Legal principle

Under section 142A of the Customs Act, 1962, the first charge for duty, penalty and interest under the Act is expressly subject to the SARFAESI Act, 2002 (among other statutes), so a secured creditor proceeding under SARFAESI has overriding priority over the Customs charge, with any surplus to be distributed as per claims received.

Court decision

The Court held that section 142A of the Customs Act, 1962, by its own terms, saves the SARFAESI Act (along with section 529A of the Companies Act, 1956, the RDDBFI Act, 1993 and the IBC, 2016) from its overriding effect, and therefore the petitioner bank's claim has overriding priority over the charge of the Customs Authorities. The Court permitted the bank to proceed with SARFAESI measures in respect of the property, accepted its statement that it would inform the Customs Authorities, on request, of action taken and the quantum of sale proceeds, and that any balance after satisfying the bank's claim would be distributed as per claims received. The writ petition was disposed of on these statements, with other claimants' remedies left open. The decision was in favour of the petitioner bank.

Facts

Bank of India, a secured creditor in respect of an immovable property, had initiated proceedings under section 13 of the SARFAESI Act, 2002 against the owners. The Customs Authorities simultaneously initiated action against the same owners under section 121 of the Customs Act, 1962 on the allegation that the property was proceeds of smuggling activities. The Customs Authorities pasted a notice on the property stating it stood attached and that no steps be taken by the bank, thereby blocking the bank's SARFAESI measures. The bank then approached the Bombay High Court in writ petition seeking to proceed with its SARFAESI action.

Key provisions

• Section 142A, Customs Act, 1962 — Liability under Act to be first charge 
• Section 121, Customs Act, 1962 — Confiscation of sale-proceeds of smuggled goods