Failure to pay TDS is not a reason to initiate insolvency proceedings

Failure to pay TDS is not a reason to initiate insolvency proceedings

The National Company Law Appellate Tribunal (NCLAT) has held that dues on account of non-payment of TDS can not be a ground to start insolvency procedures against any organization. Setting aside an order of the Kolkata bench of NCLT, the appellate tribunal said “the process of Insolvency & Bankruptcy Code (IBC) cannot be utilised” for recuperation of TDS contribution by an operational creditor of the company. A TDS measure of Rs 66,884 and Rs 1,10,820 were not paid to the Income-tax authorities.

The bench said the National Company Law Tribunal (NCLT) has committed a “serious error” while directing to initiate insolvency proceedings over a section 9 application filed by an operational creditor under the IBC after admitting that non-payment of the TDS (Tax Deducted at Source) amounts as 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,” said the NCLAT bench headed by Chairperson Justice Ashok Bhushan.

“Regarding non-payment of TDS, we are of the view that it is not for us to consider whether TDS amount has been paid or not … We, thus, are of the view that the Adjudicating Authority (NCLT) has committed a serious error in admitting the Section 9 Application on the ground of non-payment of two TDS amounts,” the NCLAT said.

The NCLT had directed to initiate insolvency proceedings against Team Taurus Realty & Infrastructure over non-payment of two TDS amounts of Rs 66,884 and Rs 1.10 lakh.

The NCLT order is “unsustainable” and deserves to be set aside, the appellate tribunal said.

The NCLAT also put a fine of Rs one lakh on the operational creditor for misuse of the process of the IBC, directing it to pay to the company against which the insolvency was directed to initiate.

“We are satisfied that operational creditor has misused the process of I&B Code. We, thus, allow this appeal with a cost of Rs one lakh only on the operational creditor, which shall be paid within a period of one month to the Corporate Debtor,” the NCLAT said.

Its order came over a plea filed by Amitabh Roy, suspended director of the corporate debtor, Team Taurus Realty & Infrastructure. He had challenged the order passed by the NCLT on February 25, 2022, admitting a section 9 plea by its operational creditor Master Development Management (India).

Section 9 of IBC gives power to the operational creditors of a company to initiate a corporate insolvency resolution process in case of a default. Master Development Management had filed a plea at the NCLT in December 2018, claiming a due of Rs 9.48 lakh. Later, the parties entered into a settlement in October 2019.

The aforesaid settlement amounts were paid by the corporate debtor, however, the operational creditor had again approached the NCLT in January 2022, seeking revival of the petition. After this, the NCLT proceeded to hear the matter and admitted the application under Section 9 on February 25, 2022.

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