Extinguishment of Unclaimed Dues under Approved Resolution Plans: A Landmark Clarification by the Supreme Court of India

Introduction

The Supreme Court of India, in M/S JSW Ispat Special Products Limited v. Pratishtha Thakur Haritwal (2025 INSC 401), has delivered a decision reasserting that any claims not included within an approved Corporate Insolvency Resolution Plan stand permanently extinguished. This matter arose from a contempt petition filed by M/s JSW Ispat Special Products Limited (now M/s JSW Steel Limited, referred to as “Petitioner Company”). The Petitioner Company alleged willful disobedience of an earlier Supreme Court judgment in Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited and Others (2021) by various state tax authorities.

In issuing this judgment, the Supreme Court addressed the issue of whether statutory or governmental authorities (including State governments), which were not parties to the original insolvency proceedings, could raise claims arising from periods prior to the approval of a Resolution Plan. The Court’s pronouncement reinforces the finality of duly approved Resolution Plans under the Insolvency and Bankruptcy Code, 2016 (“the Code”), clarifying once again that no claims outside the plan can subsequently be enforced.

Summary of the Judgment

The Court allowed the Petitioner Company’s contempt petition, holding that the demands raised by the Respondent authorities—pertaining to the period before the Resolution Plan's approval—were in direct violation of the Supreme Court’s prior ruling in Ghanshyam Mishra (supra). Although the Court declared the Respondent authorities’ conduct contemptuous, it chose not to penalize them because they tendered unconditional apologies and claimed they misunderstood the binding effect of the earlier insolvency ruling.

Key outcomes from this contempt decision include:

All demands or notices raised by the Chhattisgarh tax authorities against the Petitioner Company for liabilities prior to the Resolution Plan’s approval were deemed null and void.
The Court emphasized that duly approved resolution plans bind all creditors—whether or not they participated in the insolvency proceedings—to the extent that “any claims not forming part of the plan are deemed extinguished.”
The Court expressly distinguished this scenario from State Tax Officer v. Rainbow Papers Limited, holding that Rainbow Papers is inapplicable where a particular state or authority fails to submit a claim at all during the insolvency proceedings.
Unconditional apology by the state authorities was accepted, and the Court decided to quash the offending demand notices without imposing further penalties.

Analysis

Precedents Cited

Several prominent decisions were pivotal in shaping the Court’s view:

Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (2021):
This is the core judgment wherein the Supreme Court interpreted Section 31(1) of the Insolvency and Bankruptcy Code, 2016. The Court ruled that once a Resolution Plan is approved by the National Company Law Tribunal (NCLT), all claims not included in it, regardless of whether they originate from the central or state government or any local authorities, are deemed to stand extinguished.
Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2020) 8 SCC 531:
The Court stressed how a successful Resolution Applicant must be allowed to operate the corporate debtor on a “clean slate.” All “undecided” or unsubmitted claims pop up like “hydra heads” that create uncertainty. Thus, the Court held that any claims must be resolved within the insolvency process rather than afterward.
State Tax Officer (1) v. Rainbow Papers Limited (2023) 9 SCC 545:
This decision, raised by the Respondent authorities, was distinguished by the present Court. In Rainbow Papers, the state authorities had raised timely claims but were not considered by the Committee of Creditors, leading the Supreme Court to hold that the Resolution Plan’s approval was vitiated. In contrast, the present case involved no timely filing by the state government; hence Rainbow Papers was deemed inapplicable.

Legal Reasoning

The Supreme Court’s rationale is firmly rooted in the finality and comprehensiveness intended by the Insolvency and Bankruptcy Code, 2016:

Binding Effect of Resolution Plan: Section 31(1) of the Code renders any approved resolution plan binding on all “creditors” and “stakeholders,” a term broad enough to include governmental authorities seeking statutory dues. Thus, once approved, lingering or undisclosed claims cannot be resurrected.
Extinguishment of Claims Not in the Plan: In Ghanshyam Mishra, the Court had unequivocally stated that claims that are not explicitly included in the resolution plan “stand extinguished.” This position was reiterated forcefully, expanding the horizon to emphasize that even if the state was not a party to the original proceeding, the principle applies.
Cohesive Insolvency Architecture: The objective of the IBC relies on providing a predictable, time-bound resolution of corporate insolvency. Allowing delayed claims would undermine the statutes, hamper the corporate debtor’s newly formed business, and prejudice the resolution applicant who legitimately relies on a “clean slate” principle.

Impact

The judgment has several significant implications for India’s insolvency jurisprudence and future litigants:

Reinforcement of Finality: The decision confirms that a resolution plan, once finalized, is not open to new challenges or claims, including tax or statutory dues, unless they are expressly included during the insolvency process.
Greater Certainty for Resolution Applicants: Businesses considering the purchase or restructuring of financially ailing companies gain further clarity. They can now operate without worry over possible retroactive demands that were never disclosed during the CIRP period.
Increased Diligence by Government Authorities: All governmental bodies must closely monitor the initiation of insolvency proceedings and promptly assert their claims before the resolution professional. Failure to do so invariably leads to forfeiture of such claims.
Streamlined Legal Framework: The Court’s resolute stance reduces repetitive litigation and ensures stakeholders cannot subvert or undermine the corporate debtor’s “fresh start” post-resolution approval.

Complex Concepts Simplified

The legal arguments in this judgment draw on specific terms and provisions under India’s insolvency law. Below are a few core concepts, explained:

Resolution Plan: Under the Insolvency and Bankruptcy Code, 2016, once a company (corporate debtor) is declared insolvent, interested bidders submit proposal plans (Resolution Plans) to repay creditors at least partially and revive the company.
Committee of Creditors (CoC): A body formed of all financial creditors of the corporate debtor. The CoC evaluates and approves or rejects the Resolution Plans based on majority voting.
Adjudicating Authority (NCLT): The National Company Law Tribunal, which oversees corporate insolvency proceedings and either approves or rejects the CoC-approved Resolution Plans. Once NCLT approves a plan, it achieves legal finality under Section 31 of the Code.
Extinguished Claims: When the Supreme Court refers to a claim being "extinguished," it means it ceases to exist legally. Whichever entity—whether government, private, or otherwise—did not lodge its claim in the insolvency resolution process will lose any future right to demand the debt from the newly resolved corporate entity.
Clean Slate Principle: The notion that a corporate debtor, once successfully resolved, should be free from all past liabilities not addressed in the final Resolution Plan. This ensures that new owners or the resurrected company can operate without hidden liabilities.

Conclusion

In M/S JSW Ispat Special Products Limited v. Pratishtha Thakur Haritwal (2025 INSC 401), the Supreme Court has categorically reaffirmed that no creditor, governmental authority, or stakeholder may raise any claims outside the duly approved Resolution Plan under the Insolvency and Bankruptcy Code, 2016. Failure to comply with this directive, even when unintentional, can invite contempt proceedings—albeit the Court may exercise leniency when apologies and misunderstandings arise.

This judgment strengthens the principle that insolvency proceedings aim to protect resolution applicants and the overall economy from indefinite liability. By ensuring that only claims asserted within the proper insolvency procedure survive, the Supreme Court guarantees that the resultant plan is comprehensive, binding, and final. Going forward, both private and public creditors must assiduously track insolvency cases and timely assert their claims or risk losing them. In the broader legal landscape, this ruling advances the Code’s cause of providing clarity, commercial finality, and speedy resolution for distressed companies.

End of Commentary