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 justice principles by providing no reasons. The tribunal ruled that under Section 126, goods vest in the Central Government upon confiscation, regardless of whether the redemption fine option is exercised within 120 days. The Resolution Professional's failure to exercise the redemption option during CIRP proceedings meant the goods had already vested in the government, making the release order legally unsustainable.

---

---

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.

---