SC verdict on govt as secured creditor soon

Treating dues on par with secured credit to cut payments to lenders

- Pavan Burugula & Priyanka Gawande

The Supreme Court is set to rule whether the government can be considered a secured creditor when an insolvent company has not paid its dues. The judgment is expected to have a bearing across the bankruptcy resolution spectrum, since treating such dues on par with loans from secured creditors will diminish the payouts to the latter.

Under India's Insolvency and Bankruptcy Code (IBC), secured creditors such as banks and financial institutions get priority in getting repaid through the resolution process, while unpaid dues to vendors, suppliers and government dues are treated as operational credit, and they fall lower in the so-called waterfall mechanism.