Court :
Supreme Court of India
Brief :
The Hon'ble Supreme Court in Industrial Development Bank of India v. Superintendent of Central Excise and Customs and Others [Civil Appeal No. 2568 of 2013 dated August 18, 2023] set aside the order passed by the division bench of the Hon'ble Andhra Pradesh High Court and held that the position in law was that the debt ‘due and payable', when falls within the four corners of clause (a) to Section 530(1) of the Companies Act, would be treated as preferential payment, but it would not override and be given preference over the payments of overriding preferential creditors covered under Section 529A of the Companies Act.
Citation :
Civil Appeal No. 2568 of 2013 dated August 18, 2023
The Hon'ble Supreme Court in Industrial Development Bank of India v. Superintendent of Central Excise and Customs and Others [Civil Appeal No. 2568 of 2013 dated August 18, 2023] set aside the order passed by the division bench of the Hon'ble Andhra Pradesh High Court and held that the position in law was that the debt ‘due and payable', when falls within the four corners of clause (a) to Section 530(1) of the Companies Act, would be treated as preferential payment, but it would not override and be given preference over the payments of overriding preferential creditors covered under Section 529A of the Companies Act.
Industrial Development Bank of India ("the Appellant") provided financial assistance to the M/s. Sri Vishnupriya Industries Limited ("the Company") during the period 1994-2000. As security, the Company had hypothecated movable properties. The hypothecated movable property, namely, machinery and its components, imported from Italy during the years 1998-1999 were warehoused in a private bonded warehouse by executing bond in terms of Section 59(1) of the Customs Act, 1962 ("the Customs Act").
The Company has not cleared the goods for home consumption in terms of Section 47 of the Customs Act, even after expiry of the extended period of warehousing. Thereafter the Revenue Department issued a Show Cause Notice dated February 17, 2000 and after considering the reply of the company vide the order dated September 15, 2000 and Order dated October 10, 2000 confirmed the levy of customs duty and when the company did not paid the customs duty the Revenue Department vide an Order dated December 19, 2000 auctioned the warehoused goods for recovery of the customs duty by relying on the powers conferred under Section 72(2) read with Section 142 of the Customs Act.
In the meanwhile, Company filed for winding up before the Hon'ble Andhra Pradesh High Court. The petition was admitted on April 01, 2003. The Company was directed to be wound up vide the order passed on December 01, 2003.
Thereupon, the Official Liquidator vide application under Section 468 of the Companies Act directing the customs authorities to handover possession of the imported goods, which had been put up for auction for payment of the customs duty. Further, the said application was allowed by a single judge of the Andhra Pradesh High Court and held that official liquidator is a custodian of all the properties of the Company and any person making any claim against the Company has to prove his claim before the Official Liquidator by placing necessary material in support.
Aggrieved by the view of the single bench judge the custom authorities preferred an intra court appeal. The division bench relied on the ratio of the Calcutta High Court in Collector of Customs v. Dytron 1998 SCC Online Cal 674 held that Section 468 of the Companies Act has no application as it empowers the Company Court to require the ‘contributory' to pay, deliver, surrender or transfer any money, property or books and papers in his custody or control and the word ‘contributory', defined in Section 428 of the Companies Act, does not include the customs department/authorities.
Aggrieved, the Appellant filed the appeal before the Supreme court.
Whether the Customs Act creates a first charge overriding the charge in favour of the secured creditor?
The Hon'ble Supreme Court in Civil Appeal No. 2568 of 2013 held as under:
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