Moratorium under IBC prevails over customs auction powers, and customs dues must be pursued as insolvency claims.

Once CIRP and the moratorium under the Insolvency and Bankruptcy Code commenced, cargo treated as belonging to the corporate debtor could not be auctioned by customs outside the insolvency framework. The Code prevailed over inconsistent customs ures, so the auction sale proceeds had to be dealt with in the insolvency proceedings. The customs department's dues were characterised as statutory claims falling within the position of an operational creditor, and the penalty imposed for non-compliance with the earlier release direction was set aside. The department was left to pursue its claim through the insolvency process.

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Issues: (i) whether the sale proceeds of the auctioned cargo, sold after commencement of the corporate insolvency resolution process, could be directed to the corporate debtor and whether the customs authorities could rely on the Customs Act to justify the auction; (ii) whether the customs authorities were entitled to retain the penalty and whether their claim was to be treated only as that of an operational creditor.

Issue (i): Whether the sale proceeds of the auctioned cargo, sold after commencement of the corporate insolvency resolution process, could be directed to the corporate debtor and whether the customs authorities could rely on the Customs Act to justify the auction?

Analysis: The relevant legal framework consisted of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, the duties of the interim resolution professional under Section 18, and the customs procedure under Sections 46, 47, 48 and 150 of the Customs Act. The decisive question was whether the goods formed part of the corporate debtor's assets. On the facts, the goods were treated as belonging to the corporate debtor: they had been purchased through letters of credit, the correspondence described them as the corporate debtor's cargo, and the bills of lading identified the corporate debtor as consignee or notified party. Once the moratorium commenced, the customs authorities could not validly auction those assets after the CIRP had begun. The Code overrides inconsistent laws, and insolvency proceedings vest exclusive control over such assets in the insolvency framework.

Conclusion: The auction conducted during the moratorium could not be sustained as against the insolvency process, and the sale proceeds were rightly directed to be dealt with in the insolvency proceedings.

Issue (ii): Whether the customs authorities were entitled to retain the penalty and whether their claim was to be treated only as that of an operational creditor?

Analysis: The customs claim arose out of statutory dues and charges, which placed the customs department in the position of an operational creditor. The tribunal also found that the penalty imposed for non-compliance with the earlier direction to release the goods was not justified. The department's remedy lay in submitting its claim before the liquidator under the insolvency regime rather than retaining the proceeds or continuing coercive steps outside that framework.

Conclusion: The customs department's claim was confined to that of an operational creditor, and the penalty was set aside.

Final Conclusion: The appeals were disposed of by sustaining the insolvency court's control over the corporate debtor's assets, while granting limited relief to the customs authorities by removing the penalty and preserving their right to file a claim in the insolvency process.

Ratio Decidendi: Once CIRP and moratorium commence, assets found to belong to the corporate debtor cannot be sold or appropriated outside the Insolvency and Bankruptcy Code, and statutory claimants must pursue their remedies within the insolvency framework as operational creditors where applicable.

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