The Supreme Court of India has rejected review pleas from financial institutions such as the State Bank of India (SBI) and Indian Overseas Bank, which were contesting a previous ruling that classifies tax authorities as secured creditors. This decision reaffirms the court's stance on the Insolvency and Bankruptcy Code (IBC) components, including the waterfall mechanism, which determines the sequence of debt repayment.
This recent ruling upholds the court's earlier decision that insolvency resolution plans - strategies for settling debts - that overlook statutory demands or "crown debts" owed to state and central governments could face rejection. This judgment aligns crown debts with workmen dues, referring to employee liabilities, resulting in significant implications for lenders during asset distribution, which is the allocation of sale proceeds.
The lenders, represented by Sanjay Kapur, argued in their review petitions that this judgment contradicts both the legislative intent and the express provisions of the IBC. They referenced past Supreme Court rulings that set a precedent of the IBC taking precedence over conflicting laws and confirmed banks' priority in asset distribution over government dues. The lenders have warned about severe consequences, including potential minimal payments to lenders if statutory dues are given priority.
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