Tax demand after a resolution plan: section 156A and the clean slate

A resolution plan is approved. The company changes hands. Eighteen months later a demand notice arrives for an assessment year that closed before the insolvency began, and it is addressed to the company the resolution applicant now owns.

The answer is not section 156A. Section 156A is the paperwork. The answer is section 31 of the Insolvency and Bankruptcy Code, which since 26 May 2026 says in terms that such a claim is extinguished and that no proceeding, including a proceeding for assessment, may be continued or instituted on it. The Supreme Court had got there first, and has restated it repeatedly, most recently by holding a tax authority’s continued recovery contemptuous.

That gap, between the provision the Income-tax Act supplies and the provision that actually decides the case, runs through this whole subject. Section 156A has no form, no rule, no timeline and no appeal, which is why every reported case is a writ petition. And the one Supreme Court decision that gives the Department a foothold, Rainbow Papers, has survived a review, been confined to its facts by a coordinate bench, and has now been met by a legislative Explanation whose reach backwards nobody yet knows.

Key points

• Section 156A is consequential machinery, not the source of the relief. Since 26 May 2026 the extinguishment is worked by enacted section 31(6) of the Code, which bars proceedings “including proceedings for assessment of the claims” and which Explanation III applies retrospectively to the commencement of the Code. Before that it rested on section 31(1) as construed in Ghanashyam Mishra. The Supreme Court decided Vaibhav Goel on income tax demands without citing section 156A at all.
• The section has three textual gaps: the trigger is a demand being “reduced”, not extinguished; sub-section (2) reaches only an order modified by the NCLAT or Supreme Court, not one made by them at first instance; and no form, rule, timeline or appeal has ever been prescribed.
• No CBDT circular explains it. Circular No. 23/2022 lists section 156A in its table of amendments and says nothing about it anywhere in the body. Four and a half years on, the provision has no administrative machinery.
• Reassessment after plan approval is bad in law: Murli Industries, Alok Industries, Asian Colour Coated Ispat, National Sewing Thread, Reliance Projects. The Revenue’s special leave petitions against two Bombay orders following Alok Industries were dismissed on delay and merits.
• The moratorium under section 14 bars recovery, not quantification: Sundaresh Bhatt. The common assertion that it bars assessment is contested and should not be advanced as settled.
• Refunds are genuinely unsettled. Ultra Tech Cement and Shaifali Steels one way; the Orissa High Court’s refusal in Sree Metaliks the other, with a special leave petition pending on which notice issued on 17 November 2025.
• Rainbow Papers has not been overruled, survived review, and was confined to its facts by a coordinate bench in Paschimanchal. Two two-judge benches, unresolved.
• Rainbow Papers has largely not bitten income tax, because the Income-tax Act has no statutory first charge comparable to section 48 of the Gujarat VAT Act.
• The Insolvency and Bankruptcy Code (Amendment) Act, 2026 inserted an Explanation in section 3(31) excluding a security interest created merely by operation of law, in force 26 May 2026. Whether it reaches backwards is open, and the Act’s own treatment of the section 31 amendment is the best argument that it does not.
• Continuing recovery after the law is pointed out is contemptuous: JSW Steel (a State commercial tax case, but decided on section 31(1)).
• From 1 April 2026 the provision is section 290 of the Income-tax Act, 2025, which drops the express command to modify the demand.

What does section 156A actually say?

The section was inserted by the Finance Act 2022 with effect from 1 April 2022, under the marginal note “Modification and revision of notice in certain cases”:

(1) Where any tax, interest, penalty, fine or any other sum in respect of which a notice of demand has been issued under section 156, is reduced as a result of an order of the Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Assessing Officer shall modify the demand payable in conformity with such order and shall thereafter serve on the assessee a notice of demand specifying the sum payable, if any, and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall accordingly, apply in relation to such notice.

(2) Where the order referred to in sub-section (1) is modified by the National Company Law Appellate Tribunal or the Supreme Court, as the case may be, the modified notice of demand as referred to in sub-section (1), issued by the Assessing Officer shall be revised accordingly.

Four things to notice.

The trigger is an order of the Adjudicating Authority, which section 5(1) of the Code defines as the National Company Law Tribunal. The section is therefore confined to insolvency. It does not apply to an order of a High Court or of the NCLT sanctioning a scheme of amalgamation or demerger under sections 230 to 232 of the Companies Act 2013, which is a scope point frequently misstated.

The command is mandatory twice over: “shall modify” and “shall thereafter serve”. There is no discretion on the face of it, no power to verify the plan and no power to decline.

The fresh notice is deemed to be a notice under section 156, so the whole recovery, interest and appeal machinery attaches to it.

And sub-section (2) is narrower than it looks, which is dealt with below.

What does section 31(1) say?

The sub-section on which the whole of the case law rests reads:

If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, 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, guarantors and other stakeholders involved in the resolution plan.

The words from “including the Central Government” to “statutory dues are owed” were inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2019, and the Supreme Court has held that insertion to be clarificatory and declaratory, and therefore effective from the commencement of the Code.

Section 238 supplies the override:

The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

The Income-tax Act itself defers, in the liquidation context. Section 178(6) provides that the section has effect notwithstanding anything to the contrary in any other law “except the provisions of the Insolvency and Bankruptcy Code, 2016”. The subordination is on the face of the Act.

What did Ghanashyam Mishra decide?

Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited (2021) 9 SCC 657 was decided on 13 April 2021 by R.F. Nariman, B.R. Gavai and Hrishikesh Roy, JJ., the judgment being delivered by Gavai, J. Its summary of conclusions contains the sentences that decide most of this subject.

At paragraph 102.1 of the report:

That once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.

At paragraph 102.2:

The 2019 Amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which the I&B Code has come into effect.

And at paragraph 102.3, the limb that speaks directly to tax:

Consequently, all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be continued.

A citation caution, because the error is common. Those paragraph numbers are those of the Supreme Court Cases report. In the judgment as delivered the same three conclusions are numbered 95(i), 95(ii) and 95(iii). A citation that pairs “(2021) 9 SCC 657” with “para 95(i)” mixes the two numbering schemes.

The reasoning that produced conclusion 102.2 is at paragraph 69 of the judgment as delivered, and it is worth having because the same logic is now in play on the 2026 amendment:

To answer the said question, we will have to consider, as to whether the said amendment is clarificatory/declaratory in nature or a substantive one. If it is held, that it is declaratory or clarificatory in nature, it will have to be held, that such an amendment is retrospective in nature and exists on the statute book since inception.

Behind Ghanashyam Mishra stands Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta (2020) 8 SCC 531, decided on 15 November 2019, where the Court said at paragraph 107:

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 would successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor.

That paragraph is numbered 67 in the judgment as delivered.

The clean slate is now in the Code: section 31(5) and (6)

For a decade this subject was governed by what the Supreme Court had made of section 31(1). Since 26 May 2026 it is governed by enacted text, and any advice written on the case law alone is now incomplete.

Section 19 of the Insolvency and Bankruptcy Code (Amendment) Act, 2026 inserted new sub-sections into section 31. Sub-section (6) is the one that matters here:

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.

Sub-section (5) protects a licence, permit, registration, quota, concession, clearance or similar grant associated with the plan from being suspended or terminated during its remaining period, so long as the obligations attaching to it are complied with.

And Explanation III makes both retrospective:

For the removal of doubts, it is hereby clarified that the provisions of sub-sections (5) and (6) shall be deemed to apply to the resolution plan that is approved under sub-section (1), on and from the date of commencement of this Code, except for matters that have attained finality under this Code.

Four consequences follow, and they are large.

The word is now extinguished, in the statute, not in a judgment construing it. That matters directly to the drafting of section 156A, which is triggered only where a demand is “reduced”. The mismatch discussed below is now a mismatch between two statutes, one of which uses the word the other lacks.

Assessment is expressly caught. Sub-section (6)(b) bars proceedings “including proceedings for assessment of the claims”. So the question whether the Department may frame an assessment in respect of a pre-approval claim after the plan is approved is no longer a matter of inference from the clean slate; it is answered. Note the limit: this is about the position after approval. What may be done during the moratorium is a different question, dealt with below, and sub-section (6) does not touch it.

The reassessment line now has a statutory footing. Murli Industries through Reliance Projects were all decided on case law, and their result is now what the Code says.

And the retrospectivity is express. Explanation III reaches every plan approved since the Code commenced, subject only to matters that have attained finality. The contrast with the Explanation inserted in section 3(31), which carries no such clause, is taken up later in this note and is not accidental.

None of this makes the case law redundant. Ghanashyam Mishra remains the authority on what section 31(1) always meant, which is what governs a matter that has attained finality and what informs the construction of the new sub-section. But it is now the antecedent rather than the source.

Is section 156A the source of the relief, or only the bookkeeping?

Only the bookkeeping, and the proof is in the Supreme Court’s own most recent decision on income tax demands.

Vaibhav Goel and another v. Deputy Commissioner of Income Tax (Civil Appeal No. 49 of 2022, 2025 INSC 375, decided 20 March 2025, Abhay S. Oka and Ujjal Bhuyan, JJ.) concerned the corporate insolvency resolution process of Tehri Iron and Steel Casting Ltd. The plan was approved on 21 May 2019. It listed an income tax liability of Rs 16,85,79,469 for assessment year 2014-15 as a contingent liability but said nothing about assessment years 2012-13 and 2013-14. The Department, having filed no claim, issued demand notices for those two years on 26 and 28 December 2019.

The Court held at paragraph 8 that because the dues for those years were not part of the approved resolution plan, in view of section 31(1) as interpreted in Ghanashyam Mishra, they stand extinguished; at paragraph 11 that the subsequent demand was invalid; and at paragraph 14 that the demands were invalid and cannot be enforced, setting aside the orders of the NCLT and NCLAT below.

Section 156A is not mentioned anywhere in the judgment. The Court did not need it. That is the correct way to think about the provision: it tells the Assessing Officer what to do with his demand register once the Code has done the work. It does not create the right, and an argument built on section 156A alone is built on the wrong provision.

Three gaps in section 156A

“Reduced” is not “extinguished”. The section is triggered where a sum “is reduced as a result of” the order. Section 31(6)(a) of the Code now says that such a claim “shall be extinguished”, which is a wiping out rather than a reduction. On a literal reading section 156A would not reach a demand extinguished in full, which is the commonest case of all. The mismatch was arguable when the extinguishment rested on judicial construction; it is sharper now that one statute uses the word the other lacks. No decision has tested it, and the Department has an obvious answer available if it ever wants one, but the drafting is what it is.

Sub-section (2) presupposes an appeal. It operates only where “the order referred to in sub-section (1) is modified by” the NCLAT or the Supreme Court. It therefore assumes an order of the Adjudicating Authority that has been carried in appeal. It does not, on its face, cover an order made at first instance by the NCLAT, an order of the Supreme Court in its own jurisdiction, or an order of a High Court in writ jurisdiction. Each of those happens.

There is no machinery. No rule in the Income-tax Rules, 1962 and no form has ever been prescribed for a modification under section 156A. There is no application, no deadline by which the Assessing Officer must act, no prescribed order and therefore nothing appealable. A provision cast in mandatory terms has been given no mechanism by which the mandate can be enforced.

The consequence of the third gap is visible in the reports: every case in which a taxpayer has had to make section 156A work is a writ petition. Where the officer does not act, the realistic remedies are Article 226, rectification under section 154, and, on the authority discussed below, contempt.

Has the Board explained any of this?

No, and the absence is worth stating as a finding rather than an omission.

CBDT Circular No. 23/2022 dated 3 November 2022 contains the Explanatory Notes to the provisions of the Finance Act 2022. Section 156A appears in it exactly once, as a bare line in the “Amendments at a Glance” table at page 3: “156A Modification and revision of notice in certain cases.” There is no explanatory paragraph on section 156A anywhere in the body of the circular, and no paragraph in the circular deals with insolvency or with the Code at all.

No other published CBDT circular or instruction on section 156A could be located. So a provision inserted in 2022 to solve an acknowledged problem, the absence of any mechanism in the Act for taking such demands off the outstanding demand register, has been left for four and a half years without a form, a rule, a timeline or a word of guidance to the officers who must operate it.

Can an assessment be reopened after the plan is approved?

No. The High Court line is consistent and, at the level of special leave, the Supreme Court has declined to disturb it.

Murli Industries Limited v. ACIT (Writ Petitions Nos. 2948 and 2965 of 2021, Bombay High Court, Nagpur Bench, decided 23 December 2021, Sunil B. Shukre and Anil L. Pansare, JJ.) is the earliest of the modern line. Notices for assessment year 2014-15 were quashed and set aside on the authority of Ghanashyam Mishra, the Court observing that in the absence of any claim having been made and dealt with by the Resolution Professional, such claim could not be raised subsequently.

Alok Industries Ltd v. ACIT (Writ Petitions Nos. 3088, 3091 and 3128 of 2022 and 388 of 2023, Bombay High Court, decided 20 March 2024, K.R. Shriram and Dr Neela Gokhale, JJ.) is the fullest. The plan had been approved on 8 March 2019 and became effective in September 2020, discharging pre-closing tax dues as nil. The Court quashed the section 148 notice of 27 February 2021, the order rejecting objections, the assessment order under section 144 read with section 147, and the penalty notice under section 274 read with section 271(1)(c). Two of its holdings travel well: that the resolution plan approved under section 31 of the Code applies even if the Department contends that it is inconsistent with the provisions of the Act; and that sections 147 and 148 can only be initiated for bringing to tax income which has escaped assessment, and not for collection of evidence of third parties or ex-promoters.

Alok Industries has been followed in the Bombay High Court, including in the petitioner’s own earlier matters in Reliance Projects and Property Management Services Ltd v. ACIT (Writ Petition (L) No. 29578 of 2023, decided 15 April 2024, and Writ Petition (L) No. 3362 of 2024, decided 6 May 2024). The Revenue’s special leave petitions against those two orders were dismissed by the Supreme Court on 21 April 2025 and 25 July 2025, on both delay and merits, a fact recorded by the same Court in Reliance Projects in October 2025. Nothing in the reports establishes that a special leave petition was ever filed against Alok Industries itself.

Asian Colour Coated Ispat Limited v. ACIT (W.P.(C) 3498/2022, Delhi High Court, decided 7 August 2024, Yashwant Varma and Ravinder Dudeja, JJ.) quashed a section 148 notice and the consequent order for assessment year 2014-15, the Department having failed to lodge a claim before the Resolution Professional.

National Sewing Thread Company Limited v. DCIT (W.P.(C) 8679/2024, Delhi High Court, decided 24 June 2024, Mini Pushkarna and Dharmesh Sharma, JJ.) went further down the chain, setting aside an assessment order under section 143(3), a notice of demand under section 156 and a penalty notice under section 274, all issued in May 2024 in respect of assessment year 2022-23, the plan having been approved by the NCLT at Chennai on 6 December 2021.

Reliance Projects and Property Management Services Ltd v. ACIT (Writ Petition No. 4964 of 2024, Bombay High Court, decided 14 October 2025, B.P. Colabawalla and Amit S. Jamsandekar, JJ.) is the most recent full statement. The whole sequence for assessment year 2014-15 was quashed: the section 148A(b) notice, the section 148A(d) order, the section 148 notice and the assessment order under section 143(3) read with section 147, together with all consequential notices. The Court held that issue of notice under section 148 to the petitioner company after the approval of the resolution plan for a period prior to closing is invalid and bad in law, that all dues including statutory dues not part of the plan stand extinguished, and that no proceedings in respect of such dues for a period prior to approval could be continued.

The reassessment machinery itself is dealt with on the provision page for section 148A.

Does the moratorium stop an assessment, or only recovery?

This is where commentary most often goes wrong, and the Supreme Court has given a clear answer that cuts against the popular version.

Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs (Civil Appeal No. 7667 of 2021, decided 26 August 2022, N.V. Ramana, CJI, with J.K. Maheshwari and Hima Kohli, JJ.) held:

Once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC as the case may be, the respondent authority only has a limited jurisdiction to assess/determine the quantum of customs duty and other levies. The respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act.

That conclusion, at paragraph 54(i), is framed on the Customs Act, and the Revenue will say so. The reasoning behind it is not: it is that a moratorium separates quantification from enforcement, and the Court put it in general terms when following S.V. Kondaskar v. V.M. Deshpande:

the authorities can only take steps to determine the tax, interest, fines or any penalty which is due. However, the authority cannot enforce a claim for recovery or levy of interest on the tax due during the period of moratorium.

After determining, the authority must lodge its claim in strict compliance with the Code’s timelines.

So: quantification yes, enforcement no. Section 14(1)(a) bars the institution or continuation of suits or proceedings against the corporate debtor, and the whole question is whether an assessment is such a proceeding. Sundaresh Bhatt answers that a quantification exercise is not caught and recovery is.

There is a contrary strand and it should be reported rather than suppressed. The NCLAT held in Employees Provident Fund Organisation v. CA Pankaj Shah (Company Appeal (AT) (Insolvency) Nos. 17, 102 and 103 of 2025, decided 3 September 2025, Justice Ashok Bhushan, Chairperson, and Barun Mitra, Technical Member) that after initiation of the corporate insolvency resolution process no assessment can be initiated or continued against the corporate debtor so as to pass any pecuniary liability, and disallowed the EPFO’s claim founded on an inspection and assessment carried out after commencement. On the reports available, that decision does not engage with Sundaresh Bhatt at all.

A single judge of the Calcutta High Court quashed a section 148A(d) order in MSP Metallics Limited v. ACIT (WPA 12285 of 2023, decided 25 May 2023, Bibek Chaudhuri, J.), relying on section 238 of the Code. That order is frequently cited for the proposition that once a corporate insolvency resolution process is admitted no fresh proceeding, civil or criminal, may be initiated. It is worth knowing that those words appear in the judgment as a recital of the petitioner’s contention rather than as the Court’s own holding, that the Court’s operative finding is a single sentence, and that the case concerned the pendency of the process rather than the approval of a plan.

Two further cautions. The moratorium is temporal: it ends when the plan is approved or liquidation is ordered. Extinguishment is permanent. Most of the reported income tax litigation is about the second, and running the two together produces arguments that are either too wide or aimed at the wrong period.

The distinction now matters more, not less, because the two questions have diverged. What may be done after approval is answered by section 31(6)(b), which bars proceedings on a pre-approval claim including proceedings for assessment of it. What may be done during the moratorium is untouched by that sub-section and remains governed by Sundaresh Bhatt, where quantification is permitted and enforcement is not. An argument that cites section 31(6) against an assessment framed during a moratorium, before any plan was approved, is citing the wrong provision.

What about refunds due to the corporate debtor?

Genuinely unsettled, and an adviser who presents it as settled will be wrong whichever way they present it.

On the taxpayer’s side, the Calcutta High Court in Ultra Tech Cement Limited and another v. Union of India and others (WPA 2036 of 2020, decided 18 September 2026, Smita Das De, J.) held that on the date the resolution plan was approved all claims stood frozen and no claim not forming part of the plan could survive, and directed the Department to refund amounts wrongly adjusted with interest, to accept the pre-transfer returns, and to cease all reassessment for pre-transfer periods, all within six weeks. The Gujarat High Court in M/s Shaifali Steels Limited v. Income Tax Officer (R/Special Civil Application No. 16325 of 2025, decided 27 April 2026, A.S. Supehia and Pranav Trivedi, JJ.) quashed the adjustment of refunds totalling Rs 26,86,580 for assessment years 2018-19 to 2023-24 against dues extinguished by a plan approved on 13 December 2021, holding that on the complete extinguishment of all tax liabilities of the corporate debtor upon approval of the plan there could be no occasion whatsoever to proceed with the adjustment. That reasoning runs from extinguishment of the underlying liability rather than from the conditions for a set-off under section 245, and should not be cited as a holding on section 245 as such.

Against that, and it must be stated fairly, the Orissa High Court dismissed a writ petition in Sree Metaliks Limited v. Director General of Income Tax, Bengaluru and others (W.P.(C) No. 16985 of 2024, decided 6 February 2025, Arindam Sinha, Acting Chief Justice, and M.S. Sahoo, J.). A refund of Rs 6,00,71,354 for assessment year 2010-11 had been adjusted against pre-resolution liabilities. The Court reasoned that the resolution plan approved on 7 November 2017 had itself reckoned Rs 14,26,69,327.27 of old income tax liabilities; that the refund related to a period well before the plan; and that the resolution applicant, who stepped into management only on and from 7 November 2017, could not claim to have paid tax on an assessment made for assessment year 2010-11. The adjustment was permissible because it reduced old tax dues already accounted for in the resolution process. The Supreme Court issued notice on the special leave petition (Diary No. 57608 of 2025) on 17 November 2025, before Manoj Misra and Ujjal Bhuyan, JJ., and the matter is pending.

There is more to the Sree Metaliks story, and it cuts the other way on the same rupee figure. A different bench of the same High Court, in The Principal Commissioner of Income Tax, Sambalpur v. Sree Metaliks Ltd (RVWPET No. 495 of 2023 in W.P.(C) No. 17813 of 2023, decided 1 March 2024, S.K. Panigrahi and G. Satapathy, JJ.), dismissed the Revenue’s review petition and upheld its earlier order directing refund of the very same Rs 6,00,71,354, on the ground that the demand had not been lodged as a claim after the public announcements and that all claims stood frozen on approval. So on one refund, one assessment year and one company, the Orissa High Court has both ordered the money released and upheld its adjustment. That is almost certainly what the special leave petition is really about.

The same High Court, in a review petition decided on 8 August 2025 (RVWPET No. 256 of 2020, Dr S.K. Panigrahi and G. Satapathy, JJ.), quashed an assessment order and demand notice both dated 18 March 2014 on the footing that the underlying tax claim stood extinguished by operation of section 31(1) of the Code. Several distinct Orissa matters involve this one company, and they should not be conflated: a reader who pulls RVWPET No. 256 of 2020 expecting a writ petition will think the record is wrong.

Rainbow Papers: the decision, the review and the narrowing

State Tax Officer (1) v. Rainbow Papers Limited (2023) 9 SCC 545 was decided on 6 September 2022 in Civil Appeal No. 1661 of 2020 with Civil Appeal No. 2568 of 2020, by a two-judge bench of Indira Banerjee and A.S. Bopanna, JJ.

Its reasoning rests on a statutory charge. The Court accepted the Solicitor General’s submission that in view of the statutory charge in terms of section 48 of the Gujarat Value Added Tax Act, the claim of the Tax Department of the State squarely falls within the definition of “Security Interest” under section 3(31) of the Code and the State becomes a secured creditor under section 3(30). It added, in terms that matter for what happened in 2026:

As observed above, the State is a secured creditor under the GVAT Act. Section 3(30) of the IBC defines secured creditor to mean a creditor in favour of whom security interest is credited. Such security interest could be created by operation of law. The definition of secured creditor in the IBC does not exclude any Government or Governmental Authority.

And then the sentence the Department quotes:

If the Resolution Plan ignores the statutory demands payable to any State Government or a legal authority, altogether, the Adjudicating Authority is bound to reject the Resolution Plan.

It also held that regulation 12 of the process regulations is directory and not mandatory, and that delay in filing a claim cannot be the sole ground for rejecting the claim, which is in some tension with the later cases on claims never lodged.

The review failed. In Sanjay Kumar Agarwal and others v. State Tax Officer (1) and another (Review Petitions (Civil) Nos. 1620 to 1623 of 2023 and 236 of 2023, 2023 INSC 963, decided 31 October 2023, A.S. Bopanna and Bela M. Trivedi, JJ.) all five review petitions were dismissed. The review bench also did something that matters: it recorded that the impugned judgment had categorically reproduced section 53 in paragraph 20, and held that subsequent decisions of coordinate benches cannot be a ground for review.

That recital was a direct answer to what a coordinate bench had done three months earlier. In Paschimanchal Vidyut Vitran Nigam Limited v. Raman Ispat Private Limited (Civil Appeal No. 7976 of 2019, 2023 INSC 625, decided 17 July 2023, S. Ravindra Bhat and Dipankar Datta, JJ.) the Court said that Rainbow Papers was in the context of a resolution process and not during liquidation; that it did not notice the waterfall mechanism under section 53, the provision not having been adverted to or extracted in the judgment; and that in this court’s view, that judgment has to be confined to the facts of that case alone.

So one bench says the waterfall was not noticed; the review bench says it was reproduced at paragraph 20. Both are two-judge benches. Neither can overrule the other. No reference to a larger bench has been traced, and nothing should be asserted about one.

Why has Rainbow Papers largely not bitten income tax?

Because of what the Income-tax Act does not contain.

Rainbow Papers turns on section 48 of the Gujarat Value Added Tax Act, which creates a statutory first charge over the dealer’s property. That charge is what brings the State within “security interest” and so within “secured creditor”. The Income-tax Act, 1961 contains no equivalent general first charge over an assessee’s assets. Section 281 renders certain transfers void against the Revenue, and there are specific charges in particular contexts, but there is nothing that answers to section 48 of the Gujarat statute.

The consequence is that an income tax claim in an insolvency is ordinarily an unsecured statutory due travelling through the waterfall in section 53(1)(e), below unsecured financial creditors, rather than a secured claim ranking under section 53(1)(b). It is worse than that for older dues: clause (e)(i) reaches government dues only for the two years preceding the liquidation commencement date, so anything older falls into clause (f), the residual class of remaining debts and dues. Attachment does not change the analysis: attachment is a step in recovery, not the creation of a security interest by agreement.

This is an argument from the absence of a provision, and it is the strongest answer to a Department that cites Rainbow Papers in an income tax insolvency. It does not depend on Paschimanchal, and it therefore survives the stand-off described above.

What does the Insolvency and Bankruptcy Code (Amendment) Act, 2026 do?

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (Act No. 6 of 2026) received assent on 6 April 2026. By section 2 it amends section 3 of the Code, and among those amendments it inserts an Explanation in clause (31), which reads:

For the removal of doubts, it is hereby clarified that the security interest shall exist only if it creates a right, title or interest or a claim to a property pursuant to an agreement or arrangement, by the act of two or more parties, and shall not include a security interest created merely by operation of any law for the time being in force;

Two points of precision. This is an Explanation inserted in clause (31), not a substitution of it: the main definition of “security interest” is untouched. And the operative words are “by the act of two or more parties” and “merely by operation of any law for the time being in force”.

Section 2 of the Amendment Act was brought into force on 26 May 2026 by notification S.O. 2625(E) dated 22 May 2026, which appointed that date for sections 2 to 6 among others. Note the trap for anyone checking: the notification lists sections of the Amendment Act, not of the Code, so the provision that amends section 3 of the Code is section 2 of the Amendment Act.

What follows is a reading of two texts side by side rather than anything a court has said. The statutory charge on which Rainbow Papers rested arises by operation of law. For cases governed by the amended definition, a charge of that kind is no longer a security interest, so the tax authority is no longer a secured creditor under section 3(30), and the foundation of that reasoning is gone. The Act nowhere mentions Rainbow Papers, and it would be wrong to say that the Act overrules the decision.

It is equally wrong to say that the Explanation disposes of Rainbow Papers altogether. What it reaches is the security interest limb. The separate limb, that a plan which ignores statutory demands altogether must be rejected, rests on sections 30(2) and 31(2) of the Code, and those are untouched by the 2026 Act so far as this question goes: its only change to section 30(2) is the omission of part of clause (b) and the insertion of a new clause about financial creditors who do not vote in favour of the plan. A Department that lodged its claim in time and was ignored in the plan is not answered by the 2026 Explanation.

Is the 2026 Explanation prospective?

Nobody knows, and the honest position is that the Act does not say.

No applicability or savings clause is attached to the Explanation in section 3(31), in contrast to the clauses the same Act attaches to its amendments of sections 21, 31 and 33. The Explanation is cast in classic declaratory language, “For the removal of doubts, it is hereby clarified”, and on the reasoning in Ghanashyam Mishra at paragraph 69, a declaratory or clarificatory amendment is retrospective in nature and exists on the statute book since inception. Applied here, that would mean the Explanation reaches resolution plans approved and insolvency processes commenced before 26 May 2026.

The best argument the other way comes from the same Amendment Act. Where Parliament wanted an amendment to reach backwards, it said so expressly. On the amendment of section 31 it provided that the new sub-sections shall be deemed to apply to a resolution plan approved under sub-section (1) on and from the date of commencement of the Code, except for matters that have attained finality under the Code. It attached comparable applicability clauses to its amendments of sections 21 and 33, each carefully identifying the processes reached. Against that pattern, the silence on the section 3(31) Explanation is significant: the draftsman plainly knew how to write a retrospective clause and did not write one here.

The question therefore remains open, and it is the sort of open question on which a client is entitled to be told that it is open. What can be said with confidence is that a plan approved after 26 May 2026 falls squarely within the amended definition, and that for earlier plans the argument is live on both sides.

What exposure does the officer personally run?

This is the practical lever, and it is under-reported.

In M/s JSW Steel Limited v. Pratishtha Thakur Haritwal and others (Contempt Petition (Civil) No. 629 of 2023 in Writ Petition (Civil) No. 1177 of 2020, 2025 INSC 401, decided 27 March 2025, B.R. Gavai and Augustine George Masih, JJ.) the Supreme Court restated that all claims not part of a resolution plan stand extinguished and no person is entitled to initiate or continue any proceedings; that no stakeholder is relieved from the binding effect of an approved resolution plan merely because they did not participate in the insolvency proceedings; and that continuation of proceedings despite the judgment being pointed out to their notice is contemptuous in nature.

Two things should be said about that case before it is relied on. The cause title was amended, the petitioner having been M/s JSW Ispat Special Products Limited, now M/s JSW Steel Limited, so the reported title is the latter. And the alleged contemnors were officers of the Commercial Tax Department of the Government of Chhattisgarh, not income tax authorities: the demands were for central sales tax, sales tax and entry tax, one of them raised under section 146 of the Chhattisgarh Land Revenue Code, 1959. Nothing in the reasoning turns on the levy being a State one, and the holdings are on section 31(1) of the Code, so they bind an Assessing Officer in the same way. But it is not an income tax contempt case and should not be cited to an Assessing Officer as though it were.

The demand notices and recovery proceedings were quashed and set aside. The officers tendered an unconditional apology, which was accepted. The Court held the conduct contemptuous in nature but expressly declined to take action on it, and no penalty was imposed.

The lesson for practice is about sequencing. A letter that sets out the plan, the date of approval, the fact that no claim was lodged, section 31(6) of the Code with Explanation III, and the holdings in Ghanashyam Mishra and JSW Steel, served on the officer and on his supervisor, changes the character of what follows. It is worth writing before anything else is filed.

The erstwhile promoters are not on the clean slate

The clean slate attaches to the corporate debtor and to the successful resolution applicant. It does not attach to the people who ran the company before, and an adviser who tells a former promoter otherwise is wrong.

Since 26 May 2026 the Code says so expressly. Explanation I to section 31, as inserted by the Amendment Act of 2026, reads:

For the purposes of this section, it is hereby clarified that nothing in this section shall affect a claim or any proceeding in respect of a person who was a promoter or in the management or control of the corporate debtor, a guarantor of the corporate debtor or any person having a joint liability or a joint and several liability with the corporate debtor, as the case may be.

By Explanation III that too reaches back to the commencement of the Code, subject to matters that have attained finality. Explanation II adds that where a jointly liable person pays the debt after plan approval, any right to be indemnified by the corporate debtor is extinguished.

What the case law limits is the machinery. In Pr. Commissioner of Income Tax, Central-4 v. Patanjali Foods Ltd, formerly Ruchi Soya Industries Ltd (Writ Petition No. 1971 of 2023 with Writ Petition (L) No. 13323 of 2023 and Writ Petition No. 2092 of 2024, decided 17 April 2024, K.R. Shriram and Dr Neela Gokhale, JJ.) the Bombay High Court observed:

Insofar as the contention of revenue regarding possible liability of previous management, the Revenue may take whatever steps are available to them in law to take action, if any, against ex-promoter, other third parties, but the same cannot be done by issuing notice under Section 148.

and, in a single paragraph:

We are unable to fathom as to how the provisions of Section 148 of the Act can be applied for collection of evidences of third party, ex-promoters etc., and we say this because there are separate provisions under Section 133(6) of the Act in which, such evidences can be collected. We are also unable to understand how the provisions of Section 148 of the Act can be used when the proceedings are not for recovery of tax.

Those are the High Court’s own words, and the same bench had used near-identical words about section 133(6) in Alok Industries a month earlier. The special leave petition was dismissed on 15 January 2025, reported at (2025) 303 Taxman 330 and 474 ITR 339, without a reasoned order, so the observation should be attributed to the High Court and not to the Supreme Court.

What remains untested is the income tax side of it: how section 179 of the Income-tax Act operates against an erstwhile director once the company’s own liability has gone. No decided case was found on that, and nothing should be asserted about it.

What is the position under the Income-tax Act, 2025?

The successor provision is section 290, under the same marginal note, and the successor to section 156 is section 289. Section 290(1) opens with the word “where”, and then sets out two conditions and the consequence:

(a) any tax, interest, penalty, fine or any other sum in respect of which a notice of demand has been issued earlier under section 289; and (b) such tax, interest, penalty, fine or any other sum is reduced as a result of an order of the Adjudicating Authority as defined in section 5(1) of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Assessing Officer shall serve on the assessee a modified notice of demand specifying the sum payable, if any, and such notice shall be treated as a notice under section 289 and the provisions of this Act shall accordingly apply in relation to such notice.

(2) The modified notice of demand as referred to in sub-section (1) shall be revised where the order referred to in sub-section (1)(b) is modified by the National Company Law Appellate Tribunal or the Supreme Court.

Set that against section 156A(1) and one change stands out. The 1961 provision was a two-step command: the Assessing Officer “shall modify the demand payable in conformity with such order and shall thereafter serve” a notice of demand. Section 290(1) collapses it into one step: he “shall serve on the assessee a modified notice of demand”. The express direction to bring the demand into conformity with the order of the Adjudicating Authority has gone.

Whether that is a substantive change or simplification drafting is not knowable from the text. What can be said is that the duty on the face of the new provision is a duty to serve a document, not a duty to correct the register, and that the register is where the practical problem lives. A taxpayer arguing for rectification of an outstanding demand after 1 April 2026 has one fewer word on its side than it had before.

Two smaller changes. The modified notice “shall be treated as” a notice under section 289, where the earlier provision said “deemed to be”. And the trigger is restructured into lettered clauses, which is what allows sub-section (2) to cross-refer compactly.

The “reduced” trigger is retained, so the first of the three gaps described above carries forward unchanged. No form appears to have been prescribed for section 290 either, which means the procedural vacuum has been carried into the new regime as well.

One transitional point. By section 536(2)(c) of the 2025 Act, the repealed Act continues to govern proceedings in respect of any tax year beginning before 1 April 2026, including proceedings initiated after that date, and such proceedings are to be carried out under the procedure of the repealed Act. Since almost every demand caught by an insolvency relates to an earlier year, section 156A rather than section 290 will govern most of this work for years yet. Which statute applies to a given proceeding is dealt with in which Act governs an appeal filed today.

How should the demand be attacked?

Start with the plan, not the Act. Establish the date the Adjudicating Authority approved it, whether the Department lodged a claim, and whether the demand in question is dealt with in the plan or is absent from it. Those three facts decide the case, and Vaibhav Goel shows that they decide it without section 156A.

Separate the periods. A demand for a year ending before the insolvency commencement date, never lodged as a claim, is extinguished on approval. A proceeding during the moratorium is a different question, governed by Sundaresh Bhatt, where quantification is permissible and recovery is not. Arguments that mix the two invite the answer that they prove too much.

Write the letter before the petition. Set out the plan, the approval, the absence of a claim, section 31(6) of the Code, and Ghanashyam Mishra at paragraph 102.3 and JSW Steel. It resolves most matters and, where it does not, it establishes that the law was pointed out.

Do not build the case on section 156A. Use it for what it is: the provision under which the officer must now correct his register, reinforced by section 154 if he will not. The right to the correction comes from section 31(1) of the Code.

Expect Rainbow Papers and answer it on the Income-tax Act. The absence of a statutory first charge comparable to section 48 of the Gujarat VAT Act is the answer, and it does not require the assessee to take sides in the Rainbow Papers and Paschimanchal stand-off. The 2026 Explanation is a second answer for plans approved after 26 May 2026, and an arguable one before that.

Watch the refund. If a refund for any year is likely, raise it before it is adjusted rather than after. The Orissa High Court’s decision in Sree Metaliks shows that a refund relating to a pre-plan year is not certain ground, and the Supreme Court has the question.

Related reading on this site: the provision page for section 156A; the modified return under section 170A, which is the parallel machinery for a scheme rather than an insolvency; and assessment framed on a company that no longer exists.

This note is general commentary on the law as at 27 September 2026 and is not advice on any matter. The position in a particular case depends on its own facts.