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Scope of a Debtor’s Right to ‘Set-Off’ Amounts Due to It Against Debts Owed to an Entity in CIRP

In Bharti Airtel Limited v. Vijaykumar V. Iyer (Supreme Court of India, 03 January 2024; Coram: Khanna, Bhatti, JJ) the Supreme Court laid down important principles governing the right of ‘set-off’ in relation to debts owed to a company undergoing CIRP. 

The Court, whilst affirming the view of the NCLAT that set-off was not available to the Appellants – companies belonging to the Airtel group – and, thereby, affirming the demand of the Resolution Professional that amounts owed to companies belonging to the Aircel group and undergoing CIRP which had been set-off by Airtel entities be paid by them, laid down two important exceptions to this rule – 

  1. Cases where a contractual set-off became available to the debtor of the company in CIRP before the date on which CIRP commenced; and

  2. Cases of what the Court classified as a ‘transactional’ set-off. The Court describes this as:

“[a] case of ‘equitable set-off’ when the claim and counter claim in the form of set-off are linked and connected on account of one or more transactions that can be treated as one. The set-off should be genuine and clearly established on facts and in law, so as to make it inequitable and unfair that the debtor be asked to pay money, without adjustment sought that is fully justified and legal. The amount to be adjusted should be a quantifiable and unquestionable monetary claim, as the Corporate Insolvency Resolution Process is a time-bound summary procedure. It is not a civil suit where disputed questions of law and facts are adjudicated after recording evidence. Set-off of this nature does not require legal proceedings. Further, set-off of money is to be given against money alone. It will not apply to assets. Lastly, being an equitable right, it can be denied when grant of relief will defeat equity and justice.”

The Court held that, barring these two exceptions, a debtor of an entity in CIRP cannot ‘set-off’ debts owed to it from sums it owes to the entity in CIRP (¶30). In deciding the issue, the Court carried out a detailed analysis of the concept of set-off and its types, and also provided detailed reasons for rejecting Airtel’s claims that set-off was available under the IBC in relation to debts owed by it to the entity in CIRP. We address these aspects in separate Notes that will follow shortly. 

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