NCLAT dismisses customs dept plea to auction goods of a firm under moratorium period

The National Company Law Appellate Tribunal (NCLAT) has dismissed a petition of customs authority seeking auction of confined goods of a company, which is under the corporate insolvency proceedings, saying the assets cannot be alienated during a moratorium period.

Upholding the orders of the Kolkata bench of the National Company Law Tribunal (NCLT), the appellate tribunal said that after order of 'moratorium' is passed by the adjudicating authority (NCLT), the customs department cannot issue auction notice despite the fact that the goods in question are lying in their possession for years.

A two-member bench headed by Chairman Justice S J Mukhopadhaya said that Insolvency & Bankruptcy Code mandates "during the period of moratorium, the assets of the 'corporate debtor' cannot be alienated, transferred or sold to a third party".

The NCLAT's order came over an appeal filed by the customs department against an order passed by the NCLT's Kolkata bench, which had directed Commissioner of Customs, (Preventive) West Bengal, to handover the machinery imported by Ram Sarup Industries Ltd and submit their claims before the resolution professional of the company.

Ram Sarup Industries - maker of wires, TMT bars and steel - had imported two consignments of machineries from Italy in April 2009. The assessment of goods were confirmed by the Assistant Commissioner of Customs, ICD Durgapur, and the Kolkata-based firm was asked to pay duty of Rs 1.39 crore with applicable interest.

In 2012, Ram Sarup Industries paid Rs 11 lakh to the customs department and then moved to the high court of Calcutta against the departmental action initiated for disposal of uncleared imported cargo, which was dismissed.

In 2016, the customs department attempted thrice to auction the imported goods in question but it could not be fructified as it failed to find any buyer.

Later, it granted three months time on February 16, 2017 to Ram Sarup Industries asking to clear the cargo from the custody of the customs authorities after paying the duties.

Commissioner of Customs in August 2017 reinitiated the process for disposal of the uncleared cargo by way of auction for the fourth time.

Meanwhile, the NCLT on January 8, 2018, allowed the insolvency plea filed by Ram Sarup Industries moved under section 10 of the IBC and declared 'moratorium'.

On the other side, this time the customs department has found a winning bid of the consignment in the auction conducted on January 19, 2018.

However, a day after that on January 20, 2018, the department received the copy of the letter dated January 16, 2018, sent by Ram Sarup Industries and another letter dated January 17, 2018, by the RP of the company conveying the NCLT order.

Later, the RP approached the NCLT to stay the auction process, which allowed the application.

This was challenged by the customs department before the NCLAT contending that corporate debtor's ownership rights in the imported goods have been relinquished by Section 48 of the Customs Act, 1962.

It is also submitted that Section 48 of the 'Customs Act' allows customs authorities to dispose unclaimed, uncleared, non-duty paid imported goods after providing the importer with thirty-day notice.