Pre‑CIRP Tax Demands Extinguished Under Approved Resolution Plan; Recovery Notices Held Illegal

A bench of Justices B.R. Gavai and Augustine George Masih heard a contempt petition filed by M/s JSW Ispat Special Products Limited (now M/s JSW Steel Limited) alleging willful disobedience of this Court’s judgment in Ghanshyam Mishra and others (Civil Appeal No. 8129 of 2019). The petition challenged demand notices and recovery proceedings initiated by Chhattisgarh tax authorities for the period 1 April 2017 to 30 June 2017, contending that such claims stood extinguished once the NCLT‑approved resolution plan for the erstwhile corporate debtor was sanctioned.

The Court held that once a resolution plan was duly approved by the adjudicating authority under Section 31 of the Insolvency and Bankruptcy Code, claims not incorporated in the plan stood extinguished and could not be the subject of fresh recovery proceedings. The Court observed that the tax authorities’ actions were “contemptuous in nature” but, after accepting an unconditional apology and granting respondents the benefit of doubt, declined to impose punitive measures; it quashed and set aside the impugned demand notices and all proceedings pursuant thereto. The Court, in its reasoning, observed: “In the result, we answer the questions framed by us as under: (i) 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; (ii) 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 I&B Code has come into effect; (iii) 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.” The Court also noted, with regard to the petitioner’s specific case, that “We hold and declare, that the respondents are not entitled to recover any claims or claim any debts owed to them from the Corporate Debtor accruing prior to the transfer date.”

Background The dispute arose after insolvency proceedings against the erstwhile M/s Monnet Ispat and Energy Ltd. led to the approval of a resolution plan and takeover of management by the petitioner (resolution applicant). The petitioner contended that public notices required creditors, including State authorities, to submit claims during the CIRP and that any claims not submitted and not part of the approved plan were extinguished. Despite this, Chhattisgarh tax officials issued assessment and demand notices dated 15 September 2021, 17 May 2022 and 9 December 2022 seeking central and state tax and entry tax for the period before plan approval. The petitioner sought clarification by way of a miscellaneous application and later filed the present contempt petition after its application was withdrawn with liberty to move contempt proceedings.

The Court relied on its earlier ruling in Ghanshyam Mishra and related precedents including Essar Steel, Innoventive and the Court’s order in a Special Leave Petition observing the overriding effect of the IBC, while distinguishing the facts in Rainbow Papers. Finding that the State authorities had not filed claims in the CIRP despite public notice, the Court held the recovery actions were impermissible, quashed the notices and proceedings, accepted the contemnors’ unconditional apology and disposed of the contempt petition without imposing punishment.

Case No.: Contempt Petition (Civ.) No. 629 of 2023 in Writ Petition (Civ.) No. 1177 of 2020 Case Title: M/S JSW Steel Limited v. Pratistha Thakur Haritwal & Ors. Appearances: For the Petitioner(s): Mr. Gopal Jain, learned Senior Counsel For the Respondent(s): Ms. Pragati Neekhra, learned Counsel