Case law

Delhi High Court · 5 Oct 2016

P.E.C. Limited vs Kandla Energy & Chemicals Ltd. And Anr.

Legal principle

Where imported goods are not cleared within thirty days, they can be sold only under Section 150 of the Customs Act, and a pledgee — standing in the owner's shoes — takes the sale proceeds last, after customs dues and the custodian's charges, since contractual pledge rights yield to the statutory 'waterfall'.

Court decision

The Court refused the interim relief to PEC, vacated the earlier interim orders, and disposed of the petition: Sections 48, 142A and 150 were 'straightway attracted'; the sale of the warehoused uncleared goods could take place only in accordance with Section 150, with proceeds applied per the statutory sequence; the Petitioner as pledgee stepped into the owner's shoes and ranked last, after customs dues and Respondent No.2's dues; PEC could not be permitted to conduct the auction itself; Respondent No.2 was to initiate the public auction without unnecessary delay after notice to PEC, the proceeds abiding by the Section 150 waterfall. The result was effectively in favour of Respondent No.2.

Facts

P.E.C. Limited, a Government of India enterprise, financed Kandla Energy & Chemicals Ltd.'s import of about 2,000 MT of South Korean Heavy Aromatics through an LC, took a pledge and High Seas Sale of the cargo, which lay in the bonded warehouse of Adani Ports and SEZ Ltd. (custodian of the Kandla port). Respondent No.1 defaulted, its repayment cheques were dishonoured, and it effectively disappeared. The Principal Commissioner of Customs, Mundra, wrote on 12th February 2016 asking Respondent No.1 to clear the cargo and pay storage charges, and Respondent No.2 issued a final notice dated 5th January 2016 under Section 48 of the Customs Act stating it would sell the cargo in its custody if customs dues were not cleared within ten days. PEC then filed a Section 9 Arbitration & Conciliation Act petition seeking to restrain sale and to auction the pledged goods itself.

Key provisions