2014 (8) TMI 694 - HC - Customs

Court rules in favor of bank over Central Excise in creditor dispute. Secured creditors' rights upheld.

The court ruled in favor of the bank, a secured creditor, in a dispute with the Central Excise department over the priority of recovering dues from a ... Preference of charge / recovery - secured creditors or customs duty payable - Central Excise department initiated proceedings against the respondent no.2-company for payment of excise duties and, an order imposing a demand of duty along with interest and penalty - Central Excise department initiated proceedings under Section 142 of the Customs Act, 1962 and under the Attachment of Property of Defaulters for Recovery of Government Dues Rules, 1995 - Based on the said attachment order, the Assistant Commissioner, Central Excise, Allahabad by an order intimated the petitioner-bank that in view of Section 11 the land, plant and machinery and also any property in the name of respondent no.2-company should not be brought/sold/leased/transferred by the petitioner without the permission of the Assistant Commissioner of Central Excise, Division Allahabad. Held that:- petitioner, who has granted loan to respondent no.2-company is a secured creditor under Section 2(2d) of the said Act and that recovery of the loan granted could be recovered as the first charge in preference to recovery of other dues - On the other hand, Section 11 of the Central Excise Act and Section 142 of the Customs Act, 1962 only provides for recovery of sums due to the government. We do not find that these provisions indicate that the Central Excise department has any preferential charge. The learned counsel for the Central Excise department has failed to show any provision by which government dues could be recovered as the first charge - Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, being a special enactment and the petitioner being a secured creditor had the first charge to recover the amount - respondent no.1 had no authority of law to restrain the petitioner-bank from proceeding with the recovery of the amount from the assets of respondent no.2 over which the petitioner had the first charge - Decided in favour of Petitioner. Issues:1. Priority of recovery between a secured creditor and the Central Excise department.2. Legality of restraining a bank from recovering dues.Analysis:1. The case involved a dispute between a bank, a secured creditor, and the Central Excise department regarding the priority of recovery of dues from a defaulting company. The bank had provided credit facilities to the company, and when the company defaulted, the bank initiated recovery proceedings. Subsequently, the Central Excise department also claimed dues from the company and attached the company's property. The key issue was whether the Central Excise department had a preferential right to recover its dues over the bank as a secured creditor.2. The court referred to various legal precedents to determine the priority of recovery. It was established that the Crown's preferential right to recover debts does not override the rights of a secured creditor unless there is a specific statute providing otherwise. The court cited cases such as Dena Bank Vs. Bhikhabhai Prabhudas Parekh & Co. and State Bank of India Vs. State of U.P. to support the principle that secured creditors have priority in recovering their dues over government departments like the Central Excise.3. The court also highlighted the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which define the rights of secured creditors and the process for recovery of debts. It was emphasized that the bank, being a secured creditor under the Act, had the first charge to recover the amount owed to it, and the Central Excise department did not have a preferential charge under the relevant statutes.4. Based on the legal analysis and precedents, the court concluded that the bank, as a secured creditor, had the authority to proceed with the recovery of dues from the company's assets. The court held that the Central Excise department had no legal basis to restrain the bank from recovering its dues, and therefore, the order issued by the department was quashed. Consequently, the writ petition filed by the bank was allowed in its favor.In summary, the judgment clarified the priority of recovery between a secured creditor and a government department like the Central Excise, emphasizing the rights of secured creditors under relevant laws and legal precedents. The decision upheld the bank's authority to recover its dues and invalidated the restraining order issued by the Central Excise department.