Claims Arising Prior to Approval of Resolution Plan Stand Extinguished Under IBC Clean Slate Theory

The Petitioner No. 1 company underwent a Corporate Insolvency Resolution Process (CIRP) initiated by the NCLT on 25.07.2017

Petitioner No. 2 is the Successful Resolution Applicant (SRA) whose Resolution Plan was approved by the NCLT under Section 31 of the IBC on 04.12.2018

Following this approval, various government departments (Respondents), including the Income Tax Department, Customs, and Provident Fund Commissioner, issued demand notices for dues pertaining to periods significantly prior to the CIRP initiation date

The Petitioners approached the High Court to quash these notices, arguing they were extinguished by the approved Resolution Plan

1. Whether demand notices for statutory dues pertaining to a period prior to the initiation of the CIRP can be raised/enforced against a Successful Resolution Applicant after the approval of a Resolution Plan under Section 31 of the IBC

Section 31 of the Insolvency and Bankruptcy Code (IBC), 2016, which mandates that an approved Resolution Plan is binding on all stakeholders, including Central and State Governments

The Court relied on the "Clean Slate Theory" as established by the Supreme Court in Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., which held that all claims not part of the resolution plan stand extinguished upon approval

Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, which prohibits "undecided claims" from being raised post-resolution to ensure the SRA starts on a fresh slate

The High Court's own Division Bench decisions in Ireo Fiverriver Pvt. Ltd. v. Income Tax Department and National Sewing Thread Company Limited v. Deputy Commissioner

The Court found that the impugned demand notices, such as those issued by the Income Tax Department (Respondent No. 4) and the Regional Provident Fund Commissioner (Respondent No. 5), were for claims dating back to the years 2009-10 and 2012-15

Since these liabilities accrued prior to the CIRP initiation date of 25.07.2017, the Court determined they were "undecided claims" that were not factored into the approved Resolution Plan

Applying the "Clean Slate Theory," the Court reasoned that allowing such claims would throw the business into uncertainty and militate against the rationale of Section 31 of the IBC

The Court held that the SRA cannot be foisted with liabilities pertaining to the pre-resolution period once the plan is finalized

The Court allowed the petition and set aside all impugned demand notices issued by the Respondents regarding claims arising prior to the approval of the Resolution Plan