Insolvency and Bankruptcy Code Will Prevail Over The Customs Act - Supreme Court

Counsel Alok Tripathi appeared for the Appellant before the Apex Court.

This Civil Appeal under Section 62(1) of the IBC arose from an impugned judgment passed by the National Company Law Appellate Tribunal (NCLAT). Through the impugned judgment, the NCLAT had allowed the appeal filed by the respondent against an order passed by National Company Law Tribunal (NCLT) by which the Adjudicating Authority directed the release of certain goods lying in the Customs Bonded Warehouses without payment of custom duty and other levies.

Before the Supreme Court, two issues were raised -

(i) Whether the provisions of the IBC would prevail over the Customers Act, and if so, to what extent?
(ii) Whether the respondent authority could claim title over the goods and issue notice to sell the goods in terms of the Customs Act when the liquidation process has been initiated?

Addressing the first issue, the Court held that the IBC would prevail over the Customs Act, to the extent that once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC, the respondent authority only has a limited jurisdiction to assess and determine the quantum of customs duty and other levies. Further, it was also held that "the respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act."

The Supreme Court addressed the issue in a 3-step answer. It concluded that

"i) Once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC as the case may be, the respondent authority only has a limited jurisdiction to assess/determine the quantum of customs duty and other levies. The respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act.

ii) After such assessment, the respondent authority has to submit its claims (concerning customs dues/operational debt) in terms of the procedure laid down, in strict compliance of the time periods prescribed under the IBC, before the adjudicating authority.

iii) In any case, the IRP/RP/liquidator can immediately secure goods from the respondent authority to be dealt with appropriately, in terms of the IBC."

The Supreme Court allowed the appeal in view of the reasoning that "The NCLAT, by deciding the question of passing of title from the Corporate Debtor to the respondent authority, has clearly ignored the mandate of Section 72(2) of the Customs Act relating to sale. This interpretation of the NCLAT clearly ignores the effects of the moratorium under Sections 14 and 33(5) of the IBC. The fact is that the duty demand notice and notice under Section 72(2) of the Customs Act, were issued during the moratorium period, which has been completely ignored by NCLAT and has resulted in rendering the moratorium otiose."