The Supreme Court is about to announce its verdict on whether the government can be a secured creditor to bear across the bankruptcy resolution spectrum or when an insolvent company does not pay its dues. According to the reports, the verdict on this matter is expected to be made with the aim of bearing across the bankruptcy resolution spectrum. Secured creditors will almost reduce the payouts to the creditors such as financial institutions and banks. The finance sector has been keenly waiting for the apex court’s decision on whether the government can be considered a secured creditor or not. As the decorum of the finance market is disturbed, the apex court will soon announce its decision. Read this column till the end and go through it till the end.
SC To Decide If Govt Can Be Secured Creditor
Secured creditors such as financial institutions and banks would get priority for repayment through the resolution under India’s Insolvency and Bankruptcy Code (IBC). Furthermore, the unpaid amounts to suppliers, vendors, and the government are subject to operational credit as they fall lower in the waterfall mechanism. The Supreme Court’s verdict on govt as a secured creditor will come out after a two-judge bench of the Supreme Court last year announced that the government was a secured creditor in the Rainbow Papers vs Gujarat State Tax Department case. Continue reading this article till the end.
However, earlier this year the appellants lodged a petition for the review. The appellants urged the apex court to reconsider its decision or stance on ruling that the government was a secured creditor in the Rainbow Papers vs Gujarat State Tax Department case. The Supreme Court bench of two judges that announced its stance in the case was comprised of Justice Bela Trivedi and AS Bopanna. They admitted the petition and heard the debates. Since then the final verdict on the government as a secured creditor has yet to come out.
An IBC expert and independent counsel Ashish Pyasi said, “However, the judgment on Rainbow Paper led to a situation where government bodies that are supposed to be getting their dues much later in the queue, suddenly came up. The authorities and government bodies started to claim themselves as secured creditors and there was a spike in such cases,” He further added the court’s stance caused a change in the order of priority which is contrary to the objective of the Code.