Legal principle

The statutory first charge under Section 142A of the Customs Act, 1962 cannot impede recovery by a secured creditor under the SARFAESI Act, because Section 142A itself saves the SARFAESI Act (and the RDDBFI Act, 1993), and absent a statutory preference for Crown debts, a secured creditor's dues outrank the revenue's.

Court decision

The Bombay High Court (G.S. Kulkarni and Firdosh P. Pooniwalla, JJ.) allowed the writ petition in favour of the bank: the impugned DRI communication dated 2 November 2015 was quashed and set aside; the petitioner was permitted to proceed with its actions against respondent No.2 and the secured assets under the SARFAESI Act; all contentions of respondent No.1 against the defaulters under the Customs Act were expressly kept open; no costs.

Facts

Bank of Maharashtra had lent to respondent No.2 (associated with Rajendra Vitthal Shinde), secured by equitable mortgage of flats at Kharghar and Vashi, Navi Mumbai; the account became an NPA on 19 August 2015, and the bank issued a Section 13(2) SARFAESI notice and moved under Section 14 before the District Magistrate, Raigad. The Directorate of Revenue Intelligence, investigating Red Sanders smuggling by a syndicate masterminded by Rajendra Vitthal Shinde (7.12 MT seized on 17-08-2015, valued at Rs.2.86 crores, prohibited under CITES under the Customs Act, 1962), wrote to the bank on 2 November 2015 asking it not to take any decision on property documents available with it without consulting DRI. The bank, seeking to recover Rs.7.44 crores under the SARFAESI Act, filed a writ under Article 226 to quash that letter and establish its priority as a secured creditor.

Key provisions

• Section 142A, Customs Act, 1962 — Liability under Act to be first charge 
• Section 35, Customs Act, 1962 — Restrictions on goods being water-borne