The concept of priority of Crown debts over secured was considered in Dena Bank vs Bhikhabhai Prabhudas Parekh & Co[ 2000 (5) SCC 694] and Apex Court observed:
“The principle of priority of Government debts is founded on the rule of necessity and of public policy. The basic justification for the claim for priority of state debts rests on the well recognized principle that the State is entitled to raise money by taxation because unless adequate revenue is received by the State, it would not be able to function as a sovereign government at all. It is essential that as a sovereign, the State should be able to discharge its primary governmental functions and in order to be able to discharge such functions efficiently, it must be in possession of necessary funds and this consideration emphasizes the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues. (See M/s. Builders Supply Corporation, Supra). In the same case the Constitution Bench has noticed a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts and that this rule of common law amounts to law in force in the territory of British India at the relevant time within the meaning of article 372 (1) of the Constitution of India and therefore continues to be in force thereafter. On the very principle on which the rule is founded, the priority would be available only to such debts as are incurred by the subjects of the Crown by reference to the States sovereign power of compulsory exaction and would not extend to charges for commercial services or obligation incurred by the subjects to the State pursuant to commercial transactions. Having reviewed the available judicial pronouncements
Their Lordships have summed up the law as under :-
1. There is a consensus of judicial opinion that the arrears of tax due to the State can claim priority over private debts.
2. The common law doctrine about priority of crown debts which was recognised by Indian High Courts prior to 1950 constitutes law in force within the meaning of Article 372 (1) and continues tobe in force.
3. The basic justification for the claim for priority of State debts is the rule of necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues.
4. The doctrine may not apply in respect of debts due to the State if they are contracted by citizens in relation to commercial activities which may be undertaken by the State for achieving socio-economic good. In other words, where welfare State enters into commercial fields which cannot be regarded as an essential and integral part of the basic government functions of the State and seeks to recover debts from its debtors arising out of such commercial activities the applicability of the doctrine of priority shall be open for consideration.”
In State Of Bank Bikaner & Jaipur Vs. National Iron & Steel Rolling Corporation And Others 1995 Scc (2) 19 Apex Court held that the Section 11- AAAA of the Rajasthan Sales Tax Act creates a first charge on the property, thus clearly giving priority to the statutory charge over all other charges on the property including a mortgage.
It was thus settled position that if a statute creates first charge, it will operate against the contractual charge created such as mortgage, hypothecation etc.
When and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 came in force , several banks contended that banks will have priority over the states first charge because of non obstante clause contained in the Act.
The controversy was set at rest in favour of States in the judgment of the Apex Court in Central Bank Of India vs State Of Kerala & Ors 2009 (4) SCC 94, holding that the DRT Act and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 does not provide for first charge in respect of secured debts due to Banks and hence the provisions of State Sales Tax Laws creating first charge will prevail over the dues recoverable from debtors.
Income Tax Act 1961
As held by the Tax Recovery Officerv.Bank of India and 2 Ors,High Court Of Gujarat At Ahmadabad Special Civil Application No. 13196 Of 2008 And Special Civil Application No. 888 Of 2009 | 06-09-2011 that :
“But, in the present case, such issues are not required to be determined in absence of any provision creating first charge over the property under the Income Tax Act. There is no such provision laid down under the Income Tax Act, under which, the Income Tax Department can claim priority over the secured creditor.”.Income Tax does not provide for priority of dues under the Act to have priority of dues over contractual charge.
Section 226 & 227 of the Income Tax Act, read with Rule 93 of the Second Schedule, is claimed by Revenue to create first charge upon any asset for recovery of unpaid tax. Further, it is claimed that Section 281 goes to the extent of declaring transfer of assets as void if done during pendency of a proceeding under some circumstances.
II Schedule of Income Tax Act….
Rule 93. Nothing in this Schedule shall affect any provision of this Act whereunder the tax is a first charge upon any asset.
In Karnataka State Industrial Investment Development Corporation Ltd., Versus Commissioner of Income-Tax, Mangalore & Another 2013 AIR(Kar) 104 it is held :
“14. Regard being had to the provisions of the State Financial Corporations Act, it is clear that a first charge on the property is created clearly giving priority to the dues of the said statutory authority over all other charges on the property, on the basis of the mortgage, since the income tax act, 1961 does not provide for a priority to the statutory charge over all other charges including mortgage under the ‘SFC Act’.
15. Although, learned counsel for the respondent points to rule 93 of the second schedule of the income tax act, 1961, which contemplates that nothing in the said Schedule shall affect any provision of the Act whereunder tax is a first charge upon any asset, is unable to refer to any provision of income tax act, whereunder income-tax due can be treated as a first charge on the assets of the assesses. So also, reference made to Section 281 of the Act too is not in the direction of establishing creation of a prior charge in favour of the Income Tax department over the assets of the assessee. Since what is contemplated under the Section is in relation to certain transactions of transfer being void during the pendency of an assessment proceeding.
16. Learned counsel for the petitioner is correct in his submission that in similar though not identical circumstances, the Division Bench of the High Court of Punjab and Haryana in Axis Bank Ltd. Vs. Commissioner of Income-tax, Ludhiana, (2012) 17 taxmann.com 139 (Punj.& Har.) declined to accept the plea of the Revenue that rule 93 of the second schedule of the income tax act, 1961 creates a prior charge over the assets of the assessee even though there is a provisional attachment order issued under Section 281B of the Act.”
Stock Exchange, Bombay vs. V.S.Kandalgaonkar, in CIVIL APPEAL NO.4354 of 2003 Supreme Court held on 25.09.2014 that :
“24. The first thing to be noticed is that the Income Tax Act does not provide for any paramountcy of dues by way of income tax. This is why the Court in Dena Bank’s case (supra) held that Government dues only have priority over unsecured debts and in so holding the Court referred to a judgment in Giles vs. Grover (1832) (131) English Reports 563 in which it has been held that the Crown has no precedence over a pledgee of goods. In the present case, the common law of England qua Crown debts became applicable by virtue of Article 372 of the Constitution which states that all laws in force in the territory of India immediately before the commencement of the Constitution shall continue in force until altered or repealed by a competent legislature or other competent authority. In fact, in Collector of Aurangabad and Anr. vs. Central Bank of India and Anr. 1967 (3) SCR 855 after referring to various authorities held that the claim of the Government to priority for arrears of income tax dues stems from the English common law doctrine of priority of Crown debts and has been given judicial recognition in British India prior to 1950 and was therefore “law in force” in the territory of India before the Constitution and was continued by Article 372 of the Constitution (at page 861, 862).”
Central Indirect Taxes
Prior to the amendment of Central Excise Act 1962,Customs Act 1944 and Finance Act 1994, Apex Court had held that Government has no priority over secured creditors in absence any specific provision in the respective statutes about first charge in respect of dues under those statutes. Now by Finance Act 2011 all the three Act have been amended as follows establishing supremacy of dues under respective enactments.
In Tata Metaliks Limited, A Company … vs The Union Of India (Uoi) And Ors. … on 20 February, 2008 : 2008 (126) ECC 183, 2008 (152) ECR 183 (Bom),Bombay High Court held that there is no provision in the Central Excise Act 1944 And Customs Act 1962 making the dues under the respective Act has priority over secured creditors. Krishna Lifestyle Technologies Ltd. decided on Feb. 05, 2008 in Writ Petition No. 4171 of 2007 relied upon..
Thereafter, the Finance Act 2011,amended Central Indirect Taxes Law as under:
CENTAL EXCISE ACT 1944
Section 11E. Liability under Act to be first charge.
Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest, or any other sum payable by an assessee or any other person under this Act or the rules made thereunder shall, save as otherwise provided in section 529A of the Companies Act, 1956, (1 of 1956) the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993) and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002, (54 of 2002) be the first charge on the property of the assessee or the person, as the case may be. –( Ins. by Act 8 of 2011, s. 51 (w.e.f. 8-4-2011)
CUSTOMS ACT 1962
142A. Liability under Act to be first charge .- Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest or any other sum payable by an assessee or any other person under this Act, shall, save as otherwise provided in section 529A of the Companies Act, 1956, the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002, be the first charge on the property of the assessee or the person, as the case may be Ins. by Act 8 of 2011, s. 51 (w.e.f. 8-4-2011)
SERVICE TAX LAW (FINANCE ACT 1994)
Liability under Act to be first charge.—Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of 2[tax], penalty, interest, or any other sum payable by an assessee or any other person under this Chapter, shall, save as otherwise provided in section 529A of the Companies Act, 1956 (1 of 1956) and the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993) and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 2002), be the first charge on the property of the assessee or the person as the case may be.
Dues under statutes mainly airse under Customs Act, Excice Act , Income Tax Act, State Tax Laws such as Sales Tax Acts , Profession Tax Acts, other Acts under Article 366(29A) of Constitution of India.
Income Tax Act does not provide for priority of dues under enactments. However, the State Tax laws in most of the States and Excise, Customs and Service Tax law provide for priority of its dues under those enactments.
These enactments survive so long as the Central Legislation do not provide priority to certain creditors under any enactment.This because it is settled position that in case of conflict between the Central Legislation and State Legislation, provisions of Central Legislation will prevail.
In UCO Bank & Another Versus Dipak Debbarma & Others[2017 (2) SCC 585] Apex Court observed:
In interpreting Article 246 regard must be had to the constitutional scheme which visualises a federal structure giving full autonomy to the Union Parliament as well as to the State legislatures in their respective/demarcated fields of legislation. The problem may, however, become a little more complex than what may seemingly appear as the two legislations may very well be within the respective domains of the concerned legislatures and, yet, there may be intrusion into areas that fall beyond the assigned fields of legislation. In such a situation it will be plain duty of the Constitutional Court to see if the conflict can be resolved by acknowledging the mutual existence of the two legislations. If that is not possible, then by virtue of the provisions of Article 246(1), the Parliamentary legislation would prevail and the State legislation will have to give way notwithstanding the fact that the State legislation is within the demarcated field (List II). This is the principle of federal supremacy which Article 246 of the Constitution embodies.
Banking is field of legislation under Item 45 of List I of VII th Schedule to the Constitution of India. Section 31 B and Section 26E of The Recovery of Debts and Bankruptcy Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 respectively has purported to create priority of recovery of Secured Creditors over Government dues. Though the State tax law provide for priority in view of Article 246, the Act of Parliament will prevail. Consequently ,it is held by several High Courts that the Secured Creditor being a bank can recover the sale proceeds out of sale of secured assets in prioriy over Government dues.
The Recovery of Debts and Bankruptcy Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
By amendment of the Recovery of Debts and Bankruptcy Act, 1993, section 31B was inserted. It came in force with effect from 1.9.2016 as Notified by Government.
“31B Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority.
Explanation.- For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.”
By amendment to Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 , section 26E was inserted which came in force with effect from 24.01.2020.
“26-E. Priority to secured creditors.- Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.
Explanation.- For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.”
These amendments were differently worded in The Recovery of Debts and Bankruptcy Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 though the same were inserted by one amending Act. Different High Courts have taken consistent view to the effect that secured creditors shall have priority in realizing its secured debts over Government dues notwithstanding any thing contained in any other law for the time being in force. It has been interpreted that secured creditors will have priority despite the respective legislation have created first charge on assets of the assessee because of non obstante clause.
List of important judgments considering the amended provisions are as follows:
1. Full Bench Decision of the Madras High Court in Assistant Commissioner Vs. Indian Overseas Bank & Ors. AIR 2017 Madras 67 dt 10th2016;
2. Axis Bank Limited vs State of Maharashtra Writ Petition No 1796 of 2015 dt 7th March, 2017; 2017 (3) AIR(Bom) R 305
3. Bank of Baroda Vs. Commissioner of Sales Tax, M.P., Indore & Anr. and by the High Court of Madhya Pradesh (2018) 55 GSTR210 (MP )dt 31st Jan,2018;
4. Bank Of Baroda Through Its … vs State Of Gujarat R/SPECIAL CIVIL APPLICATION NO. 12995 of 2018 dt 16th September, 2019;
5. Kalupur Commercial Co-Operative … vs State Of Gujarat R/SPECIAL CIVIL APPLICATION NO. 17891 of 2018 dt 23rd September, 2019;
6. ASREC (India) Limited vs State of Maharashtra Writ Petition No. 1039 of 2017 dt 13th Dec 2019; 2020 (2) BCR 243
7. Cosmos Co-operative Bank Vs. State of Maharashtra and others, 2019 SCC OnLine Bom 9527
8. Medineutrina Pvt. Ltd. (Company) Through its Director – Dilipkumar Versus District Industries Centre (D.I.C.), Udyog Bhavan, Nagpur & Others Writ Petition No. 7971 of 2019 18th Feb 2021 ;
All abovestated judgments have taken similar view to the effect that the State’s dues will have to yield to the dues of the secured creditors because of non obstante clause in the amended provisions.
9. However , in GMG Engineers & Contractor Pvt. Ltd., VS State of Rajasthan B. Civil Writ Petition No.6872/2017 dt 5th July, 2017, the Rajasthan High Court took a view that :
“Learned Senior Counsel appearing for the petitioner- company submits that Section 26E of the amended Act gives priority to the secured creditor against all other debts and Government dues. In view of the above, effect of first charge gets nullified. I have considered the aforesaid argument also and find that Section 26E of the Act of 2002 gives priority to the secured creditor. It cannot be construed to nullify the statutory first charge. If the intention of Parliament would have been to nullify statutory first charge then language of the amended provision would have been as providedin Workmens’ Compensation Act, Employees’ Provident Fund Act, etc. The State dues may be without a provision of first charge and in that situation, the secured creditors would have priority over the State dues and, accordingly, amended provision is to be given interpretation. It cannot, however, nullify a provision for first charge on the property. The first charge on the property creates right even as per the Act of 1882. It has already been observed that if intention of the Central Government was to nullify first charge,the language of amended provision would have been in the manner indicated by the Apex Court in the case of Central Bank of India(supra). It is otherwise a case where attachment of the property in pursuance of first charge of the State Government is much prior to the amended Act of 2002 and 1993 thus those amendments would not apply even if subsequently auction of the property was made. It is nothing but auction of the property already attached by the Government, that too, after initiation of proceedings under th Act of 1956.”
140. Now recently, in Medineutrina Pvt. Ltd. (Company) Through its Director – Dilipkumar Versus District Industries Centre (D.I.C.), Udyog Bhavan, Nagpur & Others Writ Petition No. 7971 of 2019 18th Feb 2021, Honourable Bombay High Court concurring with the earlier decisions of the Court , observed thus:
“28. The language of Section 37(1) of the MVAT Act 2002, has to be viewed in that contextual background. Section 37(1) of the MVAT Act, 2002, creates a ‘First Charge on the property of the dealer’, or as the case may be, person, for any amount of tax, penalty, interest, sum forfeited, fine or any other sum payable under the MVAT Act 2002. Though the dues of the Bank as a secured creditor, in light of the language of Section 26-E of the SARFAESI Act, which has now been brought into force w.e.f. 1/9/2016, will have priority, that does not have the effect of wiping out the dues payable under any Central/State/Local Act, where, for the recovery of such dues, a first charge has been created on the property by such statute, which in the case of the MVAT Act, 2002, has been so created. It goes without saying that when a statutory charge is created on the property, the same would go with the property and would follow the property, in whosoever’s hands the property goes.
29. Thus the notice of such a statutory charge on the property, is always presumed in law, to one and all and none can claim ignorance of the same. In AI Champandy Industries Limited (supra) itself the Hon’ble Apex Court has made a distinction between an encumbrance as it is understood in the general parlance and an encumbrance which is a charge on the property and runs with the property and has held that if by reason of the statute no such burden on the title which diminishes the value of the land is created, it shall not constitute any encumbrance.
30. As Section 37(1) of the MVAT Act, 2002, creates a charge on the property, a successful auction purchaser, thus would hold the property, upon which a statutory charge has been created, subject to such charge and the property would thus continue to be liable for any statutory charges created upon it, even in the hands of such auction purchaser, though for non disclosure of such charge by the secured creditor, the auction purchaser may sue the secured creditor and have such redress, as may be permissible in law. This is moreso for the reason that the priority given in Section 26-E of the SARFAESI Act, to the Banks, which is a secured creditor, would only mean that it is first in que for recovery of its debts by sale of the property, which is a security interest, the other creditors being relegated to second place and so on, in the order of their preference as per law and contract, if any, as the case may be. Thus the dues under Section 37(1) of the MVAT Act, 2002, being a statutory charge on the property, would also be recoverable by sale of the property, and that puts a liability upon the auction purchaser, who, in case he wants an encumbrance free title, will have to clear such dues.”
“36. Thus the purchase of the property on ‘as is where is and what is there is ‘ basis, would mean that the property was being had by the auction purchaser, with all its rights, obligations and liabilities, whatsoever they may be, which would include, all dues, impositions, restrictions as may have been imposed upon the same and consequent to acquiring title to the property, cannot be permitted to quibble out of it, on the alleged plea of not being noticed about any such liability/imposition. In case the auction purchaser, did not want to have the property, with its liabilities, he ought to have insisted on having the same free of all encumbrances, altogether, before bidding for the same. That apart, it is equally a duty of the auction purchaser, before bidding for the same, to make inquiries about the impositions upon the property, so that he can have it free of any encumbrances. After acquiring title to the property, the auction purchaser cannot be heard to say that he will have the rights associated with the property and not the liabilities. He takes it lock, stock and barrel, with everything”
“37…………….. Thus the obligation to deliver the property to the auction purchaser free from encumbrances known to the secured creditor includes the responsibility to make reasonable enquiries about the encumbrances and liabilities and to include such liabilities in the notice inviting the bids, or if that is not done, in the reserve price, fixed for sale of the security interest, so that the encumbrances can be taken care of. This is also spelt out from Rule 9(7) and (8) of the Security Interest (Enforcement) Rules, 2002”
“38…………….Thus, information and details regarding any encumbrances upon the property which is the security interest, which are easily obtainable from the statutory authorities, ought to be so obtained by the secured creditor as well as the authorised officer, which then needs to be entered in the notice of sale under Rule 8 (7) (a) of the SI (E), Rules, 2002, which would result in bringing the information about any encumbrance to the knowledge of the prospective bidders. In absence of any such information, an auction purchaser may in the facts of the given case, raise a claim that the purchase by him was without notice of any such encumbrance and any charge found subsequent to the confirmation of the auction, shall on that count, be not enforceable against the auction purchaser, which may lead to litigation”
“40……….. When the property is sold on ‘as is where is’ and ‘as is what is’ basis, though it would also be for the bidder, to make reasonable enquiries about the encumbrances/dues upon the property put to auction, including the status as to availability of vacant possession, however, the mere mention of ‘as is where is’ and ‘as is what is’, basis or any such phrase, should not absolve the secured creditor of its obligation to make proper enquiries about other dues/encumbrances upon the property, to obtain information about which, the secured creditor has the means and wherewithal and to disclose in the auction notice about such dues and also the situation about the possession of the property, so that the bidder is consciously made aware of all the pros and cons about the property, including the encumbrances/dues/possessory status and thereafter cannot be heard to raise a plea of not having been informed, afterwards…………..”.
“44. Thus even in the present case, the dues as claimed by the respondent no.2, being a charge on the property, under Section 37(1) of MVAT Act, 2002, and the property having stood attached by the respondent no.2, before the auction, the petitioner, would be liable to pay the same to the respondent no.2, in order to obtain a clear and marketable title to the property, having purchased the same on ‘As is where is and whatever there is basis’. In case the petitioner discharges the aforesaid dues of the respondent no.2, it would then be entitled to a no dues certificate from the respondent no.2.”
After holding as above the Court gave following directions:
“The secured creditor under the SARFAESI Act, therefore must in all cases ensure :
(a) that the property offered as a security interest is free from any encumbrance whatsoever, at the time when it is so offered initially, to avail financial credit by the owner/s;
(b) in all such cases, a title verification certificate, by a lawyer, at the penalty of cancellation of his license to practice, in case such certificate is found to be false, should be a must, which certificate should also contain a statement that the lawyer has also verified the suits filing register of the Court, within whose jurisdiction, the property is situated to ascertain, whether the same is the subject matter of any litigation and an affidavit from the borrowers that it is not so;
(c) in all such cases, a valuation certificate, by a government approved, at the penalty of cancellation of his licence, in case such certificate is found to be false, should be a must;
(d) immediately upon creation of security interest in its favour for payment of its dues, the bank must inform all the Central/State/Local Authorities regarding creation of such security interest, including the Sub-Registrar of documents and City Survey office concerned;
(e) the bank/secured creditor, should before any property is attached and auctioned :
(i) enquire with the Central/State/Local authorities regarding any dues on the property sought to be auctioned and in case such dues are found, to mention the same in the public notice to be published inviting bids, so that the bidder, is made aware of the liability and encumbrance, which the property carries with it.
(ii) where the secured creditor, has taken symbolic possession and is not in physical possession of the property, the public notice must indicate the nature of such possession and if the Secured creditor is unable to secure actual possession, the reason for not getting such possession (whether there is a tenant/licensee/family member/encroacher etc in occupation of the property, so that the bidder, is consciously made aware of the situation in which the property is and makes a conscious offer/bid.
(iii) Where the secured creditor, is aware of Statutory dues the payment of which is a charge upon the property, the same could be included in the reserve price, for sale of the property or got deposited from the bidder separately, so that the encumbrance could be cleared, by the secured creditor.”
(iv) where the secured creditor is aware of encumbrance, the value for discharging such encumbrance, either can be included in the reserve price or got deposited from the bidder, so that the encumbrance could be cleared, by the secured creditor.
It is thus clear that though the sections 31 B and 26E creates priority in respect of receipt of sale proceeds on sale of secured assets, the obligation to discharge State’s dues survives and auction purchaser is liable to discharge the outstanding tax dues.
INSOLVENCY AND BANKRUPTCY CODE 2016 READ WITH COMPANIES ACT 2013
Under the IBC, in case of default by debtors when Resolution Professional (RP) is appointed by Tribunal, claims are invited from creditors, financial and operational creditors. The statutory dues are classifiable as operational creditors.The Revenue authorities are obliged to file its claims before the RP. The bids will be invited from Resolution Applicant and rival Applicants file their plans. If a plan is approved by Committee of Creditors , the same shall be put before the Tribunal and on approval of the plan , the creditors will be paid as per the plan approved. Not infrequently, statutory dues is provided negligible amounts and revenue has no recourse , except appeal, to accept the amount provided in the Resolution Plan,As per judgment of Apex Court dt 13.04.2021, in the case of Ghanshyam Mishra all liabilities not provided in the Resolution Plan shall get extinguished in view of amendment in section 31 to the effect that it shall be binding , inter alia, on the Government. Hence, no further recovery beyond what is provided in Resolution Plan can be pursued.
However, when the Resolution Plan fails for what ever reason or such plan is found to be not viable, the Debtor will be liquidated and the priority of the Revenue is almost at bottom of all creditors and above unsecured creditors.
Section 53(1) of the Code lays down the following order of priority in which the proceeds from the sale of the liquidation assets shall be distributed:
1. IRP costs and liquidation costs
2. Workmen’s due for the period of twenty-four months preceding the liquidation
commencement date and debts owed to a Secured Creditor
3. Wages and any unpaid dues owed to employees other than workmen
4. Financial debts owed to unsecured creditors
5. Any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date
6. Any remaining debts and dues
7. Preference shareholders, if any
8. Equity shareholders or partners, as the case may be.
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