When the National Company Law Tribunal (NCLT) approves an insolvency resolution plan under Section 31 of India’s Insolvency and Bankruptcy Code, 2016 (IBC), a tax claim against the company for an earlier period generally cannot be pursued if it was left out of the approved plan. The Supreme Court has held that this rule covers statutory dues owed to Central, State and local government authorities. Whether a particular demand is covered depends on the plan, the insolvency claims record, the period and events behind the tax liability, and who is legally liable.
What happens to pre-approval tax dues?
In Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited (13 April 2021), the Supreme Court held that claims provided for in an approved resolution plan are frozen and bind the corporate debtor and relevant stakeholders, including government authorities. Pre-approval claims omitted from the plan stand extinguished, and proceedings to recover them cannot ordinarily be initiated or continued against the corporate debtor. The ruling includes statutory dues owed to the Central Government, State Governments and local authorities. Read the Supreme Court judgment.
The Court also held that the 2019 amendment to Section 31, which expressly refers to government authorities, was clarificatory and declaratory and applied from the IBC’s commencement. The rule is therefore not limited to cases where the NCLT approved a plan after that amendment.
Does the tax demand have to be final before plan approval?
Not necessarily. The date an authority assesses or quantifies a tax does not, by itself, settle whether the claim relates to the pre-approval period. In Uttam Value Steels Ltd. v. Assistant Commissioner of Income Tax (28 August 2024), the Bombay High Court applied the Supreme Court rule to tax proceedings concerning the company’s pre-insolvency operations. It rejected the argument that a claim became a future due merely because its amount had not crystallised when the plan was approved. On the facts before it, the later quantification did not turn the underlying earlier-period liability into a new post-approval claim. Read the Bombay High Court decision.
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This decision applies the general rule to its particular facts; it does not decide every dispute about when a tax liability arose. The relevant questions include the period and transactions behind the demand, not just the date on the assessment or demand notice.
What if the tax authority did not file a claim?
Claim records can be important. In a GST-related appeal decided on 10 November 2021, the National Company Law Appellate Tribunal (NCLAT) noted that the department had not shown when or in what form it filed a claim with the resolution professional. It declined to consider the late claim after approval, applying the rule against confronting a successful resolution applicant with undecided claims after the plan is accepted. Read the NCLAT decision.
That outcome is an illustration, not an automatic answer for every GST demand. For a specific case, check the claim filings and what the resolution professional recorded, as well as how the approved plan treats statutory liabilities.
What does the 2025 Supreme Court order add?
In a contempt proceeding concerning post-plan demands, a Supreme Court order dated 27 March 2025 reiterated Ghanshyam Mishra. As reproduced in the official document consulted, the Court said authorities could not raise demands for pre-approval periods if those demands were not included in the plan. It emphasized that imposing undecided claims after approval would undermine certainty about what a successful applicant must pay to take over and run the business. Read the document reproducing the Supreme Court order.
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How to assess a particular tax demand
A company or creditor should compare the demand with the insolvency record and the approved plan rather than rely on the demand’s issue date alone. The documents and facts to check include:
- Tax and period: Identify the tax type, authority, tax periods and underlying transactions or operations.
- Approval date: Confirm when the NCLT approved the plan under Section 31.
- Claims record: Check whether the authority filed a claim and how the resolution professional recorded it, including in the information memorandum and claim list.
- Plan wording: Read the approved plan’s definitions and schedules, and its treatment of statutory claims and liabilities.
- Timing of the liability: Distinguish when the taxable event or underlying operation occurred from when an assessment, quantification or demand notice followed.
- Person liable: Establish whether the demand is against the corporate debtor or alleges a separate liability of a director, guarantor or another person.
- Nature of the proceeding: Compare the post-approval demand or proceeding with the plan and approval order. The cited decisions address claims against the corporate debtor; they do not determine every question about reliefs, waivers or independent statutory liabilities.
Does the company’s discharge protect directors or guarantors?
Not automatically. The cited rulings concern claims and proceedings against the corporate debtor. A director, guarantor or other person may face a distinct liability under a separate provision; whether that liability survives requires separate analysis of the legal basis and facts. Do not assume that extinguishing an omitted company claim also extinguishes another person’s exposure.
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