No Tax Demand After Resolution Plan Approval, Rules Supreme Court

New Delhi, March 22: In a significant ruling, the Supreme Court of India has held that no tax demand can be imposed on a corporate debtor once a resolution plan has been approved by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC). This decision ensures that successful resolution applicants are not burdened with unexpected tax claims after taking over a distressed company. The verdict, delivered by Justices Abhay S. Oka and Ujjal Bhuyan, clarifies that all claims against a corporate debtor must be submitted and resolved during the resolution process. Any additional claims, including those from the Income Tax (I-T) Department, cannot be entertained after the resolution plan has been finalized.

Protecting the Rights of Resolution Applicants

The Supreme Court strongly emphasized that a successful resolution applicant should not face undecided or additional claims once the resolution plan is approved.

“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,” the judgment stated.

Under the IBC framework, a corporate debtor refers to a company or limited liability partnership (LLP) that owes a debt to any person. The resolution process allows creditors and lenders to recover dues while ensuring the revival of the corporate debtor under a structured plan.

Finality of Resolution Plans

The two-judge bench clarified that all claims must be submitted to the resolution professional during the insolvency process. This ensures transparency and allows prospective resolution applicants to know exactly what they are liable for before taking control of the corporate debtor’s business. The court reaffirmed its stance, stating:

“This the successful resolution applicant does on a fresh slate, as has been pointed out by us…”

Impact of the Supreme Court’s Ruling

This judgment is expected to provide clarity and relief to businesses and investors involved in the corporate insolvency resolution process. By barring additional tax claims post-resolution, the ruling promotes certainty and stability in India’s insolvency framework. Experts believe this decision will further strengthen the IBC mechanism, ensuring that successful resolution applicants can focus on reviving businesses without the fear of sudden financial liabilities. The ruling also reinforces the importance of finality in NCLT-approved resolution plans, preventing government agencies from raising post-approval claims.