IBC | Supreme Court Accepts Apology Of Tax Authorities For Asking Successful Resolution Applicant To Pay Dues Not Covered By Approved Plan

Giving the benefit of doubt and accepting their unconditional apology, the Supreme Court today disposed of a contempt petition filed against Chhattisgarh tax authorities for raising demand notices against a successful resolution applicant over claims in respect of a period prior to the approval of the resolution plan.

"we have no hesitation in holding that the demands raised by the respondents/authorities for a period prior to the date on which the learned NCLT has approved the Resolution Plan were totally contemptuous in nature. The respondents could not have raised the said demands inasmuch as they are not part of the Resolution Plan...However, we do not propose to proceed against the respondents/contemnors inasmuch as they are entitled to benefit of doubt", said a bench of Justices BR Gavai and AG Masih.

Background

The Court was dealing with a petition filed by M/s JSW Steel Limited alleging contempt of the judgement in Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited (and connected cases).

The company, which was a successful resolution applicant, was aggrieved as it was issued demand notices for claims in respect of a period prior to the approval of the resolution plan.

For context, in Ghanshyam Mishra, while dealing with a batch of petitions (one of which pertained to the petitioner), the Supreme Court held that once a resolution plan is approved by the Adjudicating Authority under Section 31 of IBC, the claims, as provided in the resolution plan shall stand frozen and bind the creditors (including statutory authorities).

In other words, on the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceeding in respect to a claim, which is not part of the resolution plan.

Submissions of the parties

The petitioner argued that the respondents/contemnors failed to file the claim during the resolution process. Further, they were notified about the judgment in Ghanshyam Mishra (which covered the petitioner company). Yet, they chose to proceed with the recovery proceedings. Therefore, their act amounted to willful disobedience of the orders of the Court.

The respondent-authorities, on the other hand, tendered an unconditional apology. They submitted that the demand notices were issued in good faith and not to undermine the dignity of the Court. It was further contended that neither State of Chhattisgarh nor the respondent-authorities were party to the proceedings before the NCLT. As such, the judgment in Ghanshyam Mishra was not binding in the present case. It was also the respondents' contention that the state was entitled to tax dues and NCLT could not have passed an order which ignored all government dues (including the indirect taxes collected by the debtor company).

Supreme Court Observations

On facts, the Court observed that neither the state nor its authorities raised any claim before the Committee of Creditors. As such, the case of the petitioner was covered by Ghanshyam Mishra, which judgment was brought to the notice of the respondent-authorities by the petitioner.

Going through Ghanshyam Mishra, the Court opined that all the dues of any of the stakeholders including the statutory dues owed to the Central Government, any State Government or any local authority, which were not part of the resolution plan, stood extinguished from the date on which the plan stood approved.

"The Court clearly held that all the dues including the statutory dues owed to the Central Government, or any 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 under Section 31 could be continued."

It was noted that even prior to Ghanshyam Mishra, a 3-judge bench of the Court, in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta had held 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 a prospective resolution applicant who would successfully take over the business of the corporate debtor". In this case, it was further opined that all claims must be submitted to and decided by the RP, 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.

In this backdrop, the bench of Justices Gavai and Masih concluded that the issuance of demand notices by the respondent-authorities, despite the judgment in Ghanshyam Mishra, was contemptuous in nature.

"When the law laid down by this Court in the case of Ghanshyam Mishra (supra) is clear and unambiguous and specifically when the Petitioner's own case was part of the batch which is specifically dealt with by this Court, the respondents/alleged contemnors ought not to have proceeded further with the recovery proceedings and ought to have dropped them forthwith. The continuation of such proceedings despite the judgment and order of this Court being pointed out to their notice is nothing but contemptuous in nature."

However, as the respondent-authorities contended that the state was not party to the writ proceedings and/or before the NCLT, the Court gave them the benefit of doubt, noting that it was the first case arising out of Ghanshyam Mishra. "No doubt that even if any stakeholder is not a party to the proceedings before the NCLT and if such stakeholder does not raise his claim before the Interim Resolution Professional/Resolution Professional, the Resolution Plan as approved by the NCLT would still be binding on him", it said.

Ultimately, the Court quashed the demand notices (and consequenc proceedings) issued by respondent-authorities against the petitioner.

Appearance: Senior Advocate Gopal Jain (for petitioner); Advocate Pragati Neekhra (for alleged contemnors/respondents)

Case Title: M/S JSW STEEL LIMITED VERSUS PRATISHTHA THAKUR HARITWAL & ORS., CONTEMPT PETITION (CIVIL) NO. 629 OF 2023

Citation : 2025 LiveLaw (SC) 361

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