SUNDARESH BHATT, LIQUIDATOR OF ABG SHIPYARD versus CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS

Summary

ABG Shipyard had kept imported goods in customs bonded warehouses. After CIRP began in 2017 and liquidation in 2019, Customs issued duty demands and a Section 72 Customs Act notice, while also filing claims with the liquidator. The NCLT directed release of the goods to the liquidator, but the NCLAT held that the company had abandoned them and lost title, so Customs could sell them. The Supreme Court allowed the liquidator's appeal. Under Section 142A of the Customs Act and Section 238 of the IBC, the IBC prevails. During a moratorium under Section 14 or 33(5), Customs may only assess duty and must lodge its claim under the IBC, not recover it by sale or confiscation. Abandonment cannot be presumed without notice and adjudication, and the liquidator may take the goods.

Issues

1. Whether, after a moratorium under Section 14 or 33(5) of the IBC, the customs authority may enforce customs dues against warehoused goods of the corporate debtor by sale or confiscation under the Customs Act
2. Whether the corporate debtor was deemed to have abandoned, or lost title to, goods left uncleared in customs bonded warehouses

Provisions considered

• Sections 14, 33(5), 53 and 238, Insolvency and Bankruptcy Code, 2016Demand notices and a Section 72 notice issued during the moratorium were barred proceedings. Customs dues are to be claimed and paid within the Section 53 waterfall. (¶¶ 38, 41, 42, 47, 54)
• Sections 72 and 142A, Customs Act, 1962Section 142A makes the customs first charge subject to the IBC. Section 72(2) requires notice and determination before any sale, and gives no deemed transfer of title. (¶¶ 29, 30, 38, 49, 50)
• Article 300A, Constitution of IndiaA deemed transfer of the goods' title to Customs without hearing or adjudication would offend the right to property. (¶ 51)

Held

• The Customs Act and the IBC operate in their own spheres, but in a conflict the IBC prevails. This follows from Section 238 of the IBC and Section 142A of the Customs Act, which subjects the customs first charge to the IBC. The Dytron line of authority was legislatively overruled. (¶¶ 38, 39, 40)
• Demand notices and a Section 72 notice issued after CIRP began, some after the liquidation moratorium, initiate legal proceedings against the corporate debtor and violate Section 14 or Section 33(5). (¶¶ 41, 42, 46)
• Applying S.V. Kondaskar, during a moratorium Customs may only assess or determine the duty and other levies. It must then lodge its claim, as operational debt, within the IBC timelines and Section 53 waterfall, and cannot recover by sale or confiscation. The IRP, RP or liquidator may question an excessive assessment. (¶¶ 44, 45, 47, 53, 54)
• Abandonment of goods cannot be presumed or deemed. It must be adjudged by an authority after notice, and none had occurred before the moratorium. A deemed transfer of title under Section 72 without hearing would also breach Article 300A. Customs' resort to sale after lodging claims with the liquidator was an afterthought. (¶¶ 49, 50, 51, 52)
• The IRP, RP or liquidator may immediately secure the goods from the customs authority, to be dealt with under the IBC. (¶ 54)

Result

Appeal allowed; the NCLAT's judgment of 22.11.2021 was set aside; no order as to costs.