The Supreme Court in a recent decision has held that the statutory set off or insolvency set off is not applicable to Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC).
The Resolution Professional for Airtel Limited, Dishnet Wireless Limited and Airtel Cellular Limited, wrote to Bharti Airtel Limited, stating that they had suo moto adjusted an amount of Rs.112.87 crores from the amount of Rs.453.73 crores payable by Airtel entities to Airtel entities, consequent to the discharge and cancellation of the bank guarantees.
Bharti Airtel Limited was asked to pay Rs.112.87 crores to Airtel entities, which were undergoing Corporate Insolvency Resolution Process, failing which the Resolution Professional would be obligated to take steps for recovery.
The Airtel entities objected on several grounds, and also claimed set-off of the amount due to them by the Airtel entities from the amount payable by them to the Airtel entities. Their reply and claim for setoff was rejected by the Resolution Professional.
The present appeals raise the question on the right to claim set-off in the Corporate Insolvency Resolution Process, when the Resolution Professional proceeds in terms of clause (a) to sub-section (2) of Section 25 of the Insolvency and Bankruptcy Code, 2016 to take custody and control of all the assets of the corporate debtor.
A Two-Judge Bench comprising Justice Sanjiv Khanna and SVN Bhatti observed that “The bank guarantees were returned and accordingly Airtel entities became liable to pay the balance amount in terms of the letters of understanding. The amounts have become payable post the commencement of the Corporate Insolvency Resolution Process. For the same reason, we will also reject the argument that by not allowing set-off, new rights are being created and, therefore, Section 14 of the IBC will not be operative and applicable.”
“Moratorium under Section 14 is to grant protection and prevent a scramble and dissipation of the assets of the corporate debtor. The contention that the “amount” to be set-off is not part of the corporate debtor’s assets in the present facts is misconceived and must be rejected” the Bench concluded.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
