Statutory provisions of the Customs Act, 1962, regarding the sequence of settling dues from auction proceeds take precedence over contractual clauses between parties.

1. This is a petition filed by P.E.C. Limited, a Government of Indian Enterprise against Kandla Energy and Chemicals Limited (Respondent No.1) and Adani Ports and Special Economic Zone Limited (Respondent No.2) under Section 9 of the Arbitration & Conciliation Act, 1996 (‘the Act’) seeking certain interim reliefs.

2. The background facts are that Respondent No.1 approached the Petitioner for financing the import of 2,000 MT of Heavy Aromatics of South Korean origin from a Singapore supplier. An agreement dated 7th May, 2014 was entered into in terms of which the Petitioner agreed to finance the import by opening a letter of credit (‘LC’). Among the terms and conditions of the said Agreement, Respondent No.1 pledged the cargo in favour of the Petitioner and agreed to store it at its own cost and risk. The Petitioner had the first charge on the cargo to be issued by Respondent No.1 in its favour. The other condition was that in the event of failure of Respondent No.1 to pay the entire cost of import within the due date/usance period of the LC, the Petitioner was at liberty to sell the goods/cargo to any third party without reference to, and at the cost and risk of Respondent No.1. A further condition was that Respondent No.1 would indemnify the Petitioner in case of any loss, damage or cost which the Petitioner might incur or suffer with regard to the import or in relation to the Agreement.

3. The Agreement contained an arbitration clause in terms of which the arbitration was to take place in accordance with the Rules of Arbitration of Indian Council of Arbitration. The venue of Arbitration was to be New Delhi and Delhi Courts were to have jurisdiction.

4. It is stated that in terms of the above Agreement, the Petitioner got established an LC on 8th May, 2014 with its banker, the State Bank of Travancore, Parliament Street, New Delhi in favour of supplier for a sum of USD 21,00,000/-. It is stated that the import was made on 23rd May, 2014. Respondent No.1 executed a Deed of Pledge dated 11th June, 2014, pledging the cargo of value of USD 2112140.57 under the said LC.

5. Respondent No.1 and the Petitioner entered into a High Seas Sale Contract on 11th June, 2014 whereby Respondent No.1 agreed to sell the cargo to the Petitioner.

6. Respondent No.2, the owner of the Kandla port, confirmed by a letter dated 14th June, 2014 that it had received the cargo of 2002.010 MT of Heavy Aromatics and that it had been stored at its bonded warehouse. It undertook that it would release the cargo to Respondent No.1only after a No Objection Certificate (‘NOC’) was given by the Petitioner and that the charges for storing were to be borne by Respondent No.1 in terms of the Contract between Respondent Nos.1 and 2 entered into on 24th September, 2013.

7. At the request of Respondent No.1, the Petitioner rolled over the LC on three occasions i.e., on 19th September, 2014, 17th November, 2014 and 13th February, 2015. On 11th February, 2015, Respondent No.1 executed a Deed of Undertaking in favour of the Petitioner and issued 13 cheques towards re-payment of the amount financed for the import. Three more cheques were issued in similar fashion. These cheques when presented for payment were dishonoured. Five complaints were instituted against Respondent No.1 by the Petitioner under the Negotiable Instruments Act, 1881.

8. By an e-mail dated 19th February, 2016, Respondent No.1 forwarded a letter dated 12th February, 2016 from the Office of the Principal Commissioner of Customs at Mundra, Gujarat requesting Respondent No.1 to clear the cargo and pay the storage charges. Respondent No.2 sent to Respondent No.1 a final notice dated 5th January, 2016 under Section 48 of the Customs Act, 1962 (‘CA’) stating that Respondent No.2 was empowered to sell the cargo in its custody if the custom duties were not cleared within ten days.

9. By a letter date 23rd February 2016, the Petitioner informed the Customs authorities of its proposal to bring to sale by way of auc