Approved Resolution Plan Extinguished Statutory Tax Claims Raised After Approval, Supreme Court Holds

A Bench of Justices Abhay S. Oka and Ujjal Bhuyan heard an appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 challenging orders of the NCLT and NCLAT which had permitted the Deputy Commissioner of Income Tax to press fresh income‑tax demands against a corporate debtor after approval of a resolution plan.

The Court held that approval of the resolution plan operated to bind statutory creditors and to extinguish claims not included in the plan, and it set aside the impugned orders of the NCLT and the NCLAT. The Court observed that “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, in its reasoning, observed: “102.1. That 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. 102.2. The 2019 Amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which the I&B Code has come into effect. 102.3. Consequently, all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be continued.”

Background The corporate insolvency resolution process was initiated against M/s. Tehri Iron and Steel Casting Ltd. The appellants, as joint resolution applicants, submitted a resolution plan dated 21 January 2019 which the NCLT approved by order dated 21 May 2019. The approved plan expressly identified certain contingent liabilities, including an income‑tax liability for assessment year 2014‑15, but did not list demands for assessment years 2012‑13 and 2013‑14. After approval, the Income Tax Department issued demand notices for AY 2012‑13 and 2013‑14. No claim in respect of those years had been submitted to the resolution professional prior to approval.

The Monitoring Professional applied to the NCLT seeking a declaration that the post‑approval demands were invalid; the NCLT dismissed the application as “frivolous” without recording reasons and imposed costs of Rs. 1 lakh. The NCLAT upheld the NCLT. The appellants challenged those orders before this Court.

The Court analysed Section 31(1) of the IBC and the effect of the 2019 amendment, and followed the binding precedent in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. and Committee of Creditors of Essar Steel India Ltd., holding that approval of a resolution plan froze and extinguished claims not included in the plan. The Court found paragraph 44 of the NCLT approval order—which noted that “these are issues to be decided by the respective government department”—irrelevant insofar as the omitted tax demands post‑dated approval and were not part of the plan. The Court further held that the NCLT erred in dismissing the Monitoring Professional’s application without considering merits and in imposing costs. Consequentially, the Court declared the subsequent demands for AY 2012‑13 and 2013‑14 invalid, set aside the impugned NCLT and NCLAT orders and allowed the appeal.

Case Details: Case No.: 2025 INSC 375 Case Title: Vaibhav Goel & Anr. v. Deputy Commissioner of Income Tax & Anr. Appearances: For the Petitioner(s): Senior counsel for the appellants (name not indicated in the judgment) For the Respondent(s): Additional Solicitor General for the Income Tax Department (name not indicated in the judgment)