COMMISSIONER OF PAYMENTSCentral

Section 19 of The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986

Priorities of claims.

The claims arising out of matters specified in the Schedule shall have priorities in accordance with the following principles namely:--

(a)Category I shall have precedence over all other categories and Category II shall have precedence over Category III and so on;
(b)the claims specified in each of the categories, shall rank equally and be paid in full, but, if the amount is insufficient to meet such claims in full, they shall abate in equal proportions and be paid accordingly; and
(c)the question of discharging any liability with regard to a matter specified in a lower category shall arise only if a surplus is left after meeting all the liabilities specified in the immediately higher category.

Summary

Claims are organized into different categories based on the Schedule.
Higher categories always get paid before lower categories.
All claims within the exact same category are treated equally.
If there is enough money to pay a category, all claims in it are paid in full.
If there is not enough money to fully pay everyone in a category, the available money is shared fairly, meaning all claims in that category are reduced by the same proportion.
A lower category only gets considered if there is leftover money after completely paying off the category directly above it.

Practical examples

1The Commissioner finishes paying all Category I claims for employee wages and has two million rupees left. They move on to Category II claims (secured loans). Because there is leftover money from Category I, the Category II claimants will now start getting paid.

2The Commissioner reaches Category III with only fifty thousand rupees left, but the total claims in Category III equal one hundred thousand rupees. Since there is only enough to cover half the debt, every person in Category III will receive exactly fifty percent of what they asked for. Category IV will receive nothing.

FAQ

1. Who decides which claim is more important?

The priorities are set by the categories specified in the Schedule, with Category I being the most important.

2. What happens if there is only enough money to pay some of the people in my category?

Everyone in your category is treated equally. If there is only enough money to cover a fraction of the total category debt, everyone's payment will be reduced by that exact same fraction.

3. Will the people in the lowest category get paid?

They will only get paid if there is a surplus of money left over after paying every single claim in all the higher categories.

Test yourself

Q1.Under Section 19 of The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986, how do claims rank within the same category?

Q2.Under Section 19 of The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986, what happens if the available money is insufficient to meet all claims in a specific category in full?

Q3.Under Section 19 of The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986, when does the question of discharging any liability for a lower category arise?

Q4.Under Section 19 of The Swadeshi Cotton Mills Company Limited (Acquisition and Transfer of Undertakings) Act, 1986, which category has precedence over all other categories?

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