Kriti Agrawal –
The Karnataka High Court found that under the Insolvency and Bankruptcy Code (IBC), crown debts do not take precedence over secured creditors because Section 238 of the IBC provides for the IBC’s overriding effect over other laws.
On an appeal filed by the Central government against a Single-Judge ruling, a Bench of Justice BV Nagarathna and Justice Hanchate Sanjeev Kumar delivered the judgement.
Court held that, “Crown debts do not take precedence over secured creditors who are private individuals. This is clear from a reading of Section 238 of the IBC, which provides for the IBC’s overriding effect notwithstanding anything inconsistent in any law now in force or effect by any such law. According to the judgment of the Hon’ble Supreme Court in the case of Ghanashyam Mishra, if the departments of the Central or State Governments do not file an application or participate in the resolution process, their claims are automatically extinguished.”
The respondent’s Committee of Creditors adopted the resolution plan quickly, in accordance with Section 30(4) of the IBC, and the adjudicating body issued decisions in accordance with Section 31 of the IBC.
The appellant attempted to overturn this in order to recoup import duties from the corporate debtor. As a result, it went to the High Court, claiming to be an operating debtor.
The respondent company contended that the department’s claims for payment started in 2015, before the settlement plan was approved.
The High Court agreed with the claim, stating that it was consistent with the Supreme Court’s decision in the Ghanashyam Mishra case.
The Supreme Court had decided that any claim filed prior to the approval of the resolution plan could not be continued and would be lost if it was not included in the plan.
The Court made it clear that under the IBC, Crown debts do not take primacy.
As a result, claims that are not part of the resolution plan will be extinguished, according to the High Court, which dismissed the appeal.