In Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., the Hon. Supreme Court of India declared on April 13, 2021, that after the resolution plan was approved, no creditor, including any governmental or tax entity, would have any claims against the corporate debtor. After being hired, a resolution specialist publishes a notice inviting all claims from creditors. After that, resolution applicants present their potential resolution proposals, which the Committee of Creditors subsequently approves. No more claims may be made to the Resolution Professional after the resolution plan has been approved. This judgement reiterates that creditors, including the government and tax agencies, are not entitled to recover any claims made after the resolution plan's adoption. In the cases of Electrosteel Steels Ltd. v. State of Jharkhand and Ors., M/s Monnet Ispa & Energy Ltd. and Anr. v. State of Odisha and Anr, the circumstances of all of these cases are quite similar to this case because all the current recovery procedures against the Corporate Debtor must be terminated following acceptance of the resolution plan, according to notifications sent to operational creditors, namely tax authorities. The High Court ruled that the resolution plan is not enforceable against the tax authorities because they did not engage in the Corporate Insolvency Resolution Process (CIRP).
In the instant case titled Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., the issues raised for clarification before the Supreme Court were:
Does Section 31(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) obligate any creditor, including the Central or State Government, after the resolution plan has been approved?
Whether any creditor, including the Central Government or State Government, may pursue any recovery proceedings after the resolution plan's approval?
Does the change to Section 31 have a clarifying or substantive purpose?
With regard to the first issue, According to the Supreme Court, there was an attempt to undo the harm done prior to the amendment. The Central and State Governments maintained the proceedings notwithstanding the resolution plan's approval, which was clearly against the legislative intent and merely a misreading of Section 31(1) of the IBC due to ambiguity in the Section's wording. The legislature noticed that certain tax authorities were not following the IBC due to an absence in Section 31(1). The purpose of the mischief rule is to stop mischief that has already been done through legislation or modification. The 2019 change aimed to eliminate the harm caused by the incorrect application of Section 31(1).
With regard to the second issue, any statute's genuine intent must be deduced by reading it as a whole. The Supreme Court emphasised that the Central or State Government's debts fall under the category of "Operational Debt" by pointing to the definitions of Creditors, Operational Creditors, and Operational Debt found in Sections 3(10), 5(20), and 5(21) of the IBC, respectively. Therefore, even though Section 31(1) does not directly include the Central or State Government, they fall under the general definition of "creditor" under Section 3(10) of the IBC and are included in the definition of "Operational Creditor" under Section 5(20). In addition, Section 31(1)'s reference to "other stakeholders" would in any case include tax authorities or any other creditor to whom statutory or other
With regard to the third issue, The Statement of Objects and Reasons of the Amendment Bill was cited by the Supreme Court as evidence that the amendment was clarifying in character. The change made it clear that the Central and State Governments, as well as any other local authorities to whom the debt is owed, including tax authorities, will be bound by the authorised settlement plan. The amendment must be implemented retroactively because it is a clarifying change.
To determine how to define the word "include," the Supreme Court referred to the matter of Dilworth v. Commissioner of Stamps (Privy Council). In this instance, it was claimed that the term "include" was introduced to the interpretation clause in order to broaden and understand the meaning. The Supreme Court did add, however, that expanding the meaning of the word "include" should not contradict the intent of the Act. For further discussion of avoidance transactions, the court cited the case of Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. v. Axis Bank Ltd. In this instance, it was said that the fundamental standards for payout against the time value of money cannot be ignored since, if they were, any transaction may fall within their purview. The court concluded by stating that, according to IBC, the Financial Creditor has been working with the Corporate Debtor since its beginning by giving the essential financial support in order to resuscitate a financially troubled organisation. Therefore, there is no justification for excluding a loan that was made to the Corporate Debtor in order to provide working capital from the definition of Financial Debt.
The Court categorically stated that,
“It could thus be seen that one of the dominant objects of I&B Code is to see to it that an attempt has to be made to revive the Corporate Debtor and make it a running concern. For that, a resolution applicant has to prepare a resolution plan on the basis of the Information Memorandum. The Information Memorandum, which is required to be prepared in accordance with Section 29 of the I&B Code along with Regulation 36 of the Regulations, is required to contain various details, which have been gathered by RP after receipt of various claims in response to the statutorily mandated public notice. The resolution plan is required to provide for the payment of insolvency resolution process costs, management of the affairs of the Corporate Debtor after approval of the resolution plan; the implementation and supervision of the resolution plan. It is only after the Adjudicating Authority satisfies itself, that the plan as approved by CoC with the requisite voting share of financial creditors meets the requirement as referred to in subsection (2) of Section 30, and grants its approval to it. It is only thereafter, that the said plan is binding on the Corporate Debtor as well as its employees, members, creditors, guarantors and other stakeholders involved in the resolution Plan. The moratorium order passed by the Adjudicating Authority under Section 14 shall cease to operate, once the Adjudicating Authority approves the resolution plan. The scheme of the I&B Code therefore is, to make an attempt, by divesting the erstwhile management of its powers and vesting it in a professional agency, to continue the business of the Corporate Debtor as a going concern until a resolution plan is drawn up. Once the resolution plan is approved, the management is handed over under the plan to the successful applicant so that the Corporate Debtor is able to pay back its debts and get back on its feet”.
Finally, the Supreme Court affirmed the clean slate principle and made it clear that the successful resolution applicant must continue with the current claim and that no claim can be imposed on the successful resolution applicant after the resolution plan has been approved. Applying the doctrine of harmonious construction while reading the definitions of Creditor, Operational Creditor, and Operational Debt and further focusing on the term "other stakeholders" under Section 31(1), it can be inferred that the Central and State Government or any other authority, including the tax authorities, are covered even though Section 31(1) of the IBC does not expressly state that they are bound by the resolution plan.