Case Law Details
Bharti Airtel Limited And Another Vs Vijaykumar V. Iyer And Others (Supreme Court of India)
Conclusion: Statutory set off or insolvency set off was not applicable to Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). As moratorium under Section 14(4) applies till the date of completion of the Corporate Insolvency Resolution Process, which was till the resolution plan was approved or the liquidation order was passed, to permit set-off would be contrary to law.
Held: Bharti Airtel Limited and Bharti Hexacom Limited entered into eight spectrum trading agreements with Aircel Limited and Dishnet Wireless Limited for purchase of the right to use the spectrum allocated to the latter in the 2300 MHz band. The agreement was contingent on approval of the Department of Telecommunications, Government of India. The DoT for grant of approval demanded bank guarantees in relation to certain licence dues and spectrum usage dues from the Aircel entities. Airtel entities and Aircel entities entered into three Letters of Understanding whereby the Airtel entities agreed to furnish the bank guarantees to the DOT on behalf of the Aircel entities. Airtel entities were to deduct 586.37 crores from the consideration payable to the Aircel entities under the spectrum transfer agreements. On the Aircel entities replacing the bank guarantees furnished by the Airtel entities and the Airtel entities receiving the bank guarantees from the DOT, Rs.411.22 crores were payable by the Airtel entities to the Aircel entities. Resolution Professional for Aircel Limited, Dishnet Wireless Limited and Aircel 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 453.73 crores payable by Airtel entities to Aircel entities, consequent to the discharge and cancellation of the bank guarantees. Bharti Airtel Limited was asked to pay Rs.112.87 crores to Aircel entities, which were undergoing Corporate Insolvency Resolution Process, failing which the Resolution Professional would be obligated to take steps for recovery. Airtel entities objected on several grounds, and also claimed set-off of the amount due to them by the Aircel entities from the amount payable by them to the Aircel entities. Their reply and claim for set- off was rejected by the Resolution Professional. Airtel entities thereupon approached the Adjudicating Authority in Mumbai held that the Airtel entities had a right to set off Rs.112.87 crores from the payment, which was retained, and due and payable to Aircel entities. NCLAT vide order allowed the appeal, inter alia, holding that set-off was violative of the basic principles and protection accorded under any insolvency law. As moratorium under Section 14(4) applies till the date of completion of the Corporate Insolvency Resolution Process, which was till the resolution plan was approved or the liquidation order was passed, to permit set-off would be contrary to law. Further, the set-off being claimed was in respect of two separate and unrelated transactions. 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, 20161 to take custody and control of all the assets of the corporate debtor. It was held 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 had become payable post the commencement of the Corporate Insolvency Resolution Process. For the same reason, the argument was rejected that by not allowing set-off, new rights were being created and, therefore, Section 14 of the IBC would not be operative and applicable. “Moratorium under Section 14 was 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 was not part of the corporate debtor’s assets in the present facts was misconceived and must be rejected.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
The present appeals raise an interesting 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, 20161 to take custody and control of all the assets of the corporate debtor.
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