Admitted claims in Resolution Plans are extinguished upon approval, regardless of alleged communication failures in spam folders.

In brief

The question

Whether the Resolution Professional committed an error or irregularity in the verification and treatment of the Income Tax Department's claim

The court held

The NCLAT dismissed the appeal, holding that there was no irregularity by the RP and no injustice caused to the Appellant

It also directed

The Court characterized the appeal as a "perfect example of wastage of valuable public resources" and directed the judgment to be sent to the Chairperson of the CBDT to prevent frivolous litigation by government agencies in insolvency matters where recovery prospects are mathematically negligible under the law

All pending applications were closed

01Facts

The Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor (CD) commenced on 19.09.2023

¶ 3(i)

The Appellant (Income Tax Department) filed a claim of ₹3,11,11,442/- on 08.10.2023, which the Resolution Professional (RP) kept under verification due to the absence of enforceable assessment orders

¶ 3(iii), 5(iv)

The Committee of Creditors (CoC) approved a Resolution Plan on 20.05.2024, which was subsequently approved by the Adjudicating Authority (NCLT, Jaipur) on 11.12.2024

¶ 3(vii-viii)

The Appellant challenged the approval, alleging the RP failed to consider its claim and provided a "paltry" allocation of ₹1.5 lakhs while asserting that a crucial email rejection notice landed in a spam folder

¶ 2, 3(vi)

02Issues

i.Whether the Resolution Professional committed an error or irregularity in the verification and treatment of the Income Tax Department's claim

¶ 10, 12

ii.Whether the non-admission of the full claim led to a lower recovery for the Appellant than it would have otherwise been entitled to under the Section 53 waterfall mechanism

¶ 10, 13

03Law Applied

The Court applied Section 30(6) and Section 31 of the Insolvency and Bankruptcy Code (IBC), 2016, regarding the approval and binding nature of resolution plans

¶ 1, 5(v)

It strictly followed the "Waterfall Mechanism" under Section 53 of the Code, which mandates the priority of distribution: CIRP costs first, followed by workmen/secured creditors, then unsecured financial creditors, and finally government dues/operational creditors

¶ 16, 17-19

The Court also relied on the "Clean Slate" principle and the precedent in Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss ARC, holding that claims not part of the approved plan stand extinguished

¶ 5(xiv-xv)

Provisions in the judgment · 10 · Linked ones open on LawLens

Insolvency and Bankruptcy Code, 2016. 9 provisions

Section 61 Section 7 Section 13 Section 15 Section 30 Section 31 Section 53 Section 52 Section 20

Companies Act, 2013 Section 326

04Reasoning

The Court found that the RP repeatedly requested assessment orders, which the Appellant only provided on 30.05.2024—after the Plan was already submitted to the NCLT for approval

¶ 11

Regarding the "spam folder" defense, the Court held that since previous communications were successful, the Appellant failed in its duty of vigilance

¶ 12

On the merits of distribution, the Court noted the CD's liquidation value was only ₹1.09 lakh, while the Plan offered ₹20 lakhs

¶ 14, 20

Applying Section 53, the Court calculated that if the Appellant’s claim had been admitted in full, its proportional share would have been only ₹75,000/-.

¶ 21

However, the Successful Resolution Applicant (SRA) voluntarily allocated ₹1.5 lakhs

¶ 21

Thus, the Appellant actually received double its legal entitlement under the waterfall priority

¶ 22