Introduction
The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted to provide a time-bound framework for resolution of distressed companies and to ensure certainty for resolution applicants by giving them a “clean slate.” A recurring issue, however, has been the treatment of statutory dues such as tax liabilities once a resolution plan is approved by the National Company Law Tribunal (NCLT). On 21 August 2025, the Allahabad High Court, in the case of Arena Superstructures Pvt. Ltd., addressed this concern by ruling that the Goods and Services Tax (GST) Department is barred from raising fresh demands for the pre-CIRP period after the approval of a resolution plan. The Court emphasized that once a plan is approved under Section 31 of the IBC, it becomes binding on all stakeholders, including government authorities, and any claims not submitted during the CIRP stand extinguished. This ruling reinforces the principle of finality of resolution plans and strengthens the “clean slate” doctrine in the context of statutory dues.
Facts
From what is reported:
- A company (“Arena Superstructures Pvt Ltd”) underwent CIRP (Corporate Insolvency Resolution Process) under the Insolvency & Bankruptcy Code, 2016.
- A Resolution Professional was appointed. All creditors were called upon to submit their claims. A specific notice was sent to the GST Department by the RP.
- The NCLT approved a resolution plan (dated 19 July 2022) for Arena Superstructures.
- After that, the GST Department passed an assessment order for a pre-CIRP period (financial year 2017-18), under Sections of the CGST/UPGST Act. A demand notice was also issued.
- The company challenged this order before the Allahabad High Court, arguing that once the resolution plan is approved, statutory claims/demands not included in the plan (for pre-CIRP period) stand extinguished.
Legal Issue
The core issue was:
- Whether the GST authorities can raise or enforce demands for pre-CIRP period tax liabilities after the Resolution Plan has been approved under Section 31 of the IBC.
Sub-issues include:
- Does the resolution plan, once approved, bind statutory authorities like the government / GST department?
- Are claims which were not submitted or included before plan approval extinguished?
- Is there a “clean slate” doctrine under IBC that prevents belated claims from “popping up” after NCLT approval?
Decision / Holding
The Allahabad High Court held:
- Yes, once a resolution plan is approved under Section 31, it is binding on all stakeholders, including government / tax authorities.
- Any GST demands / assessment orders for periods before initiation of CIRP, not included in the resolution plan, are extinguished (or cannot be raised/enforced) after the plan approval.
- The specific impugned assessment/demand notice was quashed.
Thus the GST dept. was barred from making fresh claims for pre-CIRP periods once the resolution plan was approved.
Precedents / Legal Reasoning
The court’s reasoning relies heavily on Supreme Court precedents and principles of IBC. Key among them:
- Essar Steel India Ltd. v. Satish Kumar Gupta: The SC in Essar held that once resolution plan is approved, a successful resolution applicant must get a clean slate; all claims must be submitted during CIRP; no new claims after plan approval.
- Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.: Similar doctrine of finality.
- Vaibhav Goyal v. Deputy Commissioner of Income Tax (SC, 2025): The Supreme Court held that statutory dues of the government (like income tax) if not included in a resolution plan stand extinguished once the plan is approved.
- N.S. Papers Ltd. v. Union of India: High Court decisions also following these principles that new claims / assessments/ proceedings cannot be allowed post resolution plan approval.
The court draws the conclusion that allowing GST demands after plan approval would violate the moratorium and the very purpose of IBC — giving debtor a fresh start. It would also create uncertainty (“hydra-head”) about what liabilities the resolution applicant will have to bear.
Implications
This decision has several significant implications in the contexts of IBC / GST / statutory dues:
- For companies undergoing CIRP, they can rely on approved resolution plans as extinguishing pre-CIRP statutory claims/demands not included in submitted claims.
- Government / tax authorities must ensure that they lodge claims in CIRP process through the resolution professional. Failing to do so can lead to their claims being barred once the plan is approved.
- It strengthens legal certainty for resolution applicants regarding what liabilities they may face after taking over a corporate debtor via a resolution plan.
- For practitioners, must be careful with timelines and ensuring claim submissions during the CIRP.
Possible Limitations / Counter-Arguments
While the decision seems strong, there are potential points of caution:
- Scope of Statutory Dues: The decision focuses on pre-CIRP dues not included in plan. If a demand / liability was known but not submitted, maybe the plan included it, or perhaps the statute allows retrospective / continuing obligations; may depend on whether demand was quantifiable, known, or contingent.
- Claims already in process: If there were proceedings before or claims already admitted / quantifiable before the resolution plan, perhaps those could survive or included. The decision seems to draw lines around those not submitted or included.
- Stage of Assessment / Quantification: Some demand notices / assessments could have been issued pre-CIRP but quantification happens later; what happens then? There might be arguments whether quantification post plan approval is a “new claim” or just the result of earlier proceedings.
- Statute / Law Overlaps: Whether any specific GST law or rule or another statute has provision that permits statutory authorities to claim certain dues even after plan approval. Also, the IBC has overriding effect under Section 238, but there might be conflict cases.
- Appeals / Supreme Court: The decision is High Court. Unless SC upholds similarly, there may be variation across jurisdictions / future reversals.
- Limitation / Time Bars: Sometimes demand might be barred by limitation or time, depending on the law; also procedural aspects like whether department was aware of CIRP or had notice etc.
Key Legal Principles Summarised
- Finality Principle under IBC: Approval of resolution plan under Section 31 is final vis-à-vis pre-CIRP claims; no new claims allowed thereafter.
- Clean Slate Doctrine: Resolution applicant must be able to begin fresh without unexpected liabilities.
- Binding Nature of Resolution Plan: The plan binds not just creditors but all stakeholders, including statutory authorities.
- Extinguishment of Unsubmitted / Unaccepted Claims: If a statutory claim (e.g. GST demand) is not submitted during CIRP or not included in the plan, it is extinguished once plan is approved.
Conclusion
The Allahabad HC decision (Arena Superstructures case) clearly bars the GST Department from raising fresh demands (for pre-CIRP periods) after the approval of a resolution plan by NCLT, if those demands were not part of the claims in CIRP and not included in the approved plan. This strengthens jurisprudence around IBC, reinforcing the “clean slate” and finality of resolution plans.