Prioritising Tax Claims in Corporate Insolvency: Boon or Bane?

In September 2022, the Supreme Court in State Tax Officer v. Rainbow Papers Limited interpreted the Insolvency and Bankruptcy Code, 2016 to treat the State Government as a secured creditor for the tax dues claimed. This decision coincides with the ongoing broader policy reassessment on the treatment of tax dues under the Code by the Department of Revenue and the Ministry of Corporate Affairs. In this case comment, we discuss the facts and holding of Rainbow and critically examine the case through the current observations and post-Rainbow scholarly discourses. Further, the comment inquires into the question of the prioritisation of tax dues in the resolution process by laying out the arguments in favour and those against. Finally, the comment engages with the policy arguments to propose for the optimal balance between long-term economic strategies through loss absorption and tax revenue considerations to understand the potential costs and benefits