Commission Of Customs vs Ram Swarup Industries Ltd. & Ors

(Arising out of Order dated 3rd July, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata in CA (IB) No. 116/KB/2018 in CP (IB) No. 349/KB/2017)

IN THE MATTER OF:

Commissioner of Customs, (Preventive) West Bengal ...Appellant

Vs.

Ram Swarup Industries Ltd. & Ors. ...Respondents

Present: For Appellant: - Mr. Bhuvesh Satija, Standing Counsel for Commission of Customs and Mr. Sachin Yadav, Advocates.

For Respondents:- Mr. Sayare Basu Malik, Mr. Akshay Bajpai, Mr. Vaibhavniti and Mr. Prateek Gupta, Advocates for R-3.

Mr. Sarwar Raza, Ms. Ishita Sharma, Mr. S. Ahmad, Mr. S. Sagghiruddin Kashif Raza (CS), Advocates for R-4.

Mr. Sanyam Saxena, Ms. Mukta Dutta, Mr. Mahfooz Nazki and Mr. Ashish Prasad, Advocates for R-1 & 2.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

This appeal has been preferred by 'Commissioner of Customs,

(Preventive) West Bengal' against the order dated 3 rd July, 2018 passed

by the Adjudicating Authority (National Company Law Tribunal),

Kolkata Bench, Kolkata in I.A. No. 116 of 2018 in C.P. No. (IB)- 2

349(KB)/2017 in allowing Mr. Nilesh Sharma (Respondent No. 2) to

remove machineries in question.

2. The brief facts of the present case are as follows:

In the year 2009, 'Ramsarup Industries Ltd.'- ('Corporate

Debtor') had imported two consignments of machineries from Italy

by claiming benefit of EPCG scheme under FTP 2004-2009, which

arrived at ICD Durgapur on 13th April, 2009 and 27th April, 2009

respectively. The assessment of goods were confirmed by the

Assistant Commissioner of Customs, ICD Durgapur vide O-I-O No.

05/ICD-DGP/2010 dated 12th April, 2010 and the Respondent was

directed to pay the Customs Duty of Rs.1,39,89,366.00 with

applicable interest.

On 26th May, 2011 and 14th January, 2012, 1st Respondent

made a payment of Rs. 11,00,000/- towards the duty assessed by

the Appellant. In the year 2014, a Writ Petition No. 24579 (W) of

2014 was filed by the 'Corporate Debtor' against the departmental

action initiated for disposal of uncleared imported cargo which was

dismissed by the Hon'ble High Court of Calcutta vide order dated

10th September, 2014 for non-prosecution. In the year 2016, the

Appellant by way of e-auction attempted thrice to auction the goods

imported by the 1st Respondent on 7th March, 2016, 17th August,

2016 and 4th October, 2016 but the same could not be fructified on

Company Appeal (AT) (Insolvency) No. 563 of 2018 3

account of non-participation of any buyers. The Appellant granted

three months' time vide letter dated 16th February, 2017 sought

by 1st Respondent to clear the cargo from the custody of the

customs authorities after paying the duties. The Appellant vide

letter dated 30 th August, 2017 reinitiated the process for

disposal of the said uncleared cargo by way of auction for the

fourth time.

The Adjudicating Authority vide its order dated

8th January, 2018 allowed the application under Section 10 of the

'I&B Code' filed by 1st Respondent for 'Corporate Insolvency

Resolution Process' and declared 'Moratorium' under Section 14 of

the 'I&B Code'. In pursuance of letter dated 30th August, 2017 the

custodian, i.e. 3rd Respondent conducted an e-auction dated 19th

January, 2018, wherein 4th Respondent had proposed the wining

bid. On 20th January, 2018, the Appellant received the copy of the

letter dated 16th January, 2018 sent by 1st Respondent and letter

dated 17th January, 2018 sent by 2nd Respondent conveying the

order of Adjudicating Authority dated 8th January, 2018. On 3rd

July, 2018, 2nd Respondent filed an application under section 14

of the 'I&B Code' praying for issuing directions to the Appellant not

to proceed with e-auction of machineries of 1st Respondent and not

to deal with the assets of 1st Respondent. The Adjudicating

Authority vide the impugned order allowed the application filed by

Company Appeal (AT) (Insolvency) No. 563 of 2018 4

2nd Respondent under section 14 of the 'I&B Code'.

3. It is submitted by learned counsel for the Appellant that the

impugned order does not refer the provisions of Section 18(1) (f), whereby

the 'Interim Resolution Professional' is empowered to take control and

custody of any asset over which the 'Corporate Debtor' has ownership

rights as recorded in its balance sheet. Therefore, the 'Interim Resolution

Professional' can exercise control only over items which are (a) asset of

the 'Corporate Debtor'; (b) there exist ownership rights and (c) recorded

in the balance sheet.

4. It is further submitted that in the present case, 1st & 2nd

Respondents have made no assertion in their pleadings before this

Appellate Tribunal that the machinery, in question, in fact belongs to 1st

Respondent 'asset' and were recorded so in the balance sheet.

5. According to counsel for the Appellant, the extent of 'Interim

Resolution Professional's' power of control are co-terminus with the

'Corporate Debtor's' ownership rights and in the present case, the

'Corporate Debtor', i.e. 1st Respondent has never acquired complete

ownership of the imported goods. It is submitted that the 1st & 2nd

Respondents cannot allege that the imported goods were 'assets' of the

'Corporate Debtor', when customs duty leviable is yet to be discharged

and the said goods are yet to be cleared for home consumption.

6. Reliance has been placed on the decision of the Hon'ble Calcutta

Company Appeal (AT) (Insolvency) No. 563 of 2018 5

High Court in "Collector of Customs v. Dytron (India) Ltd.

MANU/WB/0334/1998" rendered in similar factual scenario of a

liquidator disposing off uncleared imported goods under the

Companies Act, 1956. In the said situation, it was also held that unless

and until statutory duties are paid, the imported goods would not form

part of 'assets' available for distribution by the company.

7. It is submitted that the 'Corporate Debtor's' ownership rights in

the imported goods have been relinquished by operation of law

contained in Section 48 of the 'Customs Act, 1962'.

8. It is also submitted that Section 48 of the 'Customs Act, 1962'

allows Customs authorities to dispose unclaimed, uncleared, non-duty

paid imported goods after providing the importer with thirty-day notice.

9. It is further submitted by learned counsel for the Appellant that

the Appellant had duly complied with the provisions of Section 48 of the

'Customs Act, 1962' and after the expiry of the statutory period the

importer's interest, i.e. 1st Respondent, in the imported good was

confined to a reminder interest as provided in Section 150 of the

'Customs Act, 1962'.

10. Learned counsel for the Appellant submitted that the

impugned order's reliance on Section 238 of the 'I&B Code' is

unsustainable.

Company Appeal (AT) (Insolvency) No. 563 of 2018 6

11. According to the 'Resolution Professional, the 'Corporate

Insolvency Resolution Process' of the 1st Respondent was initiated vide

Order Dated 8th January, 2018 by the Adjudicating Authority.

Admittedly, the Appellant / 3rd Respondent issued the e-auction notice

on 15th January, 2018, fixing date of auction of the goods on 19th

January, 2018. Thereafter, vide letter dated 16th January, 2018, the

Managing Director of the 1st Respondent informed the Appellant/ 3rd

Respondent that the 'Corporate Insolvency Resolution Process' has been

initiated with regard to 1st Respondent and that 'Moratorium' under

Section 14 of 'I&B Code' suspending / barring all proceeding relating to

1st Respondent has come into force. Subsequently, 2nd Respondent

being an 'Interim Resolution Professional' of 1st Respondent vide letter

dated 17th January, 2018 informed the Appellant / 3rd Respondent

regarding the 'Corporate Insolvency Resolution Process' initiated with

regard to the 1st Respondent and the 'Moratorium' imposed under

Section 14 of 'I&B Code' in relation to the proceedings pending against

1st Respondent. It is pertinent to mention here that the contention of the

Appellant with regard to receiving the information pertaining to

'Corporate Insolvency Resolution Process' on 20th January, 2018, posted

for the auction of the goods on 19th January, 2018, has already been

dealt with and dismissed by the Adjudicating Authority, on the basis

that documentary evidence clearly shows that the Appellant / 3rd

Respondent was intimated about the initiation of 'Corporate Insolvency

Resolution Process' proceedings and the 'Moratorium' vide a letter by

Company Appeal (AT) (Insolvency) No. 563 of 2018 7

the Managing Director of the 1st Respondent on 16th January, 2018 itself

and the same was hand-delivered to the Appellant on 16th January,

2018 itself. Further, it is pertinent to mention here that 3rd Respondent

has itself admitted that it was aware of the initiation of 'Corporate

Insolvency Resolution Process' on 19th January, 2018, prior to the

auction of the goods.

12. It is submitted by counsel for the 'Resolution Professional' that

Section 238 of the 'I&B Code' specifically provides that the 'I&B Code' will

override all other laws in case of any inconsistency, and accordingly

Section 14 of the 'I&B Code' which provides for suspension / bar on all

proceedings with regard to 'Corporate Debtor' post initiation of 'Corporate

Insolvency Resolution Process' will be applicable to the present case.

13. It is further submitted that the goods under challenge were

imported by the 'Corporate Debtor' / 1st Respondent and the invoices of

the 'Corporate Debtor' / 1st Respondent have not been challenged,

therefore clearly establishing the ownership of 'Corporate Debtor' to the

said goods.

14. It is also submitted that the seizure of the goods by Appellant does

not in any way transfer the title/ ownership of the goods to Respondent,

who, in accordance with law, was required to release the goods to the

'Corporate Debtor' on payment of customs duty.

Company Appeal (AT) (Insolvency) No. 563 of 2018 8

15. From the submissions made by the Appellant and the record,

it is clear that the 'Corporate Debtor' had imported the two

consignments i.e. the machineries, in question, from Italy in the year

2009 which arrived at ICD Durgapur on 13 th April, 2009 and 27 th

April, 2009 respectively. Thereby, it is clear that the machineries, in

question, belonged to the 'Corporate Debtor' (1 st Respondent).

16. Section 48 of the 'Customs Act, 1962' relates to procedure in

case of goods not cleared within the prescribed period, which reads

as follows:

"48. Procedure in case of goods not cleared,

warehoused or transhipped within thirty days

after unloading.-- If any goods brought into India

from a place outside India are not cleared for home

consumption or warehoused or transhipped within

thirty days from the date of the unloading thereof at a

customs station or within such further time as the

proper officer may allow or if the title to any imported

goods is relinquished, such goods may, after notice to

the importer and with the permission of the proper

officer be sold by the person having the custody

thereof: Provided that--

(a) animals, perishable goods and hazardous

Company Appeal (AT) (Insolvency) No. 563 of 2018 9

goods, may, with the permission of the proper

officer, be sold at any time;

(b) arms and ammunition may be sold at such

time and place and in such manner as the

Central Government may direct.

Explanation.-- In this section, "arms" and

"ammunition" have the meanings respectively

assigned to them in the Arms Act, 1959 (54 of

1959)."

From the aforesaid provision, it is clear that in case of non-

clearance of the goods within 30 days or within extended period or if

the title of any imported goods is relinquished after notice to the

importer and with the permission of the proper officer, the goods can

be sold by the Custom Authority.

17. In the present case, the goods are in the custody of the Custom

Authority, but the ownership remains with the 'Corporate Debtor',

no step having taken for sale of goods in terms of Section 48 of the

'Customs Act, 1962'.

18. Section 18 (1) (f) & (g) of the 'I&B Code' reads as follows:

"18. Duties of interim resolution professional.--

The interim resolution professional shall perform the

Company Appeal (AT) (Insolvency) No. 563 of 2018 10

following duties, namely:--

xxx xxx xxx

(f) take control and custody of any asset over which

the corporate debtor has ownership rights as

recorded in the balance sheet of the corporate debtor,

or with information utility or the depository of

securities or any other registry that records the

ownership of assets including--

(i) assets over which the corporate debtor has

ownership rights which may be located in a

foreign country;

(ii) assets that may or may not be in possession

of the corporate debtor;

(iii) tangible assets, whether movable or

immovable;

(iv) intangible assets including intellectual

property;

(v) securities including shares held in any

subsidiary of the corporate debtor, financial

instruments, insurance policies;

(vi) assets subject to the determination of

Company Appeal (AT) (Insolvency) No. 563 of 2018 11

ownership by a court or authority;

(g) to perform such other duties as may be specified

by the Board.

Explanation.--For the purposes of this sub-

section, the term "assets" shall not include the

following, namely:--

(a) assets owned by a third party in

possession of the corporate debtor held

under trust or under contractual

arrangements including bailment;

(b) assets of any Indian or foreign

subsidiary of the corporate debtor; and

(c) such other assets as may be notified

by the Central Government in

consultation with any financial sector

regulator."

19. As we have seen that the ownership rights of the machineries,

in question, is of the 'Corporate Debtor' and not of a third party,

explanation below Section 18 (1) (f) & (g) is not applicable. Therefore,

the 'Resolution Professional' has right to take control and custody of

any asset, though the Customs Authority is in possession of the

Company Appeal (AT) (Insolvency) No. 563 of 2018 12

same for the present.

20. Section 14 of the 'I&B Code' relates to 'Moratorium' and reads

as follows:

"14. Moratorium.--(1) Subject to provisions of sub-

sections (2) and (3), on the insolvency commencement

date, the Adjudicating Authority shall by order

declare moratorium for prohibiting all of the following,

namely:--

(a) the institution of suits or continuation of

pending suits or proceedings against the

corporate debtor including execution of any

judgment, decree or order in any court of law,

tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or

disposing of by the corporate debtor any of its

assets or any legal right or beneficial interest

therein;

(c) any action to foreclose, recover or enforce

any security interest created by the corporate

debtor in respect of its property including any

action under the Securitisation and

Company Appeal (AT) (Insolvency) No. 563 of 2018 13

Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (54

of 2002);

(d) the recovery of any property by an owner

or lessor where such property is occupied by

or in the possession of the corporate debtor.

(2) The supply of essential goods or services to the

corporate debtor as may be specified shall not be

terminated or suspended or interrupted during

moratorium period.

(3) The provisions of sub-section (1) shall not apply to

such transactions as may be notified by the Central

Government in consultation with any financial sector

regulator.

(4) The order of moratorium shall have effect from the

date of such order till the completion of the corporate

insolvency resolution process:

Provided that where at any time during the

corporate insolvency resolution process period, if the

Adjudicating Authority approves the resolution plan

under sub-section (1) of section 31 or passes an

Company Appeal (AT) (Insolvency) No. 563 of 2018 14

order for liquidation of corporate debtor under

section 33, the moratorium shall cease to have effect

from the date of such approval or liquidation order,

as the case may be."

21. From the aforesaid provisions, it is clear that during the period

of 'Moratorium', the assets of the 'Corporate Debtor' cannot be

alienated, transferred or sold to a third party.

22. Section 48 of the 'Customs Act, 1962' relates to sale of goods

in the custody of the Customs (machinery in question), in the

manner as prescribed therein. The order of 'Moratorium' having

passed by the Adjudicating Authority on 8 th January, 2018,

immediately thereafter it was not open to the Appellant,

Commissioner of Customs or its authorities to issue an e-auction

notice on 15th January, 2018, fixing date of auction of the goods on 19 th

January, 2018.

23. The aforesaid action on the part of the Appellant, officers of the

Customs show that after their knowledge of the order of 'Moratorium'

they intended to sell the machinery, in question, though it was lying

with the Customs Authority since 13th April, 2009 / 27th April, 2009.

24. In view of the aforesaid findings, no interference is called for against

the impugned order dated 3rd July, 2018 passed by the Adjudicating

Authority prohibiting the Customs Authority from selling the assets of

Company Appeal (AT) (Insolvency) No. 563 of 2018 15

the 'Corporate Debtor'.

25. In absence of any merit, the appeal is dismissed. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI 20th June, 2019 AR

Company Appeal (AT) (Insolvency) No. 563 of 2018