The Hon’ble Supreme Court observed that as per Section 456 of the Companies Act, the property and effects of a Company are deemed to be in custody of the Tribunal/Court from the date of the order of the winding up.
The Bench held that the Customs Act nowhere created any statutory first charge to override the general law of priority. It was ruled that 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
The Top Court explicitly stated that the prior secured creditors are entitled to enforce their charge, notwithstanding the government dues payable under the Customs Act.
Brief Facts:
The present appeal has been preferred against the order of the Andhra Pradesh High Court vide which it was held that the the customs authorities have the first right to sell the imported goods under the Customs Act, 1962 and adjust the sale proceeds towards payment of customs duty.
Brief Background:
The Appellant provided financial assistance to the Company and as security the Company hypothecated movable properties and created equitable mortgage of immovable properties.
The present case is concerned with the movable properties. The goods were stored in a warehouse and were not cleared for home consumption. Therefore, as per Section 47 of the Customs Act, show cause notices were issued and custom duty was levied.
The company did not pay the custom duty, therefore an order was passed for the sale of the warehoused goods. Thereafter, the steps were taken for the auction of the imported goods.
Subsequently, a company petition was filed and an order was passed for winding up of the Company. Hence, the official liquidator filed an application for directing the customs authorities to handover possession of the imported goods, which had been put up for auction for payment of the customs duty.
The Single Bench allowed the Application, however on appeal, the division bench held that the custom authorities have precedence over the secured creditors.
Therefore, the present matter.
Observations of the Court:
It was opined that Section 529A of the Companies Act, 2013 has precedence over Section 530. Therefore, in case of any clash Section 529A prevails. It implied that the debts are to be paid in the manner and priority as prescribed.
Further, the Bench observed that as per Section 456 of the Companies Act, the property and effects of a Company are deemed to be in custody of the Tribunal/Court from the date of the order of the winding up.
The main issue in the present case was 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.
The Bench held that the Customs Act nowhere created any statutory first charge to override the general law of priority. It was ruled that 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 dues33 as overriding preferential creditors
The Top Court explicitly stated that the prior secured creditors are entitled to enforce their charge, notwithstanding the government dues payable under the Customs Act.
The decision of the Court:
The proceeds from sale were directed to be given to the Official liquidator so that it could be distributed as per Sections 529A and 530 of the Companies Act, 2013. Accordingly, the appeal was allowed.
Case Title: Industrial Development Bank of India V. Superintendent of Central Excise And Customs And Others
Case No.: Civil Appeal No. 2568 of 2013
Citation: 2023 Latest Caselaw 648 SC
Coram: Hon’ble Justice Sanjiv Khanna, Hon’ble Justice S.V.N. Bhatti
Advocates for Appellant: Adv. Anand Varma
Advocates for Respondent: Advs. B. Krishna Prasad, Mukesh Kumar Maroria
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