Unremitted TDS Deducted Before Liquidation Does Not Form Part Of Liquidation Estate: NCLT Bengaluru

The National Company Law Tribunal (NCLT) Bengaluru bench of Shri Sunil Kumar Aggarwal, Member (Judicial) and Shri Radhakrishna Sreepada, Member (Technical) held that an unremitted Tax Deducted at Source (TDS) amounts deducted by the corporate debtor before the liquidation are assets held in trust for the government and therefore stand excluded from the liquidation estate under section 36 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Tribunal allowed the delayed claim filed by the government and directed the liquidator to verify and remit the amounts directly to the government. Background: The liquidation proceedings were initiated against Bhuvana Infra Projects Pvt. Limited (Corporate Debtor) on 10.12.2019. The Income Tax Department filed claim as Operational Creditor which was admitted. Based on the subsequent assessment and TRACES demands, the department filed an updated claim in November 2023 which was rejected by the liquidator on ground of delay and advanced stage of the liquidation. The department submitted that the TDS deductions constitute public money held in trust for the Government and therefore are excluded from the liquidation estate. It was further submitted that the delay in filing the claim was on account of pandemic disruptions and absence of communication. Per contra, the Respondent submitted that the liquidation is at the advanced stage and belated claims can disrupt the time bound process under the IBC. It was further submitted that government does not get priority under section 53 of the IBC. Findings: The Tribunal drew a distinction between the TDS liabilities arising before the liquidation and those arising during the liquidation. It held that “Section 36(4)(a)(i) of the IBC expressly excludes from the liquidation estate 'assets held in trust for any third party.' Where unremitted TDS amounts are deducted prior to liquidation, the company acts as a trustee for the Government and not as beneficial owner of those funds.” Relying on the Official Liquidator, High Court, Madras v. N. Chandranarayanan, the Tribunal further held that property held in fiduciary capacity does not constitute assets of the corporate debtor and therefore must be dealt with separately. However the Tribunal clarified that “For any other tax/government dues or for additional liabilities relating to periods after commencement of liquidation, no deviation can be allowed from the priorities and distribution prescribed under Section 53 of the IBC.” Accordingly, the liquidator was directed to consider the updated claim of the department and remit the TDS amounts deducted but not remitted before the liquidation. Case Title: M/s. New Age Real Properties, LLP Vs. M/s. Bhuvana Infra Projects Pvt. Ltd. Case Number: I.A.Nos.428/2024 & 239/2025 in C.P.(IB) No.122/BB/2017 Order Date:04/09/2025 Click Here To Read/Download The Order

Unremitted TDS Deducted Before Liquidation Does Not Form Part Of Liquidation Estate: NCLT Bengaluru

Mohd Malik Chauhan

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