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Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited & Ors.

Civil Appeal · 2021 INSC 250Decided 13 Apr 2021
Civil Appeal No. 8129 of 2019
Justice Rohinton Fali Nariman · Justice B.R. Gavai · Justice Hrishikesh Roy

Background

This batch of matters arose from several companies whose insolvency resolution plans had been approved by the National Company Law Tribunal, after which successful resolution applicants took over management, but various creditors, including central and state government departments (such as income tax, service tax, VAT and mining-royalty authorities), continued to demand payment of dues that had arisen before the resolution plan's approval and were not included in it. The appellants argued that once a resolution plan is approved under the Insolvency and Bankruptcy Code (I&B Code), all prior claims not part of the plan should stand extinguished, giving the revived company a "clean slate," while the government creditors argued they remained entitled to recover their dues and that a 2019 amendment clarifying this position should not apply retrospectively to older resolution plans.

Decision Breakdown

The Supreme Court held that once a resolution plan is approved by the adjudicating authority under Section 31(1) of the I&B Code, it binds all stakeholders, including the Central Government, State Governments and local authorities, even in respect of statutory dues like income tax, VAT, or mining royalties. It ruled that the 2019 amendment to Section 31, which expressly extinguished all claims not part of the resolution plan, was clarificatory and declaratory of the law as it always stood, and therefore applied retrospectively, even to resolution plans approved before the amendment. Consequently, no creditor can initiate or continue any proceeding to recover a debt from the corporate debtor that arose before the resolution plan's approval date if that claim was not part of the approved plan; all such claims stand extinguished, and the successful resolution applicant takes over the company free of them. The Court allowed the appeals, quashed the contrary High Court judgments, and declared that the various government respondents were not entitled to recover any dues accruing prior to the transfer date in each case.

Lesson Learnt

Once a company's insolvency resolution plan is approved, it draws a "clean slate" line: creditors, including tax authorities and government departments, cannot later chase the revived company for old dues that were not included in the plan, so all claims must be filed and considered during the resolution process itself, not afterward.

Official source (sci.gov.in)View Judgment (PDF)

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