2021 (11) TMI 796 - AT - Insolvency and Bankruptcy

Seeking issuance of directions to the Appellant to allow removal of the materials lying in the Customs Bonded Warehouses without payment of Customs Duty - Section 60(5) of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - The learned Adjudicating Authority has passed the impugned Order on the premise that Insolvency and Bankruptcy Code, 2016 is a special law that provides a non-obstante clause under Section 238 of the Code with overriding effect over other prevailing law and statute, time being in force. Further, relying on the case-law of Hon'ble Supreme Court in the case of SOLIDAIRE INDIA LTD. VERSUS FAIRGROWTH FINANCIAL SERVICES LTD. 2001 (2) TMI 968 - SUPREME COURT , it is argued that if there are two special statutes, which contain non-obstante provisions, the later statute must prevail. Therefore, by virtue of Section 238 of the Code being a subsequent law, the proceeding contained therein shall have an overriding effect on the other proceedings of the Customs and Central Excise Act. The Adjudicating Authority held that provisions of Section 53 of the Code prescribe the Order of priority for distribution of proceeds from the sale of liquidation assets, which shall prevail over the provisions of Section 11(e) of the Central Excise Act and other provisions of the Customs Act - the Respondent Department cannot legally withhold the releasing of the material/goods, which are the property of the Corporate Debtor Company (in Liquidation) and impose a prerequisite condition for making payment of the customs duty by the Liquidator of the Corporate Debtor Company (under Liquidation) because the claims of the Respondent's Department have to be treated as a Government Dues and needs to be dealt with under the waterfall mechanism provided under Section 53 of the Insolvency and Bankruptcy Code, 2016. The Liquidator could take possession of only the Company's assets, which the Company itself could have obtained. The liquidation proceedings do not change the rights in this regard, and Customs Duty needs to be paid for the release of the goods by the importer. In the circumstances, the materials lying in the customs bonded warehouses can not be treated as 'Assets of the Corporate Debtor'. Thus, the Liquidator cannot claim goods without payment of Customs dues to settle claims of the secured creditors. Section 142 of the Customs Act deals with the provision to settle the claims of Customs by proceeding against the materials lying uncleared/unclaimed in the warehouses since liabilities under the Customs Act are the first charge under Section 142 A of the Customs Act. It is clear that NCLT and NCLAT cannot usurp the legitimate jurisdiction of other Courts, Tribunals and fora when the dispute does not arise solely from or relating to the Insolvency of the Corporate Debtor. In the instant case, the Corporate Debtor had abandoned the imported goods in the Customs warehouses for several years and failed to pay the import duty and other charges and had not taken any steps to take possession of those goods for several years. Therefore, the importer had lost his right to the imported goods - The Liquidator has no right to take into possession over those goods for which the Corporate Debtor's title is deemed relinquished by implication of law. It can not be presumed that the Appellant had relinquished its right over the property and submitted to the jurisdiction of the Liquidator. The Claim is filed in an effort to realise its dues. Still, it will not amount to relinquishment of its right over the Warehoused goods under its custody for which Appellant has every right to sell those goods for the realisation of the Government dues - the assets lying in the Customs bonded warehouses cannot be considered assets of the Corporate Debtor. The Liquidator intends to possess the uncleared goods from the customs warehouses without upfront payment of Customs duty, which is against the statutory provisions of the Customs Act, 1962. Therefore, the imported goods subject to levy of Customs stand on a different footing than the goods /assets, not in the Corporate Debtor's possession. Therefore the assets lying in the Customs bonded warehouses cannot be considered assets of the Corporate Debtor. The Adjudicating Authority committed an error in directing the release of goods without paying customs duty and other applicable charges - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Ownership of the goods in the Customs Bonded Warehouses.
2. Jurisdiction of NCLT/NCLAT.
3. Applicability of the Insolvency and Bankruptcy Code (IBC) vis-à-vis the Customs Act.
4. Priority of claims and distribution of dues under IBC.
5. Liquidator's right to take possession of the warehoused goods without paying customs duty.

Detailed Analysis:

1. Ownership of the Goods in the Customs Bonded Warehouses:
- The Appellant argued that the warehoused goods do not belong to the debtor, and hence the Liquidator cannot take control of them. The goods have been warehoused since 2005, and the debtor could not have taken possession without paying customs duty.
- The Respondent asserted that the Corporate Debtor is the owner of the goods, as evidenced by the filing of bills of entry for warehousing and the submission of claims under Section 72 of the Customs Act. The Respondent argued that the Appellant's claim acknowledges the Corporate Debtor’s ownership.
- The judgment concluded that the Corporate Debtor had relinquished its title to the imported goods by not filing a bill of entry and not paying customs duty for several years. Consequently, the Custom Authorities are empowered to sell the goods to recover government dues.

2. Jurisdiction of NCLT/NCLAT:
- The Appellant did not raise the issue of jurisdiction before the NCLT but argued that the NCLT/NCLAT cannot usurp the legitimate jurisdiction of other courts or statutory authorities.
- The Respondent contended that the NCLT has jurisdiction under Section 60(5) of the IBC to adjudicate disputes arising from or relating to the insolvency of the Corporate Debtor.
- The judgment referenced the Supreme Court's decision in Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, which held that NCLT has jurisdiction over matters relating to insolvency but should not usurp the jurisdiction of other courts when the dispute does not solely arise from the insolvency.

3. Applicability of the Insolvency and Bankruptcy Code (IBC) vis-à-vis the Customs Act:
- The Appellant argued that the Customs Act is a complete code in itself and that the goods cannot be released from the warehouse without paying import duties.
- The Respondent argued that Section 238 of the IBC provides an overriding effect over other laws, including the Customs Act, and that the Appellant's claims should be dealt with under the waterfall mechanism provided under Section 53 of the IBC.
- The judgment held that the IBC does not override the Customs Act in this context. The imported goods, which were not cleared for home consumption, are subject to customs duty, and the Liquidator cannot claim these goods without paying the customs dues.

4. Priority of Claims and Distribution of Dues under IBC:
- The Respondent argued that the distribution of all debts, including customs dues, should be governed by the IBC, with government dues placed in the fifth position in priority under Section 53.
- The judgment emphasized that the Customs Act provides that goods once warehoused cannot be released without paying import duties. The claims of the Customs Authorities stand outside the proceedings under Sections 529, 529A, and 530 of the Companies Act, 1956, and are not subject to the priority distribution under the IBC.

5. Liquidator's Right to Take Possession of the Warehoused Goods Without Paying Customs Duty:
- The Appellant argued that the Liquidator cannot take possession of the warehoused goods without paying the applicable customs duty.
- The Respondent contended that the Liquidator has the right to take control of the Corporate Debtor’s assets, including warehoused goods, without upfront payment of customs duty.
- The judgment concluded that the Liquidator cannot take possession of the goods without paying customs duty. The goods lying in the customs bonded warehouses cannot be treated as assets of the Corporate Debtor, and the Liquidator cannot claim them without settling the customs dues.

Order:
- The appeal was allowed, and the impugned order dated February 25, 2020, passed by the NCLT, Ahmedabad Bench, was modified. The goods can be released or disposed of as per the applicable provisions of the Customs Act by the proper officer.