Summary
Chhattisgarh commercial tax authorities who raised sales tax, VAT and entry tax demands for a pre-CIRP period against a company whose resolution plan had been approved under Section 31 IBC, after the Supreme Court's judgment in Ghanshyam Mishra (in which the petitioner's own case was decided) had been brought to their notice, acted contemptuously; the demand notices and consequent proceedings were quashed, but no action was taken against the officers on their unconditional apology and the benefit of doubt.
Issues
- Whether State tax authorities that were not parties to the CIRP or to the writ petition decided in Ghanshyam Mishra are bound by the approved resolution plan and by that judgment, so that raising demands for pre-approval statutory dues not included in the plan amounts to wilful disobedience of the Court's order.
- Whether the judgment in State Tax Officer v. Rainbow Papers Limited entitled the authorities to raise such demands.
- Whether the Court should punish the alleged contemnors.
Provisions considered
- Section 31(1), Insolvency and Bankruptcy Code, 2016Once a resolution plan is approved by the Adjudicating Authority it binds the corporate debtor and all stakeholders including the Central Government, State Governments and local authorities; claims not part of the plan, including statutory dues for the period before approval, stand extinguished and no proceedings for them can be initiated or continued (Ghanshyam Mishra). The 2019 amendment is clarificatory and operates from the Code's commencement. (¶¶ 8, 14, 16, 17, 22, 27, 36)
- Section 238, Insolvency and Bankruptcy Code, 2016The Code overrides anything inconsistent in any other enactment, including tax statutes, as reflected in the order of 10.08.2018 in SLP (C) No. 6483 of 2018 on income-tax dues. (¶¶ 20, 21)
- Sections 30(2) and 53, Insolvency and Bankruptcy Code, 2016Rainbow Papers turned on whether Section 53 overrides Section 48 of the Gujarat VAT Act and on the Adjudicating Authority's satisfaction under Section 31 that the plan met Section 30(2) where the State had actually lodged its claim before the resolution professional; it was distinguished because here the State lodged no claim despite the public notice. (¶¶ 28, 29, 30, 31, 32, 33)
- Articles 129 and 142, Constitution of IndiaThe contempt petition was filed under Article 129 read with Article 142 and Section 2(b) of the Contempt of Courts Act, 1971 alleging wilful disobedience of the judgment dated 13.04.2021. (¶ 2)
- Section 2(b), Contempt of Courts Act, 1971Civil contempt alleged for continuing recovery proceedings contrary to the judgment in Ghanshyam Mishra; the conduct was held contemptuous in nature but no punishment was imposed. (¶¶ 2, 34, 35, 37)
- Section 146, Chhattisgarh Land Revenue Code, 1959The Additional Revenue Collector issued a further demand notice under this provision on 09.12.2022 for the same central tax, sales tax and entry tax amounts; quashed along with the earlier demand. (¶¶ 3.8, 12, 37)
Held
- The law is no longer res integra: under Ghanshyam Mishra, once a resolution plan is approved under Section 31(1), all claims not part of it, including statutory dues owed to the Central Government, any State Government or local authority for the period before approval, stand extinguished, and no person may initiate or continue proceedings for such claims. A successful resolution applicant takes over on a clean slate and cannot be faced with undecided claims like a hydra head popping up (Essar Steel). (¶¶ 14, 16, 17, 22, 23, 24)
- The petitioner's own writ petition formed part of the Ghanshyam Mishra batch, where the Court specifically declared that the respondents were not entitled to recover claims accruing before the transfer date; the demands raised by the Chhattisgarh authorities for 1 April 2017 to 30 June 2017, a period before the NCLT approved the plan on 24.07.2018, were therefore totally contemptuous and could not have been raised. (¶¶ 15, 18, 19, 27)
- Rainbow Papers is distinguishable on facts: there the State Tax Officer had lodged its claim before the resolution professional and the Court found the Adjudicating Authority's satisfaction under Section 31 vitiated by its non-consideration; here neither the State of Chhattisgarh nor its authorities raised any claim before the CoC despite the public notice. (¶¶ 28, 29, 30, 31, 32, 33)
- A stakeholder that is not a party to the NCLT proceedings and does not lodge its claim before the IRP or RP is nonetheless bound by the resolution plan approved by the NCLT; the plea that the State was not a party to the writ petition or the NCLT proceedings does not avail the contemnors. (¶ 36)
- When the law in Ghanshyam Mishra was clear and the petitioner's case was specifically dealt with in that batch, the authorities ought to have dropped the recovery proceedings forthwith once the judgment was brought to their notice; their continuation was contemptuous in nature. However, this being one of the first cases arising after that judgment and the contemnors having tendered an unconditional apology, they were given the benefit of doubt and no action was taken. (¶¶ 34, 35, 36, 37)
Result
Contempt petition disposed of; I.A. No. 21914 of 2024 for amendment of cause title allowed; act of the alleged contemnors held contemptuous in nature but no action taken, their unconditional apology being accepted; demand notices issued to the petitioner company and all proceedings pursuant thereto held illegal and quashed.