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TaxTMI 
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TaxTMI 
2026 (4) TMI 1803
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....rom 05.01.2022 till the date of payment and Rs. 84,725/, being the income tax deducted at source in running account bills which was not remitted with the income tax department. The said application has been dismissed by Ld. NCLT vide the impugned order. 2. Brief facts of the case are that in 2012, Respondent-2 IVRCL Limited, the corporate debtor (to be referred hereafter as CD), was awarded a contract for construction of ROB at Palasa in Srikakulam district by Respondent-3 (Government of Andhra Pradesh) and thereafter, it signed an agreement (herein after called main contract) with Respondent-4 on 25.10.2012 for a contract price of Rs. 20,07,76,826/-. On 02.01.2013, the CD entrusted the same contract on back-to-back basis to the appellant by entering into an agreement (B2B contract). The terms of the said contract were that the scope of the work and other terms and conditions would be the same as those in the main contract, the appellant was to furnish performance security for an amount of Rs. 50,07,700/-for the main contract, he was obligated to procure and supply material, labour, plant and machinery and complete the work as per the scope of the main contract and handover the ....
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....the same, the appellant has filed the instant appeal. 4. The appellant had submitted before NCLT that as per the terms of the back-to-back (B2B) contract entered with the CD, he has to invest and perform the main contract as per the terms of the contract, all materials and construction services have to be provided by him, the total value of contract when paid shall be shared between him and the CD in the ratio of 96% and 4% respectively, the payment to him shall be transferred within seven days by the CD after receipt of payment from the principal employer and an amount of 7.5% of the value of work executed will be retained as a security deposit while making payments through running bills. On that basis, the applicant had proceeded to execute the work with earnest intention, but the work was foreclosed and on 29.12.2021 and the final bill was settled by the principal employer and a net amount of Rs. 52,24,049/- was paid to the CD after deduction of TDS and other statutory deductions. Therefore, the applicant was entitled for an amount of Rs. 51,14,812/- after deducting the margin of CD whereas he was paid only Rs. 9,78,779/- and Rs. 41,36,033/- was held back. The appellant submi....
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....eatment, which is violative of the objective of the code. He has further stated that as the CD has received the security deposit back from the principal employer, he will release the same to the applicant, but the amount of Rs. 14,29,141/- being the escalation cost pertaining to the works done in the pre-CIRP period will be paid in accordance with section 53 of the code. 6. After hearing both sides, the learned adjudicating authority came to the conclusion that the issue involved in the instant application is as to whether the amount claimed by the applicant is for the work done during pre-CIRP period or post-CIRP period, that as per the records, the amounts of Rs. 14,29,141/- and Rs. 27,47,761/- on account of escalation cost and security deposits respectively are for the work done during the pre-CIRP period, that section 14(1)(b) prohibits transferring, encumbering, alienating or disposing of by the CD, any of its assets or any legal right or beneficial interest therein, during the CIRP period and therefore, any dues pertaining to pre-CIRP period will have to be treated as operational debt and the same has to be claimed by the appellant in accordance with the provisions of sect....
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....has stated that he being the owner of this amount, there is no requirement to file claim under Form-C and that, by the very nature of back-to-back contract, 96% of the awarded amount is an asset belonging to him and therefore it cannot be made part of the liquidation estate and instead should be treated as a third-party asset under the provisions of section 36(4)(a) and should be transferred to him. 8. He has also attempted to argue that the work undertaken under the main contract is one single infrastructure project and even though the payment has been made in stages, no differentiation can be made between the work done before the commencement of CIRP and the work done after the commencement of CIRP, because respondent-2 and the appellant have decided to continue the contract after commencement of CIRP. He has submitted that in an infrastructure contract, the payments are made under running bills to reduce the working capital requirement of the contractor, that by no stretch of imagination, each bill can be said to represent a distinct item of work and therefore, there is no basis for segregating the dues into pre-CIRP and post-CIRP categories. Further, since the work was forec....
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....ght to be dismissed. 10. We have heard the parties and have gone through the documents submitted. The issues to be determined in the instant appeal are two-fold: a) Whether, in the context of a back-to-back contract (B2B contract) between the corporate debtor and the sub-contractor, the dues payable to the sub-contractor by the corporate debtor from out of the payment received / to be received from the principal employer will constitute to be an asset owned by a third-party (sub-contractor in this case), which is in possession of the corporate debtor within the framework of section 36(4)(a)(i) of IBC? (b) When an infrastructure project is being executed by a corporate debtor through a sub-contractor under a back-to-back contract and it is continued during the CIRP period, can the amount relating to the work done prior to CIRP differentiated from the amount relating to the work done after the commencement of CIRP for the purpose of making payment to the sub-contractor? We will endeavour to answer these issues in the following paragraphs. 11. It is seen that the facts of the case are not disputed, that is, there was a back-to-back contract between the appel....
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....formation utility or records in the registry or any depository recording securities of the corporate debtor or by any other means as may be specified by the Board, including shares held in any subsidiary of the corporate debtor; (b) assets that may or may not be in possession of the corporate debtor including but not limited to encumbered assets; (c) tangible assets, whether movable or immovable; (d) intangible assets including but not limited to intellectual property, securities (including shares held in a subsidiary of the corporate debtor) and financial instruments, insurance policies, contractual rights; (e) assets subject to the determination of ownership by the court or authority; (f) any assets or their value recovered through proceedings for avoidance of transactions in accordance with this Chapter; (g) any asset of the corporate debtor in respect of which a secured creditor has relinquished security interest; (h) any other property belonging to or vested in the corporate debtor at the insolvency commencement date; and (i) all proceeds of liquidation as and when they are realised. (4) The follo....
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....e included in the liquidation estate assets. Clause (a)(i) of the sub-section (4) of Section 36 of I & B Code, 2016, will be of particular interest in the instant case. It states that assets held in trust for any third party shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation. 13. In the instant case, as per the B2B PRW contract, the CD, IVRCL Limited has allocated the project work as awarded by the client/ Principal Employer of a value of Rs. 20,07,76,826/-, on B2B PRW contract basis to Coastal Engineering Constructions, subsequently renamed as Imperial Coastal Infra (appellant herein), in line with the terms and conditions contained in the main contract between the client and IVRCL (CD) and as per the terms and conditions contained in the B2B contract, with a margin of 4% to be paid to IVRCL on the gross value of the works executed on the rates specified in the main contract, which shall be deducted from the payments to be made to the appellant. Apart from the above, TDS, all direct and indirect taxes, cess, royalty, etc. as applicable under the main contract and as applicable to the B2B contract shall be deducted from t....
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.... is providing construction services to the employer / Respondent-3 on behalf of the CD and that he is not providing the services to the CD per se. Thus, whenever a running account bill is submitted by the CD to the client / employer, an asset in the form of receivables is being created, of which 4% is owned by the CD and the remaining 96% is owned by the appellant as per the implication of the B2B contract between the CD and the appellant. Therefore, when a payment is released to the CD by the client / employer, it will have to be construed that 96% of the said amount will remain as an asset of the appellant in the hands of the CD till it is disbursed to the appellant as per the terms of the said contract. We are not inclined to agree with the claim of the liquidator that the dues to be paid to the appellant is an operational debt because operational debt arises when there is a claim in respect of the provision of goods and services to the corporate debtor. In the instant case, this scenario is absent. The CD in the instant case has not given the performance guarantee to the employer nor he has made any investment nor he has assumed any project risk and any possible liabilities tha....
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....om out of the amount received from the employer on the ground that the amount pertains to the work done during post-CIRP period. Payment for the work undertaken during the CIRP period is permitted so as to ensure that the CD is continued as a going concern because if payment is not made to the vendors, they will stop providing services and the projects under execution by the CD will come to a halt causing loss of revenue to the CD. If this be the case, then the entire project till its completion has to be considered as an activity being taken up during CIRP period and no differentiation can be made between pre-CIRP and post-CIRP portions of the project because the payments are made through running account bills, and if the payment of a bill pertaining to the work done prior to CIRP is not paid citing moratorium, then the vendor/ sub-contractor will not be able to take up subsequent work because of lack of finance. Therefore, if an infrastructure project is decided to be continued after commencement of CIRP and consequent imposition of moratorium, the entire project has to be construed, as if it is an activity taken up during CIRP and the sub-contractor bills will have to be treated....