Income Tax Dept cannot be a Secured Creditor in Liquidation Proceedings: NCLT Disposes Canara Bank’s Application

The Chennai bench of the National Company Law Tribunal (NCLT) has reiterated a crucial aspect of the Insolvency and Bankruptcy Code (IBC) by ruling that claims made by the Income Tax Department do not qualify as secured debts in the liquidation process of a corporate debtor. This decision has significant implications for the waterfall mechanism outlined under Section 53 of the IBC, which governs the priority of payments to different classes of creditors during liquidation. By clarifying that tax dues are generally treated as unsecured debts, the NCLT's ruling protects the priority of other secured creditors, such as banks and financial institutions, in recovering their dues.