The Supreme Court has strongly reprimanded the National Company Law Appellate Tribunal (NCLAT) for its failure to adhere to a critical precedent regarding the finality of resolution plans approved under the Insolvency and Bankruptcy Code (IBC), 2016. This oversight by NCLAT, which involved the revival of claims not included in an approved resolution plan, was termed “perverse” by the apex court.
The dispute centered around Tehri Iron and Steel Casting Ltd., whose resolution process under IBC was challenged by additional tax demands from the Income Tax Department. These demands pertained to assessment years prior to the approval of the resolution plan by the National Company Law Tribunal (NCLT).
Justices Abhay S Oka and Ujjal Bhuyan of the Supreme Court pointed out that the NCLAT had erroneously ignored the Supreme Court’s established jurisprudence in the Ghanashyam Mishra case, which explicitly states that claims not part of an approved resolution plan are extinguished and cannot be revived subsequently.
The appellants, Vaibhav Goel and Madhu Goel, faced fresh tax demands for earlier years despite the NCLT’s approval of their resolution plan on May 21, 2019, which included a liability to the Income Tax Department under “contingent liabilities.” The NCLAT’s decision to uphold the tax demands, despite them not being raised during the corporate insolvency resolution process (CIRP), led the appellants to seek relief from the Supreme Court.
In its judgment, the Supreme Court noted that the NCLAT had dismissed the precedent on the grounds that it was not cited at the NCLT and that the appellants had not challenged the resolution plan. The apex court found this reasoning legally unsustainable, emphasizing that once a resolution plan is approved, it becomes binding on all creditors, including governmental authorities.
“This court cannot countenance an appellate tribunal’s disregard for binding judicial precedent. Such a move undermines the resolution process and the predictability needed for successful insolvency resolutions,” the bench stated.
Furthermore, the Supreme Court highlighted that allowing such belated claims would not only disrupt the fresh start envisaged for the corporate debtor but also defeat the purpose of the IBC, which aims to streamline the insolvency process and ensure business continuity.
