Liquidation waterfall priority governs government dues and attachments cannot stop a liquidator's sale of assets.
Government dues under the Insolvency and Bankruptcy Code liquidation waterfall are not entitled to pari passu treatment with secured creditors. The Tribunal treated the claim under section 53, holding that the statutory priority sequence is mandatory and cannot be altered to elevate such dues to secured status. It also directed that attachments by public authorities should be lifted so the liquidator can realise and sell assets forming part of the liquidation estate. The liquidator was therefore permitted to proceed with sale and distribution strictly in accordance with section 53.
Issues: (i) Whether the applicant's claim was to be treated in pari passu with secured creditors or only in the priority provided under the liquidation waterfall under section 53 of the Insolvency and Bankruptcy Code, 2016; (ii) Whether the attachment over the corporate debtor's assets had to be lifted so that the liquidator could sell the assets and proceed with liquidation.
Issue (i): Whether the applicant's claim was to be treated in pari passu with secured creditors or only in the priority provided under the liquidation waterfall under section 53 of the Insolvency and Bankruptcy Code, 2016.
Analysis: The claim arose from statutory dues and therefore fell within the category of government dues under the liquidation waterfall. Section 53 lays down a mandatory order of priority for distribution of sale proceeds and the Tribunal had no jurisdiction to alter that statutory sequence. Since the Code itself assigns government dues a specified place in the distribution hierarchy, the applicant could not claim treatment as a secured creditor.
Conclusion: The applicant's claim was directed to be admitted and considered under section 53 of the Insolvency and Bankruptcy Code, 2016, but not on a pari passu basis with secured creditors.
Issue (ii): Whether the attachment over the corporate debtor's assets had to be lifted so that the liquidator could sell the assets and proceed with liquidation.
Analysis: The liquidation regime requires the liquidator to realise the assets comprised in the liquidation estate. An attachment by a public authority does not prevent sale of the asset in liquidation, and the attached property remains available for disposal in accordance with the Code and the liquidation regulations. The authorities were therefore required to cooperate with the liquidation process and remove the impediment created by the subsisting attachments.
Conclusion: The concerned authorities were directed to lift the attachments, and the liquidator was permitted to proceed with sale and distribution according to section 53 of the Insolvency and Bankruptcy Code, 2016.
Final Conclusion: The application was allowed only to the extent of recognising the applicant's claim within the statutory liquidation framework and facilitating sale of the attached assets, while the claimed pari passu treatment with secured creditors was ed by the statutory priority scheme.
Ratio Decidendi: The liquidation waterfall under section 53 of the Insolvency and Bankruptcy Code, 2016 is mandatory and cannot be varied by the Tribunal, and attachment by a public authority does not prevent the liquidator from selling assets that form part of the liquidation estate.
TaxTMI 
AI Drafter ✕
TaxTMI 
TaxTMI 
