Validity of tax demand notices for periods before insolvency-resolution plan made effective - pre-resolution demands quashed

Whether tax/demand notices issued for periods antecedent to the insolvency-resolution timeline could be sustained. Court held that insolvency commenced 3 Aug 2017, NCLT approved the resolution plan on 17 Jul 2018 and NCLAT made the plan effective on 3 Mar 2020; applying the Supreme Court precedent in Ghanashyam Mishra & Sons, demands relating to periods prior to the date on which the resolution plan was made effective cannot be sustained. Consequence: all challenged demands for the pre-resolution period are quashed and writ petitions disposed.

---

---

Issues: Whether demands for tax and related fiscal dues that relate to periods prior to the commencement of the corporate insolvency resolution process (CIRP) can be enforced against the corporate debtor after initiation and completion of insolvency resolution proceedings.

Analysis: The legal framework comprises the Insolvency and Bankruptcy Code, 2016, including the definitions of "creditor" and "operational creditor" and of "operational debt" (Section 3(10), Section 5(20), Section 5(21)), the duties and processes following admission under Section 7, and the role of resolution plans and their binding effect once approved (Section 30(2) and Section 31(1)). The 2019 Amendment to the IBC clarified that claims by Central or State Governments and local authorities fall within the ambit of operational debts and stakeholders whose claims are to be frozen for the purpose of resolution. Applying these provisions and the clarificatory effect of the 2019 Amendment, demands in respect of periods antecedent to the CIRP are claims that fall within the class of claims to be reckoned, collated and, once the resolution process culminates in an approved plan, are to be treated as frozen so that the resolution applicant proceeds on a clean slate. Where the periods to which the demands relate are prior to the CIRP commencement date and the resolution plan has been approved and made effective, such prior-period demands cannot be enforced against the corporate debtor in view of the IBC scheme and the retrospective/clarificatory operation of the 2019 Amendment.

Conclusion: Demands relating to periods prior to the commencement of the CIRP are quashed and cannot be enforced against the corporate debtor; outcome in favour of the assessee.

---