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.
