Statutory dues not forming part of the approved Resolution Plan stand extinguished, and no fresh claims can be raised post-approval. A successful Resolution Applicant must be allowed to restart the Corporate Debtor on a “clean slate.”

The Supreme Court held that the tax demands for 2012-13 and 2013-14 were invalid and unenforceable since they were not part of the approved Resolution Plan. Once a Resolution Plan is approved under Section 31(1) of the IB Code, all claims not included therein stand extinguished, including statutory dues. The NCLAT erred in brushing aside the binding precedent in Ghanashyam Mishra’s case. The NCLT wrongly dismissed the application without reasons and imposed unwarranted costs.

Final Order:

The Supreme Court set aside the orders of NCLT and NCLAT. The Income Tax demands for the years 2012-13 and 2013-14 were declared invalid. The appeal was allowed.

Acts and Sections Discussed:

• Insolvency and Bankruptcy Code, 2016 (IB Code) – Sections 31(1), 61, 62

• Income Tax Act, 1961 (IT Act) – Section 154

Subjects:

Corporate Insolvency Resolution Process – Resolution Plan – Statutory Dues – Contingent Liabilities – Clean Slate – NCLT – NCLAT – Extinguishment of Claims – Binding Nature of Resolution Plan

Facts:

a) The Corporate Insolvency Resolution Process (CIRP) was initiated against M/s Tehri Iron and Steel Casting Ltd. (Corporate Debtor).
b) The Appellants submitted a Resolution Plan, which was approved by the National Company Law Tribunal (NCLT) on May 21, 2019.
c) The Resolution Plan included contingent liabilities of the Income Tax Department for the assessment year 2014-15, but no claims were made for 2012-13 and 2013-14 before the Resolution Professional.
d) After the approval of the Resolution Plan, the Income Tax Department issued demand notices for 2012-13 and 2013-14, which the Monitoring Professional challenged before the NCLT.
e) The NCLT dismissed the application as frivolous and imposed costs of ₹1 lakh on the Appellants. The NCLAT upheld this decision.

Issues:

Whether the Income Tax Department could enforce tax demands for the assessment years 2012-13 and 2013-14 after the approval of the Resolution Plan under the IB Code?

Submissions:

a) Appellants:

• The Resolution Plan, once approved, is binding on all stakeholders, including government departments, as per Section 31(1) of the IB Code.

• The claim for 2012-13 and 2013-14 was not submitted before the Resolution Professional; hence, it stands extinguished.

• Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (2021) 9 SCC 657 held that all claims not forming part of the Resolution Plan stand extinguished.
  b) Income Tax Department:

• Reliefs and concessions sought in the Resolution Plan were not granted by the NCLT, and the matter was left for government departments to decide.

• The tax demands were valid and enforceable.