In Insolvancy Matters; Unclaimed Tax Dues Extinguished Post Resolution Plan Approval: SC

The current appeal arose challenging an order of the National Company Law Appellate Tribunal (NCLAT) pertaining to Section 62 of the Insolvency and Bankruptcy Code, 2016 (IB Code), . The case originated from the Corporate Insolvency Resolution Process (CIRP) of Ms. Tehri Iron and Steel Casting Ltd. (the CD). The appellants, Vaibhav Goel & Anr., were the Joint Resolution Applicants whose Resolution Plan dated 21st January 2019 was approved by the National Company Law Tribunal (NCLT) on 21st May 2019.

The dispute concerned demands for income tax dues raised by the first respondent (Income Tax Department) for assessment years 2012-13 and 2013-14 after the approval of the Resolution Plan, even though no claim for these dues was submitted before the Resolution Professional. The Resolution Plan had only referred to a contingent income tax liability for the assessment year 2014-15.

The Supreme Court allowed the appeal, overturning the orders passed by the NCLT and NCLAT and held that the income tax demands for the assessment years 2012-13 and 2013-14, which were not included in the approved Resolution Plan, stood extinguished by virtue of Section 31(1) of the IB Code, as interpreted in the case of Ghanashyam Mishra and Sons Pvt. Ltd.

The Apex Court underlined that after a resolution plan is approved, it becomes binding on all the stakeholders, including government authorities, and claims not covered in the plan cannot be entertained later. The Court held that the NCLAT was wrong in disregarding the Ghanashyam Mishra precedent and that the NCLT's rejection of the second respondent's application for challenging the demands as frivolous, without examining the merits and without giving reasons, was also disapproved.

The Apex Court reaffirmed that under Section 31(1) of the IB Code, there lies the binding nature of an accepted Resolution Plan upon all creditors, including government authorities. Referring to the principle laid down in Ghanashyam Mishra and Sons Pvt. Ltd Vs Edelweiss Asset Reconstruction Company Ltd. Click to Download., the Apex Court further reiterated that all dues, including statutory dues, that are not included in the approved Resolution Plan become extinguished on the approval of the plan.

The Apex Court made it clear that paragraph 44 of the NCLT order, wherein the decision on statutory dues was left with the respective government departments, had no application to the claims for assessment years 2012-13 and 2013-14 since these were not referred to as contingent liabilities in the Resolution Plan.

Supreme Court emphasized that no belated claim can be included in the Resolution Plan after its approval. Allowing such claims would undermine the purpose of the IB Code, which is to enable the corporate debtor to recommence business on a clean slate. This aligns with the rationale expressed in Committee of Creditors of Essar Steel India Ltd.. The Apex Court fruther strongly disapproved of the NCLT's approach in dismissing the application without considering the merits or providing reasons and imposing costs.

Coram: Justice Abhay S Oka and Justice Ujjal Bhuyan
Between: Vaibhav Goel & Anr Vs Deputy Commissioner of Income Tax & Anr 2025 INSC 375
Date of Judgment: 20-03-2025