The Supreme Court of India, by way of a concise but clear order dated October 16, 2025, has laid to rest a major judicial challenge emanating from the emerging field of insolvency law, i.e., relating to the demands of a State Government in the corporate insolvency resolution process. The Civil Appeals, i.e., C.A. No. 3173 of 2023 and C.A. No. 3673 of 2023, favored by the State of Rajasthan, were rejected, thus confirming the orders issued by both the National Company Law Appellate Tribunal (NCLAT) and the Adjudicating Authority (NCLT).
The Core Conflict and Lower Court Affirmation:
The appeals had emerged against a joint order of the NCLAT, Principal Bench, New Delhi, dated February 21, 2023. The said order had rejected the State's appeals, thus affirming the orders of the NCLT, Jaipur Bench, in respect of two Interlocutory Applications (I.A. Nos. 327/JPR/2019 and 328/JPR/2019). Although the exact nature of the claim of the State in respect of the underlying claim against the Corporate Debtor is not specifically elaborated in the final order, the mere fact that the State was the appellant before the NCLAT and the Supreme Court is a strong indication of a controversy regarding priority or admission of a government-related claim, debt, or liability under the Corporate Insolvency Resolution Process (CIRP). This is usually in the form of dues on land, taxes, or regulatory charges.
The renewed confirmation of the NCLT order by the NCLAT implies a strong stance being adopted by the tribunals, likely consistent with the settled jurisprudence that the IBC is a time-bound, debt-oriented legislation that tends to rank secured creditors and operational creditors (as classified) over government claims, unless particularly secured.
The Futile Effort at Friendly Settlement:
A specific feature of this case was the intervention by a Coordinate Bench of the Supreme Court on October 3, 2023. Appreciating the intricateness and the State's involvement, the Court found no reason to interfere with the challenged judgment at first. But a realistic stance was taken when the erudite Senior Advocate who was appearing for the State of Rajasthan indicated that they were ready to settle the case with the respondents, the assignees of the debts owed to the banks (presumably the financial creditors/Resolution Professional).
The State was asked to make a written proposal, providing a reasonable rate of interest, at least the bank interest, within seven days. This judicial propose for settlement, compelled by the bench and instigated by the Appellant-State, opened a window for an exit through negotiation.
The Inevitable Conclusion:
The October 16, 2025, order states that the negotiations to settle failed. It informed the court that the parties could not negotiate to any peaceful settlement, which resulted in the due legal effect.
Justices J.B. Pardiwala and K.V. Viswanathan, observing the breakdown of the settlement process, declared that "nothing further is required to be done." With the Coordinate Bench's previous opinion that there was no good ground to meddle with the judgment/order, the appeals were accordingly dismissed.
This case stands as a harsh reminder of the finality and very often uncompromising character of the IBC framework once a resolution process has commenced. Where a State, with all its sovereign might, is unsuccessful on the merits in the Tribunals, its resort to the Supreme Court is finally measured against the tall hurdle of interference.
The readiness of the Supreme Court to allow an out-of-court settlement between a dominant State body and the financial stakeholders highlights the courts' penchant for economic efficiency and solution. But having once that window pass, the court of appeals has to apply the law of the land. The rejection marks a strong judicial stamp of approval on the IBC resolution process superiority over long-drawn government litigation in such cases.
