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TMI Blog2008 (8) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... red goods shall not have any precedence over the right of the Customs Department, to proceed against such goods, to recover the dues of customs duty. - O.S.A. NO. 1 OF 2005 - - - Dated:- 26-8-2008 - B. PRAKASH RAO, L. NARASIMHA REDDY AND G.V. SEETHAPATHY, JJ. A. Rajashekar Reddy for the Petitioner. M. Anil Kumar for the Official Liquidator . P.V. Markandeyulu for the Respondent. JUDGMENT L. Narasimha Reddy, J. - In the event of a company being wound up, in any of the three recognised modes, viz., by the court, or voluntarily by a company itself, or subject to the supervision of the court, preparation of list of assets and liabilities becomes essential. The Companies Act, 1956 (for short "the Act") recognises certain priorities, in the matter of distribution of assets of a company, under winding up. It is not uncommon that the assets of certain companies are burdened with liability of payment of tax of different kinds, excise duty, customs duty, etc. 2. The question, as to whether the claim of a secured creditor has precedence over the right of the concerned Government Department, to recover dues of tax, the customs duty in particular, arises for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to the company, or for that matter, the official liquidator. 5. A learned Single Judge of this court dealing with the company matters, allowed the C.A. No. 906 of 2004, through order dated 3-9-2004. It was held that the detention of the goods by the appellant and the proceedings initiated thereafter, are void ab initio , and that the official liquidator is entitled to take custody of all the assets of the company, including the goods in question, under section 456 of the Act. The appellant preferred this O.S.A., under clause 15 of the Letters Patent, 1865, read with section 48 of the Act. 6. In the course of hearing of the appeal, the appellant relied upon a judgment of the Calcutta High Court in Collector of Customs v. Dytron (India) Ltd. [1999] 108 ELT 342, in support of their contention, that the right to recover customs duty, takes precedence over all other claims, vis-a-vis the imported goods. On behalf of the official liquidator, as well as the secured creditors, respondent Nos. 2 to 8 herein, reliance was placed upon the judgment of a Full Bench of the Madras High Court in UTI Bank Ltd. v. Dy. CCE [2007] 135 Comp. Cas. 329 1 . The Division Bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make an application before the company court, which, in turn, would process it, in the order of priority, stipulated under the Act. Learned counsel submit that the company court had examined the matter from correct perspective, and no interference is warranted, with the order under appeal. 9. Counsel for both the parties, did not confine their arguments to the question referred to the Full Bench. They advanced comprehensive arguments and pleaded that the appeal itself be heard and disposed of. 10. The facts, that gave rise to the filing of the appeal, and the question that arises for consideration, have been stated in the introductory paragraphs, within the permissible limits of brevity. The principal area of controversy, is the priority or precedence, as between the claim of the appellant, to recover the customs duty, on the one hand, and the right of secured creditors, by themselves, or through the official liquidator, to assume possession of the goods, imported by the company, on the other hand. It is necessary to take note of certain provisions of law, which have a bearing on the issue. 11. Part VII of the Act prescribes the procedure to be followed, in the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the order, submit a preliminary report to the court ( a )as to the amount of capital issued, subscribed, and paid-up and the estimated amount of assets and liabilities, giving separately, under the heading of assets, particulars of ( i ) cash and negotiable securities; ( ii ) debts due from contributories; ( iii ) debts due to the company and securities, if any, available in respect thereof; ( iv ) movable and immovable properties belonging to the company; and ( v ) unpaid calls; and ( b )if the company has failed, as to the causes of the failure; and ( c )whether, in his opinion, further inquiry is desirable as to any matter relating to the promotion, formation, or failure of the company, or the conduct of the business thereof." 14. The liquidator is conferred with adequate powers to discharge his functions, particularly in the matter of taking possession of the assets, etc. Section 467 of the Act places an obligation on the liquidator to prepare the list of contributories and application of assets. The provision reads as under : "467. Settlement of list of contributories and application of assets. (1) As soon as may be after making a winding up order, the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Act; and ( f ) dues of provident fund, etc. Section 446 of the Act provides for stay of legal proceedings against the company under winding up, and empowers the company court to determine the priorities. It reads as under : "446. Suit stayed on winding up order. (1) When a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose. (2) The court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of ( a )any suit or proceeding by or against the company; ( b )any claim made by or against the company (including claims by or against any of its branches in India); ( c )any application made under section 391 by or in respect of the company; ( d )any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment under section 28B) is not paid, ( a )the proper officer may deduct or may require any other officer of customs to deduct the amount so payable from any money owning to such person which may be under the control of the proper officer or such other officer of customs; or ( b )the Assistant Commissioner of Customs or Deputy Commissioner of Customs may recover or may require any other officer of customs to recover the amount so payable by detaining and selling any goods belonging to such person which are under the control of the Assistant Commissioner of Customs or Deputy Commissioner of Customs or such other officer of customs; or ( c )if the amount cannot be recovered from such person in the manner provided in clause ( a ) or clause ( b ) ( i )the Assistant Commissioner of Customs or Deputy Commissioner of Customs may prepare a certificate signed by him specifying the amount due from such person and send it to the Collector or the district in which such person owns any property or resides or carries on his business and the said Collector on receipt of such certificate shall proceed to recover from such person the amount specified thereunder as if it were an arrears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of the Calcutta High Court in Dytron (India) Ltd. s case ( supra ), on the one hand, and the judgment rendered by a Full Bench of the Madras High Court in UTI Bank Ltd. s case ( supra ) was noticed. 20. In a way, it can be said that the facts of the present case are nearer to those in Dytron (India) Ltd. s case ( supra ). As in the instant case, the company in that case went into liquidation. Certain chemicals imported by the company from a foreign company, but not cleared as yet by the Customs Department, were put to sale, by the official liquidator to discharge the liability towards secured creditors. The sale was, in fact, proceeded with and the auction-purchaser deposited the amount. At that stage, the Customs Department laid its claim. A conflict, naturally arose between the claims of the Customs Department, on the one hand, and the auction purchaser, on the other. After discussing the relevant provisions of the Customs Act and the Companies Act, a Division Bench of the Calcutta High Court held as under : "23. The customs authorities are correct in their submission that until and unless their duties and statutory dues are paid under the provisions noted above, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice issued under section 13(2) of the SARFAESI Act on 17-4-2004, after lapse of time as provided under the SARFAESI Act, the petitioner-bank took constructive possession of the secured assets on 8-2-2005, and physical possession of the same on 29-3-2005. While so, the first respondent, viz., Deputy Commissioner of Central Excise, Chennai, intimated the petitioner-bank in his letter dated 28-3-2005, that a sum of Rs. 41,17,246 was due and payable to the Department of Central Excise and requested the petitioner-bank to hold the said money or property with it towards the amount due to the said Department. The borrower company sold plot No. 54 and repaid a part of the amount due to the petitioner-bank and the only property now available as secured asset is the unit at plot No. 55. While the petitioner-bank claims that a legal right under section 13(2) of the SARFAESI Act has been created in its favour, the Central Excise Department the first respondent herein claims that it has a statutory first charge over the property. Now, we have to see whether the petitioner has got statutory first charge over the secured asset and in exercise of the statutory rights under the SARFAESI Act, took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shoes of the company and take necessary steps for recovery of the debts. For all practical purposes, the official liquidator personifies the company and he can do every thing, which the company, in its regular form, could have done. 27. In the context of identifying the goods or properties of the company, which in turn, can be handled by the official liquidator, imported goods, subject to levy of customs duty, stand on a different footing. An item of property, movable or immovable, can be acquired through a contract. Goods are manufactured by a company by involving men and machinery. It gains ownership on such properties or goods, as the case may be. The mere fact that the company is under obligation to pay any taxes thereon, does not dilute its ownership. 28. Take for instance, a building is purchased, or an item of machinery is manufactured by the company; and the obligation to pay the arrears of municipal tax on the building, or excise duty on the manufactured goods, was not discharged. The ownership as well as the right to deal with the property, so acquired or manufactured, remains unaffected. They are capable of being offered as security. Whenever the concerned au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication of the issue, the matter does not seem to be substantially different. 31. Learned counsel for the appellant had relied upon the judgment of the Supreme Court in Dena Bank v. Bhikhabhai Prabhudas Parekh Co. [2001] 107 Comp. Cas. 157, wherein it was held that the arrears of sales tax due to the State would take precedence, over other claims. It is not evident that the company, in that case, was under liquidation. Though the crown arrears are given primacy, it is difficult to treat the said judgment as a direct precedent for the present case. In ICICI Bank Ltd. v. Sidco Leathers Ltd. [2006] 131 Comp. Cas. 451 1 , the Supreme Court held that the transfers mentioned in section 48 of the Transfer of Property Act would not get affected, by operation of the provisions of the Companies Act, in relation to liquidation. In Rajasthan Financial Corpn. v. Official Liquidator [2005] 128 Comp. Cas. 387 2 (SC); it was held that if the proceedings before a Debts Recovery Tribunal or under the State Financial Corporations Act are not set in motion, against a company under liquidation, the creditors have to approach the company court for appropriate directions. 32. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be held that the order of detention dated 27-2-2002, passed by the Assistant Commissioner of Central Excise is non est in the eyes of law and ab initio void , and therefore, cannot be acted upon. This apart, the earlier order of detention dated 19-12-2000, passed by the Assistant Commissioner of Central Excise under section 72(2) read with section 142 of the Customs Act, in respect of first and second consignments is also required to be declared as null and void and non est in the eyes of law for the reason that there was neither any demand notice nor any notice issued to the owner of the goods before passing the detention order of the goods for sale." 35. On point No. 4, it was held that the procedure prescribed under section 142 of the Customs Act was not followed and therefore, the action taken under section 72 was not valid. Point No. 5 was also answered in favour of the respondent, indicating that the official liquidator was entitled to take possession of the detained goods, without the obligation to pay the customs duty. 36. After examining the relevant provisions of law and on analysing the arguments advanced on behalf of the parties, we are of the vie ..... 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