Once NCLT Approves Resolution Plan, All Dues Including Central Govt's Stand Extinguished: Supreme Court [Read Judgement]

The Supreme Court of India held that once a resolution plan is approved by the National Company Law Tribunal (NCLT), no further recovery of dues including statutory dues owed to the Central Government can be initiated if such claims were not part of the approved plan.

Vaibhav Goel and another (appellants), who were joint resolution applicants in the insolvency proceedings of Tehri Iron and Steel Casting Ltd. (corporate debtor), had submitted a resolution plan dated January 21, 2019. This plan was approved by the NCLT on May 21, 2019, under the Insolvency and Bankruptcy Code, 2016 (IBC).

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The plan accounted for income tax dues for the assessment year 2014–15 as contingent liabilities, no claims were made by the Income Tax Department regarding dues for the assessment years 2012–13 and 2013–14 before the plan’s approval.

After the approval, the Deputy Commissioner of Income Tax (respondent) issued fresh demand notices related to the unclaimed earlier assessment years. The monitoring professional objected stating these demands were invalid because they were not included in the resolution process and were raised belatedly.

The NCLT dismissed the monitoring professional's application challenging these demands, calling it frivolous and imposing a cost of Rs. 1 lakh. The NCLAT upheld this order. Aggrieved, the appellants approached the Supreme Court.

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The revenue argued that paragraph 44 of the NCLT’s original order left room for the government to determine statutory dues separately. They also argued that the appellants had not challenged the resolution plan itself and that the claims should still be recoverable.

The bench comprising Justices Abhay S. Oka and Ujjal Bhuyan referenced its previous rulings in Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, holding that under Section 31(1) of the IBC, an approved resolution plan is binding on all stakeholders, including government departments.

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Any claims not submitted before approval stand extinguished. The court explained that permitting belated demands would defeat the purpose of providing a “clean slate” to the resolution applicant and hinder the revival of the corporate debtor. The court also criticized the NCLT and NCLAT for failing to apply binding precedents and for dismissing the application without reason.

The Supreme Court set aside the orders of the NCLT and NCLAT, ruled that the tax demands for AYs 2012–13 and 2013–14 were unenforceable, and allowed the appeal in favor of the appellants.

To Read the full text of the Order CLICK HERE

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