No tax demand can be raised after resolution plan approval, says SC
Delhi, Mar 21, 2025
A corporate debtor, under IBC, is a company or LLP that owes a debt to any person. A successful resolution applicant is a person or entity whose resolution plan is approved by lenders and NCLT
The Supreme Court has said that no tax demand, even if raised by the income tax department, can be allowed to be included in the resolution plan after the said plan has been approved by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC).
"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," Justices Abhay S Oka and Ujjal Bhuyan observed in their judgement on Thursday.
A corporate debtor, under IBC, is a company or limited liability partnership (LLP) that owes a debt to any person. A successful resolution applicant is a person or entity whose resolution plan is approved by the lenders and the NCLT.
The two-judge Supreme Court bench said that all claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid, so that it may then take over and run the business of the corporate debtor.
"This the successful resolution applicant does on a fresh slate, as has been pointed out by us...," the court said.
By doing this, the apex court also overruled the National Company Law Appellate Tribunal (NCLAT) judgement of 2021 which dismissed the appeal by the successful resolution applicant.
This decision by the apex court came in a case of insolvency against Tehri Iron and Steel Casting Limited. A resolution plan was approved by the NCLT on May 21, 2019. After the approval of the resolution plan, the income tax department issued demand notices dated December 26, 2019 and December 28, 2019 under the Income Tax Act concerning assessment years 2012–13 and 2013–14, respectively, in respect of the corporate debtor.
No claims about the demands for the two assessment years had been submitted before the resolution professional before the plan was approved, the apex court order noted.
The successful resolution applicant argued before the NCLT that since the income tax department had not raised claims before the resolution professional until the resolution plan was approved, the demands made by the income tax department were invalid. The NCLT, and later NCLAT, however, sided with the income tax department. Aggrieved by this, the successful resolution applicant approached the Supreme Court.
The apex court also reasoned that a successful resolution applicant must be able to take over the corporate debtor on a clean slate, free from undecided or belated claims, and if claims are allowed after the approval of the resolution plan, it would create uncertainty and hinder the implementation of the plan.
"Allowing belated claims would prevent the corporate debtor from starting afresh and leave the entire process uncertain. The judgement passed by the Hon’ble Supreme Court not only provides a certainty as well as sanctity to the entire process of inviting and finalising claims but also ensures smooth restart of business operations," Nistha Gupta, an advocate practising in the Delhi High Court, said.
[The Business Standard]
