What Sections 31(5) and 31(6) of the IBC Protect After Plan Approval

Section 31(5) and Section 31(6) of the Insolvency and Bankruptcy Code, 2016, in force since 26 May 2026, make the clean slate principle statutory: on approval of a resolution plan, a licence or permit associated with the plan cannot be suspended or terminated for its remaining term, and all claims against the corporate debtor arising before approval stand extinguished unless the plan provides otherwise. The protection is conditional, not absolute: a licence must comply with its ongoing obligations, and extinguishment does not reach claims against promoters or guarantors. This post sets out what the two sub-sections protect, what they leave exposed, and how each side should respond.

How Did Indian Courts Develop the Clean Slate Principle Before 2026?

Ghanashyam Mishra and the Fate of an Unclaimed Statutory Due

Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. [(2021) 9 SCC 657] is the source of the doctrine in its familiar form. The Supreme Court held that the 2019 amendment to section 31(1), which made an approved plan binding on the Central Government, any State Government and local authorities to whom a statutory due is owed, was clarificatory and declaratory and therefore operated retrospectively. Once the adjudicating authority approves a plan it binds every creditor, whether or not that creditor took part in the corporate insolvency resolution process (CIRP), claims outside the plan stand extinguished, and proceedings on them stand terminated.

The reasoning was indirect. Extinguishment was derived from the binding effect of section 31(1) rather than stated by it, which left room for argument at the margins about creditors not obviously within the list of persons bound, and about claims that crystallised after the plan was submitted.

Embassy Property and the Licence the Tribunal Could Not Save

Embassy Property Developments Pvt. Ltd. v. State of Karnataka [(2020) 13 SCC 308] marks the other boundary. The corporate debtor held a mining lease in Karnataka. The State refused the benefit of a deemed extension, and the resolution professional persuaded the tribunal to set that refusal aside as a breach of the moratorium under section 14. The Supreme Court disagreed. A government decision on the extension of a mining lease lies in the public law domain and can be questioned only before a court exercising powers of judicial review; the National Company Law Tribunal (the NCLT) cannot be elevated to that status, and section 60(5)(c) does not carry it there.

The lesson was blunt. A licence, permit or concession sitting at the centre of an asset's value could be lost to regulatory action, and the insolvency forum had no power to stop it. Resolution applicants priced that risk into bids for regulated businesses, or declined to bid at all.

What Section 31(5) Adds on Licences and Permits

Section 31(5), in force since 26 May 2026, provides that on approval of a resolution plan a licence, permit, registration, quota, concession, clearance or similar grant shall not be suspended or terminated during the subsistence of its remaining period, provided the corporate debtor or the resolution applicant complies with the obligations attaching to it.

This does not overrule Embassy Property on jurisdiction. Nothing in the Amendment converts the NCLT into a forum for judicial review of licensing decisions, so a company facing a termination order after plan approval will usually still be in a writ court. What has changed is the substantive law that court applies. The authority is now acting against an express statutory prohibition rather than exercising an unfettered regulatory discretion, and the burden of showing that a stated obligation was breached sits with it.

Three Limits Worth Reading Carefully

The protection runs to the remaining period of the grant. It is not a right of renewal. A consent with eleven months left on it is protected for eleven months, and the renewal application that follows is governed by the ordinary law. In a business whose principal permits expire soon after the likely date of plan approval, this is a diligence item rather than a comfort.

The protection is against suspension and termination. It does not dispense with a requirement to obtain the licensing authority's consent to a change in control, nor with fresh registration where the plan transfers a business or an undertaking rather than leaving the grant with the corporate debtor. Where a plan is structured as a slump sale to a new vehicle, the grant does not travel with the assets merely because section 31(5) exists.

The protection is conditional on obligations being met, and that conditionality does not revive extinguished money claims. An authority cannot use arrears that section 31(6) has wiped out as the ground for terminating the very grant that section 31(5) protects, because that would defeat the extinguishment by another route. Obligations falling due after approval are a different matter, and so are non-monetary conditions: pollution control norms, minimum production or offtake commitments, employment undertakings, periodic returns. Those are not claims, they are not extinguished, and the resolution applicant inherits them.

What Section 31(6) Extinguishes and What Survives

Section 31(6) states the extinguishment directly. All claims against the corporate debtor or its assets arising before approval stand extinguished on approval, unless the plan provides otherwise, and no proceeding may be continued or instituted against the corporate debtor or its assets on the basis of such a claim. Explanations preserve claims against promoters, guarantors, persons jointly or severally liable and persons in management or control, and extinguish the right of indemnity of a person jointly liable with the corporate debtor.

The Reach Back to 28 May 2016

Sub-sections (5) and (6) are expressed to apply to resolution plans approved on and from 28 May 2016, the date the Code commenced, except for matters that have attained finality under the Code. An acquirer that closed a resolution in 2019 and has been fighting a legacy demand ever since can now point to a statutory provision rather than to a line of authority, provided the point has not already been finally decided.

The treatment of the main categories on approval of a plan is as follows.

The extinguishment of a co-obligor's right of indemnity deserves separate attention because it changes group economics. A group company that guaranteed the corporate debtor's borrowing remains liable to the lender after plan approval, and if it pays, it has no claim back against the resolved company. For counsel mapping intra-group exposure, the guarantee becomes a one-way obligation from the moment the plan is approved, and the usual reliance on a deed of indemnity or an implied right of contribution will not answer it.

Where Section 31(6) Meets Section 32A

Section 31(6) deals with civil claims. Section 32A deals with criminal liability and with action against the corporate debtor's property in relation to a pre-CIRP offence, including attachment under the Prevention of Money-Laundering Act, 2002. The two are complementary, but their conditions differ, and the difference decides cases.

Section 32A applies only where the approved plan results in a change in management or control to a person who was not a promoter, was not in management or control of the corporate debtor, is not a related party, and against whom no report alleging abetment or conspiracy has been filed. Section 31(6) carries no such condition. A plan under which an existing promoter retains control, which is possible for a micro, small or medium enterprise under section 240A and in a pre-packaged process, therefore delivers the civil clean slate without the criminal one. Neither provision protects the individuals who were in charge, and section 31(6) says so expressly.

Drafting the Plan and Redirecting the Diligence

For a Resolution Applicant

Schedule the grants. Section 31(5) attaches to a licence or permit associated with the resolution plan, so list each one by number, issuing authority and expiry date in the plan itself, and state that continuity of those grants is a basis on which the plan is framed. A grant that appears nowhere in the plan is an argument waiting to happen.

Use the words unless the plan provides otherwise deliberately. Extinguishment is the default, so anything the applicant wants to keep alive, an accrued dues arrangement with a critical supplier, a settled tax position, a recovery action the corporate debtor is running against a third party, has to be carved in expressly. Ask the tribunal for a direction in the section 31 order that records the extinguishment and names the authorities to be served, so that the order can be produced across a tax counter without a fresh application.

Redirect the diligence budget. Quantifying historical monetary liabilities matters less once they are extinguished by operation of statute. What matters more is the compliance status and residual term of each licence, whether any grant requires consent to a change in control, whether the applicant qualifies under section 32A, whether an attachment already made falls within section 32A(2), and which group entities stand as guarantors whose liability survives.

What Should a Counterparty With a Pre-Approval Claim Do?

Act before approval, not after. File the claim in the prescribed form within the timeline, and if that has been missed, file with an application for condonation while the CIRP is still running. A pending suit, arbitration or statutory appeal preserves nothing, because section 31(6) bars continuation as squarely as it bars institution.

Quantify contingent claims and file them as such. An unliquidated warranty, indemnity or damages claim that is never filed is extinguished with everything else. Where value has to be recovered, look at the guarantor rather than the corporate debtor, since claims against guarantors, promoters and co-obligors survive. Where the interest is proprietary rather than monetary, goods held on bailment, equipment on lease, stock subject to retention of title, assert it as an asset claim against the estate rather than as a creditor claim, because section 31(6) extinguishes claims, not third-party title. Objections belong at the approval hearing under sections 30(2) and 31, and a counterparty that stays silent until the order is passed will usually find there is nothing left to say.

Frequently Asked Questions

Does section 31(6) extinguish government dues that were never claimed in the CIRP?

Yes. That was already the effect of Ghanashyam Mishra, and section 31(6) now says so directly. If a tax or municipal authority did not file its claim, the demand falls away on approval and no recovery proceeding can be continued or started on it. Serve the section 31 order on the relevant authorities promptly and keep proof of service.

Can a licensing authority terminate a permit after plan approval because of arrears from before the CIRP?

It should not be able to. The arrears are a claim against the corporate debtor and are extinguished under section 31(6) unless the plan deals with them, and allowing termination on that ground would defeat the extinguishment. Obligations falling due after approval are different, and non-monetary conditions attaching to the grant continue to bind the company.

Do sections 31(5) and 31(6) help a plan that was approved several years ago?

They are expressed to apply to resolution plans approved from 28 May 2016, subject to a carve-out for matters that have attained finality under the Code. A legacy demand still being litigated can now be met with the statutory provision, while an issue already concluded by a final order is not reopened.

Does a successful resolution applicant inherit compliance defaults under a licence?

It inherits the conditions of the grant, which is not quite the same thing. Money claims arising from past defaults are extinguished. Continuing conditions, environmental clearances, production or offtake commitments and filing obligations remain attached to the licence and have to be met, because section 31(5) protects the grant only while its obligations are complied with.

Are claims against the promoters and guarantors of the corporate debtor affected?

No. The explanations to section 31(6) preserve claims against promoters, guarantors, persons jointly or severally liable with the corporate debtor and persons in management or control. What is extinguished is the co-obligor's right of indemnity against the corporate debtor, so a guarantor who pays after approval cannot recover from the resolved company.

Does section 31(6) do the work of section 32A?

No. Section 31(6) extinguishes civil claims. Section 32A addresses the corporate debtor's liability for pre-CIRP offences and attachment of its property, and it applies only where the plan produces a change in control to a person unconnected with the previous management. A plan that leaves an existing promoter in control gets the benefit of section 31(6) but not of section 32A.

Does the protection under section 31(5) extend to renewal of a licence once its current term expires?

No. Section 31(5) of the Insolvency and Bankruptcy Code, 2016 protects a licence, permit or concession only for its remaining term as it stood on the date of plan approval; it is not a right of renewal. A grant with eleven months left on it is shielded from suspension or termination for those eleven months, and the renewal application that follows afterward is governed by the ordinary licensing law, not by section 31(5). Resolution applicants bidding for businesses whose principal permits expire soon after the likely approval date should treat the upcoming renewal as an ordinary diligence item rather than something the clean slate provision resolves for them.

Can a resolution plan expressly preserve a claim that would otherwise be extinguished under section 31(6)?

Yes. Section 31(6) extinguishes pre-approval claims against the corporate debtor unless the plan provides otherwise, so a resolution applicant that wants to keep a particular liability alive, an arrangement with a critical supplier, a settled tax position, or a recovery action the corporate debtor is pursuing against a third party, must say so expressly in the plan. Extinguishment operates as the default outcome, and anything not carved out in the plan's own terms is treated as extinguished on approval regardless of the parties' informal intentions.

What happens to a pending suit or arbitration over a claim that was not included in the resolution plan?

It cannot continue. Section 31(6) of the Insolvency and Bankruptcy Code, 2016 bars both the continuation and the institution of any proceeding based on a claim that stands extinguished on approval of the resolution plan. A suit, arbitration or statutory appeal that was pending on such a claim does not survive merely because it was already filed before the plan was approved; the claimant's only recourse, if any, is against a promoter, guarantor or other person whose liability the explanations to section 31(6) expressly preserve.

Does section 32A protect the individuals who managed the corporate debtor before insolvency?

No. Section 32A of the Insolvency and Bankruptcy Code, 2016 extinguishes the corporate debtor's own liability for a pre-CIRP offence once the plan brings about a qualifying change in control, but it does not extend that protection to the individuals who were actually in charge of the company before insolvency. Section 31(6) states this expressly: it does not immunise persons who were in management or control at the relevant time, so promoters and officers who face personal criminal exposure cannot rely on either provision to escape it.

Does section 31(6) extinguish a third party's ownership claim over goods in the corporate debtor's possession?

No. Section 31(6) extinguishes claims against the corporate debtor, not third-party ownership of property in its possession. Goods held on bailment, equipment on lease, or stock subject to retention of title belong to the third party rather than to the corporate debtor's estate, so the owner should assert an asset claim to recover the property itself rather than filing a creditor claim that would be extinguished on approval. Framing the claim correctly during the CIRP, as a claim to title rather than a claim for money, is what determines whether the interest survives.

What must a resolution applicant do to preserve the continuity of the corporate debtor's licences under section 31(5)?

Section 31(5) protects only a licence, permit, registration, quota, concession or clearance that is identified as associated with the resolution plan, so a resolution applicant should schedule every relevant grant by number, issuing authority and expiry date within the plan itself and state that continuity of those grants forms part of the basis on which the plan is framed. A grant omitted from the plan is left to argue for protection after the fact, which is a materially weaker position than having it recorded at approval.

Can the corporate debtor be prosecuted for an offence committed before the CIRP after its resolution plan is approved?

Section 32A of the Insolvency and Bankruptcy Code, 2016 allows the corporate debtor's liability for an offence committed before the CIRP to cease, but only where the approved plan results in a change of management or control to a person who was not a promoter, was not in management or control of the corporate debtor, is not a related party, and against whom no report alleging abetment or conspiracy has been filed. Where an existing promoter retains control under the plan, this condition is not met and the corporate debtor's exposure under section 32A does not lapse.

Vikrant D. Shetty | Vikrant D. Shetty leads the Insolvency and Arbitration Practice at the law firm Vikrant D. Shetty & Associates, Advocates & Solicitors, which advises resolution applicants, financial creditors, operational creditors and corporate debtors in proceedings before the National Company Law Tribunal (NCLT), Mumbai Bench, including resolution plan drafting and implementation, extinguishment of pre-approval claims, and continuity of licences and permits after plan approval, and represents parties in domestic and international commercial arbitrations seated in India and abroad.

Related reading: Can Contracts Be Entered Into During a CIRP: What Counterparties Need to Know.

This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please seek direct consultation with an advocate.