The Supreme Court on Friday held that the Insolvency and Bankruptcy Code (IBC) will take precedence over the Customs Act. It added that customs authorities cannot start recovery proceedings, they can only assess the quantum of duties.
The Bench, comprising Chief Justice N V Ramana, Justice Hima Kohli and Justice C T Ravikumar, said after the assessment, Customs authorities can approach the adjudicating authorities claiming the Customs dues as operational debt under IBC. The insolvency resolution professional can take steps to secure the property, according to a Livelaw report.
CJI Ramana, while pronouncing the judgment, said Customs authorities have only limited jurisdiction to assess the quantum and they cannot take steps to recover the dues, once the moratorium under IBC is declared, the report added.
Mitali Shah, managing director and head (banking and restructuring) at RBSA Advisors, said, “The judgment of the Supreme Court is a welcome step in instilling lender’s confidence in IBC Code. The judgment is going to provide explicit clarity not only on Custom’s claim but also on other government dues which used to claim supremacy based on their respective taxation statutes.”
Shah added that this judgment will reimpose the object of the IBC i.e. the supremacy of moratorium and alteration in the order of priority of government dues i.e. distribution as per waterfall mechanism in accordance with Section 53. “Thus, this will help in making IBC a more reliable and trusted mode of reorganization by the lenders.”
Meanwhile, according to media reports, banks have taken an average haircut of Rs 69 as losses for every Rs 100 of their claims admitted for the resolution of stressed assets under the Insolvency and Bankruptcy Code (IBC). Creditors have realised Rs 2.35 lakh crore in about 517 IBC cases till June 30, 2022, out of the total claims of Rs 7.67 lakh crore.
The total liquidation value stood at Rs 1.31 lakh crore. The creditors’ total realisation in resolution plans was about 179 per cent of the liquidation value. Haircuts are losses that banks incur on the resolution of stressed assets.
The lower recovery has been attributed to the delay in the insolvency process, due to inadequate training and knowledge of the stakeholders, non-filling of vacancies at the tribunal, and high backlog of cases before the tribunal. The coronavirus pandemic also led to the slowdown in the IBC proceedings.
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