The Insolvency and Bankruptcy Code 2016 will prevail over the Customs Act 1962 – Insolvency/Bankruptcy

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The Supreme Court today issued a historic decision in this case of “Sundaresh Bhatt v Central Excise and Customs Board” [Civil Appeal No. 7667
of 2021]
and held that the provisions of the Insolvency and Bankruptcy Code, 2016 (“Coded”) shall take precedence over the provisions of the Customs Act 1962 (“Customs Act”) and accordingly 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 NCLAT’s order in which among others it has been found by the NCLAT that the goods in the bonded warehouses are not the assets of the debtor company because the debtor company has not taken affirmative action to gain control of its assets by not paying the customs duties and for this reason the company The debtor is deemed to have waived title to its goods by legal implication under the terms of the Customs Act.

The question submitted to the consideration of the Honorable Supreme Court was whether the provisions of the Code shall prevail over the provisions of the Customs Act and whether the Customs Authority has the power to confiscate the property of the debtor company which is currently being liquidated in terms of the Code.

The Supreme Court held that after the imposition of the moratorium, no proceedings could have been initiated/continued by the customs authority against the debtor company. The Supreme Court further held that after the imposition of the moratorium, the customs authority was only required to assess the duties payable and then file its claim with the resolution practitioner/IRP/liquidator (depending on the cases) with respect to unpaid customs duties. , which would be processed in accordance with the provisions of the code. It was held that title to the goods does not pass to the customs authority and that the authority cannot confiscate the goods which are the assets of the debtor company for the purpose of recovering customs duties. The Court ruled that the IRP/Resolution Professional/Liquidator has the right to take control of the assets belonging to the Debtor Company under the Code.

Co-written by MV Lakshmikumaran, Advocate appeared for shipyard liquidator ABG.

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