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Introduction
A significant challenge to the process of Corporate Insolvency Resolution Process (CIRP) is the tendency of claimants to continue enforcing claims post-approval of the resolution plan by the Committee of Creditors (CoC), which creates what the court called a hydra-headed litigation scenario.1 The Supreme Court has time and again emphasised that such claims must be extinguished to ensure economic revival and certainty for the resolution plan.
Insolvency and Bankruptcy Code, 2016 (IBC) has provided for the binding nature of the approved resolution plan upon all stakeholders involved in the resolution plan under Section 31 IBC. It was in significant rulings by the Supreme Court in Essar Steel India Ltd. (CoC) v. Satish Kumar Gupta2 and Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.3 that the ‘clean slate doctrine’ was established. This doctrine ensures that once CIRP is completed and a resolution plan is approved under Section 31(1) IBC, the corporate debtor is free from past liabilities and gets a fresh start. This was further clarified through the 2019 Amendment,4 which extended its scope to include Central and State governments as well as local authorities to whom statutory dues are owed by the corporate debtor.
This raises some important questions regarding the intricacies of the insolvency proceedings, such as – What happens to the unsatisfied claims of the creditors after final acceptance of the resolution plan? Who is liable to pay them off? Would such a claim be an eligible ground for initiating legal proceedings against the new form of corporate debtor? Keeping these issues in mind, this article delves into the implications of the Clean Slate Doctrine and examines the issue of validity of claims post-approval of the resolution plan, the cases of wilful default is not paying the statutory dues, which increases the economic burden and the extent of judicial oversight in insolvency proceedings for transparency and fairness.
Unequivocal view of the Judiciary
Section 31(1) IBC, as amended by the 2019 amendment, provides that once a resolution plan is approved by the Adjudicating Authority, it becomes binding on all stakeholders, including creditors, employees, governments and local authorities. Several landmark Supreme Court judgments have reinforced the clean slate doctrine and solidifies the finality of the resolution process and reaffirming that claims not included in the resolution plan cannot be subsequently enforced, such as Arun Kumar Jagatramka v. Jindal Steel and Power Ltd.5 and Ebix Singapore Pvt. Ltd. v. CoC of Educomp Solutions Ltd..6 In a recent judgment, delivered on 20 March 2025, of Vaibhav Goel and Anr. v. DCIT and Anr7 the Court reaffirmed that no belated claims could be included after the approval of the resolution plan, as this would undermine the principle of allowing resolution applicants to restart operations on a clean slate. This is binding on all stakeholders, including the Income Tax Department.
The stakeholder involved in an insolvency proceeding facing financial difficulties should carefully consider their strategy. They should aim to promptly crystallise their claims and actively participate in the insolvency process through negotiations with the resolution professional and coordinate with other creditors, to ensure that their claim is recorded in the resolution plan itself. We can see through the various judicial pronouncements that the courts are inclined towards the extinguishment of any claims which are not recorded in the resolution plan. But this still raises concerns as to what happens to the claims post-resolution proceedings and how the court will address the limitations on the clean slate doctrine.
We can find a few instances where, despite a consistent judicial stance of upholding the Clean Slate doctrine, the Court has allowed certain claims. In a notable case, Surya Exim Ltd. v. Union of India,8 the Gujarat High Court allowed the reassessment of tax liabilities that predated the resolution plan. In another important ruling of the Madras High Court in the case of The National Sewing Thread Company Ltd. v TANGEDCO,9 the court emphasised that without complete disclosure of information, the core principle of the clean slate doctrine is compromised. It referred to a Supreme Court decision which emphasized that the CoC’s commercial decisions must be based on complete and transparent information and must ensure equitable treatment of all kinds of creditors.10 Therefore, the Madras High Court ruled in favor of TANGEDCO (an operational creditor), stating that the claim for unpaid electricity charges is justified for the insolvency proceedings, Hence, the petitioner was required to settle the dues.
Future Outlook and Unresolved Questions
As seen above, the doctrine of clean slate has been challenged on multiple counts owing to uncrystallised dues for the period prior to the resolution process,11 assessment of escaped tax liabilities,12 arrears of electricity consumption,13 and reassessment for a period before the resolution process.14 While the courts have consistently upheld the importance of providing a clean slate to the resolution applicant, its application has raised several nuanced issues:
Conflict between Section 31(1) and Section 60 IBC
Section 60(6) of IBC stipulates that in calculating the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made, the period during which such moratorium is in place shall be excluded. Consequently, this provision means that even after the moratorium ends, creditors may still have the opportunity to seek legal recourse. This is in conflict with Section 31(1) IBC in certain cases, which aims to eliminate all pre-existing claims upon the approval of a resolution plan.15 This conflict raises complex legal questions regarding the effective management of ongoing claims in light of the finality of the plan but this shows that there may be some room to manoeuvre in instances where the claims are judicially recognized to be pending.16
Cases of wilful default in payment of statutory dues.
The judiciary is consistent in supporting the Clean Slate doctrine, despite this that government authorities have continued to debate its scope. The increasing instances of wilful default in the payment of statutory dues such as electricity bills, taxes, etc, highlight the challenges in implementing the Clean Slate Doctrine. The government has to face the economic burden of such waivers and compensate for the loss, potentially destabilizing the country’s economy in the long run. There is a growing call for introducing provisions to hold directors, promoters and other individuals accountable for wilful defaults potentially through fines or other penalties in their personal capacity.
The brunt of waiver of substantial statutory dues has to be born by governments and taxpayers which can starin public finances.
Conclusion
The conflict of clean state doctrine and the treatment of statutory dues and other issues under IBC highlights the complex interplay between commercial interests, legal obligations and public policy. Along with giving a fresh start to the company, it is essential to ensure balance between the interests of creditors, debtors and government authorities for an effective and fair insolvency resolution process. By addressing the challenges and ambiguities in the current framework, India can enhance the effectiveness of its insolvency while maintaining the integrity of statutory obligations. As the legal landscape evolves, it is imperative to refine the insolvency framework, ensuring that it serves its intended purpose of facilitating timely and efficient resolution while maintaining the integrity of statutory obligations and ensuring that all creditors are equitably incorporated.
