2024 (4) TMI 828 - AT - Insolvency and Bankruptcy

NCLAT overturns order directing release of customs-seized machines, citing natural justice violations and Section 126 vesting provisions

The NCLAT set aside the Adjudicating Authority's order directing release of customs-seized machines to the Customs Department, finding it violated natural ... Release of assets (machines) seized by the Customs Authorities before initiation of CIRP - violation of principles of natural justice - HELD THAT:- On looking into the order of the Adjudicating Authority, it is clear that the order contains only direction to release the goods to the Customs Department without giving any reason and without even adverting to the facts, which were mentioned by the Applicant himself in the Application. The order of Adjudicating Authority, which does not give any reason for allowing the Application, deserves to be set aside on this ground alone. The statutory provision of Section 126 is clear and it does not need any interpretative exercise to know the legislative intendment. The option of paying the redemption fine given under the order dated 03.12.2020 has not been availed of, which is an admitted fact. The submission, which has been pressed by the learned Counsel for the Respondent is that since the period of 120 days did not expire and the CIRP commenced, the vesting of goods in Central Government shall not take place. Vesting of goods under Section 126, sub-section (1) is not dependent on exercise of option to pay the redemption fine. The payment of redemption fine and redeeming the goods is a benefit, which is provided by the statute, which option can be availed after the confiscation of the goods - In the present case, it is not the case of RP that any option was exercised for payment of redemption of fine. In the entire pleading of the Application, there is no claim of exercise of any option. Thus, the argument of Shri Rishav Banerjee that there shall be no vesting till the period for exercising the option comes to an end, has no relevance in the present case. More so, even CIRP commenced against the Corporate Debtor on 30.12.2020, it was always open for the RP, who was entitled to represent the Corporate Debtor to exercise option and redeem the goods by payment of redemption fine. The contention of the Respondent that even though, it has neither exercised the option of payment redemption fine nor redeemed the goods, but sill they continued to be owner of the goods cannot be accepted. The vesting of goods is on confiscation by the Central Government by provision of Section 126, sub-section (1) and the option to pay redemption fine and redeeming the goods, is only a benefit given to the Corporate Debtor, which however, shall not arrest the vesting of the goods as contemplated by Section 126, sub-section (1) - the submission of learned Counsel for the Respondent is not accepted in the present case that till the option for payment of redemption fine is not exercised within 120 days, the goods continued to vest in the Corporate Debtor. The order of the Adjudicating Authority impugned in the Appeal is unsustainable and deserve to be set-aside - Appeal allowed. Issues Involved:1. Whether the goods confiscated by the Customs Authorities prior to the initiation of CIRP vest in the Central Government.2. Whether the RP has the right to take possession of the goods confiscated by the Customs Authorities.3. Whether the Adjudicating Authority's order directing the release of goods was valid.Issue-wise Summary:1. Vesting of Goods in Central Government:The Corporate Debtor's goods were confiscated by the Customs Authorities on 03.12.2020 u/s 113(i) of the Customs Act, 1962, with an option to redeem the goods on payment of a redemption fine u/s 125(i). The Tribunal noted that u/s 126(1), confiscated goods vest in the Central Government. The RP argued that since the 120-day period for paying the redemption fine did not expire before the CIRP commenced, vesting did not occur. However, the Tribunal held that vesting is not dependent on the exercise of the redemption option and that the goods vested in the Central Government upon confiscation.2. RP's Right to Possession:The RP sought the release of the confiscated goods, claiming ownership still lay with the Corporate Debtor due to the moratorium imposed u/s 14 of the IBC. The Tribunal rejected this argument, stating that the RP did not exercise the option to pay the redemption fine within the stipulated period, and thus the goods vested in the Central Government. The RP's failure to redeem the goods meant no rights could be claimed over them.3. Validity of Adjudicating Authority's Order:The Tribunal found that the Adjudicating Authority's order directing the release of goods lacked reasoning and did not consider the facts presented. The Tribunal emphasized that the order was unreasoned and deserved to be set aside. It was noted that the Adjudicating Authority failed to address the confiscation order dated 03.12.2020 and the statutory provisions of the Customs Act.Conclusion:The Tribunal set aside the Adjudicating Authority's order, holding that the goods vested in the Central Government upon confiscation and that the RP had no right to claim them without paying the redemption fine. The appeal was allowed, and the IA No.749 of 2021 was dismissed.