Once Resolution Plan Is Approved; Government Cannot Make Any Further Claim

EMCO Limited Vs Joint Commissioner State Tax (Telangana High Court)

In the case of EMCO Limited vs. Joint Commissioner State Tax, Telangana High Court ruled that government departments cannot make claims post-approval of a resolution plan under the I&B Code. This decision underscores the binding nature of approved plans on all stakeholders, preventing surprise claims.

The scenario involved EMCO Limited as the corporate debtor undergoing liquidation, acquired by another company through auction. Despite discharging all liabilities, the GST department issued a show cause notice for tax dues post-transfer. The court held that such claims are extinguished with the approval of the resolution plan, as per Section 29 of the I&B Code and various legal precedents.

Lets suppose a company C1 is a corporate debtor goes into liquidation proceeding and another company C2 is an auctioner purchaser and it purchased C1 by bidding highest and discharged all his liabilities prior to the transfer date. Now the any government department let’s suppose GST department issues a Show Cause Notice under Section 73 to demand and recover a certain amount from C1(which is now comes under the ambit of C2) after the transfer date. Now the question here is whether a resolution plan which includes the liabilities of both operational and financial creditors has been approved can a government authority make a claim afterwards?

So the answer is “claim by government authorities after the resolution plan has been approved is not legal.” A resolution plan includes various detailed provision viz. Provision for payment of insolvency resolution process cost, provision for payment of debt of operational creditors (including government outstanding tax dues etc) and financial creditors. Section 29 of I&B code read with regulation 36 of the regulations states that it require the resolution plan should include information memorandum which shall have the details of corporate debtor so that the resolution applicant submitting a plan is aware of the assets and liabilities of the corporate debtor, including details of creditor and amount claimed by them. After satisfying all these conditions and seal of approval from the Adjudicating Authority the resolution plan is passed and binding upon all the stakeholders and no surprise claim can be made after the approval.

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