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2025 (5) TMI 976 - HC - Income TaxIncome tax demands against company dissolved/Insolvent - HELD THAT - 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 for the period prior to the date on which the adjudicating authority grants its approval under Section 31 of the IB Code. In this case the income tax dues of the CD for the assessment years 2012-13 and 2013-14 were not part of the approved Resolution Plan. Therefore in view of sub-section (1) of Section 31 as interpreted by this Court in the above decision the dues of the first respondent owed by the CD for the assessment years 2012-13 and 2013-14 stand extinguished. Once the Resolution Plan is approved by the NCLT no belated claim can be included therein that was not made earlier. If such demands are taken into consideration the appellants will not be in a position to recommence the business of the CD on a clean slate.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Enforceability of Tax Demands and Penalty Notices Issued Prior to Approval of the Resolution Plan Relevant legal framework and precedents: The primary legal framework governing this issue is the Insolvency and Bankruptcy Code, 2016, specifically Sections 9, 14, 15, 21, and 31. Section 31(1) provides that upon approval of a resolution plan by the adjudicating authority (NCLT), the plan shall be binding on the corporate debtor and all stakeholders, including creditors and governmental authorities. The amendment to Section 31(1) effective from 16th August 2019 explicitly includes statutory authorities as creditors bound by the resolution plan. Precedents include the Supreme Court decision in Ghanshyam Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company (2021) 9 SCC 657, which clarified that claims not included in the approved resolution plan stand extinguished and no proceedings can be initiated or continued in respect of such claims. Another significant precedent is the recent Supreme Court judgment in Vaibhav Goel and Anr. Vs. Deputy Commissioner of Income Tax & Anr. (2025 INSC 375), which reaffirmed the binding nature of the resolution plan on statutory dues and the extinguishment of claims not included therein. Court's interpretation and reasoning: The Court interpreted Section 31(1) in light of the above precedents and the amendment, holding that once the resolution plan is approved, all claims, including statutory dues not part of the plan, are frozen and extinguished. The Court emphasized that the Resolution Plan is binding on the corporate debtor, its employees, members, creditors, guarantors, and other stakeholders, including government authorities. Key evidence and findings: The Resolution Plan approved by the NCLT on 04.09.2020 explicitly contained provisions extinguishing all claims of governmental authorities in relation to taxes, duties, penalties, interest, fines, and other statutory dues for periods prior to the effective date of the plan. It also provided that all pending assessment or appellate proceedings relating to the pre-effective period stand terminated, and no further proceedings shall be initiated. Application of law to facts: The tax demands and penalty notices issued by the Income Tax Department for assessment years prior to 04.09.2020 were not included in the Resolution Plan. Therefore, in accordance with Section 31(1) and the binding precedents, these demands stand extinguished and cannot be enforced against the Corporate Debtor. Treatment of competing arguments: The Respondents did not contest the applicability of the ratio laid down in Ghanshyam Mishra or Vaibhav Goel. The Court noted the absence of any substantive argument disputing the extinguishment of claims not included in the Resolution Plan. Conclusions: The Court concluded that the impugned demand notices and penalty orders issued for the period prior to 04.09.2020 are invalid and must be quashed and set aside. Issue 2: Legal Effect and Binding Nature of the Resolution Plan Approved Under Section 31 of the IBC Relevant legal framework and precedents: Section 31(1) of the IBC and its amendment, along with the Supreme Court judgments in Ghanshyam Mishra and Sons Pvt. Ltd. and Vaibhav Goel, establish the binding effect of the approved Resolution Plan on all stakeholders, including statutory authorities. The Court also relied on the Essar Steel India Ltd. judgment, which emphasized that all claims must be submitted and decided prior to approval, and no belated claims can be entertained thereafter. Court's interpretation and reasoning: The Court observed that the Resolution Plan's provisions for extinguishment of claims and binding effect on all stakeholders, including governmental authorities, must be given full effect. It reasoned that allowing any claims not part of the plan to be revived or initiated post-approval would undermine the purpose of the insolvency resolution process and the principle of a "clean slate" for the successful resolution applicant. Key evidence and findings: The Resolution Plan explicitly provided for capital reduction to zero, payment schedules to creditors, and extinguishment of all other claims, including statutory dues, prior to the effective date. The plan envisaged the infusion of fresh equity and control by the resolution applicant, indicating a fresh start for the corporate debtor. Application of law to facts: The Court applied the legal principles to hold that the Resolution Plan, once approved, conclusively determines the liabilities of the corporate debtor and binds all stakeholders. The statutory authorities cannot initiate or continue proceedings for dues not included in the plan. Treatment of competing arguments: The Respondents did not offer any legal basis to challenge the binding nature of the Resolution Plan or to justify the issuance of demands for pre-effective period dues. Conclusions: The Court held that the Resolution Plan approved by the NCLT is binding and effective, extinguishing all claims not included therein and precluding any further proceedings in respect of such claims. Issue 3: Extinguishment of Statutory Claims and Termination of Pending Proceedings Relevant legal framework and precedents: The language of Clause 9 of Annexure-4 to the Resolution Plan and Section 31(1) of the IBC, as well as the Supreme Court decisions cited above, govern this issue. The Court also referenced the principle that the insolvency resolution process aims to provide certainty and finality by extinguishing claims not included in the approved plan. Court's interpretation and reasoning: The Court emphasized that all claims of governmental authorities for taxes, penalties, and other statutory dues prior to the effective date are extinguished by the NCLT's order approving the Resolution Plan. It further held that all pending assessment, appellate, or other proceedings relating to the pre-effective period stand terminated, and no new proceedings can be initiated post-approval. Key evidence and findings: The Resolution Plan's Clause 9 explicitly states that all such claims stand extinguished, and any proceedings pending or proposed for the pre-effective period shall be deleted, waived, and considered non-payable. Application of law to facts: The tax demands and penalty orders issued after the Resolution Plan's approval date but relating to periods prior to that date fall within the scope of extinguished claims and cannot be enforced. Treatment of competing arguments: No counter-arguments were advanced by the Respondents to challenge the extinguishment or termination of proceedings. Conclusions: The Court concluded that the statutory claims and proceedings for the pre-effective period are extinguished and terminated, and the impugned demands and penalties must be quashed. 3. SIGNIFICANT HOLDINGS The Court's crucial legal reasoning is encapsulated in the following verbatim excerpts: "Once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan." "All assessment/appellate or other proceedings pending on the Effective Date relating to period prior to the Effective date, shall stand terminated and all consequential liabilities, if any should be deleted and waived off and should be considered to be not payable by the Corporate Debtor by virtue of the order of the NCLT." "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 who would successfully take over the business of the corporate debtor." Core principles established include:
Final determinations on each issue were:
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