In Brief
The Supreme Court held that secured creditors have priority over customs authorities in liquidating a company's assets. IDBI, which held an equitable mortgage on the company's property, sought recovery of its dues when customs authorities claimed the right to auction imported machinery for unpaid customs duty. The Court ruled that Section 529A of the Companies Act, which grants secured creditors and workmen overriding preferential status, supersedes customs claims. Customs duties that became due more than twelve months before liquidation cannot claim preferential status. The Customs Act creates no statutory first charge overriding the Companies Act's statutory framework. Sale proceeds must be distributed according to the Companies Act's priority scheme, with secured creditors paid before government dues.
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