Liquidation waterfall under insolvency law treats relinquishing secured creditors equally, overriding prior charge priority in distribution.

Secured creditors who relinquish security interest in liquidation are governed by section 53 of the Insolvency and Bankruptcy Code, not by prior inter-se charge rankings. Section 52 gives a creditor the choice to enforce security separately or relinquish it to the liquidation estate; once relinquished, the creditor shares in liquidation proceeds under the statutory waterfall. The non-obstante clause in section 53 overrides contrary law and treats relinquishing secured creditors as a single class for equal distribution under section 53(1)(b)(ii). First charge and second charge distinctions remain relevant only where a creditor elects to realise security outside liquidation.

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Issues: Whether secured creditors who relinquish their security interest in liquidation rank equally under section 53 of the Insolvency and Bankruptcy Code, 2016, or whether inter-se priorities such as first charge and second charge continue to govern distribution of liquidation proceeds.

Analysis: Section 52 gives a secured creditor an option either to realise its security interest or to relinquish it to the liquidation estate and receive sale proceeds under section 53. Section 53 then prescribes the distribution waterfall for liquidation assets and, by its non-obstante clause, overrides contrary laws. The scheme treats secured creditors who relinquish security interest as a single class under section 53(1)(b)(ii), ranking equally for distribution of liquidation proceeds. Inter-se priority based on first charge or second charge remains relevant only where a secured creditor elects to enforce its security interest outside relinquishment. Once security is relinquished, the creditor's prior charge ranking does not control the distribution under the liquidation waterfall.

Conclusion: The challenge to equal distribution among relinquishing secured creditors succeeds, and inter-se priorities among such creditors do not survive for liquidation distribution under section 53.

Ratio Decidendi: Upon relinquishment of security interest under section 52, distribution of liquidation proceeds is governed exclusively by section 53, which mandates equal ranking of relinquishing secured creditors irrespective of their prior charge hierarchy.

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