INDUSTRIAL DEVELOPMENT BANK OF INDIA (THROUGH STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY THE GOVERNMENT OF INDIA) vs. SUPERINTENDENT OF CENTRAL EXCISE AND CUSTOMS AND OTHERS

CIVIL APPEAL No. 2568/2013Supreme Court[2023] 12 S.C.R. 105218 August 2023Bench: 2 JudgesAuthor: SANJIV KHANNA, SUDHANSHU DHULIA31 pages
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What were the facts?

The Industrial Development Bank of India (IDBI), acting through the Stressed Assets Stabilization Fund, is the appellant, and the Superintendent of Central Excise and Customs and others are the respondents. The case concerns customs duty due from a company that was ordered to be wound up on December 1, 2003. Adjudication orders dated September 15, 2000, and October 10, 2000, determined the customs duty to be 'due and payable'. The dispute revolves around the priority of these government dues versus the claims of secured creditors. The High Court of Andhra Pradesh, in its judgment dated August 26, 2008, had passed an order that is now under challenge before the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the customs duty, determined by adjudication orders in 2000, became 'due and payable' prior to twelve months before the 'relevant date' (December 1, 2003, the winding-up date). Consequently, these dues do not fall under the category of preferential payments under Section 530(1)(a) of the Companies Act, which is limited to debts 'due and payable' within the twelve months preceding the relevant date. The Court emphasized that Section 529A of the Companies Act, with its non-obstante clause, grants overriding preferential status to workmen's dues and secured creditors' dues, ranking them above government dues under Section 530. The provisions of the Customs Act do not override Section 529A. Therefore, prior secured creditors are entitled to enforce their charge. The impugned judgment of the High Court is set aside, and the Company Application filed by the Official Liquidator is allowed. The sale proceeds are to be paid to the Official Liquidator for distribution according to Sections 529A and 530 of the Companies Act.

What were the issues?

1. Whether the provisions of the Customs Act, 1962, specifically concerning customs duty, create a first charge that overrides the charge in favour of a secured creditor under the Companies Act, 1956? The assessee (IDBI) contends that secured creditors, as per Section 529A of the Companies Act, have overriding preferential status. The revenue (Customs) argues that customs duty is a government due and should be prioritized. The core of the dispute is the interpretation of "due and payable" under Section 530(1)(a) of the Companies Act and its interplay with Section 529A of the same Act and provisions of the Customs Act. The assessee relies on precedents like Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Sundaresh Bhatt, Liquidator of ABG Shipyard. The revenue's position is implicitly based on the idea that government dues have inherent priority.

Which sections of the Income-tax Act were involved?

Section 142A,Section 46,Section 68

AI-generated summary — verify with the full judgment below

[2023] 12 S.C.R. 1052 : 2023 INSC 746 1052 CASE DETAILS INDUSTRIAL DEVELOPMENT BANK OF INDIA (THROUGH STRESSED ASSETS STABILIZATION FUND CONSTITUTED BY THE GOVERNMENT OF INDIA) v. SUPERINTENDENT OF CENTRAL EXCISE AND CUSTOMS AND OTHERS (Civil Appeal No. 2568 of 2013) AUGUST 18, 2023 [SANJIV KHANNA AND SUDHANSHU DHULIA, JJ.] HEADNOTES Issue for consideration: Whether the Customs Act, 1962 creates a fi rst charge overriding the charge in favour of the secured creditor.

Customs Act, 1962 – Companies Act, 1956 – ss.529A, 530(1) – Customs duty ‘due and payable’ – ‘relevant date’ – Preferential payments u/clause (a) to s.530(1) – Customs Act if negates or overrides the statutory preference in terms of s.529A, Companies Act – Prior secured creditors if entitled to enforce their charge, notwithstanding the government dues payable under the Customs Act: Held: Upon import of the goods, the Company had entered the goods for home consumption u/s.46, Customs Act – However, the goods were stored in a private bonded warehouse, in the terms of s.68, Customs Act – Goods were not released on non-payment of customs duty etc. and, thereupon, show cause notices were issued and two adjudicat

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