Resolution plan binding even if stakeholder not party to NCLT case: SC

Tax authorities issue apology for being in contempt of SC judgment

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The Supreme Court on Thursday said the resolution plan of a stressed company would be binding on a stakeholder even if they were not a party to the proceedings before the National Company Law Tribunal (NCLT).

 

The court also said that if such a stakeholder does not raise their claim before the interim resolution professional/resolution professional, the resolution plan as approved by the NCLT would still be binding on them.

 

“No doubt that even if any stakeholder is not a party to the proceedings before the NCLT and if such stakeholder does not raise his claim before the interim resolution professional/resolution professional, the resolution plan as approved by the NCLT would still be binding on him,” the bench of Justices B R Gavai and Augustine George Masih said.

 

This was on a plea by JSW Ispat Special Products Ltd (now JSW Steel Ltd and petitioner) alleging that officers of the Commercial Tax Department of the State of Chhattisgarh (respondents) had disobeyed the Supreme Court judgment in the case Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited and others (Ghanshyam Mishra).

 

The court said that despite knowledge of the Ghanshyam Mishra judgment, the respondents still issued demand notices to JSW for a period prior to approval of the resolution plan.

 

The bench observed that once a resolution plan is approved, the resolution applicant starts on a clean slate and thus cannot be flung with surprise claims.

 

“It can thus be seen that in view of clear pronouncement of law by this court, all the dues of any of the stakeholders, including the statutory dues owed to the central government, any state government, or any local authority, which were not part of the resolution plan, stood extinguished from the date on which the resolution plan stood approved,” the order said.

 

In 2017, insolvency proceedings were initiated against M/s Monnet Ispat & Energy Ltd and the resolution plan was approved on July 24, 2018, declaring JSW as the successful resolution applicant.

 

During this time, the State of Chhattisgarh had failed to file a claim when invited by the insolvency resolution professional via public announcement dated July 27, 2017.

 

The court quashed the demand notices of the respondents to the tune of Rs 2.66 crore under the Chhattisgarh Value Added Tax Act, 2005, Rs 1.08 crore under the Central Sales Tax Act, 1956, and Rs 61 lakh under the Entry Tax Act, 1957, and termed them illegal.

 

“Undoubtedly, in the present case, in spite of public notice, neither the State of Chhattisgarh nor its authorities raised any claim before the committee of creditors (CoC). In that view of the matter, we are of the considered view that the case of the present petitioner is specifically covered by the judgment of this court in the case of Ghanshyam Mishra (supra), which judgment was brought to the notice of the respondents/authorities. The respondents/authorities could not have proceeded with the recovery proceedings,” the judgment said.

 

The court, however, noted that though the acts of the respondents were contemptuous in nature, no stern action would be taken against them in light of the unconditional apology tendered by them to the petitioner.