FACTS OF THE CASE

M/s ERA Infra Engineering Ltd. (Petitioner) was an infrastructure company that entered insolvency proceedings before the National Company Law Tribunal (NCLT), New Delhi, following a financial creditor’s application under Section 7 of the Insolvency & Bankruptcy Code, 2016 (IBC). The Corporate Insolvency Resolution Process (CIRP) was initiated, and a Resolution Professional was appointed. During the CIRP, the GST department received statutory notices of claims from the petitioner’s Resolution Professional and filed its claims.

The resolution plan submitted by S. A. Infrastructure Consultants Pvt. Ltd. was approved by the NCLT on 11th June 2024, making it binding on all stakeholders, including statutory authorities. Subsequent to approval, the GST Department issued Show Cause Notices in August and November 2024 demanding recovery of outstanding GST dues (across financial years including 2017‑18 to 2019‑20), which led to the filing of writ petitions before the High Court seeking quashing of those notices and consequential demand orders. 

ISSUES INVOLVED

  1. Whether a tax demand can be raised or proceeds of recovery initiated by the GST Department for periods prior to the approval of the resolution plan by the NCLT after the plan has been finally approved?
  2. Whether statutory dues that are part of insolvency claims and finalized during CIRP can be reopened by tax authorities after approval of the resolution plan? 

PETITIONER’S ARGUMENTS

  • The Petitioner submitted that once the NCLT approved the resolution plan under Section 31 of the IBC, all claims (including statutory dues) standing crystallized before the NCLT are binding and “frozen”.
  • After approval, no fresh demand or recovery can be initiated for periods prior to such approval as per binding Supreme Court precedent in Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., which holds that any claim not part of the approved resolution plan stands extinguished.
  • The GST department was already placed on notice and had itself filed claims during CIRP; therefore, further demands raised post plan approval are legally untenable. 

RESPONDENT’S ARGUMENTS

  • The respondents contended the impugned demand orders merely crystallize amounts and are not for recovery steps as such.
  • Their primary stand was that statutory dues assessments and notices were within the competence of GST authorities and the issue of inclusion in resolution plan stands on technical grounds. 

COURT ORDER / FINDINGS

The Delhi High Court, observing binding Supreme Court precedents, held:

  1. Once a resolution plan is duly approved under Section 31 of the IBC, all claims finalized in the CIRP, including statutory dues, stand frozen and are binding on all stakeholders including Government authorities.
  2. Any claim not part of the resolution plan for periods prior to approval stands extinguished and cannot be pursued further.
  3. GST Department, having participated in the CIRP and filed its claims, cannot raise further demands or notices after approval of the resolution plan for periods before the plan came into effect.
  4. The impugned orders‑in‑original dated 14th and 25th November 2024 and the consequential demand notices were held not tenable and were set aside.
  5. The Court expressly did not go into the merits of the demands, restricting itself to the legal principle of extinction of pre‑plan claims.

The petitions were disposed of with directions to set aside the challenged orders.

IMPORTANT CLARIFICATIONS

  • Resolution Plan Binding on Authorities: Once approved under Section 31, a resolution plan binds the corporate debtor, its employees, members, creditors and statutory authorities, extinguishing claims not included in the plan.
  • Statutory Dues in CIRP: Statutory claims filed within CIRP and accepted become part of the resolution plan; no separate supra‑vening demand can be raised thereafter for the same period.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/75415122025CW22812025_154656.pdf

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