2016 (10) TMI 1088 - HC - Customs

Court denies interim relief to non-party in arbitration agreement, prioritizes customs dues over pledgee's rights.

P.E.C. Ltd. Versus Kandla Energy & Chemicals Ltd.

The court concluded that interim relief under Section 9 of the Arbitration & Conciliation Act, 1996 could not be extended to a non-party to the ... ‘Waterfall’ provision of Section 150 of the CA - auction of goods - import of 2,000 MT of Heavy Aromatics of South Korean origin from a Singapore supplier - orders injuncting respondent Nos. 1 & 2 from selling, transferring, alienating and/or creating any third party interest or parting with possession of 2002.01 MT of Heavy Aromatics pledged with the petitioner and lying in the bonded warehouse of respondent No. 2 at Mundra till such time as the entire dues of the petitioner were recovered from respondent No. 1 - Held that: - it requires to be noticed that, ordinarily, a direction under Section 9 of the Act will not be issued to a party which is not a party to the arbitration agreement. However, this Court has in a series of judgments held that Section 9 of the Act does not limit the jurisdiction of the Court to pass appropriate interim orders which might affect third parties deriving a title “from the party to the agreement unlike the third party having an independent right.” It is, therefore, seen that the owner of the goods is last in the sequence. The petitioner as a pledgee could at best be said to have stepped into the shoes of the owner and, therefore, in terms of Section 150 of the CA, the dues of the petitioner would have to await the settlement of the Customs duty and dues of respondent No. 2. The Court finds merit in the submission of Mr. Sibal that the sale of the goods can take place only in terms of Section 150 of the CA. The goods in question are imported and have not been cleared within a period of thirty days after such import. Sections 48 read with Sections 142A and 150 of the CA are straightway attracted. Therefore, the sale of the warehoused goods has to take place only in accordance with Section 150 of the CA and the proceeds thereof have to be applied in the manner provided therein. The dues of the Customs authorities and that of respondent No. 2 have a priority over those of the petitioner and the sale proceeds will have to be applied to settle the dues in that order. Consequently, the question of permitting the petitioner as a pledgee of the goods to bring the goods to sale by way of public auction does not arise. Without any unnecessary delay, respondent No. 2 should initiate the process, if it has not done so already, to bring the goods to sale by way of public auction after notice to the petitioner. The application of the proceeds of such auction sale will abide by the ‘waterfall’ provision of Section 150 of the CA - The interim orders passed by this Court, thus, far, stand vacated - petition disposed off. Issues Involved:1. Jurisdiction under Section 9 of the Arbitration & Conciliation Act, 1996.2. Prioritization of dues under the Customs Act, 1962.3. Rights of the pledgee versus statutory charges.Detailed Analysis:1. Jurisdiction under Section 9 of the Arbitration & Conciliation Act, 1996:The petitioner sought interim relief under Section 9 of the Arbitration & Conciliation Act, 1996 against respondent No. 2, who was not a party to the arbitration agreement. The court noted that typically, directions under Section 9 are not issued to non-parties to the arbitration agreement. However, it cited precedents where interim orders affected third parties deriving a title from a party to the agreement. In this case, respondent No. 2 had an independent right as the owner of the bonded warehouse, not deriving title through respondent No. 1. Hence, the court concluded that Section 9 reliefs could not be extended to respondent No. 2.2. Prioritization of dues under the Customs Act, 1962:The court examined Sections 48, 142A, and 150 of the Customs Act, 1962. Section 48 allows for the sale of goods not cleared within thirty days with the permission of the proper officer. Section 142A establishes that customs duties and other sums payable under the Act have the first charge on the property. Section 150 outlines the sequence of applying sale proceeds: first to sale expenses, then freight and other charges, customs duty, charges due to the custodian, and finally, any amount due to the Central Government. The court emphasized that the owner of the goods (or the pledgee stepping into the owner’s shoes) is last in this sequence, meaning the petitioner’s dues would be settled after customs and custodian charges.3. Rights of the pledgee versus statutory charges:The petitioner argued that as a pledgee, it had the first charge on the cargo, citing Sections 172, 176, 180, and 181 of the Contract Act, 1872, and relevant case law. However, the court highlighted that the statutory scheme under the Customs Act takes precedence. The decisions in Bank of Bihar and Central Bank of India did not address situations involving statutory dues to customs and port authorities. The court concluded that the statutory provisions of the Customs Act, which prioritize customs and custodian dues, override the petitioner’s rights as a pledgee.Conclusion:The court held that the sale of the goods must occur under Section 150 of the Customs Act, with proceeds applied according to the statutory sequence. The petitioner’s request for interim relief to auction the goods was denied. The court directed respondent No. 2 to initiate the auction process without unnecessary delay and apply the proceeds as per Section 150 of the Customs Act. The interim orders previously granted were vacated, and the petition was disposed of with no orders as to costs.