By August Attorneys LLP
March 22, 2025
Introduction
In a significant judgment delivered on March 20, 2025, the Supreme Court of India has once again reinforced the primacy and finality of approved resolution plans under the Insolvency and Bankruptcy Code, 2016 (IBC). The ruling unequivocally establishes that statutory claims, including government dues, stand extinguished if not submitted during the Corporate Insolvency Resolution Process (CIRP). This decision provides crucial clarity on the binding nature of resolution plans and offers certainty to resolution applicants undertaking corporate rescues under the IBC framework.
Case Background
The Supreme Court Bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan examined an appeal under Section 62 of the IBC challenging the judgment of the National Company Law Appellate Tribunal (NCLAT) dated November 25, 2021. The case pertained to M/s. Tehri Iron and Steel Casting Ltd., against whom CIRP had been initiated. The appellants, as Joint Resolution Applicants, had submitted a Resolution Plan on January 21, 2019, which was subsequently approved by the National Company Law Tribunal (NCLT) on May 21, 2019.
The resolution plan explicitly acknowledged tax liability of ₹16,85,79,469/- owed to the Income Tax Department for the assessment year 2014-15, categorizing it as “Contingent Liabilities.” However, post-approval of the plan, the Income Tax Department issued demand notices for assessment years 2012-13 and 2013-14, despite having filed no claims for these periods before the Resolution Professional during the CIRP.
When the Monitoring Professional contested these demands before the NCLT, the application was summarily dismissed with costs of ₹1 lakh. The NCLAT similarly rejected the subsequent appeal.
Legal Issues and Arguments
The central issue before the Supreme Court was whether statutory authorities could raise demands for dues that were not claimed during the CIRP process, after a resolution plan had been approved under Section 31 of the IBC.
The appellants contended that:
- The NCLT dismissed their application without providing adequate reasoning
- Once a resolution plan is approved, all prior claims not included in it stand extinguished by operation of law
- The NCLAT had disregarded binding precedent established in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others
Conversely, the Income Tax Department argued that paragraph 44 of the NCLT’s order had denied relief specifically for statutory dues, leaving these matters to be determined by the relevant government departments.
Supreme Court’s Analysis
The Supreme Court conducted a thorough examination of the resolution plan and noted that it unambiguously provided for the settlement and extinguishment of statutory liabilities as reflected in the CIRP balance sheet. Critically, the tax demands for assessment years 2012-13 and 2013-14 were not reflected as contingent liabilities in this balance sheet, rendering paragraph 44 of the NCLT’s order inapplicable to these demands.
The Court drew attention to Section 31(1) of the IBC, which states that an approved resolution plan is binding on all stakeholders, including the government. The Court emphasized that the 2019 amendment to Section 31 had clarified this position by expressly stating that statutory dues not forming part of the resolution plan stand extinguished.
Precedential Framework
In its reasoning, the Supreme Court relied heavily on its previous landmark judgment in Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, where it had conclusively held that claims not included in an approved resolution plan could not be pursued post-approval.
The Court was particularly critical of the NCLAT for disregarding this binding precedent on incorrect grounds, characterizing the NCLAT’s reasoning as “perverse.” Additionally, the Court found that the NCLT’s dismissal of the application without considering its merits and the imposition of costs was unwarranted and unjustified.
The Final Verdict
Setting aside the orders of both the NCLT and NCLAT, the Supreme Court reaffirmed that:
- An approved resolution plan under Section 31 of the IBC is binding on all stakeholders
- Statutory claims, including tax dues, stand legally extinguished if not submitted during the CIRP
- Government authorities cannot raise demands post-approval of a resolution plan for claims not included therein
Implications for Corporate Restructuring
This judgment carries profound implications for corporate restructuring under the IBC framework:
- Legal Certainty: Resolution applicants now have enhanced certainty regarding their potential liabilities, as the judgment firmly establishes that claims not included in the resolution plan cannot be revived after its approval.
- Government Claims: Statutory authorities must be vigilant in submitting their claims during the CIRP, as failure to do so will result in the extinguishment of such claims.
- Clean Slate Principle: The decision reinforces the “clean slate” principle for corporate debtors undergoing insolvency resolution, allowing them to emerge from the process without the threat of hidden or undisclosed liabilities.
- Value Maximization: By providing certainty to resolution applicants, the judgment furthers the IBC’s objective of maximizing the value of assets and encouraging more robust bids from potential investors.
Conclusion
This landmark judgment by the Supreme Court brings much-needed clarity and reinforces the sanctity of resolution plans under the IBC framework. By unequivocally establishing that statutory claims not submitted during CIRP stand extinguished upon approval of a resolution plan, the Court has strengthened the IBC’s objective of providing a clean slate to distressed businesses.
The ruling serves as a stark reminder to all stakeholders, particularly government departments, to proactively participate in the CIRP and submit their claims in a timely manner. For resolution applicants and corporate debtors, it offers the assurance that the fresh start promised by the IBC will not be undermined by belated claims.
At August Attorneys LLP, we continue to closely monitor developments in insolvency law to provide our clients with strategic counsel that reflects the evolving legal landscape. This judgment marks another significant step in the maturation of India’s insolvency regime and reinforces the IBC’s position as a comprehensive code for corporate rescue and rehabilitation.
This blog is for informational purposes only and should not be construed as legal advice. For specific legal counsel, please contact qualified professionals.