Insolvency And Bankruptcy Code, 2016 Will Prevail Over Customs Act, 1962
Recently, the Supreme Court once again upheld the overriding effect of Insolvency and Bankruptcy Code, 2016 (“Code”) in the matter of Sundaresh Bhatt vs. Central Board of Indirect Taxes & Custom[Civil Appeal No. 7667 of 2021] and held that the provisions of the Code will prevail over the provisions of the Customs Act, 1962 (“Customs Act”).
The Liquidator of ABG Shipyard Ltd. (“Corporate Debtor”), challenged the order of the NCLAT wherein inter alia it was held that the goods lying in the customs bonded warehouses are not the assets of Corporate Debtor as the Corporate Debtor failed to take positive steps to take control of its assets by failing to pay customs duties and for that reason, the Corporate Debtor is deemed to have relinquished its title to its goods by legal implication in terms of the Customs Act. Therefore, a separate proceeding by Customs Authorities of confiscation of goods in the name of the Corporate Debtor undergoing liquidation, was not bad in law.
The question that came for consideration before the Hon’ble Supreme Court was whether the provisions of the Code will prevail over the provisions of the Customs Act and whether the Customs Authority was entitled to confiscate the goods of the Corporate Debtor which is currently undergoing liquidation in terms of the Code?
The Supreme Court held that goods belonged to the corporate debtor despite the fact that the Custom Duty was not paid and title to the goods did not pass on to the Customs Authority. The Custom Authority therefore could not have confiscated the goods, which were the assets of the Corporate Debtor, for the purposes of recovering customs duties. Further, on the imposition of moratorium, no proceedings could have been initiated/continued by the Customs Authority against the Corporate Debtor. After the initiation of CIRP and consequent imposition of the moratorium, IRP/Resolution Professional/Liquidator takes control of the assets belonging to the corporate debtor and in this case also he had the right to take control over the goods lying in the custom bonded warehouse. Therefore, the Customs Authority was only required to assess the custom duty payable and thereafter could have filed a claim with the Resolution Professional/Liquidator (as the case may be) with respect to outstanding custom duties. The judgment is in line with the very objective of the Code which is essentially to maximize the value of assets of the corporate debtor. The goods lying with the Custom Authorities were part of the transaction the Corporate Debtor entered into consequent to which the goods were received at Customs but could not be procured by Corporate Debtor on account of insolvency.
