178. (1) Notwithstanding anything to the contrary contained in any law
enacted by the Parliament or the State Legislature for the time being in
force, in the distribution of the final dividend, the following debts shall
be paid in priority to all other debts-
(a) firstly, the costs and expenses incurred by the bankruptcy trustee for
the bankruptcy process in full;
(b) secondly,-
(i) the workmen's dues for the period of twenty-four months preceding the
bankruptcy commencement date; and
(ii) debts owed to secured creditors;
(c) thirdly, wages and any unpaid dues owed to employees, other than
workmen, of the bankrupt for the period of twelve months preceding the
bankruptcy commencement date;
(d) fourthly, any amount due to the Central Government and the State
Government including the amount to be received on account of Consolidated
Fund of India and the Consolidated Fund of a State, if any, in respect of
the whole or any part of the period of two years preceding the bankruptcy
commencement date;
(e) lastly, all other debts and dues owed by the bankrupt including
unsecured debts.
(2) The debts in each class specified in sub-section (1) shall rank in the
order mentioned in that sub-section but debts of the same class shall rank
equally amongst themselves, and shall be paid in full, unless the estate of
the bankrupt is insufficient to meet them, in which case they shall abate in
equal proportions between themselves.
(3) Where any creditor has given any indemnity or has made any payment of
moneys by virtue of which any asset of the bankrupt has been recovered,
protected or preserved, the Adjudicating Authority may make such order as it
thinks just with respect to the distribution of such asset with a view to
giving that creditor an advantage over other creditors in consideration of
the risks taken by him in so doing.
(4) Unsecured creditors shall rank equally amongst themselves unless
contractually agreed to the contrary by such creditors.
(5) Any surplus remaining after the payment of the debts under sub-section
(1) shall be applied in paying interest on those debts in respect of the
periods during which they have been outstanding since the bankruptcy
commencement date.
(6) Interest payments under sub-section (5) shall rank equally irrespective
of the nature of the debt.
(7) In the case of partners, the partnership property shall be applicable in
the first instance in payment of the partnership debts and the separate
property of each partner shall be applicable in the first instance in
payment of his separate debts.
(8) Where there is a surplus of the separate property of the partners, it
shall be dealt with as part of the partnership property; and where there is
a surplus of the partnership property, it shall be dealt with as part of the
respective separate property in proportion to the rights and interests of
each partner in the partnership property.