The Ministry of Corporate Affairs ( MCA ) has clarified, in a reply to a question raised at the Lok Sabha that as per Section 53 of the Insolvency and Bankruptcy Code, 2016, government dues are positioned below the dues pertaining to secured creditors, workmen, employees, and unsecured financial creditors.
According to Ms. Iqra Choudhary and Shri Shyamkumar Daulat Barve, question number 149 asked if the government had conducted any analysis to determine how the present Insolvency and Bankruptcy Code ( IBC ) structure affected the amount of tax income lost. (a) Does the government know that government obligations, such as indirect taxes collected from customers, are given very little priority during insolvency proceedings under section 53 of the IBC? (c) Does the government know that these indirect taxes that customers pay to companies have to go into the Consolidated Fund of India?
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(d) whether the Government is considering any amendments to the IBC to ensure that taxes passed on to the consumers are given higher priority and (e)whether the Government collects data on the amount of total tax revenue forgone and the proportion of indirect tax therein on account of tax waivers given under IBC law.
To these questions, the Minister of State Shri Harsh Malhotra stated that as per Section 53 of the Insolvency and Bankruptcy Code, 2016, Government dues are positioned below the dues pertaining to secured creditors, workmen, employees, and unsecured financial creditors.
Read More: Steps taken for Less Litigation and more EDB in Company Law Regime: MoS Harsh Malhotra at Lok Sabha
The waterfall system for allocating the proceeds from the sale of a corporate debtor’s assets is outlined in Section 53 of the Insolvency and Bankruptcy Code, 2016. During the liquidation process, it specifies the priority order in which stakeholders and creditors will be paid.
Shareholders are paid last in priority, and they only get paid if there is anything left over after all previous payments.
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Important Lessons from Section 53: – By defining who gets paid first and giving secured creditors and workers’ dues priority, this will guarantee financial protection and an orderly liquidation process. The government prioritizes business financial stability over tax recoveries, placing government dues behind financial creditors.
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