The High Court affirmed the clean slate principle, ruling that a Resolution Plan supersedes tax claims following approval under the Insolvency and Bankruptcy Code.
The Delhi High Court Division Bench of Justice Ms. Mini Pushkarna and Justice Dharmesh Sharma was hearing a petition and held that Once a Resolution Plan is approved under the Insolvency and Bankruptcy Code, 2016, it binds all stakeholders and extinguishes any claims not included in the Plan, rendering subsequent tax assessments and notices issued contrary to this principle invalid.
In CM APPL. 35477/2024, the Court allowed the application for exemption subject to just exceptions, and the application was disposed of. In the connected case, W.P.(C) 8679/2024, along with CM APPL. 35476/2024 concerning a stay, the petitioner sought to quash the Assessment Order dated 22nd May 2024 issued by the Deputy Commissioner of Income Tax under Section 143(3) of the Income Tax Act, 1961, for the Assessment Year 2022-23 and Financial Year 2021-22. The petition also challenged the Demand Notice under Section 156 and Notices dated 23rd May 2024 under Section 274 of the same Act.
The petitioner contended that the Notices were issued after the National Company Law Tribunal (NCLT), Chennai, approved a Resolution Plan for the petitioner company on 6th December 2021. It was argued that these Notices and the Assessment Order were legally untenable as they conflicted with the Insolvency and Bankruptcy Code (IBC), 2016, which provides for the company’s revival on a “Clean Slate Basis.” The petitioner further noted the urgency due to the penalty being assessed on 24th June 2024.
Despite advance notice, none appeared for the respondents. The Court noted that the service of notice on the respondents had been made through their official email. The Court also considered the order dated 5th March 2024 in W.P.(C) 12461/2022, which was relevant to the petitioner’s case. It was observed that the NCLT had initiated the Corporate Insolvency Resolution Process (CIRP) for the petitioner on 29th August 2019, and the Resolution Plan was successfully approved on 6th December 2021. The new management was to implement the Resolution Plan on a clean slate basis.
The Court emphasized that once a Resolution Plan is approved, it binds all stakeholders, and claims not included in the Plan are extinguished. This principle was reaffirmed by previous judgments, including those by the Supreme Court. Given this context, the impugned orders and notices were found to be invalid. Consequently, the Court set aside the Assessment Order dated 22nd May 2024, the Demand Notice, and the Notice dated 23rd May 2024, and allowed the petition in the specified terms.
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