1. Introduction     

The longstanding debate surrounding the prioritization of crown debts vis-à-vis private debts has entered a new chapter with the advent of the Insolvency and Bankruptcy Code, 2016 (“IBC”). Prior to the IBC, the common law principle generally granted crown debts preferential status over unsecured debts. This historical primacy stemmed from the sovereign's role as the embodiment of the public good, requiring unimpeded revenue collection for the smooth functioning of the State.

The Bombay High Court recently quashed a provision of a central government office memorandum that enabled public sector banks to request issuance of look out circulars (LoCs) against wilful defaulters. In Viraj Chetan Shah v Union of India, the court held that this provision violated the fundamental right to life (Article 21) as well as the fundamental right to equality (Article 14). The government is reportedly contemplating a statutory basis for PSBs to initiate LoCs.

The original version of this article was first published in the Trilegal Quarterly Roundup

This article analyses the utility of set-off provisions in commercial contracts, especially in the context of insolvency, in light of a recent Supreme Court decision. It also provides key takeaways for ensuring the feasibility of set-off provisions and making them capable of withstanding judicial scrutiny.

The treatment and position of statutory creditors having a statutory charge in insolvency proceedings gained criticality at the first instance upon passing of the judgment by the Hon’ble Supreme Court in the matter of STATE TAX OFFICER (I) VERSUS RAINBOW PAPERS LTD. 2022 SCC ONLINE SC 1162 (Rainbow Papers Case). The issue before the Hon’ble Supreme Court was whether in terms of Section 48 of the Gujarat Value Added Tax Act, 2003, the State Government shall be treated as a “Secured creditor” of the company undergoing insolvency proceedings.

The Hon’ble Supreme Court of India (“Supreme Court”) in Global Credit Capital Limited & Anr Vs SACH Marketing Pvt. Ltd & Anr, has established the following principles on classification of a debt under the Insolvency and Bankruptcy Code, 2016 (“Code”):

The role of a liquidator comes with its own set of challenges and the computation of their fee is no exception. This article delves into a legal battle between a liquidator and the Insolvency and Bankruptcy Board (“IBBI”) concerning the Board’s clarifications[1] on fee calculation. The crux of the dispute?

On August 25, 2023, the Supreme Court of India (“Supreme Court”) in the case of Vizag Minerals and Logistics Pvt. Ltd. vs. Ravi Shankar Devarakonda & Ors1, while dismissing the civil appeal filed by Vizag Minerals and Logistics Pvt. Ltd.

In the matter of Mr. Santosh Mate (Prop. of Mahalaxmi Traders) vs. M/s Satyam Transformers Private Limited1, the Mumbai bench of the National Company Law Tribunal (“NCLT Mumbai”) held that the conversion of an operational debt into financial debt through an agreement is invalid and impermissible as it would defeat the very objective of the Insolvency and Bankruptcy Code, 2016 (“IBC”) and have the effect of rewriting it.

Brief Facts 

INTRODUCTION:

In a recent judgement of Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Private Ltd. and Ors. (being Civil Appeal No.7976 of 2019), the Hon’ble Supreme Court has held that Section 238 of the Insolvency and Bankruptcy Code, 2016 (“IBC/Code”) overrides the provisions of the Electricity Act, 2003, despite the latter containing two specific provisions being Section 173 and 174 which have overriding effect over all other laws.

FACTUAL BACKGROUND:

In the blog post titled ‘Vidarbha Aftermath’, the decision of the Supreme Court of India (“Supreme Court”) in Vidarbha Industries Power Limited v. Axis Bank Limited[1] (“Vidarbha”) was discussed and analysed.