On 27th March 2025, the Honorable Supreme Court of India disposed of the contempt petition accepting unconditional apology of the Tax Authorities, Chhattisgarh. In the case of M/s. JSW Steel Limited Vs Pratishtha Thakur Haritwal and Ors the Apex Court reinforced the finality of the Resolution Plans approved by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 (IBC) ensuring that the approved plans are binding on all stakeholders including government.
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 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 13th April 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 read as, "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 inserted 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. Further, 2019 amendment to Section 31 of the Insolvency and Bankruptcy Code is clarificatory and declaratory in nature and will be effective from date on the Code into effect.
The Supreme Court further held that when the law laid down by this court 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 this Court being pointed out to their notice is nothing but contemptuous in nature.
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 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 amounts payable by prospective resolution applicant who would successfully takeover the business of the corporate debtor. All the claims must be submitted to and 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.
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