Central Board of Indirect Taxes and Customs v. Sundaresh Bhatt: NCLAT Reinforces the Supremacy of the Insolvency and Bankruptcy Code Over Customs Act in Asset Recovery
Introduction
The case of Central Board of Indirect Taxes and Customs v. Sundaresh Bhatt Liquidator of ABG Shipyard adjudicated by the National Company Law Appellate Tribunal (NCLAT) on November 22, 2021, presents a significant precedent in the interplay between insolvency proceedings and regulatory controls under the Customs Act, 1962. The dispute revolves around the authority to release imported goods from Customs Bonded Warehouses without the payment of customs duty during the liquidation process of ABG Shipyard.
Summary of the Judgment
The NCLAT overturned an earlier order by the National Company Law Tribunal (NCLT), Ahmedabad Bench, which had directed the Central Board of Indirect Taxes and Customs (CBIC) to allow the removal of materials from Customs Bonded Warehouses without the immediate payment of customs duties. The Appellant, CBIC, argued that under the Customs Act, payment of duties is a prerequisite for the release of goods. Conversely, the Respondent, acting as the Liquidator, contended that insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (I&B Code), should take precedence, allowing the release of assets without fulfilling prior customs obligations.
The NCLAT concluded that the provisions of the I&B Code, particularly Section 238, which contains a non-obstante clause, override conflicting provisions of other laws, including the Customs Act. Consequently, the Tribunal modified the initial order, directing that goods be released or disposed of in accordance with the applicable provisions of the Customs Act.
Analysis
Precedents Cited
- Collector of Customs v. Dytron India Ltd. (1999) - Established that goods remain part of the company's assets subject to customs duties unless duties are paid.
- ICICI Bank Ltd. v. SIDCO Leathers (2006) - Clarified that filing a claim with the liquidator does not equate to relinquishing rights under the Customs Act.
- Solitaire India Pvt. Ltd. v. Fairgrowth Financial Services (2001) - Affirmed that later statutes with non-obstante clauses prevail over conflicting earlier laws.
- Swiss Ribbons Pvt. Ltd. v. Union of India (2019) - Highlighted the exclusive jurisdiction of insolvency tribunals over insolvency-related matters.
- Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta (2021) - Emphasized the centrality of NCLT in insolvency resolution processes and its jurisdiction boundaries.
Legal Reasoning
The crux of the legal reasoning lies in the interpretation of Section 238 of the I&B Code, which grants the Code a non-obstante clause, thereby ensuring its supremacy over other conflicting laws. The NCLAT reasoned that when two special statutes contain non-obstante provisions, the provisions of the later statute (I&B Code, in this case) override those of the earlier statute (Customs Act).
Additionally, the Tribunal examined the ownership and control of the goods under both the Customs Act and the I&B Code. It was determined that the Corporate Debtor, ABG Shipyard, had effectively relinquished title to certain imported goods by failing to file bills of entry, thereby authorizing CBIC to act in accordance with the Customs Act. However, the liquidator sought to control these goods under the I&B Code, arguing for their release without payment of customs duties.
The Tribunal maintained that the order of priority under Section 53 of the I&B Code must take precedence, which does not recognize claims under the Customs Act over other creditors. Thus, CBIC’s claims are subject to the waterfall mechanism of the I&B Code, reinforcing the supremacy of insolvency proceedings in asset distribution.
Impact
This judgment has far-reaching implications for the management of assets during insolvency proceedings, particularly regarding regulatory dues. It underscores the supremacy of the I&B Code over other statutes, thereby streamlining the liquidation process and ensuring that all claims are adjudicated under a unified legal framework. Future cases involving conflicting statutory obligations during insolvency will likely reference this judgment, reinforcing the hierarchical precedence of the I&B Code.
Additionally, the ruling provides clarity on the jurisdictional boundaries of insolvency tribunals, preventing regulatory bodies from asserting undue control over asset distribution during liquidation, unless explicitly provided under the insolvency framework.
Complex Concepts Simplified
Non-Obstante Clause
A non-obstante clause is a legislative provision that takes precedence over any conflicting laws. In this context, Section 238 of the I&B Code ensures that its provisions override any inconsistent provisions in other statutes, such as the Customs Act.
Insolvency and Bankruptcy Code (I&B Code)
The I&B Code is a comprehensive law governing insolvency resolution and liquidation processes of companies. It establishes a hierarchy for the settlement of claims and ensures an orderly distribution of the debtor’s assets among creditors.
Customs Bonded Warehouse
A Customs Bonded Warehouse is a secured facility where imported goods are stored under customs control until customs duties are paid or the goods are either cleared for home consumption, warehoused, or transhipped.
Conclusion
The NCLAT's judgment in Central Board of Indirect Taxes and Customs v. Sundaresh Bhatt Liquidator of ABG Shipyard reinforces the foundational principle that the Insolvency and Bankruptcy Code, with its non-obstante clause, stands supreme over other statutory provisions like the Customs Act during insolvency proceedings. This ensures a streamlined and efficient liquidation process, preventing regulatory bodies from impeding asset distribution and safeguarding the interests of all creditors under a unified legal framework.
By emphasizing the primacy of the I&B Code, the Tribunal has paved the way for clearer jurisdictional boundaries and prioritized the orderly settlement of dues, ultimately enhancing the effectiveness of India's insolvency regime.
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