Once resolution plan is approved, no proceedings can continue on omitted claims, SC strikes down fresh tax demands post-resolution plan, Read Judgment

"A successful resolution applicant cannot suddenly be faced with ‘undecided’ claims after the resolution plan submitted by him has been accepted." Emphasizing the finality of an approved Resolution Plan, the Supreme Court recently adjudicated on an insolvency dispute concerning M/s. Tehri Iron and Steel Casting Ltd. The case revolved around fresh tax demands raised post-approval of the Resolution Plan, despite no prior claims being made during the Corporate Insolvency Resolution Process. The appeal challenged the decisions of the NCLT and NCLAT, which upheld these demands, raising significant questions about statutory dues under the Insolvency and Bankruptcy Code, 2016.

This appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC) challenged the NCLAT judgment dated 25th November 2021. The case concerns the Corporate Insolvency Resolution Process (CIRP) of M/s. Tehri Iron and Steel Casting Ltd. (Corporate Debtor). The appellants, as Joint Resolution Applicants, submitted a Resolution Plan on 21st January 2019, which the NCLT approved on 21st May 2019.

The Resolution Plan included a contingent liability of ₹16.85 crores to the Income Tax Department (Respondent No.1) for Assessment Year (AY) 2014-15. However, after approval, fresh tax demands for AYs 2012-13 and 2013-14 were raised without prior claims during CIRP. The Monitoring Professional (Respondent No.2) challenged these demands before the NCLT, which dismissed the plea as frivolous on 17th September 2020, imposing ₹1 lakh costs. The NCLAT upheld this order on 25th November 2021, leading to the present Supreme Court appeal.

The appellants argued that the NCLT dismissed their application without providing any reasons. They contended that, although no claim was received from the Income Tax Department for AY 2014-15 before the submission of the Resolution Plan, the Resolution Professional still included it as a contingent liability. Relying on Supreme Court precedents, including Essar Steel India Ltd. vs. Satish Kumar Gupta and Ghanashyam Mishra and Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Co. Ltd., they asserted that the NCLAT ignored binding decisions and that the orders of the NCLT and NCLAT should be quashed.

Contentions of the Respondent:

The Income Tax Department supported the NCLT and NCLAT rulings, arguing that the NCLT’s order of 21st May 2019 explicitly rejected any relief concerning statutory dues, leaving such matters to the respective government departments. They maintained that the NCLAT rightly upheld this position, making the appellants’ claims unsustainable.

The Supreme Court noted that the Income Tax Department did not submit any claims for AY 2012-13 and 2013-14 before the Resolution Plan was approved. It emphasized that the Resolution Plan clearly stated: “Post payment as stated above, the entire statutory due shall stand satisfied, settled and extinguished, and no claims whatsoever, of any nature, shall subsist.”

Referring to the NCLT's approval order, the Court highlighted that it explicitly stated: “The Resolution Plan is binding on the corporate debtor, members, employees of the corporate debtor, creditors of the corporate debtor and other stakeholders involved in the Resolution Plan.”

The Court held that paragraph 44 of the NCLT order, which left statutory dues to be decided by government authorities, had no relevance to post-approval tax demands. It reaffirmed the principle from Ghanashyam Mishra and Sons Pvt. Ltd. that “all the dues including the statutory dues owed to the Central Government, if not part of the resolution plan, shall stand extinguished and no proceedings could be continued in respect of such dues.”

Criticizing the NCLAT, the Court found its rejection of the Ghanashyam Mishra ruling as “perverse” and emphasized that “a successful resolution applicant cannot suddenly be faced with ‘undecided’ claims after the resolution plan submitted by him has been accepted.”

The Court also disapproved of the NCLT's approach in dismissing the second respondent’s application as frivolous without reasoning and imposing an unwarranted cost of Rs. 1 lakh.

It concluded that once the Resolution Plan is approved, “no belated claim can be included therein that was not made earlier.” Allowing post-approval demands would disrupt the resolution process and “operate as roadblocks in implementing the approved Resolution Plan.”

The demands raised by the first respondent for assessment years 2012-13 and 2013-14 were held to be invalid and unenforceable. The impugned orders of the NCLT and NCLAT were set aside, and the appeal was allowed.

Read Judgment @latestlaws.com, click here

Picture Source :