Back-to-back payment terms defeat insolvency claim where default was not proved on the record.

A corporate insolvency application under Section 9 failed where the contract required payment to the contractor only on a back-to-back basis, after receipt of funds from the insurer. The record did not show that the insurer had paid the respondent and that such payment was then withheld from the appellant. The material relied on, including RTI-based information, indicated only payment by the Government to the insurer and did not establish remittance to the respondent. As the essential element of default under the Insolvency and Bankruptcy Code was not proved, the insolvency petition was not maintainable on the facts established.

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Issues: Whether the corporate insolvency application was liable to be admitted when the contractual payment was stipulated on a back-to-back basis and the alleged default was said to have arisen before receipt of funds from the insurer.

Analysis: The parties were bound by the contractual terms providing that payment to the contractor would be made by the company only after receipt of payment from the insurer. The record did not show that the insurer's payment had been received by the respondent and then withheld from the appellant. The material placed, including the RTI-based information, only indicated payment by the Government to the insurer and did not establish remittance to the respondent. On that basis, the element of default necessary for proceedings under the Insolvency and Bankruptcy Code was not proved.

Conclusion: The application under Section 9 was not maintainable on the facts proved because default was not established. The dismissal of the insolvency petition was and the appeal failed.

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