IBC| Statutory Dues If Not Part Of Resolution Plan, Shall Stand Extinguished: Supreme Court
The Supreme Court was deciding a Contempt Petition of M/s JSW Steel Limited under Article 129 read with Article 142 of the Constitution and Section 2(b) of the Contempt of Courts Act, 1971.
Justice BR Gavai & Justice Augustine George Masih, Supreme Court
The Supreme Court reiterated that the statutory dues owed to the Central Government, or any State Government or any local authority, if not part of the Resolution Plan, shall stand extinguished.
The Court was deciding a Contempt Petition filed by M/s JSW Steel Limited under Article 129 read with Article 142 of the Constitution and Section 2(b) of the Contempt of Courts Act, 1971 (CCA), alleging wilful disobedience of a 2021 Apex Court’s Judgment passed in a Civil Appeal, by the alleged contemnors.
The two-Judge Bench of Justice B.R. Gavai and Justice Augustine George Masih elucidated, "The Court clearly held that all the dues including the statutory dues owed to the Central Government, or any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued."
The Bench refused to proceed against the contemnors inasmuch they were entitled to the benefit of doubt.
“When the law laid down by this Court in the case of Ghanshyam Mishra (supra) is clear and unambiguous and specifically when the Petitioner’s own case was part of the batch which is specifically dealt with by this Court, the respondents/alleged contemnors ought not to have proceeded further with the recovery proceedings and ought to have dropped them forthwith. The continuation of such proceedings despite the judgment and order of this Court being pointed out to their notice is nothing but contemptuous in nature”, it said.
Senior Advocate Gopal Jain appeared for the Petitioner while AOR Pragati Neekhra appeared for the Respondents.
Brief Facts
Insolvency proceedings were initiated against the erstwhile company M/s Monnet Ispat and Energy Ltd. as per the Insolvency and Bankruptcy Code, 2016 (IBC). After the insolvency process was initiated, the Interim Resolution Professional (IRP) was appointed as per IBC and it was determined that the total debt upon the erstwhile company was much more than its liquidation value. As per the regulations, an advertisement inviting claims against the erstwhile company which were to be issued to the IRP, was issued. After the claims process was over, the announcement for submission of Resolution Plans (RPs) by companies was issued. The Petitioner company was declared as the Successful Resolution Applicant (SRA) after voting by the Committee of Creditors (COC). The National Company Law Tribunal (NCLT) approved RP and pursuantly, the management of the erstwhile company was taken over by the Petitioner company.
Thereafter, various demand notices were raised upon the Petitioner by the Odisha Mining Corporation Ltd. for recovery of Sales Tax against iron ore purchased by the erstwhile company. Being aggrieved, the Petitioner filed a Writ Petition before the Supreme Court. The Court vide a common Judgment in the case of Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited and others (Civil Appeal No. 8129 of 2019), held that any and all creditors, including the Central Government, State Government, or any local authority are bound by the RP as approved by the Adjudicating Authority and all claims which are not a part of the RP stand extinguished. It was alleged by the Petitioner that the Revenue authorities wilfully disobeyed the said Judgment by issuing demand notices to the Petitioner for outstanding taxes, penalties, and interest, which the Petitioner claimed were not payable. Being aggrieved by the actions of the authorities, the Petitioner filed a Contempt Petition before the Apex Court.
Reasoning
The Supreme Court in the above context of the case, said, “It can thus clearly be seen that this Court has held that 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 Court further reiterated that all claims must be submitted to and decided by the RP so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. It observed that all such claims which are not a part of the Resolution Plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the Resolution Plan.
“… we have no hesitation in holding that the demands raised by the respondents/authorities for a period prior to the date on which the learned NCLT has approved the Resolution Plan were totally contemptuous in nature. The respondents could not have raised the said demands inasmuch as they are not part of the Resolution Plan”, it held.
The Court also reiterated that when a grievance was made before the Adjudicating Authority with regard to the Resolution Plan, the Adjudicating Authority was required to examine if the Resolution Plan met the requirements of Section 30(2) of the IBC.
“This Court also held that under Section 31 of the Code, while approving the Resolution Plan as approved by the CoC, the Adjudicating Authority must come to a satisfaction that the Resolution Plan meets the requirements as referred to in sub section (2) of Section 30 of the Code. It has further been held by this Court that the condition precedent for approval of a Resolution Plan was that it should meet the requirements of sub section (2) of Section 30 of the Code”, it added.
The Court said that in this case, in spite of public notice, neither the Chhattisgarh State nor its authorities raised any claim before the CoC and hence, the Petitioner’s case is specifically covered by the Judgment in the case of Ghanshyam Mishra.
“We have, therefore, no hesitation in holding that the continuation of the proceedings by the respondents/authorities even after the judgment of this Court in Ghanshyam Mishra (supra) was specifically brought to their notice is contemptuous in nature”, it held.
The Court took note of the fact that the Respondents have tendered their unconditional apology and hence, it held that their act is contemptuous in nature; however, refused to propose any action against them.
“The demand notices issued by the contemnors on the Petitioner Company and all proceedings pursuant thereto are held to be illegal and the same are quashed and set aside”, it concluded.
Accordingly, the Apex Court disposed of the Contempt Petition, quashed the proceedings, and accepted unconditional apology of the contemnors.
Cause Title- M/s JSW Steel Limited v. Pratishtha Thakur Haritwal & Ors. (Neutral Citation: 2025 INSC 401)
Appearance:
Appellant: Senior Advocate Gopal Jain, Advocates Nandini Gore, Akhil Abraham Roy, Advocates Mohammad Shahyan Khan, and Manvi Rastogi.
Respondents: AOR Pragati Neekhra, Advocates Aditya Bhanu Neekhra, Atul Dong, and Aniket Patel.
