2019 (6) TMI 1332 - Tri - Insolvency and Bankruptcy

Admissibility of petition - Set Off under Insolvency Proceedings - Section 10 of IBC application - scope of Moratorium - Application is filed for a direction to the Resolution Professional (RP) to honour the legal and equitable right of 'Airtel entities' to apply set off on account of mutual dealings for an amount of approximately INR 112 Crores during the Corporate Insolvency Resolution Process - HELD THAT - The basic principles of set-off as per prevalent accounting principles are discussed and noticed that the Hon'ble Courts have almost unanimously taken a view that in mutual dealings among the same parties it is fair and reasonable to allow for netting off or set-off of the mutual debts and credits with each other so as to arrive at a net figure for settlement of accounts. In the light of this background it is now pertinent to examine the provisions of Insolvency Code to determine whether an embargo has been imposed under The Code. If there is no restriction or prohibition in the statute, then a fair and reasonable approach is always is to be adopted. There is no specific bar or barrier in the Insolvency Code that up to CIRP process only gross amount/claims are to be taken into account and the netting is permissible only in case of start of Liquidation. In the absence of any such restriction this Bench obviously has a liberty to take an independent view which is not at variance with the provisions of The Code, rather remove the ambiguity between a gross claim or net claim, that too at what stage. This Bench is of the view that the applicant is legally entitled under the insolvency code to set off the amount of ₹ 112 Crores while making a payment of the amount retained out of the total consideration settled as per Spectrum Trading Agreement - application allowed.

Issues Involved:
1. Set-off of claims under Insolvency Proceedings.
2. Application of Moratorium under Section 14 of IBC.
3. Admissibility of Mutual Dealings and Set-off under IBC.
4. Preferential treatment and queue jumping of creditors.
5. Relevance and application of various legal precedents and accounting principles.

Detailed Analysis:

1. Set-off of Claims under Insolvency Proceedings:
The primary issue revolves around whether the set-off is allowable under Insolvency Proceedings. The Airtel Entities filed Miscellaneous Applications seeking to set off an amount of approximately INR 112 Crores against the dues owed by Aircel Entities during the Corporate Insolvency Resolution Process (CIRP). The Airtel Entities argued that the set-off is permissible under the Insolvency and Bankruptcy Code (IBC) and cited various provisions and precedents supporting their claim. They emphasized that the Code allows for mutual credits and debts to be set off, as reflected in Claim Form B under the IBBI Regulations.

2. Application of Moratorium under Section 14 of IBC:
The Respondent argued that the set-off is prohibited under Section 14 of IBC, which imposes a moratorium on the recovery of any property by an owner where such property is occupied or in possession of the Corporate Debtor. However, the Tribunal found that Section 14(1)(d) does not apply in this case as the amount in question is not in possession of the Corporate Debtor but rather a mutual dealing arising out of a contractual obligation. The Tribunal concluded that the moratorium under Section 14 does not restrict the set-off of mutual claims.

3. Admissibility of Mutual Dealings and Set-off under IBC:
The Tribunal examined the provisions of Section 18(1)(f) of IBC and Regulation 29 of the IBBI (Liquidation Process) Regulations, 2016, which allow for the set-off of mutual credits and debts. The Tribunal noted that the principle of set-off is well-recognized in accounting and legal precedents, and it is fair and reasonable to allow for netting off mutual claims. The Tribunal also referred to the judgment in Swiss Ribbons Pvt. Ltd. v. Union of India, which acknowledged that set-off may be considered during the resolution process.

4. Preferential Treatment and Queue Jumping of Creditors:
The Respondent contended that allowing the set-off would give preferential treatment to the Airtel Entities over other creditors. However, the Tribunal rejected this argument, stating that the set-off does not give any undue preference but rather ensures a fair settlement of mutual claims. The Tribunal emphasized that the set-off is a legitimate accounting principle that should be applied to reflect the true financial position of the Corporate Debtor.

5. Relevance and Application of Various Legal Precedents and Accounting Principles:
The Tribunal relied on various legal precedents and accounting principles to support its decision. It referred to judgments from the Mysore High Court, Gujarat High Court, and the House of Lords, which upheld the principle of set-off in mutual dealings. The Tribunal concluded that the set-off is a mandatory and self-executing principle that applies to insolvency proceedings to ensure fair and equitable treatment of claims.

Conclusion:
The Tribunal allowed the Miscellaneous Applications filed by the Airtel Entities, holding that they are legally entitled to set off the amount of INR 112 Crores against the dues owed by Aircel Entities. The Tribunal affirmed that the set-off is permissible under the IBC and does not violate the moratorium provisions. The decision ensures that the true financial position of the Corporate Debtor is reflected, and the mutual claims are settled fairly and equitably.

← Previous Next →