Ignoring the Clean Slate: A Legal Breakdown

 

Under India’s Insolvency and Bankruptcy Code (IBC), once a resolution plan is approved by the National Company Law Tribunal (NCLT), all previous claims—including tax liabilities—are extinguished. This “clean slate” rule was upheld by the Supreme Court in the Ghanshyam Mishra & Sons judgment, intended to give new management a fresh start without legacy baggage.

 

However, recent incidents show that tax authorities are issuing fresh tax demands on companies post-insolvency resolution, contradicting the fundamental goals of the IBC and creating legal uncertainty.

 

Fresh Tax Demands Post-Resolution: Key Cases

 

1. Tata Steel – Bhushan Steel Acquisition
Tata Steel, which acquired Bhushan Steel through an IBC resolution, was hit with a ₹25,185 crore tax notice for a debt waiver treated as income. Tata Steel has challenged this in the Bombay High Court, claiming such demands violate the IBC’s clean slate principle.

 

2. B&B Global Enterprises
After acquiring a distressed company through the IBC process, B&B Global received tax claims related to pre-acquisition periods, raising questions about how authorities interpret insolvency protections.

 

Legal Experts Warn of Dangerous Precedent

 

Legal professionals argue that ignoring the IBC’s clean slate doctrine:

 

• Deters future resolution applicants
• Risks double jeopardy—settled claims being reopened
• Undermines the insolvency resolution framework

 

“The IBC is meant to close all past claims once the plan is approved. Issuing fresh tax claims is both legally flawed and commercially damaging,” says a senior advocate at NYK Law Firm.

 

How Legal Experts Can Help in India & UAE

 

Legal experts play a vital role in protecting resolution applicants by:

• Challenging unlawful tax assessments
• Representing companies in High Courts or NCLT
• Ensuring resolution plans include indemnities for future claims
• Advising clients on pre-clearance of statutory dues

 

In the UAE, the insolvency regime (Federal Decree-Law No. 9 of 2016 on Bankruptcy) clearly protects companies undergoing restructuring from tax prosecution or claims during the moratorium period. The UAE courts typically honour the “fresh start” principle, provided compliance with formal procedures and court-supervised settlements is ensured.

 

Firms like NYK Law Firm assist with:

• Navigating UAE insolvency and tax regulations
• Preparing debt settlement proposals
• Protecting directors from personal liability under UAE law
• Advising on cross-border insolvency with Indian linkages

 

The Way Forward: Fixing the Gap

 

To uphold the intent of the Insolvency and Bankruptcy Code:

• CBDT should issue circulars explicitly prohibiting new tax demands post-resolution
• Training should be given to tax officers on the IBC framework
• Dispute resolution bodies must fast-track such matters to avoid prolonged litigation

 

For any enquiries or information, contact info@thelawreporters.com or call us on +971 52 644 3004. Follow The Law Reporters on WhatsApp Channels