Approval of Resolution Plan under Section 31(1) IBC Extinguishes All Excluded Claims and Liabilities

The HC held that once a Resolution Plan is approved under Section 31(1) of IBC, 2016, all claims not included in the plan stand extinguished and are binding on the corporate debtor and all stakeholders, including government authorities. The principle of a "clean slate" applies, barring any proceedings on claims excluded from the plan. Consequently, demand and penalty notices issued after the approval of the Resolution Plan against the petitioner-company, which was under revival, are invalid. The impugned assessment order and notices were set aside as they contravened the settled legal position that the corporate debtor's liabilities cease upon approval of the Resolution Plan.

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Issues:
Quashing of Assessment Order and Demand Notice under Income Tax Act, 1961 post approval of Resolution Plan by NCLT.

Analysis:
The petitioner sought the quashing of an Assessment Order and Demand Notice issued by the Deputy Commissioner of Income Tax post-approval of a Resolution Plan by NCLT. The petitioner argued that the impugned order and notice were legally untenable and contrary to the provisions of the Insolvency and Bankruptcy Code (IBC), 2016, which aims at the revival of the company on a 'Clean Slate Basis'. The petitioner highlighted that the impugned penalty notice was being imposed, indicating urgency in the matter. Despite advance notice, no appearance was made on behalf of the respondents. The Court noted the approval of the Resolution Plan by NCLT, Chennai, and the subsequent takeover of the petitioner-company by new management to implement the Resolution Plan on a 'Clean Slate Basis'.

The Court emphasized that once a Resolution Plan is approved by the adjudicating authority under the IBC, 2016, the claims provided in the Plan become binding on all stakeholders, extinguishing any claims not part of the Plan. The principle of a 'Clean Slate' post-approval of Resolution Plan was reiterated, stating that all previous liabilities and claims against the corporate debtor cease to exist. Referring to a previous judgment, the Court held that the Resolution Plan's approval binds all stakeholders, ensuring the successful resolution applicant operates the business on a fresh slate. Therefore, the Assessment Order, Demand Notice, and Penalty Notice were set aside as they contradicted the binding nature of the approved Resolution Plan.

The Court's decision was based on the settled law that once a Resolution Plan is approved, it binds all stakeholders, allowing the successful Resolution Applicant to run the business on a fresh slate. The impugned Assessment Order and Notices were deemed invalid post-approval of the Resolution Plan by NCLT, emphasizing the binding nature of the Plan on all stakeholders. Consequently, the Court allowed the petition, setting aside the Assessment Order and Notices issued under the Income Tax Act, 1961, post-approval of the Resolution Plan.

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