INDUSTRIAL DEV.BANK OF INDIA THROUGH STRESSED ASSETS STABILISATION FUND CONSTITUTED BY THE GOVT. OF vs. SUPERINTENDENT OF CENTRAL EXCISE AND CUSTOMS Civil Appeal no 2568 of 2013
Facts:
1.Sri Vishnupriya Industries Limited the Company, during the period 1994-2000, was granted and availed of financial assistance from the appellant – IDBI. As a security, the Company had hypothecated movable properties and created equitable mortgage of immovable properties by depositing title deeds. The charge was duly registered with the Registrar of Companies.
2.The goods, packed in 128 wooden containers, were warehoused in a private bonded warehouse by executing bond in terms of Section 59(1) of the Customs Act. The goods were initially warehoused for one year, which period was extended. However, as the goods were not cleared for home consumption in terms of Section 47 of the Customs Act, even after expiry of the extended period of warehousing, show-cause notices were issued and after considering the explanation given by the Company, orders-in original dated 15th September 20007 and 10th October 20008 were passed confirming levy of customs duty of Rs.3,27,22,191/- and Rs.10,48,29,017/-, respectively. When the Company did not pay the duty, the authorities had passed an order dated 19th December 2000 for sale of the warehoused goods for recovery of the customs duty, relying on the powers conferred under Section 72(2) read with Section 142 of the Customs Act.
3.Company Petition No. 168 of 2002 was filed before the Andhra Pradesh High Court for winding up of the Company which was admitted on 1st April 2003. The Company was directed to be wound up vide the order passed on 1st December 2003. Official Liquidator filed an application11 under Section 468 of the Companies Act read with Rules 9 and 11(b) of the Companies (Court) Rules, 195912 for directing the customs authorities to handover possession of the goods which was put to auction. The Single Judge Bench vide order dated 3rd September 2004 allowed the application.
4.An intra-court appeal was filed where the mater was referred to the full bench of the Andhra Pradesh High Court on the question of whether the claim of a secured creditor has precedence over the right of the customs authorities to recover the customs duty. The hon’ble Full bench allowed the appeal and held that Section 468 of the Companies Act has no application as it empowers the Company Court to require the ‘contributory’ to pay, deliver, surrender or transfer any money, property or books and papers in his custody or control. The word ‘contributory’, defined in Section 428 of the Companies Act, does not include the customs department/authorities.
5.IDBI filed the appeal against the above order.
Issue: whether the Customs Act creates a first charge for payment of the customs dues, and if so, harmonise and resolve the conflict between the Companies Act and the Customs Act?
Decision: Hon’ble Supreme Court allowed the appeal.
Rationale:
1.Hon’ble SC noted that Sections 61, 72 and 142 of the Customs Act do not incorporate a statutory first charge to override the general law, as per the dictum in Dena Bank.
2.The provisions in the Customs Act do not, in any manner, negate or override the statutory preference in terms of Section 529A of the Companies Act, which treats the secured creditors and the workmen’s dues as overriding preferential creditors; and the government dues limited to debts ‘due and payable’ in the twelve months next before the relevant date, which are to be treated as preferential payments under Section 530 of the Companies Act, but are ranked below overriding preferential payments and have to be paid after the payment has been made in terms of Section 529 and 529A of the Companies Act.
3.It held that the prior secured creditors are entitled to enforce their charge, notwithstanding the government dues payable under the Customs Act.
4.It also held that provision of Section 142A of the Customs Act, insofar as it protects the rights of overriding preferential creditors governed and covered by Section 529A of the Companies Act, is clarificatory and declaratory in nature, and does not lay down a new dictum or confer any new right as far as the present case is concerned.
5.Section 142A of the Customs Act, post its enactment, would dilute the impact of Section 530 of the Companies Act, which had restricted preferential treatment to government taxes ‘due and payable’ limited to twelve months prior to the ‘relevant date’, without preferential right for taxes that had become ‘due and payable’ in the earlier period.
Order Copy:
