TaxTMI 
TaxTMI 
2023 (8) TMI 945
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.... towards payment of customs duty. 2. The Company, during the period 1994-2000, was granted and availed of financial assistance from the appellant - IDBI. As a security, the Company had hypothecated movable properties and created equitable mortgage of immovable properties by depositing title deeds. The charge was duly registered with the Registrar of Companies. In addition, the promoters and guarantors had furnished personal guarantees. 3. In the present case, we are concerned with the hypothecated movable property, namely, machinery and its components, imported from Italy during the years 1998-1999. The goods, packed in 128 wooden containers, were warehoused in a private bonded warehouse by executing bond in terms of Section 59(1) of the Customs Act. The goods were initially warehoused for one year, which period was extended. However, as the goods were not cleared for home consumption in terms of Section 47 of the Customs Act, even after expiry of the extended period of warehousing, show-cause notices were issued Show Cause Notices dated 17th February 2000 and 10th April 2000, and after considering the explanation given by the Company, orders-in- original dated 15th September 200....
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....o take into his custody and control all properties, effects and actionable claims, including the movable property, that is, the imported goods. Official Liquidator, as the custodian of all the properties of the Company, functions under the directions of the Company Court. Any person making any claim against the Company has to prove his claim before the Official Liquidator by placing necessary material in support. Accordingly, the submission regarding the custom authorities' entitlement and right under the Customs Act to sell the imported goods to realise their dues was rejected. 5. On the customs authorities preferring an intra-court appeal, the mater was referred to the full bench of the Andhra Pradesh High Court on the question of whether the claim of a secured creditor has precedence over the right of the customs authorities to recover the customs duty. The full bench, relying on and approving the ratio of the Calcutta High Court in Collector of Customs v. Dytron (India) Ltd. 1998 SCC OnLine Cal 674, disagreed with the view expressed by a full bench of the Madras High Court in UTI Bank Ltd. v. Deputy Commissioner of Central Excise and Another (2007) 135 Company Cases 329 (Mad.)....
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....revenues, taxes, cesses and rates due from the company to the Central or a State Government or to a local authority at the relevant date as defined in clause (c) of sub-section (8) and having become due and payable within the twelve months next before that date; (b) all wages or salary (including wages payable for time or piece work and salary earned wholly or in part by way of commission) of any employee, in respect of services rendered to the company and due for a period not exceeding four months within the twelve months next before the relevant date, subject to the limit specified in sub-section (2); (c) all accrued holiday remuneration becoming payable to any employee, or in the case of his death to any other person in his right, on the termination of his employment before or by the effect of, the winding up order or resolution; (d) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, all amounts due, in respect of contributions payable during the twelve months next before the relevant date, by the company as the employer of any persons, under the Employees' State Insurance Act, 1948, (3....
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....yment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge. (6) Subject to the retention of such sums as may be necessary for the costs and expenses of the winding up, the foregoing debts shall be discharged forthwith so far as the assets are sufficient to meet them, and in the case of the debts to which priority is given by clause (d) of sub-section (1), formal proof thereof shall not be required except in so far as may be otherwise prescribed. (7) In the event of a landlord or other person distraining or having distrained on any goods or effects of the company within three months next before the date of a winding up order, the debts to which priority is given by this section shall be a first charge on the goods or effects so distrained on, or the proceeds of the sale thereof: Provided that, in respect of any money paid under any such charge, the landlord or other person shall have the same rights of priority as the person to whom the payment is made. (8) For the purposes of this secti....
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....red creditors to the extent such debts under clause (c) of the proviso to sub-Section (1) to Section 529 Clause (c) to the proviso to Section 529 has been quoted subsequently rank pari passu with the workmen's dues The expression 'Workmen's dues' in Sections 529, 529A and 530 of the Companies Act is defined and restricted under sub-section (3)(b) to Section 529 of the Companies Act, are to be paid in priority to all other debts. Sub-section (2) to Section 529A states that the debts payable under clauses (a) and (b) of sub- Section (1) to Section 529A shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. 10. In the present case, we are not required to examine the inter-play and principle of proportionality with reference to clauses (a) and (b) to Section 529A of the Companies Act, albeit we must give full effect to and enforce the non-obstante nature of Section 529A of the Companies Act, whereby, notwithstanding anything contained in any other provision of the Companies Act or any other law for the time being in force on 24th May 1985, on winding up of a company, the debt due to the workmen and the debt due to s....
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....s appointed by the High Court vide the order dated 1st December 2003 in Company Petition No. 168 of 2002. 13. Again, before we proceed to interpret the expressions debt 'due' and debt 'due and payable' in clause (a) to Section 530(1) of the Companies Act, it is relevant to take note of the effect of Sections 447, 456, 468, 528 and 529 of the Companies Act, as well as the object and purpose behind these provisions. The relevant sections read as follows: "447. Effect of winding up order.- An order for winding up a company shall operate in favour of all the creditors and of all the contributories of the company as if it had been made on all the joint petition of a creditor and of a contributory." "456. Custody of company's property-(1) Where a winding up order has been made or where a provisional liquidator has been appointed the liquidator or the provisional liquidator, as the case may be, shall take into his custody or under his control, all the property, effects and actionable claims to which the company is or appears to be entitled. (1-A) For the purpose of enabling the liquidator or the provisional liquidator, as the case may be, to take into his custody or under his....
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....contingent liabilities; and (c) the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent: Provided that the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen's portion therein, and where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise his security,- (a) the liquidator shall be entitled to represent the workmen and enforce such charge; (b) any amount realised by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen's dues; and (c) so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso or the amount of the workmen's portion in his security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of Section 529-A. (2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company,....
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.... workman from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the workmen, maintained by the company; (c) "workmen's portion", in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen's dues bears to the aggregate of- (i) the amount of workmen's dues; and (ii) the amounts of the debts due to the secured creditors." 14. As per Section 447 of the Companies Act, an order for winding up of a company operates in favour of all the creditors as if it had been made on a joint petition of a creditor. All creditors are treated as petitioning creditors. Section 456 of the Companies Act requires a provisional liquidator or a liquidator, as the case may be, to take all properties and action claims, to which the company is or appears to be entitled, into his custody or under his control. Sub-section (1A) to Section 456 of the Companies Act entitles the liquidator or the provisional liquidator to write a request to the Chief Presidency Magistrate or the District Magistrate within whose jurisdiction such property, effects ....
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....these sections, the principle applicable and underlying these provisions is to stop alienation and preserve the assets on the date of the bankruptcy, which date, in some cases, can relate back to the date of filing of the winding up petition, as in case of execution of a decree. This preservation is with a view to ensure the division and application of the assets of the company being wound up, as it stood on the relevant date. See - In Re Savin, [1872] L.R. 7 Ch. App. 760, 764 The payment must be made in terms of the priority prescribed. 17. This Court in J.K. (Bombay) (P) Ltd. v. New Kaiser-I-Hind Spg. and Wvg. Co. Ltd. (1970) 40 Comp Cas 689 has held that once a winding up order is passed, the assets of the company under liquidation are passed under the control of the liquidator, whose statutory duty is to realize them. Thereafter, the creditors are paid out by the liquidator from the sale proceeds of the assets of the liquidated company. The creditors have to be paid in terms of the waterfall or priority mechanism. Therefore, payment has to be first made in terms of Section 529A of the Companies Act to overriding preferential creditors, then to preferential creditors in terms o....
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....he debt 'due' must have become payable at any time within twelve months next before the relevant date. The debt 'due and payable' prior to twelve months next to the relevant date is not a preferential debt in terms of Section 530(1)(a) of the Companies Act. Such debt will rank pari passu with ordinary or unsecured creditors, without any preferential treatment. In this regard, we quote the following passages from the decision of this Court in Rajratha Naranbhai Mills Co. Ltd. (supra): "8. We have gone through both the judgments aforereferred to very carefully and minutely and have heard learned counsel on the conflicting decisions. There are wide ranging discussions in the interpretative process relating to the word 'due' occurring in the earlier part of the provision and the words 'due and payable' in the later part, and whether they are different expressions meant to convey differently or they mean the same thing. With due respect to the High Court, we feel that relevant and important considerations and material though available, which could go to interpret the section purposively was overlooked, and at this juncture we wish to put it to use. xx xx Xx 11. In A. Ramaiya'....
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....hose twelve months and as such due and becoming due and payable within those twelve months next before the relevant date, ascertainable if necessary later, if not already ascertained. We are in respectful agreement with the interpretation put by the Court of Appeal to Section 264 of the English Companies Act in Airedale Garage case, analogous as it is to the provision in hand, warranting the same interpretation; more so when any other interpretation would lead to the results feared by the Company Law Committee extracted above. In such view of the matter, we need not elaborately comment, discuss or demolish, sentence by sentence, the reasoning given by the Single Bench as also the Division Bench of the High Court towards interpreting the provision. The words 'having become due and payable within 12 months next before the relevant date' need be understood to mean putting a restriction or cordoning off the amount for which priority is claimable and not in respect of each and every debt on account of taxes, rates and cesses etc. which may be outstanding at that time and payable. And further that such priority is in respect only of debts those of which become due and payable because the....
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....n India and the common law of England, do not accord the government or Crown dues a preferential right for recovery of dues or debts over a mortgagee, pledgee of goods or a secured creditor. The common law doctrine giving preferential rights to the Crown debts confined to ordinary or unsecured creditors constitutes 'law in force' within the meaning of Article 372(1) of the Constitution of India, and accordingly, this law continues to be in force. This Court in Dena Bank (supra) specifically refers to and approves the statement of law made in 'Rashbehary Ghose: Law of Mortgage' TLL, 7th Edn., p. 386 - "It seems a government debt in India is not entitled to precedence over a prior secured debt." This principle also emanates from the decision of the Constitution bench of this Court in Builders Supply Corporation v. Union of India and Others (1965) 2 SCR 289, which was followed by a three judges' bench in Collector of Aurangabad and Another v. Central Bank of India and Another (1967) 3 SCR 855. At the same time, we must record for clarity that this principle, which vents from the 'law in force' within the meaning of Article 372(1) of the Constitution of India, must give way to a statut....
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....re the proper officer, to the effect that he is unable for want of full information to furnish all the particulars of the goods required under this sub-section, the proper officer may, pending the production of such information, permit him, previous to the entry thereof : (a) to examine the goods in the presence of an officer of customs, or (b) to deposit the goods in a public warehouse appointed under Section 57 without warehousing the same. (2) Save as otherwise permitted by the proper officer, a bill of entry shall include all the goods mentioned in the bill of lading or other receipt given by the carrier to the consignor. (3) The importer shall present the bill of entry under sub-section (1) before the end of the day (including holidays) preceding the day on which the aircraft or vessel or vehicle carrying the goods arrives at a customs station at which such goods are to be cleared for home consumption or warehousing: Provided that the Board may, in such cases as it may deem fit, prescribe different time limits for presentation of the bill of entry, which shall not be later than the end of the day of such arrival: Provided further that] a bill of entry may be presen....
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....his title to the goods upon payment of penalties that may be payable in respect of the goods and upon such relinquishment, he shall not be liable to pay duty thereon: Provided also that the owner of any such warehoused goods shall not be allowed to relinquish his title to such goods regarding which an offence appears to have been committed under this Act or any other law for the time being in force." The goods were not released on non-payment of customs duty etc. and, thereupon, show cause notices dated 17th February 2000 and 10th April 2000 were issued and two adjudication orders dated 15th September 2000 and 10th October 2000 were passed. 23. In a similar factual matrix, a three judges' bench of this Court in Commissioner of Customs, Calcutta and Another v. Biecco Lawrie Ltd. (2008) 3 SCC 264 had examined the provisions of Section 15 of the Customs Act, as they then existed, and have opined that clause (b) to Section 15(1) of the Customs Act will cease to apply when the requirements under Section 68 of the Customs Act stand fulfilled and the imported goods are cleared for home consumption. In the context of the present case, we must hold that the debt had become 'due' in te....
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....s of the Insolvency and Bankruptcy Code, 2016 For short, 'IBC' and the Customs Act. In this context, the three judges' bench in Sundaresh Bhatt, Liquidator of ABG Shipyard (supra) has referred to Section 238 of the IBC to observe that Section 238 of the IBC clearly overrides any provision of law which is inconsistent with the IBC. This judgment has also made reference to Section 142A of the Customs Act, which reads thus: "142A. Liability under Act to be first charge.- Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest or any other sum payable by an assessee or any other person under this Act, shall, save as otherwise provided in Section 529-A of the Companies Act, 1956 (1 of 1956), the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993), the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 and the Insolvency and Bankruptcy Code, 2016 be the first charge on the property of the assessee or the person, as the case may be." Section 142A of the Customs Act was inserted by Act 8 of 2011 with effect from 8th April 2011. It does....