JSW Steel Prevails in Contempt Case: Supreme Court Upholds IBC Supremacy Over Tax Demands.


27 March 2025 Bankruptcy & Insolvency Law >> Business & Commercial Law   |   Sales Tax >> Tax Laws  

In a significant ruling reaffirming the supremacy of the Insolvency and Bankruptcy Code, 2016 (IBC), the Supreme Court has allowed a contempt petition filed by M/s JSW Ispat Special Products Limited (now M/s JSW Steel Limited) against officials of the Commercial Taxes Department in Chhattisgarh. The court found the actions of the tax authorities in issuing demand notices for pre-resolution plan dues to be contemptuous of its earlier judgment in the landmark case of Ghanshyam Mishra and Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited and others.

The case stemmed from insolvency proceedings initiated against the erstwhile M/s Monnet Ispat and Energy Ltd. JSW Steel emerged as the successful resolution applicant, with its resolution plan being approved by the National Company Law Tribunal (NCLT), Mumbai Bench, in July 2018. Subsequently, JSW Steel faced demand notices from the Odisha Mining Corporation Ltd. for sales tax dues pertaining to the period before the resolution plan was approved. This led JSW Steel to file a writ petition before the Supreme Court, which was tagged with similar matters and collectively decided in the Ghanshyam Mishra judgment on April 13, 2021.


 

 

The Ghanshyam Mishra judgment unequivocally held that once a resolution plan is approved by the Adjudicating Authority, it becomes binding on all stakeholders, including Central and State Governments and local authorities. Crucially, it stated that all claims not included in the resolution plan stand extinguished, and no proceedings can be initiated or continued for such claims.

Despite this clear pronouncement, the Assistant Commissioner, Commercial Taxes, Division-II, Raipur, Chhattisgarh, issued a notice to JSW Steel in September 2021 regarding non-submission of returns for the period April to June 2017, a period prior to the approval of the resolution plan. JSW Steel responded, citing the Ghanshyam Mishra judgment and requesting withdrawal of the notice.

However, the Assistant Commissioner, Commercial Tax Department, Raipur-II, Chhattisgarh, proceeded to issue demand notices in May 2022 for outstanding Central Tax, State Tax, and Entry Tax for the same pre-resolution plan period. Adding to this, the Additional Revenue Collector, Commercial Tax Office, Circle-7, Raipur, Government of Chhattisgarh, issued further demand notices in December 2022 for the same amounts.

Aggrieved by these actions, which JSW Steel contended were in willful disobedience of the Supreme Court's judgment, the company filed the present contempt petition.

The Supreme Court, after hearing arguments from both sides, reiterated the binding nature of its Ghanshyam Mishra judgment. The court emphasized that all claims not part of the approved resolution plan stand extinguished, and creditors, including governmental authorities, are barred from initiating recovery proceedings for such dues.

The bench specifically referred to paragraph 140 of the Ghanshyam Mishra judgment, which directly addressed the case of the present petitioner, stating that the respondents were not entitled to recover any claims accruing prior to the transfer date.

The court also dismissed the reliance placed by the alleged contemnors on the State Tax Officer vs. Rainbow Papers Limited judgment, clarifying that the facts of that case were distinguishable. In Rainbow Papers, the State Tax Officer had raised a claim before the Committee of Creditors (CoC), which was rejected, leading the court to examine the validity of the resolution plan itself. In the present case, the Chhattisgarh tax authorities had failed to raise any claim during the resolution process despite public notice.

While the Supreme Court held that the continuation of recovery proceedings by the respondents, despite being aware of the Ghanshyam Mishra judgment, was contemptuous in nature, it decided not to proceed against the officials. The court noted that this was one of the initial cases arising after the Ghanshyam Mishra ruling and accepted the unconditional apology tendered by the contemnors.

Ultimately, the Supreme Court quashed and set aside the demand notices issued by the Chhattisgarh tax authorities and all proceedings pursuant to them, firmly reinforcing the "clean slate" principle for successful resolution applicants under the IBC.


Contempt of Courts Act, 1971  

Central Sales Tax (Amendment) Act, 1957  

Income Tax Act, 1961  

INSOLVENCY AND BANKRUPTCY CODE, 2016