Case Note & Summary
The appeal arose from the approval of a Resolution Plan for M/s. Tehri Iron and Steel Casting Ltd. under the Insolvency and Bankruptcy Code, 2016. The Resolution Plan, approved by the NCLT on 21st May 2019, included a contingent liability for income tax for assessment year 2014-15 but did not include any claims for assessment years 2012-13 and 2013-14. After approval, the Income Tax Department issued demand notices for those years. The Monitoring Professional sought a declaration that the demands were invalid, but the NCLT dismissed the application as frivolous and imposed costs. The NCLAT upheld that order. The Supreme Court considered whether the demands could be enforced. The court noted that no claims were made for those years before the Resolution Professional. Relying on Section 31(1) of the IB Code and the decision in Ghanashyam Mishra and Sons Pvt. Ltd., the court held that once a resolution plan is approved, all claims not part of the plan stand extinguished. The 2019 amendment to Section 31, which includes statutory dues, was held to be clarificatory. The court set aside the orders of the NCLT and NCLAT, quashed the demand notices, and directed that no coercive action be taken.
Headnote
A) Insolvency and Bankruptcy Code - Resolution Plan - Binding Effect - Section 31(1) of Insolvency and Bankruptcy Code, 2016 - Once a resolution plan is approved by the adjudicating authority, it is binding on all stakeholders including statutory authorities. Claims not part of the resolution plan stand extinguished and cannot be pursued. (Paras 7-8)
B) Insolvency and Bankruptcy Code - Statutory Dues - Extinguishment of Claims - Section 31 of Insolvency and Bankruptcy Code, 2016 read with Section 154 of Income Tax Act, 1961 - Income tax demands for assessment years 2012-13 and 2013-14 were not raised before the Resolution Professional and not included in the resolution plan. The court held that such demands cannot be enforced after plan approval, following the principle in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. (Paras 2, 7-8)
C) Insolvency and Bankruptcy Code - Amendment - Clarificatory Nature - Section 31 of Insolvency and Bankruptcy Code, 2016 (as amended in 2019) - The 2019 amendment to Section 31, which explicitly includes statutory dues, is clarificatory and declaratory, effective from the date the Code came into force. (Para 7)
Issue of Consideration
Whether income tax demands for assessment years 2012-13 and 2013-14, which were not claimed before the Resolution Professional and not part of the approved Resolution Plan, can be enforced after the approval of the Resolution Plan under the Insolvency and Bankruptcy Code, 2016.
Final Decision
Appeal allowed. Orders of NCLT and NCLAT set aside. Demand notices dated 26th December 2019 and 28th December 2019 for assessment years 2012-13 and 2013-14 are quashed. No coercive action shall be taken by the Income Tax Department for those years.
Law Points
- Resolution plan binding on all stakeholders
- claims not part of plan stand extinguished
- 2019 amendment to Section 31 is clarificatory
- statutory dues not claimed before resolution professional cannot be enforced post-approval
Case Details
2025 LawText (SC) (3) 207
Civil Appeal arising out of SLP (C) No. 12345 of 2022
Joint Resolution Applicants (appellants)
Income Tax Department (first respondent) and Monitoring Professional (second respondent)
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Nature of Litigation
Appeal under Section 62 of Insolvency and Bankruptcy Code, 2016 against NCLAT order dismissing challenge to income tax demands raised after approval of Resolution Plan.
Remedy Sought
Appellants sought quashing of demand notices for assessment years 2012-13 and 2013-14 and declaration that demands are invalid.
Filing Reason
Income Tax Department issued demand notices for assessment years 2012-13 and 2013-14 after the Resolution Plan was approved, despite no claims being made for those years before the Resolution Professional.
Previous Decisions
NCLT dismissed the application as frivolous with costs of Rs.1 lakh; NCLAT dismissed the appeal.
Issues
Whether income tax demands for assessment years 2012-13 and 2013-14, not claimed before the Resolution Professional and not part of the approved Resolution Plan, can be enforced after plan approval.
Whether the 2019 amendment to Section 31 of the IB Code is clarificatory and applies retrospectively.
Submissions/Arguments
Appellants: The NCLT dismissed the application without reasons; the issue is covered by Ghanashyam Mishra decision; demands not part of the resolution plan stand extinguished.
Respondent (Income Tax Department): Paragraph 44 of NCLT order left issues to be decided by government departments; demands are valid.
Ratio Decidendi
Once a resolution plan is approved under Section 31(1) of the Insolvency and Bankruptcy Code, 2016, all claims not part of the plan stand extinguished and cannot be enforced. The 2019 amendment to Section 31, including statutory dues, is clarificatory and applies from the date the Code came into effect.
Judgment Excerpts
Once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders.
All the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be continued.
Procedural History
CIRP initiated against corporate debtor. Resolution Plan submitted on 21st January 2019 and approved by NCLT on 21st May 2019. After approval, Income Tax Department issued demand notices for assessment years 2012-13 and 2013-14. Monitoring Professional applied to NCLT for declaration that demands are invalid. NCLT dismissed application on 17th September 2020 with costs. Appeal to NCLAT dismissed on 25th November 2021. Present appeal to Supreme Court under Section 62 of IB Code.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: Section 31, Section 62
- Income Tax Act, 1961: Section 154
