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Non-Payment Of TDS Amount Not A Ground For Initiating CIRP: NCLAT Delhi Imposes Cost Of Rs. 1 Lakh On The Applicant

Pallavi Mishra
22 May 2022 9:00 AM GMT
Non-Payment Of TDS Amount Not A Ground For Initiating CIRP: NCLAT Delhi Imposes Cost Of Rs. 1 Lakh On The Applicant
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The National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Ms. Shreesha Merla (Technical Member) and Shri Naresh Salecha (Technical Member), while adjudicating an appeal filed in Amitabh Roy v Master Development Management (India) Pvt. Ltd, has held that an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("IBC") cannot be admitted over defaults relating to non-payment of TDS (Tax Deduction at Source) amount. The order was passed on 18.05.2022.

Background Facts

In 2018 the Operational Creditor had filed a petition under Section 9 of the IBC before National Company Law Tribunal, Kolkata Bench ("NCLT"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor over a default of Rs. 9,48,997/-. After issuance of notice, the Parties had entered into settlement talks and a joint statement was made before NCLT on 03.10.2019 that settlement is yet to be finalized. The NCLT disposed off the petition with liberty to revive, if settlement talks fail. On the nest day, i.e. 04.10.2019, the Parties entered into a Settlement Agreement which also mentioned that the claim is inclusive of Tax Deduction at Source (TDS) amount.

After the settlement amounts were paid by the Corporate Debtor, the Operational Creditor filed an application before the NCLT seeking revival of the Section 9 petition. A Supplementary Affidavit was filed by the Suspended Director of the Corporate Debtor on 24.01.2022, stating that the claims of the Operational Debtor have been paid as per settlement terms, however, the TDS amount of Rs.66,884/- and Rs.1,10,820/- were not be paid to the Income Tax authorities and the same does not come within the pecuniary jurisdiction of the NCLT.

The NCLT vide its order dated 25.02.2022 had admitted the Section 9 petition by reviving the proceedings and had held:

"We do not agree with the contention of the Corporate Debtor that the TDS amount of Rs.66,884/- (Rupees Sixty Six Thousand Eight Hundred Eighty Four only) and Rs.1,10,820/- (Rupees One Lakh Ten Thousand Eight Hundred Twenty only) does not come within the pecuniary jurisdiction of this Adjudicating Authority. The Corporate Debtor is liable to pay the said amount."

The Suspended Director ("Appellant") of the Corporate Debtor filed an appeal before the NCLAT against the order dated 25.02.2022, challenging the revival of proceedings under Section 9 of IBC.

Contentions Of The Appellant

The Appellant submitted that settlement talks had not failed, hence, liberty could not have been given to revive the Section 9 petition. Further, the non-payment of TDS amount does not amount to a debt on which Section 9 proceedings can be initiated. Therefore, the NCLT had erred in admitting the Section 9 petition.

Contentions Of The Respondent

The Respondent contended that the Settlement Agreement mentioned that payment of TDS was also part of the settlement. The failure to pay TDS by the Corporate Debtor constitutes default and also a breach of the Settlement Agreement. Therefore, the NCLT had rightly admitted the Section 9 petition.

Decision Of The NCLAT

The Bench observed that the liberty to revive was granted by NCLT 'if settlement talks fail'. That order was passed by NCLT on 03.10.2019 and on the very next day, i.e. on 04.10.2019, the Settlement Agreement was entered into between the Parties. Thus, there was no occasion for failure of talks between the Parties. Therefore, the revival of the petition under Section 9 was uncalled for and was not in accordance to the liberty granted by the NCLT.

The Bench further observed that:

"We are satisfied that in non-payment of the TDS amount by the Corporate Debtor there was no occasion for admitting Section 9 Application by the Adjudicating Authority. The Adjudicating Authority committed serious error in admitting Section 9 Application on the aforesaid submission of the Operational Creditor that non-payment of the TDS amounts is default. The consequences of non-payment of TDS are provided under Income Tax Act, 1961 and income tax authorities have ample powers to take appropriate action."

The Bench set aside the order dated 25.02.2022 passed by the NCLT, Kolkata, while observing that it was erroneous to admit the Section 9 petition on the ground of non-payment of TDS amounts. A cost of Rs. 1 Lakh was imposed on the Operational Creditor for misusing the process under IBC by filing a revival application for non-payment of TDS amounts.

Case Title: Amitabh Roy v Master Development Management (India) Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 274 of 2022

Counsel for Appellant: Mr. Anand Sukumar, Mr. Mainak Bose and Mr. Bhupesh Kumar Pathak, Advocate.

Counsel for Respondent: Mr. Ankur Rai, Advocate.

Click Here To Read/Download Order



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