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The Supreme Court has delivered an important judgment in Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Private Limited & Ors. (Civil Appeal No. 7976/2019) on 17.07.2023. It has been noted that the secured dues of Central Government and State Government rank lower than the secured dues of Financial Creditors under Section 53, Insolvency Code.

The Judgment is of great significance as it clarifies the legal position of the Insolvency and Bankruptcy Code, 2016 regarding the distribution of the amounts to the Secured Lenders, viz the financial creditors viz-a-viz the Government dues, which are in the nature of operational debts.  The Judgment also extends a respite since State Tax Officer (1) vs. Rainbow Papers Ltd. 2022 SCC OnLine SC 1162 (‘Rainbow Papers’), had caused a dilemma to the provisions of IBC by entailing therein that government dues will have first charge on the assets of an insolvent entity whose proceedings are pending under the provisions of Insolvency and Bankruptcy Code, 2016. The Hon’ble Supreme Court in the matter of Raman Ispat held that the Court in Rainbow Papers  judgment did not notice the relevant provisions of Section 53, Insolvency Code which places the government dues in a lower category, as such, the Rainbow Papers judgment is confined to its own facts.

This Judgment is expected to have an important bearing on resolution plans which have been passed / pending consideration since the Government Departments had challenged the Approved Resolution Plans or the distribution in Liquidation proceedings by seeking Govt dues at priority as compared to the Financial Creditors, which was shaking the foundation of the Insolvency Code.

The Supreme Court by clarifying the law by the Judgment in the matter of Raman Ispat, has given the much needed respite.

Mr. Arvind Kumar Gupta, Advocate had argued for the liquidator. 

Purti Marwaha Gupta, Advocate 

Bar Council Enrolment No. D/606/2000

Advocate on Record, Supreme Court of India