2023 (2) TMI 1291 - HC - Customs

Secured Creditors Under SARFAESI Act Have Priority Over Customs Claims, Court Rules in Favor of Proceeding with Sale.

The HC ruled that the secured creditor under the SARFAESI Act had priority over the Custom Authorities' claim under the Customs Act, 1962. The Court ... Recovery of SARFAESI dues - priority of claim over the claim of Respondent – Custom Authorities - Property under attachment of the Custom Authorities - HELD THAT:- The overriding effect of section 142A as regards the duty, penalty and interest under the Customs Act, 1962 is subject to the Central Act, State Acts provided in this section itself, which includes the SARFAESI Act. Therefore, the claim of Respondent–Custom Authorities for the overriding charge under section 142A of the Customs Act, 1962 itself makes an exception in respect of the SARFAESI Act. Therefore, learned counsel for the Petitioner is right in contending that the Petitioner would have the overriding priority over the charge of Respondent– Custom Authorities. Petitioner states that the Petitioner bank would proceed to take measures under the SARFAESI Act and if any amount remains balance after satisfying the claim of Petitioner, the Petitioner is under a duty to distribute the balance amount as per the claims received. The statement made by learned counsel for the Petitioner on instructions is accepted - the Petitioner is permitted to proceed to take measures under the SARFAESI Act in respect of the property in question. The Petitioner–Bank will, if such a request is received from the Respondent–Custom Authorities to inform them about the action taken by the Petitioner and the quantum of sale proceeds, will give necessary information to the Respondent–Custom Authorities. The writ petition is disposed off. Issues:1. Priority of claim between a secured creditor under the SARFAESI Act and Custom Authorities under the Customs Act, 1962.Analysis:The judgment dealt with the issue of priority of claim between a secured creditor under the SARFAESI Act and Custom Authorities under the Customs Act, 1962. The Petitioner, a secured creditor, initiated proceedings under section 13 of the SARFAESI Act, while the Respondent-Custom Authorities took action under section 121 of the Customs Act, 1962, alleging the property in question was proceeds of smuggling activities. The Petitioner's grievance was that they were unable to take action against the property due to an attachment notice by the Custom Authorities. The Petitioner argued that being a secured creditor, they had priority over the Custom Authorities. The judgment referred to various legal precedents supporting the Petitioner's contention.The Court noted that section 142A of the Customs Act, 1962 establishes the liability under the Act as the first charge on the property. However, the section itself provides exceptions, including the SARFAESI Act. Therefore, the claim of the Custom Authorities for an overriding charge under section 142A did not apply to the SARFAESI Act, giving the Petitioner overriding priority. The Respondent-Custom Authorities contended that while the Petitioner had priority, they still had a claim against the property and suggested conditions to protect their interests if the property was sold under the SARFAESI Act.The Petitioner assured the Court that if any amount remained after satisfying their claim, they would distribute it as per other claims received. The Court accepted this statement and permitted the Petitioner to proceed under the SARFAESI Act. The Petitioner agreed to inform the Custom Authorities about the action taken and the sale proceeds. The judgment disposed of the writ petition and pending applications, emphasizing that other parties with claims against the property had their remedies open.