In setback for lenders, Supreme Court dismisses pleas over govt dues under IBC
State Bank of India and Indian Overseas Bank, seeking recovery of their dues, the Supreme Court on Tuesday dismissed their petitions seeking a review of its earlier judgement that statutory creditors like tax authorities and government agencies would be considered secured creditors under the Insolvency and Bankruptcy Code (IBC).
A Bench comprising justices Justices AS Bopanna and Bela M Trivedi while affirming its last year’s view said it had considered the waterfall mechanism and the other provisions of the Code before arriving at its decision for deciding the priority for distribution of sale proceeds of assets, etc. The case does not “fall under the ambit of review,” it said.
On September 6 last year, the top court ruled that any insolvency resolution plan, approved by the financial creditors by ignoring the statutory demands payable to state and Central governments or other legal authorities, was liable to be rejected.
It held that a committee of creditors that might include banks and financial institutions (FIs) cannot secure its own dues at the cost of statutory dues owed to any government authority.
Lenders argued that the SC’s decision was contrary to the legislative intent and the express provisions of the IBC, which is to promote the availability of a line of credit by providing a time-bound resolution mechanism and to ensure promotion of investments. Previous SC judgements had held that IBC would override any central or state legislation which was inconsistent with it and that banks and FIs had priority in asset distribution over dues of «any government or government authority,» counsel Sanjay Kapur had argued on behalf of SBI.
The judgement has serious ramifications since it ranks the 'crown debts'
