Once the National Company Law Tribunal (NCLT) approves a resolution plan under Section 31 of India’s Insolvency and Bankruptcy Code, 2016 (IBC), pre-approval tax claims against the corporate debtor that are not included in the plan generally stand extinguished. Government tax authorities are bound by the approved plan, and ordinarily cannot start or continue recovery proceedings against the company for omitted claims relating to the pre-approval period. Whether a particular demand is covered depends on the plan, the claim record, the underlying tax period and who is legally liable.
What happens to pre-resolution tax dues?
The controlling cutoff is NCLT approval of the resolution plan under Section 31—not simply the start of insolvency proceedings or the date a tax authority later issues an assessment or demand. In Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, the Supreme Court held that the claims in an approved plan are frozen and bind the corporate debtor and relevant stakeholders, including Central, State and local government authorities owed statutory dues. Pre-approval claims omitted from the plan stand extinguished, and proceedings to recover them cannot ordinarily be initiated or continued against the corporate debtor. Read the Supreme Court judgment.
The Court treated government statutory dues as operational debt under Section 5(21) of the IBC. It also held that the 2019 amendment expressly naming government authorities in Section 31 was clarificatory and declaratory, effective from the Code’s commencement. The rule is therefore not limited to plans approved after that amendment.
Can the tax department issue a demand after plan approval?
The date of a demand notice alone does not answer the question. A later notice may concern an underlying tax claim from operations before approval. In Uttam Value Steels Ltd. v. Assistant Commissioner of Income Tax, decided on 28 August 2024, the Bombay High Court applied the Supreme Court’s rule to income-tax proceedings concerning pre-insolvency operations. It rejected the argument that the claim became a future due merely because the amount had not yet crystallised when the plan was approved; on the facts before it, later quantification did not turn the earlier-period liability into a new post-approval claim. Read the Bombay High Court decision.
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This is an application of the Supreme Court rule to the facts in that case, not a blanket answer to every tax demand. The relevant questions include what period and transactions the demand concerns, what the plan says, and whether the liability is legally the corporate debtor’s.
Does a tax claim have to be filed with the resolution professional?
The claim process and its records can be important. In a GST-related appeal decided on 10 November 2021, the NCLAT noted that the department had not shown when or in what form it filed its claim with the resolution professional. It declined to consider the late claim after plan approval, applying the principle that a successful resolution applicant should not face undecided claims after taking over the business. Read the NCLAT decision.
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That ruling illustrates why the record matters; it does not establish that every disputed tax claim was, or was not, filed in another insolvency. Review the claim submitted by the authority, the resolution professional’s records and information memorandum, the plan’s schedules and definitions, and the NCLT approval order.
What did the Supreme Court reaffirm in 2025?
In a contempt order dated 27 March 2025, the Supreme Court reiterated that authorities could not raise demands for periods before plan approval when those demands were not included in the plan. The order emphasized the need for certainty about the liabilities a resolution applicant will assume, noting that a successful applicant cannot suddenly face “undecided” claims after acceptance of the plan. Read the official document reproducing the order.
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For a particular company, compare the demand with the insolvency record and the approved plan rather than relying on the demand date alone. Check:
- Tax and period: Identify the tax type, authority, tax periods, and underlying transactions or operations.
- Approval date: Confirm the date the NCLT approved the plan under Section 31.
- Claim record: Find out whether and when the authority filed a claim, and how the resolution professional recorded it in the information memorandum and claim list.
- Plan terms: Read the approved plan’s definitions and schedules concerning claims, statutory dues and liabilities, together with the approval order.
- Underlying timing: Distinguish when the taxable event or operation occurred from when an assessment was made, an amount was quantified or a demand notice was issued.
- Person liable: Determine whether the demand is against the corporate debtor or asserts a separate liability of a director, guarantor or another person.
- Nature of the action: Compare the proceeding with the plan and approval order; the extinguishment principle concerns omitted pre-approval claims against the corporate debtor and does not decide every question about tax relief or waivers.
Does the plan discharge a director or guarantor too?
Not necessarily. The cited rulings address claims and proceedings in relation to the corporate debtor. They do not establish that approval of its plan automatically extinguishes a separate liability imposed on a director, guarantor or another person under a distinct legal provision. That exposure requires its own analysis.
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