Sundaresh Bhatt, Liquidator Of Abg Shipyard V. Central Board Of Indirect Taxes And Customs: Case Analysis
Introduction
There is often a conflict when different laws deal with the same issues taking the completely different positions. The present case also deals with such a situation.[i] The case in hand deals with the appeal by the liquidator appointed for the Corporate Debtor for the purpose of CIRP proceedings. The case was adjudged by a three-judge bench comprising of Hon’ble Mr. Chief Justice N.V. Ramana, Hon’ble Mr. Justice J.K. Maheshwari, Hon’ble Ms. Justice Hima Kohli who dealt with the pertinent matter arising out of the conflict between the Customs Act, 1962 and the “Insolvency and Bankruptcy Code, 2016”. The decision forms a landmark judgement making IBC supreme in case of conflict as per Section 238 of IBC.
Facts Of The Case
The ABG Shipyard, corporate debtor ran the shipbuilding business. Its business involved importing of raw materials for ship building purpose and exporting of the finally completed ships to various other countries. Imported raw material for the same was stored in Custom Bonded Warehouses in Gujarat and in Maharashtra. The warehouse entries were maintained regularly. The ABG Shipyard was licenced under Export Promotion Capital Goods Scheme (“EPCG Scheme”). On 01.08.2017, the “National Company Law Tribunal”, Ahmedabad (“NCLT”) started the “Corporate Insolvency Resolution Process” (“CIRP”) against the ABG shipyard. NCLT also declared a moratorium in its above order.
The appellants demanded the warehoused goods from the respondents. Thereafter, the respondent issued five notices to the appellant regarding the custom duties and the interest on the same due to non-fulfilment of the export requirements under EPCG licencing. An order for liquidation was passed against the Corporate Debtor by the NCLT under Section 33(2) of the IBC wherein the appellant was appointed as the liquidator. The earlier orders regarding the moratorium were seized.
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Thereafter, the respondent issued the notice regarding custom dues on 11.07.2019 to the corporate debtor. The 2020 order said that the respondent should give the goods to the appellant without any custom charges and gave the respondent the freedom to file its claim. The 2020 order was challenged and was reversed in favour of the respondents. Same was challenged by the appellant.
ISSUES RAISED
- Whether the provisions of IBC prevail over the Custom Duties Act and to what extent?
- Whether the Respondent has right to claim the goods and sell them?
Analysis Of The Legal Provisions Involved
- Section 72 of the Customs Act
The custom dues are required to be paid in case of imported goods. In case the goods are warehoused and proper precautions are not taken by the corporate debtor in the prescribed time period, the Central Board of Indirect taxes under Section 72 has the power to impose custom duties and interests and then sell the goods if required[ii].
- Section 14 of the IBC
Section 14 of the IBC says that the period of the moratorium begins on the date of the initiation of insolvency proceedings against the company. During the moratorium period, no other legal action or proceedings can be started against the Corporate Debtor. In the present case, the notices were issued under the Customs Act after the CIRP proceedings were initiated. So, Section 14 of the IBC applies in the present case[iii].
During the period of the Moratorium, “Central Board of Indirect Taxes and Customs” may account or inspect their custom duties and taxes but the same cannot be claimed as no legal proceedings can be initiated during the period of moratorium. Thus, the claim of the respondents is violative of Section 14 of the IBC.
- Section 33(5) of the IBC, 2016
The above section of the IBC says that moratorium continues even if the company goes into liquidation. Thus, when in the above case, the liquidator was appointed, the period of moratorium continued, thus temporarily suspending all other proceedings against the said company.[iv]
- Section 142 A of the Customs Act, 1962
It says that any liability under the Customs Act should be taken firstly subject to some acts particularly mentioned in the section. One of the acts mentioned in the section includes IBC. Therefore, the Customs Act is subject to IBC and IBC would apply in case there is conflict between the both.[v]
- Section 238 of the IBC, 2016
Section 238 of the IBC says that IBC applies irrespective of any law in force in India. Therefore, according to Section 238 of IBC, The Customs Act, 1962 would not apply and the liquidator of the company has all rights to ask for goods in the warehouses which were seized under the Customs Act.[vi]
Decision Of The Court
The Court decided in the favour of the liquidator, that is the appellant in the present case. The court held that the Insolvency and Bankruptcy Code applies over the Custom Duties Act in the present case. The “Central Board of Indirect Taxes and Customs” was wrong in claiming the custom duties and was also wrong in claiming that the creditor debtor, that is, ABG Shipyard had no right to the warehoused goods.
The Court referred to the case of S.V. Kondaskar v. V.M. Deshpande[vii] wherein it was held in respect of Section 446 of the “Companies Act, 1956” with the “Income Tax Act, 1961” that the authorities have every right to determine the taxes, dues or any penalty or interests on such dues for that matter but the said determined amount could not be claimed during the period of moratorium. Relying on the above judgement, the honourable Court allowed the liquidator access to the warehoused goods in the case at hand determining that during the moratorium proceedings under the IBC, the Customs Act would not prevail.
Conclusion
The honourable Court held that the IBC prevails over all the other laws. During the moratorium imposed by the IBC, no legal proceedings can be carried out against the company. The said approach is a balanced approach because the same would prevent the multiplicity of suits. Moreover, the said approach will also protect the company from unnecessary halts in the functioning preventing the losses and the company would remain a going concern. The decision would help in protecting the interests of the shareholders and investors of the company at the time of liquidation. The Supreme Court’s decision was relevant taking a holistic approach rather than focusing on the mere accumulation of custom duties.
Author: Hashvi Bansal, A Student at Rajiv Gandhi National University of Law, Patiala, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing.
REFERENCES
[i] Civil Appeal No. 7667 Of 2021 dated 26 August, 2022.
[ii] S. 72, Customs Act,1962.
[iii] S. 14, “Insolvency and Bankruptcy Code, 2016”.
[iv] S. 33(5), “Insolvency and Bankruptcy Code, 2016”.
[v] S. 142A, Customs Act,1962.
[vi] S. 238, “Insolvency and Bankruptcy Code, 2016”.
[vii] AIR 1972 SC 878
