The Supreme Court has passed a landmark decision today in the matter of “Sundaresh Bhatt vs. Central Board of Indirect Taxes & Customs” [Civil Appeal No. 7667 of 2021] and held that the provisions of the Insolvency and Bankruptcy Code, 2016 (“Code”) will prevail over the provisions of the Customs Act, 1962 (“Customs Act”) and consequently set aside the order of the National Company Law Appellate Tribunal (“NCLAT”).

The appeal was filed by the Liquidator of ABG Shipyard Ltd. (“Corporate Debtor”), challenging the order of the  NCLAT wherein inter alia it was held by the NCLAT that the Goods lying in the customs bonded warehouses are not the assets of Corporate Debtor as the Corporate Debtor failed to take positive steps to take control of its assets by failing to pay customs duties and for that reason, the Corporate Debtor is deemed to have relinquished its title to its Goods by legal implication in terms of the Customs Act.

The question that came for consideration before the Hon’ble Supreme Court was whether the provisions of the Code will prevail over the provisions of the Customs Act and whether the Customs Authority is entitled to confiscate the goods of the Corporate Debtor which is currently undergoing liquidation in terms of the Code.  

The Supreme Court held that after the imposition of moratorium, no proceedings could have been initiated/continued by the Customs Authority against the Corporate Debtor. The Supreme further held that the Customs Authority after the imposition of the moratorium was only required to assess the duties that were payable and thereafter file its claim with the Resolution Professional/IRP/Liquidator (as the case may be) with respect to outstanding custom duties, which would be dealt in accordance with the provisions of the Code.  It was held that the title to the Goods does not pass on to the Customs Authority and that the Authority cannot confiscate the goods which are the assets of the Corporate Debtor for the purposes of recovering customs duties. The Court held that the IRP/Resolution Professional/Liquidator has the right to take control of the assets belonging to the Corporate Debtor in terms of the Code.

Link Legal team comprising of Mr. Abhishek Sharma, Partner, Ms. Ashly Cherian, Associate Partner, and Mr. Gaurav Arora, Senior Associate led by Senior Advocate Mr. Arvind Datar and Mr. V. Lakshmikumaran, Advocate appeared for the Liquidator of ABG Shipyard.

Posted by Asia Law Portal

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