Supreme Court accepts unconditional apology from tax authorities for violating Resolution Plan

On March 27, 2025, the Supreme Court of India disposed of a contempt petition, accepting the unconditional apology of the tax authorities in Chhattisgarh. In the case of M/s. JSW Steel Limited Vs Pratishtha Thakur Haritwal and Ors, the apex court reinforced the finality of Resolution Plans approved by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 (IBC), ensuring that approved plans are binding on all stakeholders, including government.

The insolvency process was initiated against M/s. Monnet Ispat and Energy Limited, as per the provisions of IBC, in which it was determined that total debt of the company was much more than its liquidation value. An advertisement inviting claims against the company was invited and M/s. JSW Steel Limited was declared as the Successful Resolution Applicant by the National Company Law Tribunal, pursuant to which the management of M/s. Monnet Ispat and Energy Limited was taken over by M/s. JSW Steel Limited. Thereafter, various demand notices were raised upon M/s. JSW Steel Limited by various authorities as under:

(i) Odisha Mining Corporation Ltd., for the recovery of sales tax against iron ore purchased by M/s. Monnet Ispat and Energy Limited;

(ii) Assistant Commissioner, Commercial Taxes, Division- II, Raipur Chhattisgarh directed M/s. JSW Steel Limited, a nationalized dealer, to furnish books of accounts and documents and appear in person or through an authorized representative on account of default in filing of return or submission of statement by M/s. Monnet Ispat and Energy Limited;

(iii) Additional Revenue Collector, Commercial Tax Office, Raipur, government of Chhattisgarh issued demand notice containing three separate demands of Central Tax, Sales Tax and Entry Tax.

M/s. JSW filed a contempt petition alleging willful disobedience by the above authorities of the judgement dated April 13, 2021, passed by the Supreme Court of India in the matter titled as Ghanshyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited and others. The judgement said,

“All creditors including the Central Government, State Government or any local authority are bound by the Resolution Plan approved by the Adjudicating Authority and all claims which are not part of the Resolution Plan stand extinguished.”

Moreover, the provision of Section 31 (1) of the IBC also provides that if the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors meets the requirements, it shall by order approve the resolution plan which shall be binding on the corporate debtor, employees and creditors, guarantors and other stakeholders involved in the resolution plan. Vide Section 7 of the Insolvency and Bankruptcy Code (Amendment Act), 2019, it was clarified that the term “creditor” in Section 31 includes Central government, any State government and local authorities.

Further, from the provisions of Section 238 of IBC, it is obvious that the Code will override anything inconsistent contained in any other enactment, including Income Tax Act.

Considering the above legal position and facts of the case, the Supreme Court of India in M/s. JSW Steel Limited (supra) pronounced that on the date of approval of resolution plan by the adjudicating authority, all such claims which are not 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. Consequently, all the dues, including the statutory dues owed to the Central government, 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 could be continued.

The Supreme Court further held that when the law laid down by it is clear and unambiguous and specifically when the case itself was part of the batch which is specifically dealt with, the income tax authority should not have proceeded further with the recovery proceedings. The continuation of such proceedings despite the judgement and order of the Supreme Court being pointed out to their notice is nothing but contemptuous in nature, it was held.

While making a reference and following previous ruling of the Court in Dena Bank Vs. Bhikhabhai Prabhudas Parekh and Co and Ors. (2000) 5 SCC 694 and its progeny, it was made clear that income tax dues, being in the nature of Crown debts, do not take precedence even over secured creditors, who are private persons.

Thus, all demand notices issued and proceedings pursuant thereto were held to be illegal and were quashed and set aside. The petition of contempt was disposed, accepting an unconditional apology from the authorities.

Even much prior to the judgement in case of Ghanshyam Mishra (supra), a three judge Bench of the Honorable Supreme Court in the case of Committee of Creditors of Essar Steel India Limited through Authorized Signatory Vs Satish Kumar Gupta and Others had observed that 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 the amounts payable by a prospective resolution applicant who successfully takes over the business of the corporate debtor. All the claims must be submitted to and be decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor.

This decision not only supports IBC’s objectives of promoting economic stability and facilitating efficient revival of corporate debtors but also allows the resolution applicants to take over the distressed asset without the burden of unforeseen liabilities.

About the authors: Dhaval Vussonji is the Managing Partner of Dhaval Vussonji & Associates. Radhika Shinde is a former Associate of the Firm.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

If you would like your Deals, Columns, Press Releases to be published on Bar & Bench, please fill in the form available here.