Vendors turn to insolvency petitions as payment disputes escalate 

In an unexpected twist, companies are increasingly finding themselves entangled in legal disputes with their vendors. Suppliers and vendors are turning to insolvency petitions over payment delays, as a legal tool to recover dues.

This comes at a time when companies like Zomato and Ola Electric have been served insolvency petitions by their vendors. 

According to a news report, B2B apparel manufacturer Nona Lifestyle has approached the NCLT to initiate the corporate insolvency resolution process (CIRP) against Zomato over alleged non-payment of ₹1.64 crore for supplied uniforms and merchandise, including ICC World Cup 2023 apparel. 

Ola Electric is facing a financial dispute after Rosemerta Digital, and Rosemerta Safety Systems filed an insolvency petition over ₹22 crore in unpaid dues.  

While experts assert that companies like Zomato are far from bankruptcy, the rising use of insolvency proceedings by vendors signals a shift in how payment disputes are being handled. “It is not clear whether the claim is genuine. It seems to be a contractual dispute between the vendor and Zomato. Zomato recently raised about ₹8,500 crore in a QIP and is sitting on over ₹19,000 crore of cash. Zomato is nowhere near bankruptcy,” said Shriram Subramanian, Founder and MD, InGovern Research Services. 

Tanya Prasad, Chief Investment Officer and Head of Legal at LegalPay, explains that vendors do not take this step lightly, as it risks damaging long-term business relationships. However, for small and mid-sized suppliers, delayed payments can be a matter of survival. 

Under the Insolvency and Bankruptcy Code (IBC), a creditor can file an insolvency petition if outstanding payments exceed ₹1 crore and remain unpaid for 180 days. 

“The law doesn’t distinguish between a listed company and a small proprietorship. If unpaid dues cross ₹1 crore and remain unpaid for 180 days, insolvency petitions can be filed,” she added. For vendors struggling with cash flow, insolvency petitions have become a powerful tool to push for payments. Many small businesses collapse due to unpaid invoices, making legal action their last resort. 

Legal experts suggest that while insolvency petitions may not always lead to actual bankruptcy proceedings, they serve as a high-pressure negotiation tactic to force companies into settlements. “Insolvency is one of the most effective weapons in a small business’ arsenal to get their payment done on time,” said Prasad. 

• Also read: Ola Electric shares rebound after hitting 52-week low amid insolvency concerns