SC verdict on govt as secured creditor soon

livemint.com:

New Delhi: The Supreme Court is set to rule whether the government can be considered a secured creditor when an insolvent company has not paid its dues. The judgment is expected to have a bearing across the bankruptcy resolution spectrum, since treating such dues on par with loans from secured creditors will diminish the payouts to the latter. Under India’s Insolvency and Bankruptcy Code (IBC), secured creditors such as banks and financial institutions get priority in getting repaid through the resolution process, while unpaid dues to vendors, suppliers and government dues are treated as operational credit, and they fall lower in the so-called waterfall mechanism.

Last year, a two-judge bench of the apex court ruled in the Rainbow Papers vs Gujarat State Tax Department case that the government was a secured creditor. The appellants filed a review petition earlier this year, urging the court to reconsider its stance. A two-judge bench comprising justices A.S.

Bopanna and Bela Trivedi admitted the petition and heard the arguments, and a final judgment is awaited soon. Legal experts said there have been many instances where an insolvent company had tax dues or received tax notices, adding IBC tries to balance the interests of all stakeholders, including governments. “However, the judgment on Rainbow Paper led to a situation where government bodies that are supposed to be receiving their dues much later in the queue, suddenly came up.