Hi Surya,
the concept of the file polling mechanism is that if the defined processing service is exiting with failure (i.e. Exception), then the incoming file is put to error directory, and if not it is moved from working directory to done directory. Catching your error let the service finish normally. So if you want the file being placed in error dir you should, as the last Flow Step in the CATCH block, call EXIT Step (EXIT with FAILURE, exit $flow, maybe set %lastError/error% as the error code, if you called pub.flow:getLastError as the first step in the CATCH block).
#webMethods#Integration-Server-and-ESB