2023 Supreme(SC) 774

SUPREME COURT OF INDIA
SANJIV KHANNA, SUDHANSHU DHULIA, JJ.
Industrial Development Bank Of India (Through Stressed Assets Stabilization Fund Constituted By The Government Of India) – Appellant
Versus
Superintendent Of Central Excise And Customs And Others – Respondents
Civil Appeal No. 2568 of 2013
Decided on : 18-08-2023

Headnote:

COMPANY - WINDING UP - PREFERENTIAL PAYMENTS - SECURED CREDITOR - CUSTOMS DUTY - COMPANIES ACT, 1956 - SECTIONS 529A, 530 - CUSTOMS ACT, 1962 - SECTIONS 15, 68, 142 - INTERPRETATION - HELD, customs duty not a preferential payment under Section 530(1)(a) of the Companies Act, 1956 - customs duty not a first charge overriding the charge of the secured creditor - customs duty payable after payment under Sections 529 and 529A of the Companies Act, 1956.

Fact of the Case:

The Company, during the period 1994-2000, was granted and availed of financial assistance from the appellant - IDBI. As a security, the Company had hypothecated movable properties and created equitable mortgage of immovable properties by depositing title deeds. The charge was duly registered with the Registrar of Companies. In addition, the promoters and guarantors had furnished personal guarantees. The goods, packed in 128 wooden containers, were warehoused in a private bonded warehouse by executing bond in terms of Section 59(1) of the Customs Act. The goods were initially warehoused for one year, which period was extended. However, as the goods were not cleared for home consumption in terms of Section 47 of the Customs Act, even after expiry of the extended period of warehousing, show-cause notices were issued, and after considering the explanation given by the Company, orders-in- original dated 15th September 2000 and 10th October 2000 were passed confirming levy of customs duty of Rs.3,27,22,191/-and Rs.10,48,29,017/-, respectively. When the Company did not pay the duty, the authorities had passed an order for sale of the warehoused goods for recovery of the customs duty, relying on the powers conferred under Section 72(2) read with Section 142 of the Customs Act. Thereafter, another order under Section 72(2) of the Customs Act was passed for detention and sale of the warehoused goods for recovery of Rs.22,20,38,112/-. On failure to pay the duty, steps were initiated for auctioning the imported goods and the Company was informed. In the meanwhile, Company Petition No. 168 of 2002 was filed before the Andhra Pradesh High Court for winding up of the Company. This petition was admitted on 1st April 2003. The Company was directed to be wound up vide the order passed on 1st December 2003. Thereupon, the Official Liquidator filed an application under Section 468 of the Companies Act read with Rules 9 and 11(b) of the Companies (Court) Rules, 1959 for directing the customs authorities to handover possession of the imported goods, which had been put up for auction for payment of the customs duty. This application was allowed by a single judge of the High Court vide the order dated 3rd September 2004 observing, inter alia, that the customs authorities had not followed the procedure contemplated under the Customs Act before passing the order under Section 72 of the Customs Act, in the absence of which the detention orders were void ab initio and non-est in the eyes of law. Secondly, on an order of winding up being passed, in terms of Section 456 of the Companies Act, the assets of the company in liquidation, by operation of law, vest in the Official Liquidator, who alone was entitled to deal with the effects and actionable claims. Reference was also made to Section 447 of the Companies Act. Consequently, as the winding up order had been passed against the Company but sale was yet to be effected, the Official Liquidator was duty bound to take into his custody and control all properties, effects and actionable claims, including the movable property, that is, the imported goods. Official Liquidator, as the custodian of all the properties of the Company, functions under the directions of the Company Court. Any person making any claim against the Company has to prove his claim before the Official Liquidator by placing necessary material in support. Accordingly, the submission regarding the custom authorities’ entitlement and right under the Customs Act to sell the imported goods to realise their dues was rejected.

Finding of the Court:

The customs duty in respect of the goods in question became ‘due and payable’ prior to twelve months next to the ‘relevant date’; the ‘relevant date' being the date of winding up of the Company on 1st December 2003. The amount ‘due and payable’ in terms of the two adjudication orders dated 15th September 2000 and 10th October 2000 would, therefore, not fall in the category of preferential payments under clause (a) to Section 530(1) of the Companies Act. The provisions of the Customs Act do not, in any manner, negate or override the statutory preference in terms of Section 529A of the Companies Act, which treats the secured creditors and the workmen’s dues as overriding preferential creditors; and the government dues limited to debts ‘due and payable’ in the twelve months next before the relevant date, which are to be treated as preferential payments under Section 530 of the Companies Act, but are ranked below overriding preferential payments and have to be paid after the payment has been made in terms of Section 529 and 529A of the Companies Act. Therefore, the prior secured creditors are entitled to enforce their charge, notwithstanding the government dues payable under the Customs Act.

Issues: None

Ratio Decidendi: The debt ‘due’ in terms of the two adjudication orders dated 15th September 2000 and 10th October 2000 and ‘payable’ immediately. Thus, the customs duty became ‘due and payable’ prior to twelve months next to the ‘relevant date’; the ‘relevant date' being the date of winding up of the Company on 1st December 2003. The amount ‘due and payable’ in terms of the two adjudication orders dated 15th September 2000 and 10th October 2000 would, therefore, not fall in the category of preferential payments under clause (a) to Section 530(1) of the Companies Act. The provisions of the Customs Act do not, in any manner, negate or override the statutory preference in terms of Section 529A of the Companies Act, which treats the secured creditors and the workmen’s dues as overriding preferential creditors; and the government dues limited to debts ‘due and payable’ in the twelve months next before the relevant date, which are to be treated as preferential payments under Section 530 of the Companies Act, but are ranked below overriding preferential payments and have to be paid after the payment has been made in terms of Section 529 and 529A of the Companies Act. Therefore, the prior secured creditors are entitled to enforce their charge, notwithstanding the government dues payable under the Customs Act.

Final Decision: Appeal allowed, impugned judgment set aside, Company Application No. 906 of 2004 filed by the Official Liquidator in Company Petition No. 168 of 2002 treated as allowed, sale proceeds deposited in Court and converted into fixed deposit receipts, along with interest accrued thereon, to be paid to the Official Liquidator to be distributed in accordance with the provisions of Sections 529A and 530 of the Companies Act, 1956, no order as to costs.