2023 (2) TMI 682 - HC - Customs

Delhi High Court quashes show-cause notice; upholds Resolution Plan

Sree Metaliks Limited Versus Additional Director General And Ors.

Sree Metaliks Limited Versus Additional Director General And Ors. - TMI Issues Involved:1. Sustainability of the show-cause notice dated 18.07.2019.2. Jurisdiction and convenience of the Delhi High Court to adjudicate the writ petition.3. Impact of the approved Resolution Plan on the statutory claims of the Directorate of Revenue Intelligence (DRI) and Directorate General of Foreign Trade (DGFT).Analysis of the Judgment:Issue 1: Sustainability of the Show-Cause NoticeThe primary issue revolves around the sustainability of the show-cause notice issued by the Additional Director General (ADG), Directorate of Revenue Intelligence (DRI), Hyderabad, on 18.07.2019. The petitioner, Sree Metaliks Limited (SML), contends that the notice should be quashed as it was issued after the Resolution Plan was approved by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). SML argues that the DRI/DGFT failed to register their claims with the Resolution Professional (RP) despite a public announcement and specific communication. The court observed that the DRI/DGFT did not submit their proof of claims or respond to the RP's communication, and thus, their claims were extinguished under the approved Resolution Plan as per the Supreme Court's ruling in Ghanashyam Mishra & Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Company Ltd. (2021) 9 SCC 657. Therefore, the court concluded that adjudicating the show-cause notice would be an exercise in futility and quashed the notice.Issue 2: Jurisdiction and Convenience of the Delhi High CourtThe respondents argued that the Delhi High Court was not a convenient forum since the show-cause notice was issued in Hyderabad, the petitioner is based in Orissa, and none of the goods were imported via Delhi. They cited the judgment in Sterling Agro Industries Ltd. vs Union of India & Ors. 2011 SCC OnLine Del 3162 to support their plea. However, the court noted that the adjudicating authority was in Delhi and thus had jurisdiction. The court also highlighted that the doctrine of forum non-conveniens assumes the court has jurisdiction but may choose not to entertain the writ for convenience reasons. Given that the writ petition was filed in March 2021 and the jurisdictional objection was raised much later, the court found it unfair to return the petition on convenience grounds and decided to entertain it.Issue 3: Impact of the Approved Resolution PlanThe court examined whether the claims of the DRI/DGFT, which were not part of the approved Resolution Plan, stood extinguished. The Supreme Court in Ghanashyam Mishra had ruled that once a Resolution Plan is approved, all claims not part of the plan are extinguished and no proceedings can continue for such claims. The respondents relied on the Supreme Court's judgment in State Tax Officer (1) vs Rainbow Papers Ltd. 2022 SCC Online SC 1162, arguing that the Customs department should be treated as a secured creditor. However, the court distinguished the facts of the present case from Rainbow Papers, noting that the DRI/DGFT did not submit any proof of claim or respond to the RP's communication, unlike in Rainbow Papers where a claim was lodged, albeit late. Additionally, Section 142A of the Customs Act, 1962, which provides for the first charge on the property of the assessee, contains exceptions for other statutes, including the Insolvency and Bankruptcy Code (IBC), unlike Section 48 of the Gujarat Value Added Tax Act, 2003, considered in Rainbow Papers. Therefore, the court concluded that the claims of the DRI/DGFT were extinguished under the approved Resolution Plan.Conclusion:The Delhi High Court quashed the impugned show-cause notice dated 18.07.2019, holding that the adjudication of the notice would be futile given the extinguishment of the claims under the approved Resolution Plan. The court also decided to entertain the writ petition despite the respondents' objections regarding jurisdiction and convenience. The parties were directed to bear their respective costs.