Construction company initiates insolvency against non-paying party, court imposes moratorium under Insolvency Code

The Applicant, a construction company, filed for Corporate Insolvency Resolution Process (CIRP) against the Respondent for non-payment of outstanding dues amounting to Rs. 39,11,176. Despite a compromise where the Respondent issued postdated cheques, which later bounced, the Tribunal allowed the revival of the application due to the Respondent's admission of liability and default in payment. A moratorium was imposed under Section 14 of the Insolvency and Bankruptcy Code, appointing an interim resolution professional (IRP) to manage the resolution process.

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Issues:
Application for Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016 based on alleged default in payment by the Respondent.

Analysis:
1. The Applicant, a construction company, filed an application seeking to initiate CIRP against the Respondent for an outstanding amount of Rs. 39,11,176, including interest, related to construction activities done by the Applicant. Despite timely completion of works and submission of invoices, the Respondent failed to clear the outstanding amount of Rs. 26,86,143, leading to a total debt of Rs. 39,11,176. The Respondent acknowledged the debt but failed to make payments, prompting the Applicant to send demand notices. The Respondent raised frivolous objections, delaying the payment further, indicating a clear default on their part.

2. In response, the Respondent contended that they were a sub-contractor for a project by Tata Projects Limited (TPL) and issued work orders to the Applicant. The Respondent claimed that the work done by the Applicant was deficient, tarnishing their reputation. TPL, the main contractor, was unsatisfied with the work and decided to make payments directly to vendors, including the Applicant. The Respondent alleged that TPL had already made a payment of Rs. 3,00,000 directly to the Applicant, and any further payments were TPL's responsibility.

3. A compromise was reached between the parties, and the Applicant withdrew the application after receiving postdated cheques from the Respondent. However, when the cheques bounced, the Applicant filed to revive the application. The Tribunal allowed the revival, considering the admission of liability by the Respondent in the settlement agreement and their default in payment, initiating the CIRP of the Respondent.

4. A moratorium was imposed under Section 14 of the Code, preventing suits or proceedings against the Respondent, alienation of assets, enforcement of security interests, and recovery of property. Essential services to the Respondent were to continue during the moratorium. An interim resolution professional (IRP) was appointed to oversee the resolution process, and the Applicant was directed to deposit funds for immediate expenses. The case was scheduled for a report from the IRP on 01.07.2019.

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