GHANASHYAM MISHRA AND SONS PRIVATE LIMITED THROUGH THE AUTHORIZED SIGNATORY versus EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED THROUGH THE DIRECTOR & ORS.

Summary

Approval of a resolution plan under section 31 of the Insolvency and Bankruptcy Code binds all stakeholders, including government authorities. Pre-approval claims omitted from the approved plan stand extinguished and cannot be pursued against the corporate debtor. The 2019 amendment expressly mentioning government dues is clarificatory and operates from the Code’s commencement. The Court removed liberties to pursue excluded claims and invalidated the connected tax recovery proceedings.

Issues

1. Whether an approved resolution plan binds government creditors and extinguishes claims outside the plan.
2. Whether the 2019 amendment to section 31 operates retrospectively.
3. Whether NCLAT could preserve excluded claims despite finding no statutory ground to disturb the approved plan.

Provisions considered

• Sections 3(10), 5(20) and 5(21), Insolvency and Bankruptcy Code, 2016Government authorities claiming statutory dues fall within the creditor and operational-debt framework. (¶ 88-94)
• Sections 30 and 31, Insolvency and Bankruptcy Code, 2016NCLT approval, after the prescribed statutory scrutiny, binds all stakeholders; the 2019 clarification applies retrospectively. (¶¶ 53-64, 86-95)
• Section 61(3), Insolvency and Bankruptcy Code, 2016NCLAT could not preserve excluded claims after finding no statutory ground against plan approval. (¶¶ 109-111, 123-125)
• Section 238, Insolvency and Bankruptcy Code, 2016The Code overrides inconsistent statutory recovery provisions. (¶¶ 64, 106-107, 138)
• Article 226, Constitution of IndiaAlternative remedy did not justify sending the debtor to pursue proceedings rendered impermissible by the approved plan. (¶ 129-132)

Held

• On approval under section 31, claims as provided in the plan become binding on the corporate debtor and all stakeholders. Claims outside the plan stand extinguished; proceedings concerning such pre-approval claims cannot be initiated or continued. This finality enables the successful applicant to take over without unexpected liabilities. (¶¶ 54-64, 95)
• The 2019 amendment expressly referring to Central, State and local government dues is declaratory and clarificatory, effective from the Code’s commencement. Statutory dues were already operational debts, and government creditors were already within the binding statutory framework. (¶ 74-95)
• Having upheld plan approval and found no section 61(3) ground, NCLAT could not grant Edelweiss, workmen or another operational creditor liberty to pursue excluded claims elsewhere. Paragraphs 28, 42, 43, 51 and 52 of its judgment were expunged; NCLT’s order was upheld. The guarantee claim here was against the corporate debtor itself as guarantor. (¶ 109-125)
• The Allahabad High Court should not have relegated the debtor to an alternative appeal over recovery proceedings that could not survive plan approval. Its judgment was set aside, and the connected Monnet writ petition was also allowed; the authorities could not recover the relevant pre-transfer claims. (¶ 126-140)
• The Jharkhand High Court erred in treating government dues as outside operational debt, denying retrospective effect and denying the corporate debtor standing after a change in management. The publication and fraud objection failed on the record. Its judgment was set aside and recovery of the relevant pre-transfer debts barred. (¶ 142-149)

Result

Appeals and writ petition allowed. Specified NCLAT observations expunged and NCLT approval upheld; Allahabad and Jharkhand High Court judgments set aside, with the stated pre-transfer recoveries barred and consequential relief to follow. No costs in the leading appeal.