‘No Undecided Claims After Resolution Plan Approval’: Supreme Court Invalidates Income Tax Department’s Post-CIRP Demands, Sets Aside NCLT and NCLAT Decisions
Kiran Raj
The Supreme Court has invalidated tax demands raised by the Income Tax Department against a corporate debtor after the approval of a resolution plan, stating that such claims were extinguished under Section 31(1) of the Insolvency and Bankruptcy Code, 2016. The Division Bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan held that the post-approval demands made by the tax authority for assessment years 2012-13 and 2013-14 were unenforceable, as they were not part of the resolution plan approved by the National Company Law Tribunal.
The Court directed that the impugned decisions of the National Company Law Tribunal and the National Company Law Appellate Tribunal, which upheld the validity of the tax demands, be set aside. The Bench declared that the subsequent demands raised by the Income Tax Department would operate as obstacles to the clean-slate principle integral to the corporate insolvency resolution process.
The Court concluded by stating, “we hold that the demands raised by the first respondent against the corporate debtor in respect of assessment years 2012-13 and 2013-14 are invalid and cannot be enforced.”
The appellants are joint resolution applicants whose resolution plan for M/s Tehri Iron and Steel Casting Ltd., a corporate debtor under insolvency proceedings, was approved by the National Company Law Tribunal on 21 May 2019. The resolution plan was submitted on 21 January 2019 during the corporate insolvency resolution process initiated against the corporate debtor. The appellants subsequently faced demands from the Income Tax Department through notices dated 26 December 2019 and 28 December 2019, relating to assessment years 2012-13 and 2013-14.
The plan had accounted for contingent liabilities of Rs. 16,85,79,469 for the assessment year 2014-15, which was disclosed under the heading “contingent liabilities.” However, no claims regarding liabilities for assessment years 2012-13 and 2013-14 were made by the Income Tax Department before the resolution professional at any stage prior to the resolution plan’s approval.
The Monitoring Professional, acting on behalf of the resolution applicants, raised objections to the Income Tax Department’s claims for the two assessment years. In response to the Department’s insistence on enforcing the demands, the Monitoring Professional moved an application before the National Company Law Tribunal, seeking a declaration that the claims were legally unsustainable.
The appellants, represented by senior counsel, argued that the post-approval tax demands were contrary to settled law. It was submitted that the resolution plan itself specified that “all statutory liabilities as appearing in the balance sheet of CIRP commencement date i.e., 31.05.2018 in the normal course of business” would be paid, and that “post payment as stated above, the entire statutory dues shall stand satisfied, settled and extinguished.”
Reliance was placed on the Supreme Court’s decision in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., where it was held that all claims not forming part of an approved resolution plan stand extinguished and cannot be enforced after the plan’s approval.
The Income Tax Department, through learned Additional Solicitor General, defended the impugned orders. The Department relied on paragraph 44 of the NCLT’s approval order, which stated that “issues relating to statutory dues are to be decided by respective government departments.” It was contended that this permitted subsequent claims by the tax authority.
The Court recorded that paragraph 46 of the NCLT’s order approved the resolution plan as binding on the corporate debtor and “members, employees of the corporate debtor, creditors of the corporate debtor and other stakeholders involved in the Resolution Plan.” The Court further noted that the statutory dues for assessment years 2012-13 and 2013-14 were neither submitted to the resolution professional nor included in the resolution plan.
The Supreme Court recorded, “the first respondent did not make any claim regarding income tax dues of the corporate debtor for the assessment years 2012-13 and 2013-14” and “the income tax liabilities for the assessment years 2012-13 and 2013-14 have not been shown as contingent liabilities under the Resolution Plan.”
The Court observed that Section 31(1) of the Insolvency and Bankruptcy Code provides that an approved resolution plan is binding on all stakeholders, including government authorities. It recorded, “in view of the declaration of law made by this Court, all the dues including the statutory dues owed to the Central Government, if not a part of the Resolution Plan, shall stand extinguished and no proceedings could be continued in respect of such dues.”
In addressing the NCLAT’s rejection of the appellants’ reliance on the Ghanashyam Mishra decision, the Supreme Court recorded, “the NCLAT has ignored the binding precedent and the legal effect of the approval of the Resolution Plan as laid down in paragraphs 102.1 to 102.3 of the aforementioned decision.” The Court added that the reasoning provided by the NCLAT, which stated that the Supreme Court’s decision was not cited before the NCLT, was “perverse.”
The Court further recorded that the NCLT’s dismissal of the Monitoring Professional’s application as “frivolous” without considering the merits or assigning reasons was not sustainable. The Court noted, “we cannot approve NCLT's approach of not considering the application on merits and dismissing the same without recording any reasons and also by imposing costs.”
The Supreme Court observed that additional tax demands raised after the approval of a resolution plan would hinder the revival of the corporate debtor’s business operations. Referring to its earlier judgment in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, the Court recorded, “a successful resolution applicant cannot suddenly be faced with ‘undecided’ claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant.”
The Court declared that the tax demands for the disputed assessment years could not be enforced and allowed the appeal, setting aside the orders of both the NCLT and NCLAT.
The Supreme Court concluded, “we therefore hold that the demands raised by the first respondent against the corporate debtor in respect of assessment years 2012-13 and 2013-14 are invalid and cannot be enforced.”
Case Title: Vaibhav Goel & Anr. v. Deputy Commissioner of Income Tax & Anr.
Neutral Citation: 2025 INSC 375
Case Number: Civil Appeal No. 49 of 2022
Bench: Justice Abhay S. Oka, Justice Ujjal Bhuyan
[Read/Download order]
