Supreme Court ruling: Resolution plan under Insolvency Code binds government claims post-approval.

GHANASHYAM MISHRA AND SONS PRIVATE LIMITED THROUGH THE AUTHORIZED SIGNATORY Versus EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED THROUGH THE DIRECTOR & ORS.

GHANASHYAM MISHRA AND SONS PRIVATE LIMITED THROUGH THE AUTHORIZED SIGNATORY Versus EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED THROUGH THE DIRECTOR & ... Issues Involved:
1. Binding nature of the Resolution Plan on creditors including the Central Government, State Government, or any local authority once approved by the adjudicating authority under Section 31(1) of the Insolvency and Bankruptcy Code, 2016 (I&B Code).
2. Nature of the amendment to Section 31 by Section 7 of Act 26 of 2019 - whether it is clarificatory/declaratory or substantive.
3. Entitlement of creditors, including the Central Government, State Government, or any local authority, to initiate proceedings for recovery of dues not part of the approved Resolution Plan post-approval by the adjudicating authority.

Detailed Analysis:

Issue 1: Binding Nature of the Resolution Plan
The Court held that once a resolution plan is duly approved by the Adjudicating Authority under Section 31(1) of the I&B Code, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government, or any local authority, guarantors, and other stakeholders. On the date of approval of the resolution plan by the Adjudicating Authority, all such claims, which are not a part of the 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.

The Court emphasized that the legislative intent behind making the resolution plan binding on all stakeholders is to ensure that the resolution applicant starts with a clean slate, free from any surprise claims, ensuring the revival and continuation of the Corporate Debtor as a going concern.

Issue 2: Nature of the Amendment to Section 31
The Court held that the 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and, therefore, will be effective from the date on which the I&B Code has come into effect. The amendment clarifies that the resolution plan approved by the Adjudicating Authority shall also be binding on the Central Government, any State Government, or any local authority to whom a debt is owed in respect of payment of dues arising under any law for the time being in force, including tax authorities.

The Court referred to the Statement of Objects and Reasons of the Insolvency and Bankruptcy Code (Amendment) Bill, 2019, and the speech made by the Hon’ble Finance Minister in Rajya Sabha, which indicated that the amendment was intended to clarify the existing position and remove any ambiguity regarding the binding nature of the resolution plan on government authorities.

Issue 3: Entitlement to Initiate Proceedings Post-Approval
The Court held that all dues, including statutory dues owed to the Central Government, 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.

The Court emphasized that the provisions of the I&B Code will have an overriding effect in case of any inconsistency with any other law, as provided under Section 238 of the I&B Code. Therefore, once the resolution plan is approved, the government authorities cannot continue with any proceedings related to claims that are not part of the approved resolution plan.

Conclusion:
The Supreme Court allowed the appeals and writ petitions, holding that the respondents are not entitled to recover any claims or claim any debts owed to them from the Corporate Debtor accruing prior to the transfer date. The Court quashed and set aside the impugned judgments and orders of the lower courts and held that the claims not included in the resolution plan are extinguished and cannot be pursued further.