In our earlier days of Companies Act, 1956 and other laws, tax dues were given priority over debts owed to unsecured creditors. Under the Code, the waterfall distribution as regards the government dues, is subordinate to even unsecured financial debts, workmen dues and wages. In fact, the preamble of the Code specifies the object to include “alteration in the order of priority of payment of Government dues”. However, the categorisation of statutory dues as ‘secured creditor’ in Rainbow Papers could appear contrary to such object of the Code.
Source: Barandbench