2022 (5) TMI 925 - AT - Insolvency and Bankruptcy

Pecuniary Jurisdiction - TDS amount come within the pecuniary jurisdiction of this Adjudicating Authority or not - whether non-payment of TDS amount is debt or not - HELD 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. Learned counsel for the Appellant submits that both the TDS amounts has already been made, which is disputed by learned counsel for the Respondent. Regarding non-payment of TDS, we are of the view that it is not for us to consider whether TDS amount have been paid or not although it has been clearly submitted at the Bar by the Appellant that they have been paid - the Adjudicating Authority has committed serious error in admitting the Section 9 Application on the ground of nonpayment of two TDS amounts. Thus, the order of the Adjudicating Authority admitting Section 9 Application is unsustainable and deserves to be set aside. Present is also a case where the Operational Creditor has misused the process of I B Code in filing application for revival of Section 9 Application for non-payment of two TDS amounts. The process of I B Code cannot be utilized for the above purpose, whereas present is not a case that Corporate Debtor has not paid any amount due to the Operational Creditor. The Operational Creditor has misused the process of I B Code. Appeal allowed with a cost of Rs.1 Lakh on the Operational Creditor i.e. Respondent which shall be paid within a period of one month to the Corporate Debtor.

Summary

Issues:
1. Admittance of Section 9 Application by the Adjudicating Authority based on non-payment of TDS amounts.
2. Interpretation of Settlement Agreement terms regarding TDS payments and breach.
3. Consideration of the liberty granted by the Adjudicating Authority for revival of Section 9 Application.
4. Alleged misuse of the I&B Code process by the Operational Creditor.

Analysis:

1. The Appellant challenged the order admitting the Section 9 Application, arguing that the settlement talks did not fail, and all payments to the Operational Creditor had been made as per the Settlement Agreement, except for two outstanding TDS amounts. The Appellant contended that non-payment of TDS should not lead to Section 9 proceedings. The Respondent, however, claimed that TDS payment was part of the settlement, and the Adjudicating Authority was right in initiating Section 9 proceedings due to the default. The Adjudicating Authority noted the Supplementary Affidavit confirming non-payment of TDS amounts but still admitted the Section 9 Application.

2. The Settlement Agreement explicitly stated the consequences of breaching terms, including the right to initiate legal proceedings under Section 9 of the Insolvency and Bankruptcy Code. The Adjudicating Authority, in its order, acknowledged the non-payment of TDS amounts but disagreed with the Appellant's argument that it was not a debt justifying Section 9 proceedings. The Adjudicating Authority held the Corporate Debtor liable for the outstanding TDS amounts.

3. The Adjudicating Authority granted liberty to revive the Section 9 Application only if settlement talks failed. However, as a Settlement Agreement was reached the day after granting this liberty, there was no failure of talks. The Appellant contended that the revival order was unwarranted and not in line with the liberty granted by the Adjudicating Authority.

4. The Tribunal found that the Operational Creditor misused the I&B Code process by seeking revival of the Section 9 Application for non-payment of TDS amounts, despite all other dues being settled. The Tribunal concluded that the Operational Creditor's actions constituted a misuse of the legal process and imposed a cost of Rs.1 Lakh on the Operational Creditor to be paid to the Corporate Debtor within one month. The Tribunal allowed the Appeal and set aside the Adjudicating Authority's order admitting the Section 9 Application.