Whether IBC prevails over Custom Act?

whether-ibc-prevails-over-custom-act

Status as on- 01/03/2023 

The three Judge Bench of the Supreme Court headed by the Hon’ble Chief Justice answered critical issues concerning the supremacy of the IBC over the Customs Act, 1962 (Customs Act) and the powers of the Custom Authorities to sell goods during CIRP/Liquidation Process under IBC. The issues in question were:

Whether the provisions of the IBC would prevail over the Custom Act, and if so, to what extent?

The Supreme Court held that “The IBC would prevail over The Customs Act, to the extent that once the moratorium is imposed in terms of Sections 14 or 33(5) of the IBC, as the case may be, the respondent authority has a limited jurisdiction to assess/determine the quantum of custom duty and other levies. The respondent authority does not have the power to initiate the recovery of the dues by means of sale/confiscation, as provided under the Custom Act.”

Whether the respondent could claim title over the goods and issue notice to sell the goods in terms of the Custom Act when the liquidation process has been initiated?

The Supreme Court answered this in the negative.

The Apex Court further clarified that “After the such assessment, the respondent authority has to submit its claims (concerning customs dues/operational debt) in terms of the procedure laid down, in strict compliance of the time periods prescribed under the IBC, before the adjudicating authority”.

Welspun Steel Resources Pvt Ltd

In this Landmark Judgment, the Apex Court has applied the principle of “Commercial Wisdom” of the Committee of Creditors (CoC) during Corporate Insolvency Resolution Process (CIRP) under IBC with respect to the decision taken by the Liquidator in consultation with the Stakeholder Committee (SHC). This would pave the way for the sale of assets by way of a private treaty and bring more clarity about the role and powers of the Liquidator with regards to liquidating the estate of the Corporate Debtor within the laid down time frame under the provisions of the Code.

The Apex Court has laid down that:

“No doubt, a public auction entails the procedure of issuing public notices. But that is not the case with a Private Sale where the procedure prescribed permits the Liquidator to directly liaise with the potential buyer and conduct the negotiations. It may be emphasized that these are commercial transactions and purely business-driven decisions, which are not amenable to judicial review. The insolvency regime introduced under the IBC has placed fetters on the power of interference by the Adjudicating Authority (NCLT) and the Appellate Authority (NCLAT).”

CLARIFICATION BY APEX COURT:-

“The powers vested, and the duties cast upon the Liquidator have been made subject to the directions of the Adjudicating Authority (NCLT) under Section 35 of the IBC. Once the Liquidator applies to the Adjudicating Authority (NCLT) for appropriate orders/directions, including the decision to sell the movable and immovable assets of the Corporate Debtor in liquidation by adopting a particular mode of sale and the Adjudicating Authority (NCLT) grants approval to such a decision, there is no provision in the IBC that empowers the Appellate Authority (NCLAT) to suo motu conduct a judicial review of the said decision. The jurisdiction bestowed upon the Adjudicating Authority [NCLT] and the Appellate Authority [NCLAT] are circumscribed by the provisions of the IBC and borrowing a leaf from the Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, they cannot act as a Court of equity or exercise plenary powers to unilaterally reverse the decision of the Liquidator based on commercial wisdom and supported by the stakeholders.

RATIO HELD:-

The Court has also observed in the captioned case that “from the legislative history, there is contra-indication that the commercial or business decisions of the financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority.” Similar reasoning has prevailed with Respondent in K. Sashidhar v. Indian Overseas Bank and Others, Committee of Creditors of Amtek Auto Limited v. Dinkar T. Venkatasubramanian and Others, Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Another., Ghanashyam Mishra And Sons Private Limited through the Authorized Signatory v. Edelweiss Asset Reconstruction Company Limited through the Director and Others and Jaypee Kensington Boulevard Apartments Welfare Association and Others (Supra). The aforesaid view will apply with equal force to any commercial or business decision taken by the Liquidator for conducting the sale of the movable/immovable assets of the Corporate Debtor in liquidation. The Appellate Authority cannot don the mantle of a supervisory authority for overseeing the validity of the approach of the respondent No.2 – Liquidator in opting for a particular mode of sale of the assets of the Corporate Debtor.” (Emphasis supplied)

Disclaimer: The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinions before relying upon the article. For more information, please contact us at ibc@centrik.in.

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