IBC Act 2026

IBC (Amendment), 2026 Series – VI | An Overview of the CoC’s Evolving (and Expanding) Role

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The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (‘IBC Act, 2026’) – inter alia – expands role of the Committee of Creditors (‘CoC’) in the Insolvency and Bankruptcy Code, 2016 (‘IBC’). The most notable expansion is that the CoC will oversee liquidation of the corporate debtor. This is in addition to the CoC’s existing responsibility to oversee the Corporate Insolvency Resolution Process (CIRP). Further, while the IBC Act, 2026 does not add a specific provision to this effect, it also does not detract from the Supreme Court’s observations in Kalyani Transco v M/S Bhushan Power and Steel Ltd and Others (‘Bhushan Steel case’) where it was held that the CoC will continue to exist until the resolution plan is implemented. Thus, the CoC will play a role even at the stage of implementation of a resolution plan.  

The IBC Act, 2026 apart from introducing additional responsibilities for the CoC also introduces one notable obligation. Hereon, the CoC is mandated to record reasons for its approval of the resolution plan under the amended Section 30(4). But curiously, while the CoC has power to recommend liquidation before confirmation of a resolution plan under Section 33(2). This decision to liquidate need not be accompanied by recording of reasons. Parity in both provisions would have been ideal. While recording reasons of approval is not, per se, an onerous obligation it is a step in the right direction. Recorded reasons will ensure transparency in decision making by the CoC. In my view, it will enhance trust in CIRP especially of the unsuccessful resolution applicants. Though courts will have to be careful to not use the recorded reasons to – directly or indirectly – judicially review commercial wisdom of the CoC. Judicial remit must remain limited to examining the CoC’s decisions on the touchstone of legality. 

The CoC – since inception – was envisaged as a central actor in CIRP. The IBC Act, 2026 preserves original design of the IBC, but underlines the CoC’s pre-eminent role by assigning it additional responsibilities. This article examines the CoC’s expanded role after the IBC Act, 2026 and various implications that arise from its expanded role. Given the CoC’s multi-faceted role, there are various strands of its working that can be elaborated on, but in the interest of brevity and coherence I’ve chosen only two strands in this article: firstly, the CoC’s obligation to provide reasons for approval of a resolution plan; secondly, the CoC’s power to oversee liquidation of the corporate debtor. 

Admittedly, the CoC will also decide if CIRP should be restored and will also have a role – though not clearly delineated – in implementation of the resolution plan. But I’ve examined both these aspects separately in my previous post here and here. So, I will steer clear of both these aspects in this article.   

The CoC Must Provide Reasons for Approval of a Resolution Plan 

The IBC Act, 2026 amends Section 30(4) which now states that:

The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent of voting share of the financial creditors, and record reasons for its approval, after considering its feasibility and viability …. (emphasis added)

As emphasized, the IBC Act, 2026 has added the phrase ‘and record reasons for its approval’. This amendment was not proposed in the IBC (Amendment) Bill, 2025 and neither does it find place in Report of the Select Committee on the IBC (Amendment) Bill, 2025 (‘Select Committee Report’). Thus, there are no reasons on record as to why the CoC has been mandated to record reasons for its approval of a resolution plan. One possible deduction is that Section 30(4) was amended to improve transparency in the CoC’s decision making. A normative reason is that the IBC’s design is premised on commercial wisdom of the CoC. The CoC is expected to utilize its commercial expertise and take decisions that secure the collective interest of all stakeholders. Thus, mandating the CoC to record reasons for its decisions ensures that the IBC’s premise and expectations of all stakeholders are met and the CoC does not use commercial wisdom as an opaque curtain to prevent accountability of its decisions.      

The more proximate reason for the above amendment could be some judicial precedents where the CoC has been specifically mandated to record reasons for its decisions. The most notable case in this respect is Elegna Co-op Housing and Commercial Society Ltd v Edelweiss Asset Reconstruction Company (‘Elegna Co-op Housing case’) where the Supreme Court approved the NCLAT’s order directing the CoC to record reasons. The NCLAT had observed that while commercial wisdom of the CoC is not amenable to judicial review, it carries a ‘corresponding duty of responsibility.’ And mandated the CoC to record cogent reasons when it took a non-routine or an extraordinary decision. The NCLAT’s observations were approved by the Supreme Court without any change. While the NCLAT waded into regulatory domain by mandating the CoC to record reasons despite no statutory mandate. However, the NCLAT kept its intrusion limited by mandating recording of reasons only for ‘non-routine’ or ‘extraordinary’ decisions. Amendment to Section 30(4) has created a broader obligation for the CoC to record reasons for its approval and is not limited to only extraordinary decisions.     

The statutory mandate to record reasons under Section 30(4) is certainly reconcilable with the doctrine of commercial wisdom of the CoC. The doctrine of commercial wisdom and non-justiciability of the CoC’s decisions apart from attributing business expertise to the CoC also presumes that it will act in a bona fide manner and not take arbitrary decisions. Mandating the CoC to state the reasons for its decisions is a welcome step especially in wake of some recent developments where unsuccessful resolution applicants have challenged rejection of their resolution plans and cast aspersions on the CoC’s intent and decision making. And without recorded reasons it is difficult to know or hold the CoC accountable lending its entire decision making process an unnecessary mystical quality. Finally, though amendment to Section 30(4) is a welcome step, a note of caution is needed. Courts in scrutinizing reasons for the CoC’s decisions, should be careful to not wade into territory of commercial wisdom of the CoC. While the lines between commercial wisdom of the CoC and legality of its decisions are clear in abstract, wherein only latter are subject to judicial review. However, overlaps between commercial and legal aspects can blur in certain situations. Respecting the distinction while facilitating transparency in CIRP is crucial.   

Supervising Liquidation: Streamlining Process and Ensuring Continuity from CIRP 

The IBC Act, 2026 amends Section 35(2), which now states that:

The committee of creditors shall supervise the conduct of the liquidation process by the liquidator under Chapter III in such manner as may be specified.

The CoC constituted during CIRP will thus now have an extended role in the liquidation process. The CoC will supervise conduct of the liquidator and guide it on all commercial matters. Broadly, the CoC’s role in liquidation is akin to its role vis-à-vis the resolution professional during CIRP but a direct comparison maybe pre-mature as various details about roles of both entities in liquidation are unknown. For now, to strengthen the CoC’s role in the liquidation process and its supervision of the liquidator two crucial changes are worth highlighting: 

Firstly, Section 34(4) states that an insolvency resolution professional appointed as resolution professional for CIRP ‘shall not be appointed’ or replaced as the liquidator for liquidation process of the corporate debtor. Section 34, in its previous draft in the IBC (Amendment) Bill, 2025 envisaged that the resolution professional’s appointment as a liquidator shall not be automatic and needs to be approved by the CoC. However, Section 34(4) as finally amended by the IBC Act, 2026 disqualifies a resolution professional from being appointed as a liquidator altogether. The Select Committee Report suggests that various stakeholders had a valid concern that a resolution professional has a ‘perverse incentive’ to favor liquidation over resolution. Since the liquidator gets a percentage of liquidation estate as the liquidator fee. Thus, the Select Committee recommended amendment of Section 34 to state that a resolution professional will be disqualified from being appointed as a liquidator.    

Secondly, Section 34A empowers the CoC to replace the liquidator by a vote of not less than sixty-six per cent of the voting share. The CoC must believe the liquidator appointed under Section 34 ‘is required to be replaced.’ The CoC need not provide any specific grounds for removal and replacement of the liquidator. It is unclear if the CoC’s decision to replace a liquidator can be challenged in the NCLT or not. Or will it be swept under the doctrine of commercial wisdom. 

Nonetheless, Section 34(4) read with Section 34A ensures that liquidator will be someone who was not involved in CIRP of the corporate debtor. And the liquidator so appointed can be replaced by the CoC if it deems fit. The above changes are to ensure that the liquidator’s incentives are not improperly aligned to secure a higher remuneration. And since the liquidator will be a person not involved in CIRP, it will presumably provide the CoC immense scope and greater leverage to guide the liquidator. And, perhaps, retain the balance of power in its favor.        

The IBC Act, 2026 simultaneously favors continuity and disjuncture in liquidation of the corporate debtor. It favors continuity by empowering the CoC to supervise liquidation, which will allow it to apply the learnings from CIRP to liquidation and hopefully maximize value of the corporate debtor’s assets in the entire process. The IBC Act, 2026 favors disjuncture by requiring that a liquidator shall not be a resolution professional involved in CIRP. And to maintain balance between continuity and disjuncture from CIRP, the IBC Act, 2026 has made some additional changes. For example, the IBC Act, 2026 amends Section 35(1)(a) to state that the liquidator shall maintain an updated list of creditors. While previously, the liquidator was required to ‘verify claims of all the creditors’ which would have involved the liquidator initiating the process of verifying claims; a process already undertaken and completed by the resolution professional during CIRP. As the Select Committee noted, this change:

… involves streamlining the claims process and formally extending the role of the Committee of Creditors (CoC) to supervise the liquidation. This streamlined approach is intended to avoid repetition of activities conducted during CIRP and expedite the liquidation process. (para 23.6)

Thus, amendments to provisions relating to liquidation are a mix of ensuring continuity and mandating the need for fresh personnel. But overall objective seems to be to streamline the entire process and ensure that liquidation and CIRP are not treated completely independent processes. And some work completed during CIRP can be utilized to expedite liquidation with the larger objective of maximizing the corporate debtor’s assets.  

Some stakeholders expressed valid concerns to the Select Committee about the CoC’s powers vis-à-vis the liquidator and that there was uncertainty as to the role of each entity. While Chapter II – dealing with CIRP – delineates the powers and role of the resolution professional in detail especially which decisions require prior approval of the CoC and which can be undertaken by the resolution professional independently. A similar detailed statutory prescription for roles of the liquidator and the CoC is amiss in Chapter III relating to liquidation process despite amendments to Section 34 and insertion of Section 34A. The Select Committee has relied on the assurance of the Ministry of Corporate Affairs that concerns of the stakeholders about the CoC’s powers in relation to liquidator will be addressed, but details – for now – are sparse.  

Finally, Section 33(2) has also been amended. A proviso has been added to provide statutory basis for the CoC’s powers to directly dissolve a corporate debtor without confirmation of a resolution plan. Previously, even though Section 33(2) did not expressly empower the CoC to directly dissolve the corporate debtor, the NCLT in the matter of Synew Steel Private Limited permitted the CoC to take such a decision. The NCLT’s rationale was that since all assets of the corporate debtor had been realized, liquidation will serve no useful purpose, and it is deemed to have been completed. The Proviso though states that the CoC’s decision to dissolve a corporate debtor will have to comply with specified conditions. Presumably, the intent is to include some safeguards to consider the corporate debtor’s interests, and the relevant conditions may be included in the CIRP Regulations. While dissolution typically follows liquidation as per Section 54. However, where there are no meaningful or recoverable assets, empowering the CoC to directly dissolve the corporate debtor is practical as it may prevent a cumbersome CIRP and liquidation process.   

Notably, there is no other change in Section 33(2) wherein the CoC can directly decide to liquidate a corporate debtor before confirmation of a resolution plan. Implying that the CoC is not bound to record reasons for such a decision. While the CoC is – under the amended Section 30(4) – required to record reasons for approval of a resolution plan no similar obligation has been introduced in Section 33(2). This asymmetry is hard to understand. The Supreme Court in Elegna Co-op Housing case approved the NCLAT’s observations which had mandated the CoC to:

Any recommendation for liquidation by the Committee of Creditors shall be accompanied by a reasoned justification recorded in writing, evidencing proper application of mind and due consideration of all viable alternatives, in consonance with the objective of the Code.

While the directions were specific to facts of the case which involved stakes of real estate allottees, need for the CoC to record reasons for liquidation is hard to dispute. Under Section 33(2) where the CoC has been empowered to decide directly in favor of liquidation, recording reasons for it may go a long way in ensuring transparency. And for stakeholders to understand the reasons for not completing CIRP. In fact, a decision to liquidate is at odds with the IBC’s objectives which aims to rescue the corporate debtor. In such a scenario, recorded reasons should reflect as to why the IBC’s stated aims are being sacrificed in favor of liquidation.      

The CoC’s power to directly liquidate a corporate debtor instead of completing CIRP is drastic as it may lead to death of the corporate debtor. And, yet the CoC need not provide reasons for such a decision. It is likely, that the CoC’s decision to liquidate a corporate debtor will be based – almost exclusively – on commercial considerations and will be outside the purview of judicial review. However, mandating the CoC to record its reasons would have been ideal and would have ensured parity in its role in CIRP as well as liquidation.  

CoC – An Independent Entity with Immense Responsibility

NCLAT in CoC of Think and Learn Pvt Ltd v Riju Ravindran held that the CoC possesses legal character of a juristic person. And it can sue and be sued in its own name. NCLAT observed that while the financial creditors in the CoC have a common objective, they do not have an identical interest since each one of them pursues their interest as per the independent contract they signed with the corporate debtor. NCLAT defined the CoC’s role in following words: 

Under the scheme of the IBC, the CoC is conceived as a statutory contrivance, an engine, that runs the entire insolvency resolution process. In another sense CoC is also required to be a statutory conscience keeper, as the responsibility it is enjoined with travels far beyond its preference to protect the financial interest of the members constituting it, since it is also required to secure the interest of every creditor of the corporate debtor besides the corporate debtor itself. (para 8.1) (emphasis added) 

In upholding right of the CoC to litigate in its own name, NCLAT underlined that it was a statutory body assigned to take business decisions founded on ground realities which bind all stakeholders. The IBC Act, 2026 has further highlighted and enhanced centrality of the CoC’s role and wide-ranging impact of its business decisions. And the IBC Act, 2026, contemporaneously, has attempted to enhance transparency in the CoC’s decision-making by mandating it to provide reasons for its decision to approve a resolution plan. It may not be an overstatement to conclude that the CoC’s conduct, and decisions will determine the fate and trajectory of CIRP, and in some cases, a timely liquidation of the corporate debtor. An immense responsibility. Thus, once CIRP is triggered, the CoC will expedite or delay the corporate debtor’s journey to the grave, metaphorically or literally.  

IBC (Amendment), 2026 Series – V | Ghost of the Rainbow Paper Case: The Parliament Buries an Unnatural Interpretation 

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Introduction

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (‘IBC Act, 2026’) – inter alia – amends Section 53 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’). The amendment is, largely, in response to the Supreme Court’s decision in State Tax Officer v Rainbow Papers Limited (‘Rainbow Papers case’). The Supreme Court in the Rainbow Papers case held that government or a governmental authority could be considered a secured creditor under the IBC. Immediate effect of the Rainbow Papers case was that the government could claim a higher rank as a secured creditor under Section 53(1)(b)(ii) instead of claiming amounts alongside unsecured creditors under Section 53(1)(e). The Rainbow Papers case detracted from the legislative intent to place government at par with unsecured creditors.   

The legal position got further entangled when subsequently in Paschimanchal Vidyut Vitran Nigam Ltd v Raman Ispat Private Limited & Ors (‘Raman Ispat case’) the Supreme Court confined decision in the Rainbow Papers case to facts of that case alone. And, also commented that the Supreme Court in the Rainbow Papers case did not adequately examine Section 53 and the waterfall mechanism. This was followed by a review petition where the Supreme Court refused to consider its observations in the Rainbow Papers case. And instead took exception to comments made in the Raman Ispat case. The Supreme Court questioned propriety of a co-ordinate bench commenting on judgment of another bench instead of referring the case to a larger bench and observed:

If a Bench does not accept as correct the decision on a question of law of another Bench of equal strength, the only proper course to adopt would be to refer the matter to the larger Bench, for authoritative decision, otherwise the law would be thrown into the state of uncertainty by reason of conflicting decisions. (para 20)

Unsurprisingly, the law was ‘thrown’ into uncertainty after the above set of events.  

The Rainbow Papers case, the Raman Ispat case, and the Supreme Court’s observations in the review petitions meant that position of government as secured creditor was both valid and under scrutiny. And certainty was an enemy. The Rainbow Papers case could be relied on as a binding precedent or plausibly be confined only to facts of the particular case depending on proclivities of the stakeholders involved. It is to rectify this unwelcome legal position that the IBC Act, 2026 inserted an Explanation to Section 53(1)(e) to clarify that amounts due to the Central Government and the State Government shall be distributed under that sub-clause. Thereby, placing the government at par with unsecured creditors and undoing ratio of the Rainbow Papers case. However, I conclude that the amendment to Section 53 may not completely eliminate effect of the Rainbow Papers case. I suggest that one of the Supreme Court’s observations in the Rainbow Papers case: tax claims should be necessarily part of the resolution plan, still survives the IBC Act, 2026. 

In this article, I provide a descriptive context and background that necessitated the amendment to Section 53 effectuated by the IBC Act, 2026. I begin by elaborating on the rationale that underpinned the Rainbow Papers case, the discomforts it caused, and limits of the amendment made to Section 53 by the IBC Act, 2026.        

The Rainbow Papers Case and its Aftermath 

In the Rainbow Papers case, the Supreme Court had to answer the question that whether Section 53 of the IBC overrides Section 48 of the Gujarat Value Added Tax Act, 2003 (‘GVAT Act, 2003’). The latter stated that: 

48. Tax to be first charge on property.— 

Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case maybe, such person.

Similarly, Section 53 of the IBC begins with a non-obstante clause and provides for distribution of assets ‘Notwithstanding anything to the contrary contained in any law …’.

To begin with, the Supreme Court condoned delay by the tax department in filing its claim by reasoning that timelines under the IBC are directory. And even if the claim was not filed before the deadline announced by the resolution professional, it was incumbent on the resolution professional to revise the admitted claims once he came across additional information – relating to outstanding tax claims – warranting such revision. 

The second issue was about the States’ status as a secured creditor. The State’s argument was that definition of secured creditor under Section 3(30) read with definition of security interest under Section 3(31) was wide enough to include a statutory charge such as under Section 48 of the GVAT Act, 2003. The Supreme Court accepted the State’s argument and held that the latter was not contrary to the IBC and:

Section 3(30) of the IBC defines secured creditor to mean a creditor in favour of whom security interest is credited. Such security interest could be created by operation of law. The definition of secured creditor in the IBC does not exclude any Government or Governmental Authority. (para 57) 

And thus, the Supreme Court concluded that debts owed to the State under the GVAT Act, 2003 were to rank equally with other debts owed to a secured creditor under Section 53(1)(b)(ii). The Supreme Court’s conclusion was based on the definition of security under Section 3(31) which does not exclude a statutory charge as well as the definition of secured creditor which does not exclude the State. The Supreme Court was also influenced by the fact that the impugned resolution plan completely ignored tax dues owed by the corporate debtor to the State and it questioned the validity of a resolution plan that did not incorporate tax dues.     

In some of the subsequent decisions, the Rainbow Papers case was sought to be limited to its facts. For example, in Department of State Tax v Ashish Chhawchharia Resolution Professional for Jet Airways (India) Ltd & Anr (October 2022), the National Company Law Appellate Tribunal (‘NCLAT) had to engage with the question if Department of State Tax was a secured creditor. The NCLAT examined Section 82 of the Maharashtra GST Act, 2017 which provided that the tax payable shall be first charge on the property of taxpayer, except as provided in the IBC. Thus, in view of the specific exception wherein the IBC triumphed the Maharashtra GST Act, 2017 the NCLAT found the Rainbow Papers case to be inapplicable in the impugned case.      

The most notable example of limiting effect of the Rainbow Papers case only to facts of that case was in the Raman Ispat case. In this case, Paschimanchal Vidyut Vitran Nigam Limited (‘PVVNL’) relied on non-obstante clause in the Electricity Act, 2003, relevant clauses of agreement entered to between PVVNL and the corporate debtor, and the Rainbow Papers case to claim priority in liquidation proceedings. PVVNL claimed that it was a statutory corporation and dues owed to it amounted to dues owed to the State. The Supreme Court disallowed its claim and  also expressed its disagreement with the Rainbow Papers case by observing that: 

The careful design of Section 53 locates amounts payable to secured creditors and workmen at the second place, after the costs and expenses of the liquidator payable during the liquidation proceedings. However, the dues payable to the government are placed much below those of secured creditors and even unsecured and operational creditors. (para 49)

The Supreme Court in the Raman Ispat case further held that observations in the Rainbow Paper case must be confined to facts of that case. Thus, creating an uncertain legal position wherein two benches of the Supreme Court – of equal strength – took diametrically opposite positions in so far priority to be accorded to government dues under Section 53. In the absence of a reference to a larger bench, the only plausible way of reconciling the two judgments was to deduce that the Rainbow Papers case was be applicable only in cases where provisions like Section 48, GVAT Act, 2003 were applicable. While in other cases the Raman Ispat case had a more persuasive value. Irrespective of this reconciliation, the legal situation was far from satisfactory.     

Limitations of the Rainbow Papers Case

The dissatisfactory legal situation was rooted in the Supreme Court’s reasoning in the Rainbow Papers case which suffered from a few obvious limitations. To begin with, one can argue that since Section 53(1)(e) was a separate category for the amounts due to the Central Government and the State Government, the legislative intent was straightforward: all dues owed to the government were to be classified in that category. And while the definition of security interest and secured creditor did not explicitly exclude the government, reliance on definitions was not conclusive that the government can be a secured creditor. The relevant definitions should have ideally been read with Section 53, which would have pointed towards the government not being a secured creditor. A harmonious interpretation of the relevant statutory definitions with the design of waterfall mechanism under Section 53 was missing from the Rainbow Papers case. 

Another aspect that the Supreme Court overlooked in the Rainbow Papers case was the distinction between a voluntary charge and a statutory charge. Generally, a secured creditor acquires its status because of a voluntary commercial transaction with the corporate debtor. However, the government – especially in the Rainbow Papers case – was claiming status of a secured creditor based on a statutory provision. Equating the government to a secured creditor based on a statutory provision removes element of voluntariness of the corporate debtor and provides the government an easy way to claim status of a secured creditor by adopting similar provisions in existing and future laws. Equating an involuntary charge on property with a charge created by voluntary transaction –disrupted one of the IBC’s aims. The aim, in this context, was to give priority to private secured creditors who undertook the risk of lending capital to the corporate debtor. The waterfall mechanism under Section 53 recognizes the risk undertaken to incentivize similar transactions in the future and help development of the credit market.   

Also, another one of the IBC’s aims, as mentioned in the Preamble is to alter ‘priority of payment of Government dues.’ The lowering of priority of the government’s dues is justifiable on various counts with the primary one being that the government has other avenues to recover money including levy of taxes from financial robust corporates among other taxpayers. Relevance of the IBC’s aim of lowering ranking of the government dues was missing in the Rainbow Papers judgment. And a purposive interpretation of Section 53 would have led the Supreme Court to the conclusion that the government cannot rank high as a secured creditor under Section 53(1)(b)(ii) but should remain confined to Section 53(1)(e) as an unsecured creditor.  

Overall, the Rainbow Papers had weak legs to stand on. The Supreme Court by focusing only on the definition of security interest and secured creditor did not do ample justice to other relevant provisions of the IBC. And, resultantly upset important aims of the IBC, created disharmony amongst the various provisions including between the various categories enumerated for waterfall mechanism under Section 53.  

The IBC Act, 2026 Amends Section 53 

To rectify the above legal position, the IBC Act, 2026 inserts an Explanation to Section 53(1)(e)(i) which states that: 

For the removal of doubts, it is hereby clarified that any amount, whether or not a security interest is created to secure such amount by an act of two or more parties or merely by operation of law, due to the Central Government and the State Government, in respect of the whole or any part of the period of two years preceding the liquidation commencement date, shall be distributed under this sub-clause and any remaining amount, whether or not such security interest is created to secure the amount, due to the Central Government and the State Government, shall be distributed under clause (f);”; (emphasis added)

The Explanation intends to clarify that a security interest created through a voluntary contractual arrangement or by a statutory provision stands on the same footing in so far as the government is concerned. Irrespective of the mode, dues to the Central Government and the State Government are to be paid under Section 53(1)(e)(i) or Section 53(f). But, not under Section 53(1)(b)(ii) as interpreted in the Rainbow Papers case. 

The Rainbow Papers case unleased a flurry of opinions if the ‘crown debt’ should be given priority over private creditors. There are circumstances where the government’s claims can be accorded priority, but my view is that it should flow from the statutory provisions and not judicial innovation. Amendment via the IBC Act, 2026 clearly re-establishes that the Parliament does not wish to accord priority to the government’s claims. The IBC Act, 2026 clarifies that even if relevant statutory provisions provide that the government shall have first charge and thereby status of a secured creditor vis-à-vis unpaid debts, the ranking of Section 53 shall determine the order of payment. And not any other relevant statutory provision. Thus, irrespective if the provision of tax law or otherwise results in the government being a secured operational creditor, it cannot be placed alongside other private secured creditors under Section 53(1)(b)(ii). The government’s dues are to be paid under Section 53(1)(e).    

Sliver of the Rainbow Papers Case May Survive  

If we confine ourselves to one aspect of the Rainbow Papers case discussed above, then the Explanation added by the IBC Act, 2026 undoubtedly negates its ratio. However, in the Rainbow Papers case, the Supreme Court also made another crucial observation: legality of an approved resolution plan. The Supreme Court observed that the NCLT should not approve a resolution plan under Section 31(2) that did not conform to requirements mentioned in Section 31(1). And, concluded that: 

If the Resolution Plan ignores the statutory demands payable to any State Government or a legal authority, altogether, the Adjudicating Authority is bound to reject the Resolution Plan. (para 52)

The Supreme Court clarified that under Section 31 onus is on the NCLT to examine if a resolution plan meets the requirements enlisted in Section 30(2). The relevant parameter under Section 30(2)(b) – in respect of government’s dues – is that a resolution plan must provide for payment of debts of operational creditors. However, if an operational creditor fails to submit their claim to the resolution professional, it stands to reason that their claim is extinguished on approval of the resolution plan. However, implication of the Supreme Court’s above observations in the Rainbow Papers case, in my view, is that unless statutory demands such as tax dues are necessarily incorporated in the resolution plan the NCLT must decline to approve it. Irrespective of whether such claims were submitted within the deadline to the resolution professional. However, amendments to Section 30 and Section 53 via the IBC Act, 2026 do not address this aspect of the Rainbow Papers case. However, one could argue that the contemporaneous amendments made to Section 31 – to underline scope of the clean slate doctrine – do negate the above observation. But, given the history of uncertainty about scope of the clean slate doctrine, one can never be sure. In my view, amendment to Section 53 read with amendment to Section 31 do effectively dilute the above observation made in the Rainbow Papers case. But, there is still possibility of a sliver of ratio to survive by making a case that a resolution plan that does not contain pending tax claims cannot be legally approved by the NCLT under Section 31.  

To conclude, amendments to the IBC via the IBC Act, 2026 convincingly negate ratio of the Rainbow Papers case in so far as it relates to the interpretation of waterfall mechanism under Section 53. And ensures that the government claims it tax dues only under Section 53(1)(e)(i). It is a welcome amendment and ensures that the chaos and uncertainty unleased by the Rainbow Papers case is tamed. However, a statutory amendment is always subject to another judicial ‘innovation’ that frequently erupts in the IBC landscape. Though the scope for such an innovation has been sufficiently narrowed by the IBC Act, 2026.      

IBC (Amendment), 2026 Series – IV | The Clean Slate Doctrine: Another Attempt at Laying Down the Law 

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The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (‘IBC Act, 2026’) – inter alia – amends the Insolvency and Bankruptcy Code, 2016 (‘IBC’) to underline scope of the clean slate doctrine. IBC Act, 2026 is the second attempt to amend Section 31 of the IBC and ensure that once the National Company Law Tribunal (‘NCLT’) approves the resolution plan, it is final and binding on all stakeholders including all statutory authorities. The clean slate doctrine, as encoded in Section 31 has various aims; the primary one is to provide certainty to the successful resolution applicant that all claims not part of the approved resolution plan are extinguished. And the successful resolution applicant can take over and run the corporate debtor without the worry of discharging extraneous liabilities. However, various creditors – including statutory authorities – frequently file claims arguing that they are not bound by the approved resolution plan. The statutory authorities rely on various arguments: they weren’t issued proper notices by the resolution professional, certain claims such as taxes remain unaffected by Corporate Insolvency Resolution Process (‘CIRP’) of the IBC or that they are not bound by the resolution plan since they weren’t part of CIRP. And these arguments have led to mixed results undermining lofty aims of the clean slate doctrine.   

Section 31 originally stated that a resolution plan was binding on guarantors and all stakeholders. Ideally, the latter term – ‘all stakeholders’ – should have sufficed to bind the statutory authorities. However, persistent claims filed by statutory authorities even after approval of the resolution plan prevented the clean slate doctrine from providing complete certainty to the successful resolution applicant. Thus, in 2019, Section 31 was amended to expressly state that an approved resolution plan was binding on the Central Government, State Government or a local authority to whom statutory dues are owed by the corporate debtor. However, it proved insufficient and the IBC Act, 2026 further amends Section 31 on similar lines to clarify the effect of an approved resolution plan and scope of the clean slate doctrine. 

This article provides a descriptive account of the jurisprudence that has emerged under Section 31, conceptual clarity that the courts have tried to introduce, and the pockets of uncertainty that survived the amendment to Section 31 made in 2019. Specifically, uncertainty about claims under tax laws and pending arbitration proceedings. This article thereafter elaborates on the additions made to Section 31 via the IBC Act, 2026 and claims that while the amendment introduces additional clarity and further demarcates scope of the clean slate doctrine, some pending issues may only be resolved through judicial interpretation. Specifically, issues relating to tax dues owed by the corporate debtor and unjust enrichment.       

I. Preventing a Hydra Head from Popping Up 

In CoC of Essar Steel India Ltd v Satish Kumar Gupta & Ors (‘Essar Steel case’), the Supreme Court inter alia addressed challenge to the approved resolution plan by erstwhile promoters who were personal guarantors of loans to the corporate debtor. The resolution plan – as approved by the NCLT – extinguished the right of subrogation of guarantors in respect of guarantees that had been invoked by financial creditors. The guarantors challenged the said clause and argued that since they were not part of the resolution plan submitted by the successful resolution applicant – ArcelorMittal – they cannot be bound by its terms. And that their right to subrogation survives irrespective of the terms of resolution plan. The Supreme Court cited State Bank of India v V. Ramakrishnan (‘SBI case’), to dismiss the promoters claim. The SBI case was a judgment in the context of moratorium in which the Supreme Court held that under Section 31, a resolution plan also binds the guarantors of corporate debtors. 

The Supreme Court relied on observations in the SBI case to set aside observations of the National Company Law Appellate Tribunal (‘NCLAT’). The NCLAT had observed that claims against corporate debtor that remained undecided, can be decided by appropriate forums even after approval of the resolution plan. The Supreme Court disagreed with the NCLAT’s directions and held that: 

A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully take over the business of the corporate debtor. (para 67) (emphasis added) 

The Supreme Court, underlining the importance of certainty and finality of CIRP directed that all claims against the corporate debtor must be submitted to and decided by the resolution professional. Thus, a successful resolution applicant, at the time of approval of the resolution plan, can discharge outstanding liabilities of the corporate debtor and start on a ‘clean slate’. The Supreme Court’s observations were accurate not only in respect of the IBC’s aims but also correctly clarified the import of Section 31. As per Section 31, once the NCLT approves a resolution plan it was binding on the corporate debtor and its employees, members, creditors, ‘guarantors and other stakeholders involved in the resolution plan.’ 

II. Ghanashyam Mishra Case Underlines Effect of Section 31 vis-à-vis the State

The above-mentioned ratio of the Essar Steel case should have, ideally, sufficed to clarify legal effect of approval of a resolution plan vis-à-vis the State, including all statutory authorities. As the statutory authorities could reasonably be termed a ‘stakeholder’ in the resolution plan, even if they were not expressly mentioned in Section 31. However, the IBC was amended in 2019, to expressly clarify that the resolution plan was binding on various authorities of the State. In 2019, the following phrase was added in Section 31:  

… including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed … 

Statement of Reasons and Objects of the IBC (Amendment) Bill, 2019 mentioned that tax authorities were also bound by a resolution plan approved by the NCLT. Implying that the tax and other statutory authorities were refusing to accept that statutory dues – for example, outstanding tax payments – were also extinguished or altered as per terms of the resolution plan. The Supreme Court in Ghanashyam Mishra & Sons v Edelweiss Asset Reconstruction Co Ltd (Ghanashyam Mishra case) reiterated the import and rationale of Section 31 and the effect of the amendment made to Section 31 in 2019. Two questions that the Supreme Court had to answer in the Ghanashyam Mishra case were: (i) whether the Central Govt, State Govt or local authority were bound by the resolution plan approved by the NCLT under Section 31?; (ii) whether the Central Govt, State Govt or local authority can initiate proceedings against the corporate debtor in respect of dues not part of the resolution plan approved by the NCLT under Section 31? The Supreme Court answered first question in the affirmative and second question in the negative. 

The Supreme Court elaborated on the various steps in CIRP to underline that a resolution professional prepares an information memorandum to inform the resolution applicants about financials of the corporate debtor. The intent is that the resolution applicants submit resolution plans to satisfy the enlisted financial liabilities and ensure effective running of the corporate debtor. The Supreme Court’s three observations are pertinent: (a) dues arising under any law for the time being in force and payable to the Central Govt, State Govt, or local authority are operational debts, and any entity to whom a statutory dues are owed will be covered by the term ‘creditor’ under Section 31; (b) in the alternative, the Central Govt, State Govt or local authority will be covered by the phrase ‘other stakeholders’ under Section 31; (c) and this observation flowed from the first and second observation: the amendment of 2019 was only clarificatory in nature. The amendment of 2019 to Section 31 only made express what was already implied, i.e., the State and its various statutory authorities were also bound by the resolution plan once it is approved by the NCLT.    

The repeated resistance of statutory authorities such as the Revenue Department to be bound by terms of the resolution plan can – in my view – be attributed to two reasons. Firstly, oversight in submitting the outstanding claims/dues against the corporate debtor during CIRP. Secondly, an erroneous view that the statutory authorities are a distinct and standalone category. Both were understandable in initial few years of the IBC because comprehension about the scope and effect of CIRP was in a nascent stage. But, a continuing insistence, especially by the Revenue Department that outstanding tax dues cannot be reduced or extinguished by resolution plan approved under CIRP even after a decade of the IBC – and several judicial decisions – is inexcusable.  

However, the Essar Steel case and the Ghanashyam Mishra case cumulatively ensured that scope of the clean slate doctrine, interpretation of Section 31, the effect of amendment in 2019 were all clearly established. And these decisions reduced scope for arguments by statutory authorities that they weren’t bound by the resolution plan.          

III. Further Clarifications (and Confusions) 

The Supreme Court’s pronouncement in the Essar Steel case, the Ghanashyam Mishra case, as well as the SBI case – while reduced the scope for statutory authorities to pursue their claims after approval of a resolution plan – were not sufficient to clarify binding nature of an approved resolution plan. Lending finality to the resolution plan proved to be a recurrent difficulty. For example, in Electrosteel Limited v Ispat Carrier Private Limited, the Supreme Court had to clarify that an approved resolution plan extinguishes all previous claims including arbitration proceedings. And an arbitral award passed in respect of pre-CIRP claims but after approval of the resolution plan is null. However, in Ujaas Energy Ltd v West Bengal Power Development Corporation Ltd, the Supreme Court provided a limited relief in respect of pre-CIRP arbitration proceedings against the corporate debtor. The West Bengal Power Development Corporation had filed a counterclaim in respect of arbitration proceedings against the corporate debtor. Subsequently, CIRP was initiated against the corporate debtor. The Supreme Court observed that the resolution plan did not expressly reflect exclusion of the counterclaim and the resolution professional despite being aware of it did not take it into consideration while formulating the resolution plan. Based on facts of the case, the Supreme Court held that while the West Bengal Power Development Corporation cannot pursue its counterclaim as it stands extinguished, it can raise the plea of set-off by way of a defence. While the Supreme Court provided a limited relief based on facts of the case, the Ujaas Energy case exemplified that scope of the clean slate doctrine may require suitable tailoring in some fact situations. And complete clarity may not emerge from statutory provisions alone.  

A crucial site of inconsistency has been tax assessments of the corporate debtor. The Madras High Court in Dishnet Wireless Ltd v Assistant Commission of Income Tax (OSD) (‘Dishnet Wireless case’) observed that proceedings under Section 148, Income Tax Act, 1961 were pending before commencement of CIRP. But appropriate concessions from the Income Tax Department were not included in the final resolution plan. Nor was any notice issued to the Income Tax Department. The Madras High Court held that it was incumbent on the corporate debtor to serve proper notice to the Income Tax Department about CIRP. And thus, permitted continuation of the assessment proceedings even after approval of the resolution plan. But the Delhi High Court in M Tech Developers Pvt Ltd v National Faceless Assessment, Delhi & Anr (‘M Tech Developers case’) in the context of faceless assessment proceedings under Section 144B, Income Tax Act, 1961 held that: 

Any effort to assess, reassess or re-compute could tend to lean towards a re-computation of liabilities which otherwise stands freezed by virtue of the Resolution Plan having been approved. (para 8)

The Delhi High Court expressed its disagreement with the Madras High Court’s view expressed in the Dishnet Wireless case. The Delhi High Court in a few other cases, has taken a view that aligns with the M Tech Developers case, but overall the decisions are inconsistent. Militating against certainty that the clean slate doctrine intends to provide to resolution applicants under Section 31.  

Further, in Tata Steel Limited v State of UP, the Allahabad High Court disallowed assessment proceedings after approval of the resolution plan by relying on the Ghanashyam Mishra case. In appeal, the Supreme Court did not disagree with the Allahabad High Court but left open the issue of unjust enrichment. The issue of unjust enrichment, in this context, involves a determination if the tax collected/deducted by the corporate debtor can be made part of the resolution plan. Or will it have to be necessarily remitted to the Revenue Department. This question is pertinent for any indirect taxes collected or any tax deducted at source under the Income Tax Act, 2025 by the corporate debtor. If resolution plan is approved by the NCLT can such taxes collected by the corporate debtor – yet to be remitted to the State – be made part of the resolution plan? Or do they have to be necessarily set aside. The courts have not pronounced the final word on this issue, but my tentative view is that permitting taxes so collected to be part of the resolution plan may lead to unjust enrichment. And it may be advisable to keep such taxes outside the purview of resolution plan.       

IV. IBC Act, 2026 Lays Down the Law – Again 

The IBC Act, 2026 – partially in recognition of the some of the confusions that survived the 2019 amendment to Section 31 – attempts to again ring fence the approved resolution plan and place a statutory stamp on its finality. Section 31(6) – inserted via the IBC Act, 2026 – is worth extracting:

(6) Where the Adjudicating Authority approves the resolution plan under sub-section (1),––

(a) unless otherwise provided in the resolution plan, any claim, against the corporate debtor and its assets under any other law for the time being in force, prior to the date of approval, shall be extinguished; and

(b) no proceedings shall be continued or instituted against the corporate debtor or its assets on the basis of such claims, including proceedings for assessment of the claims.

The IBC Act, 2026 also inserts three Explanations to the above sub-section. Explanation 1 and Explanation 2 inserted further clarify that proceedings against promoters or a person in control or management shall be unaffected. Further, if a person had joint liability for payment of debt and such a person makes a payment after approval of the resolution plan then right to be indemnified of that person shall be extinguished. 

In view of the above, three additions to the clean slate doctrine – via the IBC Act, 2026 – are: 

(a) to prevent continuation or initiation of assessment proceedings against the corporate debtor after approval of the resolution plan. This restraint is evidently directed at restraining tax authorities. A plain interpretation suggests that the Delhi High Court’s view in M Tech Developers case has been endorsed. Whether the amendment is sufficient to deter the tax authorities, or a further nuance will be added by judicial interpretation remains to be seen. 

(b) a distinction is made between proceedings against promoters or persons in management or control of the corporate debtor and the corporate debtor itself. It is clarified that the clean slate doctrine is only applicable to claims against the corporate debtor and not to persons who managed or controlled the corporate debtor. This again underlines that the corporate debtor’s liabilities are frozen as per the resolution plan. And even the guarantor’s right of indemnification does not survive approval of the resolution plan.  

(c) in part to resolve the controversy that emerged in the Essar Steel case, prevents the guarantor or any person who has a joint liability to repay the corporate debtor’s debts to seek indemnification. 

In summation, one can make a persuasive case that the amendments to Section 31 in 2019 and 2026 – alongside various judicial precedents cited above – are enough to provide certainty and finality to a resolution plan. And claims not included in the resolution plan are extinguished once it is approved by the NCLT. An overwhelming no. of issues have been addressed by both the amendments of 2019 and 2026, but only tenacity of the tax authorities and complexity of fact situations will provide an answer if the IBC Act, 2026 has succeeded in clarifying scope of the clean slate doctrine.  

V. A Hopeful Future 

Section 31 – based on the amendments in 2019 and by the IBC Act, 2026 – provide an insight about the challenge of drafting provisions for the IBC. Until Section 31 was amended to clearly and expressly state that the statutory authorities were bound by the resolution plan, they refused to extinguish their claims against the corporate debtor. The first evidence of this was in 2019, wherein a specific phrase mentioning Central Govt, State Govt and local authorities had to be inserted in Section 31 to clarify that a resolution plan also binds statutory authorities. This was even though the terms ‘creditors’ and ‘other stakeholders’ clearly swept various statutory authorities under their scope and made them bound by the resolution plan. Amendments introduced by the IBC Act, 2026 are a further step in that direction: making express something that was implied in Section 31. For example, preventing the continuation or initiation of assessment proceedings against the corporate debtor. A restraint that should have been evident even after the amendment in 2019 but had to be spelled out expressly. Thus, if something has been implied, or has required judicial interpretation in Section 31, it has not had the desired effect. Legislative interventions have required scope of the clean slate doctrine to be spelled out expressly. 

The IBC Act, 2026 incorporates this lesson and attempts to provide finality to the resolution plan and spells out scope of the clean slate doctrine in express terms. Hopefully, this legislative intervention should provide sufficient deterrence to the statutory authorities to resist binding nature of an approved resolution plan. And get their pending claims incorporated in the resolution plan itself, in a timely and appropriate fashion. Respect for finality and binding nature of the resolution plan will go a long way in serving and achieving the IBC’s objectives.    

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