2025 (3) TMI 1403 - SC - IBC

Statutory dues to government extinguished upon Resolution Plan approval under Section 31 IBC cannot be recovered later

M/s JSW STEEL LIMITED Versus PRATISHTHA THAKUR HARITWAL & ORS.

SC held that statutory dues owed to Central Government, State Government, or local authorities not included in an approved Resolution Plan under Section ... Wilful disobedience - binding nature of Resolution Plan, on any creditor including the Central Government, State Government or any local authority, once it is approved by an adjudicating authority under sub-section (1) of Section 31 of the Insolvency and Bankruptcy Code, 2016 - amendment to Section 31 by Section 7 of Act 26 of 2019 is clarificatory/declaratory or substantive in nature? - initiation of any proceedings for recovery of any of the dues from the Corporate Debtor, hich are not a part of the Resolution Plan approved by the adjudicating authority, after approval of resolution plan by the Adjudicating Authority a creditor including the Central Government, State Government or any local authority. HELD 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 Resolution Plan stood approved. This Court has 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. It has also been held 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. There are 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. Undoubtedly, in the present case, in spite of public notice, neither the State of Chhattisgarh nor its authorities raised any claim before the CoC. In that view of the matter, the case of the present Petitioner is specifically covered by the judgment of this Court in the case of Ghanshyam Mishra, which judgment was brought to the notice of the respondents/authorities, the respondents/authorities could not have proceeded with the recovery proceedings - When the law laid down by this Court in the case of Ghanshyam Mishra 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. There are no hesitation in holding that the continuation of the proceedings by the respondents/authorities even after the judgment of this Court in Ghanshyam Mishra was specifically brought to their notice is contemptuous in nature. However, we do not propose to proceed against the respondents/contemnors inasmuch as they are entitled to benefit of doubt. Conclusion - The act of the alleged contemnors is contemptuous in nature, it is not proposed to take any action against them. The demand notices issued by the contemnors on the Petitioner Company and all proceedings pursuant thereto are held to be illegal and the same are quashed and set aside. The contempt petition accepting unconditional apology of the contemnors disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether any creditor, including the Central Government, State Government, or any local authority, is bound by a Resolution Plan once it is approved by an adjudicating authority under Section 31(1) of the Insolvency and Bankruptcy Code (I&B Code), 2016.Whether the amendment to Section 31 by Section 7 of Act 26 of 2019 is clarificatory/declaratory or substantive in nature.Whether, after the approval of a Resolution Plan by the Adjudicating Authority, a creditor, including the Central Government, State Government, or any local authority, is entitled to initiate any proceedings for recovery of dues from the Corporate Debtor, which are not part of the approved Resolution Plan.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Binding Nature of the Resolution PlanRelevant legal framework and precedents: The Court examined Section 31(1) of the I&B Code, which provides that once a Resolution Plan is approved by the Adjudicating Authority, it is binding on the Corporate Debtor and its stakeholders, including government entities.Court's interpretation and reasoning: The Court reaffirmed its previous ruling in 'Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited,' stating that all claims not included in the approved Resolution Plan are extinguished and cannot be pursued.Application of law to facts: The Court applied this principle to the case at hand, determining that the demands raised by the respondents for periods prior to the Resolution Plan's approval were not permissible.Conclusions: The Court concluded that the respondents' actions in pursuing claims not part of the Resolution Plan were in violation of the binding nature of the Plan as established by the I&B Code.Issue 2: Nature of the Amendment to Section 31Relevant legal framework and precedents: The Court considered whether the 2019 amendment to Section 31 was clarificatory or substantive.Court's interpretation and reasoning: The Court held that the amendment was clarificatory and declaratory, thus effective from the date the I&B Code came into effect.Application of law to facts: This interpretation supported the extinguishment of claims not included in the Resolution Plan, reinforcing the Court's decision regarding the respondents' demands.Conclusions: The amendment confirmed the extinguishment of claims not part of the Resolution Plan, supporting the Court's stance against the respondents' actions.Issue 3: Entitlement to Initiate Recovery ProceedingsRelevant legal framework and precedents: The Court reviewed Section 31 of the I&B Code and previous rulings, including 'Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta,' which emphasized the finality of approved Resolution Plans.Court's interpretation and reasoning: The Court reiterated that no proceedings could be initiated for claims not included in the Resolution Plan, emphasizing the 'clean slate' principle for the Successful Resolution Applicant (SRA).Key evidence and findings: The Court noted that the respondents had been informed of the binding nature of the Resolution Plan and the extinguishment of claims not included therein.Application of law to facts: The respondents' issuance of demand notices was deemed contemptuous, as they were contrary to the established legal framework.Treatment of competing arguments: The respondents argued that they were not parties to the insolvency proceedings and thus not bound by the Resolution Plan. The Court rejected this, stating that all stakeholders are bound regardless of participation.Conclusions: The Court found the respondents' actions in pursuing claims to be in contempt of its previous judgment and the legal framework of the I&B Code.3. SIGNIFICANT HOLDINGSThe Court held that:All claims not included in the Resolution Plan are extinguished, and no proceedings can be initiated for such claims post-approval.The 2019 amendment to Section 31 is clarificatory, reinforcing the extinguishment of claims not part of the Resolution Plan.Government entities, even if not parties to the insolvency proceedings, are bound by the approved Resolution Plan.The respondents' actions in issuing demand notices were contemptuous, but the Court chose not to take action against them, accepting their unconditional apology.Core principles established: The judgment reaffirms the binding nature of approved Resolution Plans on all stakeholders and the extinguishment of claims not included in such plans.Final determinations on each issue: The Court quashed the demand notices issued by the respondents and declared them illegal, emphasizing the binding effect of the Resolution Plan and the extinguishment of non-included claims.