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      Question

      Section 26E of the SARFAESI Act (inserted by the 2016

      Amendment) confers a special status on registered secured creditors regarding priority of debt payment. What priority does Section 26E grant?
      A Secured creditor's dues are paid equally with government tax dues Correct Answer Incorrect Answer
      B Secured creditor has priority only over other private creditors, not over government dues Correct Answer Incorrect Answer
      C Secured creditors are paid after government revenues, taxes and cesses Correct Answer Incorrect Answer
      D After registration of security interest, debts due to secured creditors shall be paid in priority over all other debts AND all revenues, taxes, cesses payable to Central/State Government or local authority Correct Answer Incorrect Answer
      E Priority applies only to loans above Rs. 10 crore Correct Answer Incorrect Answer

      Solution

      Section 26E of SARFAESI (inserted by Act 44 of 2016, w.e.f. 24-1-2020) provides a sweeping priority for registered secured creditors: after registration of security interest, debts due to any secured creditor shall be paid in priority over all other debts AND all revenues, taxes, cesses and other rates payable to the Central Government, State Government or local authority. This is a landmark provision giving banks priority over government tax claims. However, the Explanation to Section 26E clarifies that this priority is subject to the Insolvency and Bankruptcy Code, 2016 in cases where insolvency/bankruptcy proceedings are pending.

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