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CS Professional · Corporate Restructuring, Valuation and Insolvency · Winding-up by Tribunal under the Companies Act, 2013

In the winding up of Narmada Chemicals Ltd, a secured creditor realised its secured asset but could not recover Rs 15 lakh of its debt. The workmen's portion in its security (payable under the law) is Rs 20 lakh. How does this secured creditor rank for the unrealised amount under the overriding preferential payments provision?

The secured creditor ranks for Rs 15 lakh, pari passu with workmen's dues. The provision allows the lesser of the unrealised debt and the workmen's portion in its security, and Rs 15 lakh is lower than Rs 20 lakh.

  1. AFor Rs 20 lakh, pari passu with workmen's dues
  2. BFor Rs 35 lakh, in priority to workmen's dues
  3. CFor Rs 15 lakh, pari passu with workmen's duesCorrect
  4. DIt gets no priority and ranks with unsecured creditors

Explanation

Section 326(1)(b) gives the secured creditor, after realising its asset, the lesser of the debt it could not realise and the workmen's portion in its security, pari passu with workmen's dues. The lesser of Rs 15 lakh and Rs 20 lakh is Rs 15 lakh. Rs 20 lakh ignores the 'whichever is less' limit.

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