2019 (12) TMI 52 - AT - Insolvency and Bankruptcy

Disposal of the uncleared cargo by way of auction - Right of Customs Department - Company under Insolvency Process (CIRP) - Corporate Debtor - It is submitted that the Corporate Debtor s ownership rights in the imported goods have been relinquished by operation of law contained in Section 48 of the Customs Act, 1962 - reliance on Section 238 of the I B Code - HELD THAT - From section 48, it is clear that in case of non-clearance of the goods within 30 days or within extended period or if the title of any imported goods is relinquished after notice to the importer and with the permission of the proper officer, the goods can be sold by the Custom Authority - In the present case, the goods are in the custody of the Custom Authority, but the ownership remains with the Corporate Debtor , no step having taken for sale of goods in terms of Section 48 of the Customs Act, 1962 . The ownership rights of the machineries, in question, is of the Corporate Debtor and not of a third party, explanation below Section 18 (1) (f) (g) is not applicable. Therefore, the Resolution Professional has right to take control and custody of any asset, though the Customs Authority is in possession of the same for the present - during the period of Moratorium , the assets of the Corporate Debtor cannot be alienated, transferred or sold to a third party. Section 48 of the Customs Act, 1962 relates to sale of goods in the custody of the Customs (machinery in question), in the manner as prescribed therein. The order of Moratorium having passed by the Adjudicating Authority on 8th January, 2018, immediately thereafter it was not open to the Appellant, Commissioner of Customs or its authorities to issue an e-auction notice on 15th January, 2018, fixing date of auction of the goods on 19th January, 2018 - The aforesaid action on the part of the Appellant, officers of the Customs show that after their knowledge of the order of Moratorium they intended to sell the machinery, in question, though it was lying with the Customs Authority since 13th April, 2009 / 27th April, 2009. No interference is called for against the impugned order dated 3rd July, 2018 passed by the Adjudicating Authority prohibiting the Customs Authority from selling the assets of the Corporate Debtor - appeal dismissed.

Summary

Issues Involved:
1. Ownership and control of imported machineries.
2. Applicability of Section 18(1)(f) of the I&B Code.
3. Compliance with Section 48 of the Customs Act, 1962.
4. Impact of the moratorium under Section 14 of the I&B Code.
5. Validity of the Customs Authority's actions post-moratorium.

Detailed Analysis:

Ownership and Control of Imported Machineries:
The core issue revolves around whether the imported machineries are the assets of the Corporate Debtor. The machineries were imported by the Corporate Debtor in 2009 and were assessed by the Assistant Commissioner of Customs, ICD Durgapur. Despite attempts by the Customs Authority to auction these goods due to unpaid duties, the ownership of the machineries remained with the Corporate Debtor as no sale was executed under Section 48 of the Customs Act.

Applicability of Section 18(1)(f) of the I&B Code:
The Appellant argued that the Interim Resolution Professional (IRP) could only take control of assets recorded in the Corporate Debtor's balance sheet. They contended that the machineries were not recorded as assets due to unpaid customs duties. However, the Tribunal found that the ownership rights of the machineries belonged to the Corporate Debtor, making Section 18(1)(f) applicable. The IRP was thus entitled to take control and custody of the machineries.

Compliance with Section 48 of the Customs Act, 1962:
Section 48 allows Customs authorities to dispose of uncleared goods after providing a 30-day notice to the importer. The Appellant claimed compliance with this provision. However, the Tribunal noted that no sale had been executed under Section 48, and the ownership of the goods remained with the Corporate Debtor. Therefore, the Customs Authority's possession of the goods did not negate the Corporate Debtor's ownership rights.

Impact of the Moratorium under Section 14 of the I&B Code:
Section 14 imposes a moratorium prohibiting the alienation, transfer, or sale of the Corporate Debtor's assets during the Corporate Insolvency Resolution Process (CIRP). The Tribunal emphasized that the moratorium was declared on 8th January 2018, and any subsequent actions by the Customs Authority to auction the goods were invalid. The Customs Authority's e-auction notice issued on 15th January 2018 violated the moratorium.

Validity of the Customs Authority's Actions Post-Moratorium:
The Customs Authority's actions to auction the machineries post-moratorium were scrutinized. The Tribunal found that the Customs Authority was aware of the moratorium and yet proceeded with the auction, which was impermissible under Section 14 of the I&B Code. The Tribunal upheld the Adjudicating Authority's order prohibiting the Customs Authority from selling the Corporate Debtor's assets.

Conclusion:
The Tribunal dismissed the appeal, affirming that the imported machineries were assets of the Corporate Debtor and that the IRP had the right to take control and custody of these assets. The Customs Authority's actions to auction the goods post-moratorium were invalid, and the moratorium under Section 14 of the I&B Code took precedence over the Customs Act. The appeal was dismissed with no costs.