Back-to-back contract receivables treated as sub-contractor assets; continuing CIRP project dues cannot be artificially bifurcated.

Amounts payable to a sub-contractor under a back-to-back infrastructure contract were treated as the sub-contractor's beneficial entitlement where the corporate debtor retained only a margin and acted as a fiduciary conduit for the balance. On that basis, the withheld receivable was held outside the liquidation estate and not to be treated as the corporate debtor's own operational debt. The document also states that, where a project continues during CIRP, running-bill dues for that continuing work cannot be artificially split into pre-CIRP and post-CIRP components to deny payment or divert the claim into the liquidation waterfall. The withheld principal sum was directed to be released, with reduced interest awarded for the relevant period.

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Issues: (i) Whether the amounts payable to the sub-contractor under a back-to-back contract, out of monies received by the corporate debtor from the principal employer, constituted third-party assets held by the corporate debtor and therefore fell outside the liquidation estate; (ii) Whether, in a continued infrastructure project during CIRP, the dues relating to work done before CIRP could be segregated from dues relating to work done after CIRP for payment to the sub-contractor.

Issue (i): Whether the amounts payable to the sub-contractor under a back-to-back contract, out of monies received by the corporate debtor from the principal employer, constituted third-party assets held by the corporate debtor and therefore fell outside the liquidation estate.

Analysis: The contract allocated the project risk, investment, and execution responsibilities to the sub-contractor, while the corporate debtor retained only a 4% margin. The receivables arising from running bills therefore represented 96% beneficial entitlement of the sub-contractor and only 4% entitlement of the corporate debtor. On that basis, the corporate debtor held the balance amount as a fiduciary or trust-like conduit and not as its own asset. Such amount could not be characterised as operational debt owed by the corporate debtor, and section 14 was not attracted to defeat the sub-contractor's entitlement. Accordingly, the withheld sum did not form part of the liquidation estate.

Conclusion: The amount withheld from the payment received from the principal employer was held to be the sub-contractor's asset and not part of the liquidation estate, in favour of the Appellant.

Issue (ii): Whether, in a continued infrastructure project during CIRP, the dues relating to work done before CIRP could be segregated from dues relating to work done after CIRP for payment to the sub-contractor.

Analysis: Where an infrastructure project is continued during CIRP, the project is to be treated as a continuing operational activity for preserving and carrying on the corporate debtor's business as a going concern. In such a situation, running-bill payments to the sub-contractor cannot be artificially split into pre-CIRP and post-CIRP components for the purpose of denying payment. The entire pending bill for the continued project had to be dealt with as CIRP-related payment rather than being relegated to the waterfall mechanism under section 53.

Conclusion: The dues could not be bifurcated into pre-CIRP and post-CIRP components for adverse treatment against the Appellant.

Final Conclusion: The impugned order was set aside, the liquidator was directed to release the withheld principal sum to the Appellant, and interest was awarded at a reduced rate for the relevant period.

Ratio Decidendi: Under a back-to-back contract where the corporate debtor retains only a margin and the sub-contractor bears the substantive project obligations and risks, the contractual receivable corresponding to the sub-contractor's share is a third-party asset held by the corporate debtor and cannot be treated as liquidation estate property or as an operational debt subject to section 53. Where the project continues during CIRP, pending running-bill dues for that continued work cannot be artificially split to deny payment to the sub-contractor.

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