NCLT Mumbai orders Revenue Authority to refund TDS to debtor company in liquidation

The National Company Law Court (“NCLT”), Mumbai Bench, consisting of Justice PN Deshmukh (retired) (Judicial Member) and Sri Shyam Babu Gautam (technical member), when examining an application filed in Asset Reconstruction Company (India) Ltd. v Precision Fasteners Ltd., ordered the Deputy Commissioner of Income Tax to refund the TDS charged to the debtor company when the company was in liquidation.

Brief history

Asset Reconstruction Company (India) Ltd. (“Financial Creditor”) had brought an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), requesting the commencement of corporate insolvency resolution proceedings ( “CIRP”) against Precision Fasteners Ltd. (“Debtor Company”), which is a manufacturer of automotive components. The NCLT Mumbai Bench had initiated the CIRP against the debtor company and subsequently a liquidation order was issued. Mr. Divyesh Desai has been appointed liquidator.

The liquidator had filed a petition under Section 60(5) of the IBC against the Deputy Commissioner of Income Tax, Mumbai (“Defendant”), seeking a direction from the Valuation Officer /Department of Income Tax to refund Tax Deduction at Source (TDS) aggregating Rs. 93,81,464/- to the Debtor Company. The amount of the TDS was charged to the debtor company after the adoption of the liquidation order. Contributions from statutory authorities, including the Department of Income Tax, are considered an operational liability under the IBC and are paid in accordance with the cascading mechanism provided for in Section 53 of the IBC. The NCLAT has previously ruled that a company in liquidation is not required to meet its tax obligations.

When the respondent failed to appear despite several opportunities, the NCLT bench proceeded ex-parte in the application and ordered the Deputy Commissioner of Income Tax, Mumbai to remit the amount of TDS to the debtor company.

Case title: Asset Reconstruction Company (India) Ltd. against Precision Fasteners Ltd., CP.(IB) 1339/MB/2017

Counsel for the Applicant: Mr. Pankaj Soni, lawyer

Click here to read/download the order