Supreme Court Ruling on Tax Demands in Resolution Plans

The Supreme Court (SC) has decreed that tax demands raised by the income-tax (I-T) department cannot be included in a resolution plan once it has been approved by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC).

Key Judgement Details

• Successful Resolution Applicant Rights:
  • Cannot face ‘undecided’ claims post-approval of the resolution plan.
  • Must operate without uncertainty regarding amounts payable after taking over a corporate debtor.
• Role of Corporate Debtor and Resolution Applicant:
  • A corporate debtor is an entity owing debt; the resolution applicant is approved by lenders and NCLT.
• Procedure for Claims:
  • All claims should be submitted and decided by the resolution professional before the plan approval.
  • Enables the resolution applicant to take over with a fresh, undisputed slate.

Case of Tehri Iron and Steel Casting Limited

The SC ruling came during insolvency proceedings against Tehri Iron and Steel Casting Limited. A resolution plan was approved on May 21, 2019, by the NCLT. Subsequently, the I-T department issued demands for assessment years 2012-13 and 2013-14, which had not been submitted before plan approval.

Supreme Court's Overruling

• SC overruled the National Company Law Appellate Tribunal’s (NCLAT) 2021 decision, which favored the I-T department.
• The successful resolution applicant contended against the demands, highlighting their invalidity as they were not raised in time.

Implications of the Ruling

• Ensures that a corporate debtor can start anew without belated claims, providing certainty and sanctity to the insolvency process.
• Prevents hindrances in implementing the resolution plan and ensures smooth business operations post-resolution.