make the entire Rule 86A toothless as parties
can claim and immediately utilise the credit fraudulently availed
by filing monthly returns. Accordingly, it may be practically
impossible to invoke Rule 86A in large number of cases. This may
be the actual implication of the present interpretation, however,
the Government in its wisdom has framed Rule 86A and this rule
is not framed to recover the credit fraudulently availed. In case
where credit is fraudulently availed and utilised, appropriate
proceeding under the provisions of section 73 or section 74, as the
case may be, can be initiated. Secondly, Rule 86A is not the rule
which provides for debarring the registered person from using the
facility of making payment through the electronic credit ledger. In
case the intention was to disallow future debits or credit in
electronic credit ledger, the text of the rule would be entirely
different.
39. Accordingly, even though Rule 86A may be invoked in very
limited number of cases, this cannot be the basis to invoke the rule
in the cases which are not supported by the plain language of the
rule.
40. The Rule 86A empowers the proper officer to disallow debit
from the electronic credit ledger for an amount equivalent to the
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amount claimed to have been fraudulently availed. Accordingly,
the rule provides for restriction on an amount and not on the very
credit which is fraudulently availed. Accordingly, the rule can be
invoked even when the credit fraudulently availed is utilised.
41. In the aforesaid regard, first the language of an amount
equivalent appears in the later portion of the rule which provides
for the consequences in case the conditions for invocation of the
rule are satisfied. As already discussed, the rule itself can be
invoked only in case where the credit of input tax is available in
the electronic credit ledger and accordingly, the consequence of
the invocation cannot determine the applicability of the rule.
Secondly, once the input tax credit is claimed in electronic credit
ledger, the credit becomes part of one fungible pool and the credit
cannot be separately identified. Having regard to the same, the
rule provides for restriction on an equivalent amount and not the
credit itself. However, the rule presupposes existence of such credit
in the electronic credit ledger.
42. A doubt may also arise that a registered person may
persistently and continuously avail and utilise the fraudulent credit
and in such scenario the strict interpretation of Rule 86A will
defeat the underlying purpose of enacting such a preventive
provision. In this regard. Rule 86A is not the only measure
available with the Government. The Government can certainly
initiate proceedings under the provisions of section 73 or section
74, as the case may be, for recovery of credit wrongly claimed.
Further, the Government in an appropriate case may initiate
proceeding for Cancellation of registration (either of the supplier
of the recipient or both) under Section 29 of CGST Act.
Furthermore, the Government can also provisionally attach any
property, including bank account, belonging to the taxable person
under Section 83 of CGST Act.
43. Accordingly, the fact or possibility of registered person availing
and utilising the fraudulent credit persistently and continuously
cannot be the basis to invoke Rule 86A.
44. The power to restrict debit from the electronic credit ledger is
extremely harsh in nature. The rule outreaches the detailed
procedure provided in the legislature for determination of input
tax credit wrongly availed or utilised provided in Section 73 and
74 of CGST Act and empowers the officer to unilaterally impose
certain restrictions in compelling circumstances. In other words,
Rule 86A is invoked at a stage which is anterior to the finalization
of an assessment or the raising of a demand. Accordingly, it should
be governed strictly by specific statutory language which
conditions the exercise of the power."
15. The Gujarat High Court also took cognisance of the heading of
Rule 86-A, which reads "conditions of use of amount available in the
Electronic Credit Ledger". The Court held that on a plain reading of
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the heading itself, it was apparent that Rule 86-A could be invoked
only if the amount was available in the Electronic Credit Ledger and
not otherwise. The Court held that it was a settled rule of
interpretation that the section heading or a marginal note could be
relied upon to clear any doubt or ambiguity in the interpretation of the
provision to discern the legislative intent. [vide Uttamdas Chela
Sunder Das Vs SGPC and Bhinka & Ors. Vs Charan Singh].
16. The Gujarat High Court, referring to the decisions of the Hon'ble
Supreme Court in the case of Commissioner of Income Tax, Madras Vs
Kasturi & Sons Ltd and Kapil Mohan Vs Commissioner of Income
Tax, Delhi held that the principle that a taxing statute should be
strictly construed is well settled. Furthermore, the Court also held that
it has long been recognised that tax and equity are strangers. Just as
reliance upon equity does not avail an assessee, so it does not avail the
Revenue. The Court held that the principle of law discernible from the
aforesaid two decisions of the Supreme Court is that there can be no
action based on any supposed intendment of the provision. Since the
plain language of Rule 86-A does not permit its exercise without the
availability of credit, it could not have been invoked in the case where
the ITC was nil on the date of exercise of the power.
17. The Gujarat High Court also relied upon Circular No. 4 of 2021
dated 24 May 2021 issued by the Commissioner of State Tax, State
Goods & Services Tax Department Kerala emphasizing that if there
was a nil balance or insufficient balance in the tax head to which the
credit is to be blocked the credit available in other tax heads, equivalent
to the amount fraudulent availed, can be blocked. In such a scenario, it
should be kept in mind that this shall be subject to limitations imposed
by law on cross-utilisation of ITC. That is, as cross-utilisation of CGST
credit to SGST liability and vice versa is not permitted by the GST
Laws. In case of blocking of CGST credit availed fraudulently, blocking
of SGST credit shall not be done if no credit is available in the CGST
tax head. As such, for blocking of IGST credit availed fraudulently, if
there is no credit balance in IGST tax head, the amount equivalent to
the credit fraudulently availed can be blocked from the ITC credit
available in CGST head and/or SGST head and vice versa.
18. The Gujarat High Court also held that blocking of credit was only
a temporary measure, and the Revenue is not rendered remediless
merely because Rule 86-A is confined to the blocking of credit
available in the Electronic Credit Ledger and not future credit that
might be available in the Electronic Credit Ledger. The admissibility of
Input Tax Credit can be verified through the issuance of a show-cause
notice and, thereafter, through the adjudication of the liability. The
authorities have ample powers of recovery, including the power to
provisionally attach under Section 83 of the CGST Act. However, the
power under Rule 86-A cannot be invoked in the absence of any credit
balance in the Electronic Credit Ledger. The Gujarat High Court
allowed the Petition and directed the Respondents to withdraw the
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negative block of the Electronic Credit Ledger at the earliest after
ruling that the condition precedent for exercising power under Rule
86-A was the availability of credit in the Electronic Credit Ledger,
which was alleged to be ineligible or availed of fraudulently.
19. Ms Chavan was unable to say anything about whether the Revenue
challenged the decision of the Gujarat High Court before the Hon'ble
Supreme Court. This decision of the Gujarat High Court was followed
by the Division Bench of the Telangana High Court by a Bench
comprising Hon'ble Sri Justice P. Sam Koshy and Hon'ble Sri Justice
N. Tukaramji in the case of Laxmi Fine Chem (supra).
20. The Delhi High Court in the case of Best Crop Science Pvt Ltd
(supra) comprising Hon'ble Mr Justice Vibhu Bakhru and Hon'ble Mr
Justice Sachin Datta and in the case of Karuna Rajendra Ringshia
(supra) comprising Hon'ble Mr Justice Yashwant Varma and Hon'ble
Mr Justice Ravinder Dudeja have also interpreted Rule 86-A to apply
only in respect of ITC available in the Electronic Credit Ledge at the
time of making a blocking order and not to any future ITC or
providing for any negative blocking, to borrow the phrase used by the
Gujarat High Court.
21. As against the decision of the Delhi High Court in the case of
Karuna Rajendra Ringshia (supra), the Revenue did carry the matter to
the Hon'ble Supreme Court by instituting the Special Leave Petition
(Civil) Diary No(s). 21136/2025. However, by order dated 9 July
2025, the Hon'ble Supreme Court declined to interfere with the
decision of the Delhi High Court, leaving it open to the Revenue to
pursue other remedies for recovery in accordance with law.
22. The Calcutta High Court in the case of Basanta Kumar Shaw
(supra) has dissented from the decision of the Gujarat High Court in
Samay Alloys India Pvt Ltd (supra). The Calcutta High Court has
reasoned that Rule 86-A does not use the expression "negative
blocking" and therefore, such a theory cannot be imported to justify
the contention that there should be a positive balance to invoke Rule
86-A. The Court has also held that there was no requirement under
Rule 86-A that the Electronic Credit Ledger should contain a sufficient
balance to block the credit by invoking the Rule. The Court held that
the Gujarat High Court's view, while laying excessive emphasis on the
word "available", has not given due credence to the words "has been
fraudulently availed or is ineligible".
23. The Calcutta High Court has held that it is a duty of the Court to
examine the true intention of the legislature. In this case, the true
intention was to block the Electronic Credit Ledger where ITC was
availed of fraudulently or where the assessee was ineligible to avail of it.
Any interpretation which would hamper such an intention should not
be adopted.
24. As noted earlier by us, the first duty of the Court is to interpret the
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words of the statute as they read or stand, when such words are plain
and unambiguous. The intention of the legislature must be gathered
from the language used in the statute. G.P. Singh's locus classicus on
the Interpretation of Statutes explains this principle by reference to
several decided cases.
25. In Crawford Vs Spooner 10 and Lord Howard De Walden Vs
Inland Revenue Commissioners 11. It was held that the Courts can
neither aid the legislature's defective phrasing of the act nor add or
mend and, by construction, make up deficiencies which are left there.
It is contrary to all rules of construction to read words into an act
unless it is absolutely necessary to do so.
26. British India General Insurance Co. Ltd Vs Captain Itbar Singh &
Ors 12, the Hon'ble Supreme Court, when interpreting Section 96(2)
of the Motor Vehicles Act, 1939, held that it was exhaustive of the
defenses open to an insurer. The Hon'ble Supreme Court refused to
add the word "also" after the words "on any of the following grounds"
and observed: "this, the rules of interpretation, do not permit us to do
unless the Section as it stands is meaningless or of doubtful meaning".
27. In Grey Vs Pearson, LORD WENSLEYDALE stated the rule thus:
"In construing wills and indeed statutes and all written instruments,
the grammatical and ordinary sense of the word is adhered to, unless
that would lead to some absurdity, or some repugnance or
inconsistency with the rest of the instrument in which case the
grammatical and ordinary sense of the words may be modified, so as to
avoid that absurdity, and inconsistency, but no further".
28. For a further statement of the rule, one may refer to the speech of
LORD SIMON OF GLAISDALE in a case where he said: "Parliament
is prima facie to be credited with meaning what is said in an Act of
Parliament. The drafting of statutes, so important to a people who
hope to live under the rule of law, will never be satisfactory unless
courts seek whenever possible to apply 'the golden rule' of
construction, that is to read the statutory language, grammatically and
terminologically, in the ordinary and primary sense which it bears in its
context, without omission or addition. Of course, Parliament is to be
credited with good sense; so that when such an approach produces
injustice, absurdity, contradiction or stultification of statutory objective
the language may be modified sufficiently to avoid such disadvantage,
though no further".
29. The Rules stated above have been quoted with approval by the
Hon'ble Supreme Court in the cases of Harbhajan Singh vs. Press
Council of India 16 and Guru Jambheshwar University vs. Dharam
Pal.
30. Recently, in the case of M/s Shiv Steel Vs State of Assam and Ors,
the Hon'ble Supreme Court reiterated that strict interpretation must be
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applied when analysing fiscal statutes, and tax liability can only be
imposed if the case falls clearly within the statutory provisions. No tax
can be levied by inference, analogy, or presumed legislative intent. The
Court held that if the revenue convincingly demonstrates that the case
falls strictly within the law's provisions, the subject can be taxed.
Conversely, if the case does not fall within the boundaries of the taxing
statute, no tax can be imposed through inference, analogy, or by
attempting to decipher legislative intent or examining the substance of
the matter.
31. Since the Calcutta High Court decision in the case of Basanta
Kumar Shaw (supra) has emphasised the presumed legislative intent,
thereby paying less credence to the actual words used in Rule 86-A, we
prefer to follow the views of the Gujarat High Court and Delhi High
Court regarding the interpretation of Rule 86-A. Such interpretation
aligns with the plain reading of the Rule as it stands without any
additions or substitutions or without any undue emphasis on the
presumed legislative intent.
32. However, at the request of Ms. Chavan, we clarify that Rule 86-A
allows for the blocking of the Electronic Credit Ledger only to the
extent of the credit available in it at the time of exercising the powers
under Rule 86-A or when making the blocking order, even if the
Revenue has reason to believe that the total credit the assessee might
have fraudulently claimed or was ineligible to claim exceeds the
amount actually present in the Electronic Credit Ledger. Thus, the
blockage to the extent of credit available on the date of the order's
communication would be intra vires and valid. What Rule 86-A, as it
presently stands, does not permit is the blocking of any future credits
the assessee might obtain, thereby introducing the concept of "negative
blocking," despite Rule 86-A not allowing such a concept.
33. The ITC the assessee might acquire after the blocking order is
issued may not even be tainted with any fraud or ineligibility. Rule 86-
A, as it currently stands, would therefore not permit the blocking of
such ITC, considering the language used by the rule framers. The rule
may not explicitly refer to "negative blocking", but that would be the
exact outcome if the rule were interpreted to block ITC unavailable on
the order date or the ITC that might be availed in the future.
Therefore, a construction based on a seemingly broad interpretation
would contravene both the letter and the intention of the rule framers.
34. This is not a narrow interpretation of the rule. It is a case of literal
reading in the absence of any ambiguity. Such an interpretation neither
renders the rule useless nor makes the outcomes absurd. This
interpretation is supported by the principle that taxing statutes must be
strictly interpreted, and generally, there is no room for presumed
intent."
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8. Considering the aforesaid position adopted by the parties and the settled
principles of law, we deem it appropriate to pass the following order which will
meet the ends of justice:-
ORDER
i. Impugned order dated 19th June 2025 is quashed and set aside to the extent it blocks the ITC of Rs. 4,38,80,741/-. Respondent No. 3 is permitted to block the credit of Rs. 43,19,259/- pending adjudication of the show-cause notice which will be issued by Respondent No. 3.
ii. Respondent No.3 to issue show-cause notice for amount of Rs. 4,38,80,741/- within a period of two weeks from the date this order is made available to the Respondent No. 3 by the Petitioner.
iii. All contentions of the parties are expressly kept open. Writ petition disposed of in the above terms. Rule made absolute. No costs.
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