2022 (7) TMI 527 - HC - Customs

Recovery of customs duty - warehoused goods - priority to recover dues - attachment of property - charge created by the second respondent Bank / financial institution, being a secured creditor - overriding effect of SARFAESI Act, 2002 on the provisions of the Central Excise Act of 1944 or not - HELD THAT - It could be seen that at the time of executing the mortgage deed in the year 2006, there was no charge or attachment over the property in question by any one, and the second respondent bank was the first charge holder of the same. The appellant issued notices under section 142(1)(a) (b) of the Customs Act, 1962, against the two companies for recovery of the alleged dues payable by them, in connection with the goods imported during 2007-2009, on 09.12.2010. Thus, the cause of action arises for the appellant to create charge over the property in question only on 09.12.2010. Pertinently, it is to be mentioned here that though the sale certificate dated 23.01.2012 proceeds to state that notice of attachment by Customs Authorities on the mortgaged property was filed in the office of SRO, Redhills, the second respondent has categorically stated in the sale certificate itself that 'the mortgage created in favour of the bank is prior in point of time and the bank being the secured creditor, the mortgage created in favour of the bank has priority over the charge of the customs and as such, the charge created in favour of Customs Authorities is subordinate to the charge in favour of the bank' - An explanation has also been forth coming on the side of the second respondent bank during the course of hearing that any ambiguity in the language employed in the sale certificate is only a genuine mistake and the appellant cannot take advantage over the same. Hon'ble Supreme Court, in Punjab National Bank v. Union of India and others 2022 (2) TMI 1171 - SUPREME COURT wherein, it was categorically held that the dues of the secured creditor will have priority over the dues of the Central Excise Department, as even after insertion of section 11E in the Central Excise Act, 1944 with effect from 08.04.2011 and the provisions contained in the SARFAESI Act, 2002 will have an overriding effect on the provisions of the Central Excise Act of 1944 . - Applying the ratio laid down in the aforesaid decision of the Hon'ble Supreme Court to the facts of the present case, this court is of the opinion that the second respondent bank being a secured creditor and created right over the property in question prior to the alleged attachment raised by the appellant and hence, they have preferential right over the claim of the appellant. In such view of the matter, the order of the learned Judge cannot be interfered with. The appellant is directed to lift the attachment over the property in question, within a period of two weeks from the date of receipt of a copy of this judgment - Appeal dismissed.

Issues Involved:
1. Validity of the attachment order issued by the appellant.
2. Priority of claims between the secured creditor (Bank) and the customs department.
3. Applicability of Section 26E of the SARFAESI Act.
4. Bona fide purchaser rights.
5. Overriding effect of SARFAESI Act over other laws.

Issue-Wise Detailed Analysis:

1. Validity of the Attachment Order Issued by the Appellant:
The appellant, the Customs Department, issued an attachment order on 14.12.2010 against the properties owned by M/s. Jai Bhavani Steels Enterprises Limited and M/s. SDS Steels Private Limited. This was done to safeguard the customs duty and interest recoverable from the importers. The first respondent, who purchased the property in an auction conducted by the second respondent Bank, challenged this attachment. The learned Judge noted that the appellant did not create a formal encumbrance or charge but merely sent a communication to the Inspector General of Registration. The court found that this communication could not stand in the way of the Bank, as a secured creditor, taking recourse under SARFAESI.

2. Priority of Claims Between the Secured Creditor (Bank) and the Customs Department:
The court observed that the second respondent Bank initiated SARFAESI proceedings and took possession of the secured asset before the customs department raised its attachment. The Bank's mortgage was created on 26.12.2006, while the customs department's attachment was much later on 14.12.2010. The court held that the Bank, being a secured creditor, had a prior claim over the customs department's dues. This was supported by the Full Bench decision in UTI Bank Limited v. Deputy Commissioner Central Excise, which held that the secured creditor's rights prevail over government dues unless there is a specific statutory provision to the contrary.

3. Applicability of Section 26E of the SARFAESI Act:
Section 26E of the SARFAESI Act provides that the secured creditor's charge over a property prevails over all other charges. The court found this section to be unambiguous and absolute in its obligation. The customs department's claim was subordinate to the Bank's mortgage, as the Bank's charge was created before the customs department's attachment. The court also referenced the Supreme Court decision in Punjab National Bank v. Union of India, which affirmed that the dues of a secured creditor have priority over government dues, including those of the Central Excise Department.

4. Bona Fide Purchaser Rights:
The first respondent was a bona fide purchaser, having bought the property in an auction sale conducted by the second respondent Bank and obtained a sale certificate after paying the full consideration. The court noted that the customs department's communication did not create a formal charge and thus could not affect the first respondent's rights as a bona fide purchaser. The court emphasized that the first respondent's purchase was legitimate and protected under the SARFAESI Act.

5. Overriding Effect of SARFAESI Act Over Other Laws:
The court reiterated that the SARFAESI Act has an overriding effect on other laws, including the Customs Act. This was supported by multiple judicial precedents, including the Supreme Court's decision in Union of India v. SICOM Ltd., which held that the SARFAESI Act's provisions prevail over other statutory claims unless specifically provided otherwise. The court concluded that the second respondent Bank, as a secured creditor, had a preferential right over the customs department's claims.

Conclusion:
The writ appeal was dismissed, and the appellant was directed to lift the attachment over the property within two weeks. The court affirmed that the secured creditor's rights under the SARFAESI Act take precedence over the customs department's claims, and the first respondent, as a bona fide purchaser, was entitled to have the property free from the customs department's attachment.

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