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CS Professional · Corporate Restructuring, Valuation and Insolvency · Liquidation on or after Failing of Resolution Plan

In the liquidation of Narmada Engineering Ltd, the proceeds available after paying the costs in clause (a) of section 53(1) are Rs 60 lakh. Workmen's dues for the 24 months preceding liquidation are Rs 30 lakh, and a secured creditor that relinquished its security under section 52 is owed Rs 30 lakh. Employee (non-workmen) dues of Rs 10 lakh exist. How will the Rs 60 lakh be applied?

Workmen's dues of Rs 30 lakh and the relinquishing secured creditor's Rs 30 lakh rank equally under clause (b). Together they equal the Rs 60 lakh available, so both are paid in full and employees get nothing.

  1. ARs 30 lakh to workmen and Rs 30 lakh to the relinquishing secured creditor; nothing to employeesCorrect
  2. BRs 30 lakh to workmen, Rs 20 lakh to the secured creditor and Rs 10 lakh to employees
  3. CRs 60 lakh to workmen alone as they have priority
  4. DRs 10 lakh to employees first, then Rs 25 lakh each to the other two

Explanation

Workmen's dues and debts of a secured creditor who relinquished security rank equally under clause (b). Their total is Rs 60 lakh, which equals the proceeds, so both are paid in full. Nothing remains for employees under clause (c), which ranks below. Giving workmen alone priority ignores the equal ranking.

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