{"id":300358,"date":"2023-08-30T11:00:18","date_gmt":"2023-08-30T05:30:18","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=300358"},"modified":"2023-08-30T11:10:23","modified_gmt":"2023-08-30T05:40:23","slug":"whether-customs-act-creates-first-charge-overriding-charge-of-secured-creditor-sc-answers","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2023\/08\/30\/whether-customs-act-creates-first-charge-overriding-charge-of-secured-creditor-sc-answers\/","title":{"rendered":"Whether Customs Act creates a first charge, overriding the charge in favour of secured creditor? SC answers"},"content":{"rendered":"
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Supreme Court<\/span>: In a civil appeal by the Industrial Development Bank of India (‘IDBI') against the Judgment of Andhra Pradesh High Court, whereby it was held that incase of winding up, the customs authorities have the first right to sell the imported goods under the Customs Act, 1962<\/a> (‘Customs Act') and adjust the sale proceeds towards payment of customs only, the Division Bench of Sanjiv Khanna*<\/span> and Sudhanshu Dhulia, J. allowed the appeal and held that Customs Act does not create a first charge overriding the charge in favour of secured creditor, in view of Section 529A of the Companies Act, 2013<\/a> (‘the Act'). <\/span><\/p>\n

Background<\/p>\n

Sri Vishnupriya Industries Limited (‘Company') had availed financial assistance from IDBI and as a security, movable properties, namely machinery and its components were hypothecated, which is the subject matter of dispute. Subsequently, show cause notice was issued and orders were passed, levying customs duty of Rs.3,27,22,191\/- and Rs.10,48,29,017\/-. Upon non-payment of customs duty, an order was passed for the sale of the warehoused goods in order to recover the customs duty. Meanwhile, the High Court directed winding up of the Company. The Single Judge allowed the Official Liquidator's application and directed the customs authorities to handover possession of the imported goods, which had been put up for auction for payment of the customs duty and observed that the authorities had not followed the procedure under the Customs Act.<\/p>\n

An intra-Court appeal was preferred by the Customs authorities and a question was raised whether the claim of a secured creditor has precedence over the right of the customs authorities to recover the customs duty? The High Court set aside the Single Judge's order and allowed the appeal.<\/p>\n

Hence, the present appeal by the IDBI.<\/p>\n

Analysis and Decision<\/p>\n

The Court perused Section 529A and Section 530 of the Act which provides for ‘Overriding preferential payments' and ‘Preferential payments', respectively. The Court said that when there is a clash and disagreement between Section 529A of the Act and another provision of the Act or any other enactment in force on 24-05-1985, Section 529A prevails and the debts are to be paid in terms of Section 529A of the Companies Act<\/a>. On perusing Section 529A of the Act, the Court said that the debt due to the workmen and the debt due to secured creditors as specified, are on equal footing and are to be paid in the manner prescribed therein in priority to all other debts. The Court also added that the taxes, cess and rates due to the Central and State governments or local authorities under Section 530 of the Companies Act<\/a> cannot be given priority over the payments\/debts mentioned in Section 529A of the Companies Act<\/a>.<\/p>\n

The Court said that Section 456 of the Act provides that all the property and effects of the Company shall be deemed to be in the custody of the Tribunal\/Court as from the date of the order for the winding up of the Company<\/i>. The Court said that there are two-fold objectives of giving jurisdiction to the Company Court\/ Tribunal during the process of liquidation of the Company:<\/p>\n