Pre-Approval Statutory Dues Stand Extinguished Upon Approval Of Resolution Plan; GST Authorities Cannot Initiate Fresh Proceedings: Calcutta High Court

"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." Calcutta High Court, in a significant ruling, held that statutory tax dues pertaining to a period prior to the approval of a resolution plan under the Insolvency and Bankruptcy Code (IBC), 2016, stand extinguished if not lodged as claims before the Resolution Professional.

A bench of Justice Aryak Dutt observed that once a resolution plan attains finality under Section 31 of the IBC, it binds all stakeholders, including Central and State authorities, and any attempt to initiate fresh assessment or recovery proceedings for pre-existing dues is legally impermissible.

The petitioner, SREI Equipment Finance Limited, a Non-Banking Financial Company, faced an IGST demand of over Rs 1.68 crore for the Financial Year 2021-22, issued via a notice in 2025—two years after its resolution plan was approved by the NCLT on August 11, 2023. Despite the petitioner's intimation regarding the approved plan and the subsequent extinguishment of liabilities, the GST authorities confirmed the demand through an Order-in-Original. The petitioner challenged this order, alongside a separate notice demanding interest under Section 50 of the CGST Act, by invoking the "fresh slate" principle established by the Supreme Court.

The primary question before the court was whether GST authorities could initiate adjudication proceedings for tax liabilities arising prior to the approval of a resolution plan when such claims were not lodged during the Corporate Insolvency Resolution Process (CIRP). The court was further called upon to determine if the distinction between "assessment/determination" of tax and "recovery" of tax could justify the continuation of proceedings post-approval of the plan.

Binding Nature of Section 31(1) IBC

 The Court reiterated that Section 31(1) of the IBC, post-2019 amendment, explicitly binds the Central Government and statutory authorities. The bench emphasized that the resolution plan functions as a statutory contract, ensuring that the corporate debtor emerges under new management with a "fresh slate." The Court held that authorities cannot circumvent the IBC by classifying pre-resolution dues as "undecided claims" to be adjudicated later.

Extinguishment of Unlodged Claims

The Court rejected the argument that only recovery—and not the adjudication of liability—was barred. It noted that the initiation of proceedings via a Show Cause Notice constitutes the commencement of legal action, which is prohibited once a claim is extinguished under an approved plan. Any contrary interpretation would effectively allow these liabilities to function as "roadblocks" to the implementation of the resolution plan, rendering the purpose of the IBC nugatory.

"Ghanashyam Mishra" Principle Applied

"The demand therefore stood extinguished on 11th August, 2023, and the respondents were not entitled thereafter to initiate any proceedings in respect to it." The Court extensively relied on the Supreme Court’s ruling in Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., confirming that the bar applies to all proceedings, whether known or unknown, assessed or unassessed. It clarified that the respondents' reliance on Sundaresh Bhatt was misplaced, as that judgment concerned liquidation proceedings where assets are distributed under priority, unlike a resolution process where the entity is revived as a going concern.

Non-Applicability of CGST Provisions

The Court dismissed the Revenue's reliance on Section 88 of the CGST Act, noting that it deals with companies in liquidation, whereas the petitioner was a successfully revived corporate debtor. Furthermore, the Court noted that the Central Board of Indirect Taxes and Customs (CBIC) itself has issued internal instructions acknowledging that unfiled claims stand extinguished upon the approval of a resolution plan, a fact the assessing officers failed to consider.

The High Court quashed the Show Cause-cum-Demand Notice, the Order-in-Original, and the interest demand notice, reaffirming that the sanctity of a resolution plan must be upheld to ensure the efficacy of the insolvency framework. This ruling reinforces the precedent that tax authorities cannot bypass the IBC mechanism to raise belated demands against a corporate debtor that has successfully undergone insolvency resolution.

Date of Decision: 01 October 2026