Section 326 of CA 2013 : Section 326: Overriding Preferential Payments

Explanation using Example

Imagine a company called "Tech Innovations Ltd." is going through the process of winding up under the Companies Act, 2013. The company owes Rs. 5,00,000 to its workers in unpaid salaries and compensation and has a debt of Rs. 15,00,000 to a bank, which is a secured creditor with a charge over the company's assets worth Rs. 10,00,000.

According to Section 326 of the Companies Act, 2013, the priority of payments in such a scenario would be to ensure that the workmen's dues are paid first. This means that before the bank (secured creditor) can claim the proceeds from the sale of the secured assets, Tech Innovations Ltd. must clear the dues of Rs. 5,00,000 owed to the workers.

If the assets are sold for Rs. 10,00,000, the entire amount would first go towards settling the workmen's dues. Only after these dues are fully paid would any remaining amount (if any were left after paying the workers) be available to the bank to claim against their secured debt. In this case, since the workmen's dues equal the value of the secured assets, the bank would not receive any payment from the proceeds of these assets.

If, however, the assets were insufficient to meet the workmen's dues, then the available funds would be distributed equally among the workers as per the proportion of their dues.