2023 (8) TMI 945 - SC - Companies Law

Supreme Court Rules: Secured Creditors & Workmen's Dues Take Priority Over Customs Debts in Asset Distribution.

INDUSTRIAL DEVELOPMENT BANK OF INDIA (THROUGH STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY THE GOVERNMENT OF INDIA) Versus SUPERINTENDENT OF CENTRAL EXCISE AND CUSTOMS AND OTHERS

INDUSTRIAL DEVELOPMENT BANK OF INDIA (THROUGH STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY THE GOVERNMENT OF INDIA) Versus SUPERINTENDENT OF CENTRAL ... Issues Involved:1. Whether the customs authorities have the first right to sell imported goods and adjust the sale proceeds towards payment of customs duty, notwithstanding the provisions of Section 529A and 530 of the Companies Act, 1956.2. Whether the claim of a secured creditor has precedence over the right of the customs authorities to recover customs duty.3. Interpretation of the expressions 'debt due' and 'debt due and payable' in Section 530(1)(a) of the Companies Act.4. Whether the Customs Act creates a statutory first charge for payment of customs dues.Summary:Issue 1: Right to Sell Imported GoodsThe Supreme Court addressed the appeal by Industrial Development Bank of India (IDBI) against the Andhra Pradesh High Court's judgment, which held that customs authorities have the first right to sell imported goods and adjust the sale proceeds towards payment of customs duty, despite the winding-up order and provisions of Sections 529A and 530 of the Companies Act, 1956. The Company had imported machinery and its components, which were warehoused but not cleared for home consumption, leading to customs duty levies and orders for the sale of warehoused goods to recover the duty. The Official Liquidator's application for possession of the goods was initially allowed by a single judge, but the full bench of the High Court later ruled in favor of the customs authorities.Issue 2: Precedence of Secured CreditorThe full bench of the Andhra Pradesh High Court had to decide whether a secured creditor's claim takes precedence over the customs authorities' right to recover customs duty. The High Court relied on the Calcutta High Court's decision in Collector of Customs v. Dytron (India) Ltd. and disagreed with the Madras High Court's view in UTI Bank Ltd. v. Deputy Commissioner of Central Excise and Another. The Supreme Court, however, emphasized that Section 529A of the Companies Act, a non-obstante provision, should prevail in case of conflict, giving priority to secured creditors and workmen's dues over other debts, including government dues under Section 530.Issue 3: Interpretation of 'Debt Due' and 'Debt Due and Payable'The Court interpreted the expressions 'debt due' and 'debt due and payable' in Section 530(1)(a) of the Companies Act, aligning with the judgment in Rajratha Naranbhai Mills Co. Ltd. v. Sales Tax Officer, Petlad. It held that a debt must not only be 'due' but also 'due and payable' within twelve months before the relevant date to qualify as a preferential debt. In this case, customs duty became 'due and payable' prior to the twelve months next to the relevant date, thus not qualifying as a preferential payment under Section 530(1)(a).Issue 4: Statutory First Charge under Customs ActThe Court examined whether the Customs Act creates a statutory first charge for customs dues. It concluded that Sections 61, 72, and 142 of the Customs Act do not incorporate a statutory first charge overriding the general law, as per the dictum in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. The Court also noted that Section 142A of the Customs Act, inserted in 2011, does not apply to the present case and does not override the rights of secured creditors under Section 529A of the Companies Act.Conclusion:The Supreme Court allowed the appeal, setting aside the High Court's judgment, and directed that the sale proceeds be distributed in accordance with Sections 529A and 530 of the Companies Act, prioritizing secured creditors and workmen's dues over customs dues.