SC Verdict On Govt As Secured Creditor Soon

(MENAFN- Live Mint) "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 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 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 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. The government bodies and authorities started to claim themselves as secured creditors and there was a spike in such cases,” said Ashish Pyasi, independent counsel and an IBC expert government on par with secured creditors will affect the interests of other stakeholders who are supposed to get a bigger pie, Pyasi said, adding the judgment caused change in the order of priority,“which is contrary to the objective of the Code.”Legal experts say this is one of the rare cases where the apex court has decided to dwell into its own verdict. Also, in a different insolvency case (Paschimanchal Vidyut Vitran Nigam Ltd versus Raman Ispat Pvt. Ltd and others) the apex court observed that the 2022 Rainbow Papers judgment was not in line with IBC provisions. Hence, industry participants are hopeful of a positive outcome.“In a recent judgment, the Supreme Court has already observed that the Rainbow Papers judgment (which is under review) was not the correct position of law and that the government dues are placed lower in the scheme of things under the IBC. Hence, the reversal of the position with respect to government dues is very much expected,” said Shashank Agarwal, advocate, Delhi High Court if the verdict is not reversed, legal experts are hopeful that the apex court will ensure that the judgment is applicable to the peculiar circumstances of the Rainbow Papers case, rather than being considered a legal precedent.“One of the most significant features of the insolvency laws is the waterfall mechanism, which gives secured creditors priority over operational creditors and governmental dues,” said Anindya Mazumdar, partner, Singhania & Co.

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