Resolution plan approval extinguishes excluded tax claims and bars post-approval recovery actions.

Approval of a resolution plan under the Insolvency and Bankruptcy Code freezes claims covered by the plan and binds all stakeholders, including governmental authorities. Claims not included in the approved plan stand extinguished, and no proceedings or recoveries can continue in respect of them. As the income-tax demand was not part of the approved resolution plan, the recovery action was inconsistent with the statutory effect of approval. The demand notice was therefore unsustainable and was set aside, and amounts already recovered were directed to be refunded with applicable interest.

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Issues: Whether the demand raised under Section 156 of the Income-tax Act, 1961 and the recoveries made pursuant to it could survive after approval of the resolution plan under Section 31(1) of the Insolvency and Bankruptcy Code, 2016.

Analysis: Once a resolution plan is approved by the adjudicating authority under Section 31(1) of the Insolvency and Bankruptcy Code, 2016, the claims covered by the plan stand frozen and are binding on all stakeholders, including governmental authorities. Claims not forming part of the approved resolution plan stand extinguished, and no proceedings can be initiated or continued in respect of such claims. The demand in question was not included in the approved resolution plan, and the subsequent recoveries were therefore inconsistent with the statutory effect of approval of the resolution plan.

Conclusion: The demand notice was unsustainable and was set aside. The recoveries already made were directed to be refunded with applicable interest.

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