Summary
The Supreme Court rejected Airtel’s attempt to set off pre-insolvency interconnect dues against spectrum-related amounts payable to Aircel after CIRP began. General statutory and insolvency set-off do not apply during CIRP. The Court recognised limited contractual and closely connected transactional set-offs, but the separate transactions here did not qualify.
Issues
- Whether statutory or insolvency set-off is available during CIRP.
- When contractual or transactional set-off may be raised against a resolution professional’s recovery claim.
- Whether interconnect dues could be adjusted against spectrum-trading proceeds that became payable after CIRP commenced.
Provisions considered
- Section 25(1) and (2)(a), Insolvency and Bankruptcy Code, 2016The resolution professional must preserve assets and take custody and control, but takes the debtor’s property subject to existing contractual clogs and fetters. This supported the limited pre-existing contractual-set-off exception, not Airtel’s unrelated adjustment. (¶¶ 1, 30, 31, 50)
- Regulation 29, Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016Mutual-credit insolvency set-off applies in liquidation, not CIRP. Its wider mutual-dealings standard was distinguished from the narrower transactional-set-off exception available during CIRP. (¶¶ 13, 14, 15, 16, 22, 30, 34, 37, 41)
- Sections 30(2)(b), 36(4)(e) and 53, Insolvency and Bankruptcy Code, 2016The liquidation-payment benchmark in Section 30 does not import liquidation-estate exclusions or Regulation 29 into CIRP. It governs amounts payable to creditors when considering the plan, not their separate debts to the corporate debtor. (¶¶ 14, 38, 39, 40, 41)
- Section 60(5), Insolvency and Bankruptcy Code, 2016The NCLT’s enabling jurisdiction over insolvency-related claims and priorities does not itself confer a substantive right to general set-off during CIRP. (¶ 45)
- Section 238, Insolvency and Bankruptcy Code, 2016The Code’s overriding and comprehensive framework prevented importing a general statutory or insolvency set-off right from other enactments into CIRP. (¶¶ 27, 28, 30, 37)
- Section 14, Insolvency and Bankruptcy Code, 2016The moratorium protects assets from dissipation. The narrowly defined transactional-set-off defence can coexist with it, but the unrelated spectrum proceeds remained corporate-debtor assets and were not excluded by Airtel’s proposed adjustment. (¶¶ 30, 32, 33, 50)
- Order VIII Rule 6, Code of Civil Procedure, 1908The statutory civil-suit set-off mechanism was distinguished and held not applicable as such during CIRP. The Court did not comprehensively decide its independent contours or conditions. (¶¶ 8, 30, 33)
Held
- CIRP is directed to rehabilitation and resolution and differs from liquidation. Neither Order VIII Rule 6 statutory set-off nor Regulation 29 insolvency set-off applies as such during CIRP. The latter cannot be imported through Section 30’s liquidation-payment benchmark, the NCLT’s jurisdictional provisions or broad definitions of claim and debt. Insolvency set-off under the IBC is not automatic or self-executing. (¶¶ 11, 12, 13, 27, 28, 30, 37, 40, 41, 45, 46, 47, 48)
- A contractual set-off effective before or on commencement of CIRP is recognised. CIRP does not rewrite the binding contractual terms, and the resolution professional takes the debtor’s property subject to existing limitations on title. The agreement and entitlement must be established and remain subject to legality and public policy. (¶¶ 6, 7, 30, 31, 34)
- A limited transactional set-off may also be raised defensively where claims arise from the same transaction or transactions sufficiently connected to be treated as one. The claim must be genuine, clearly established, quantifiable and unquestionable; CIRP is not a trial for resolving disputed claims. Money may be set off against money, not assets, and equitable relief may be refused where it defeats justice. (¶¶ 9, 20, 32, 33, 34)
- Mutual dealings for liquidation set-off require identity of parties acting in the same right or capacity, though the transactions may be separate. This wider liquidation standard does not create general CIRP set-off rights. Pre-commencement claims cannot be adjusted against amounts payable to the debtor post-commencement merely by invoking mutuality. (¶¶ 18, 21, 22, 23, 24, 30)
- The permitted interconnect adjustments arose under their own contractual arrangements. Spectrum purchase and the related bank-guarantee arrangements were distinct and unconnected. The retained spectrum amounts became payable after CIRP began, and Airtel could not offset its interconnect claims against them under either recognised exception. (¶¶ 2.6, 2.10, 35, 50, 51)
Result
Appeals dismissed. Airtel’s claimed adjustment against the spectrum-related amounts was rejected. No order as to costs.