NCLAT (2025.10.14) in CNH Industries (India) Pvt. Ltd. Vs. SREI Equipment Finance Ltd. and Anr. [(2025) ibclaw.in 841 NCLAT, Company Appeal (AT) (Insolvency) No. 1545 of 2023 & I.A. No. 5551 of 2023],held that;
When Regulation 7 read with Form-B, specifically permits set-off, it is clear that at the time of filing of a claim, a creditor can set-off mutual credit, mutual debts or other mutual dealings between the CD and the creditor, which is clearly permissible.
The Hon’ble Supreme Court has held that set-off permitted under Liquidation Regulations, 2016, cannot be applied to the CIRP. However, two exceptions were mentioned by the Hon’ble Supreme Court in the judgment i.e. (1) Parties entitle to contractual set-off; and (2) equitable set-off.
It is an equitable right because the transactions are close and connected, harbingering the claim and the counterclaim. It would be manifestly unjust to bifurcate the connected transactions to accept and enforce the claim of one party without adjusting the amount due to the second party.
When transactions are closely connected, a claim for transactional set-off during the moratorium period on a claim by the Resolution Professional, is by way of a defence to protect the legitimate expectation and respect legal certainty.”
Therefore, we would reject the argument that insolvency set- off is automatic and self-executing. self-execution may be acceptable in cases of contractual set-off, as held above.
Thus, in the above case, the amount became payable post the commencement of CIRP. The above was not a case of any contractual set- off or any equitable set-off. The judgment of the Hon’ble Supreme Court in Bharti Airtel Ltd., thus clearly supports the submission of the Appellant that present case is covered by exception.
The above judgment clearly indicates that any act of RP while considering the claim of the creditors, which is not in accordance with law, was permitted to be challenged at the stage of challenge of approval of Resolution Plan.
In result of the foregoing discussions, we are of the view that the Appellant’s submission that his claim ought to have been accepted only for an amount of Rs.3,40,46,082/-, after adjusting set-off of the amount of Rs.5,56,59,526/- deserve to be accepted, which in no manner shall affect the approval of the Resolution Plan or the impugned order or its implementation.
Excerpts of the Order;
This Appeal has been filed by the Appellant Operational Creditor of the Corporate Debtor (“CD”) – SREI Infrastructure Finance Ltd. challenging the order dated 11.08.2023 passed by National Company Law Tribunal, Kolkata Bench, Court-1, deciding various applications, including the application filed by the RP – I.A. (IB) No.428/KB/2023 in C.P. (IB) No.294/KB/2021 approving the Resolution Plan. In I.A. (IB) No.428/KB/2023. The Appellant in the Resolution Plan has been proposed Nil payment. Aggrieved by the said order, this Appeal has been filed.
# 2. Brief facts of the case necessary to be noticed for deciding the Appeal are:
(i) The Appellant is a company involved in the business of manufacturing, trading and selling various kinds of agricultural equipment and crop solution products viz Tractors, Harvestor combined. SREI Equipment Finance Ltd. (CD) is a financial service provider.
(ii) An Agreement dated 01.07.2016 was entered between the Appellant and the CD, whereby it was agreed to establish a cooperation, under which the CD was to provide competitive financial products to the customers of the Appellant of the sales network to finance customers’ acquisition of equipment. In the Agreement, the Appellant was referred with its earlier name i.e. New Holland Flat (India) Pvt. Ltd. and SREI Equipment Finance Ltd. was referred to as Financial Institution or FI. The Company was to receive remuneration from the Financial Institution as provided in Clause-5, which was referred as ‘origination fee’. The origination fee was to be calculated at 4.5% of each calendar month’s aggregate RNBV.
(iii) A Memorandum of Understanding (“MoU”) was entered on 12.01.2018 between the parties providing for risk/loss pool arrangement. Both the parties have been transacting their business in pursuance of Agreement dated 01.07.2016 and 12.01.2018.
(iv) On 10.10.2021, Corporate Insolvency Resolution Process (“CIRP”) was initiated against the CD on an application filed by Reserve Bank of India (“RBI”). Shri Rajneesh Sharma was appointed as an Administrator/RP, who made a public announcement in Form-A on 11.10.2021.
(v) The Appellant filed its claim in Form-B as an Operational Creditor for an amount of Rs.3,40,46,082/-, after setting-off an amount of Rs.5,56,59,526/-, which was the amount payable to the CD. The Administrator wrote a letter dated 24.11.2022 to the Appellant informing that SIFL is entitled to an amount of Rs.5,63,25,395/-, which payment was to be made to the CD. The letter also mentioned that the said payment is not made by the Appellant on the pretext that certain receivable of Appellant are from SIFL, which is governed by MoU dated 01.07.2016. On 23.01.2023, the Appellant informed the Administrator that claim has already been submitted on 22.10.2021 in the name of the Appellant, which is not shown in the list updated on the website.
(vi) The Administrator sent a letter dated 27.01.2023 to the Appellant with respect to claim filed by the Appellant. The Administrator informed that in the claim, the Appellant has claimed net amount after deducting the amount payable to the CD, which is not acceptable under the CIRP. It was intimated that CIRP is going on against the CD and an interim moratorium has commenced and any outstanding dues prior to October 8, 2021 are required to be submitted as claim against the Company, which shall be paid on the basis of outcome of the CIRP. The Administrator asked the Appellant to file a fresh claim and the Appellant was again asked to pay the amount due to be paid to the CD. After receiving the letter dated 27.01.2023, the Appellant submitted a fresh Claim Form in Form-B for an amount of Rs.8,97,05,608/-. The Administrator admitted the claim of the Appellant to the tune of Rs.8,66,89,866/-. The Administrator informed the Appellant by letter dated 21.03.2023 that claim of the Appellant has been admitted to the extent of Rs.8,66,89,866/-. The said letter further called upon the Appellant to pay the balance amount of Rs.5,63,25,395/-. The Administrator called upon the Appellant to pay the agreed amount and called the Appellant for discussion.
(vii) In the CIRP of the CD, a Resolution Plan was submitted by National Asset Reconstruction Company Limited (“NARCL”), which came to be approved by the Committee of Creditors (“CoC”).
(viii) After approval of the Plan, the RP filed an application for approval of the Plan before the Adjudicating Authority. Various applications were also filed before the Adjudicating Authority. The Adjudicating Authority vide the impugned order dated 11.08.2023, approved the Resolution Plan and decided various applications.
(ix) The Appellant aggrieved by order has filed this Appeal. In the Appeal, the Appellant has prayed for following reliefs:
“a) Set aside order dated August 11, 2023 passed by the Ld. Adjudicating Authority in I.A. No. 428/KB/2023 in CP(IB) No.294/KB/2021 to the extent it demands payment from the Appellant without set-off while reducing the claim of Appellant from the Corporate Debtor to NIL.
b) Direct the Administrator/Resolution Professional to apply the principles of mutuality and set-off as envisaged under the provisions of I&B Code.
c) Quash the demand made by the Administrator/ Resolution Professional vide letter dated November 24, 2022 read with letter dated March 21, 2023 and the subsequent communications.
d) Pass any other order as this Hon’ble Appellate Tribunal may deem fit.”
# 3. We have heard Shri Sumant Batra, learned Counsel appearing for the Appellant; Shri Abhinav Vashisth, learned Senior Counsel and Shri Raunak Dhillon, learned Counsel appearing for the SRA; Shri Raghav Shankar, learned Counsel has appeared for Respondent No.1.
# 4. Learned Counsel for the Appellant in support of the Appeal submits that the Appellant is not aggrieved by the approval of the Resolution Plan, nor it is praying in the Appeal to set aside the order dated 11.08.2023, the prayer of the Appellant is limited to the extent of not allowing the set-off of the amount, which was to be paid by the Appellant to the CD. It is submitted that the Appellant is an Operational Creditor, who filed its claim in Form-B, which was only to the extent of Rs. Rs.3,40,46,082/- by setting-off the amount of Rs.5,56,59,526/-, which amount was payable to the Appellant by the CD. The total claim was of Rs. Rs.8,97,05,608/-, which claim of the Appellant was due against the CD, hence, after deducting the amount payable by the Appellant to the CD, claim was confined to only Rs.3,40,46,082/-. It is submitted that the Administrator did not accept the Claim Form and objected to the set-off and asked the Appellant to file fresh Form and in pursuance of which the Appellant filed fresh claim in Form-B on 03.02.2023, claiming an amount of Rs.8,97,05,608/-, out of which total amount, the RP admitted an amount of Rs.8,66,89,866/-. It is submitted that the amount payable by the CD to the Appellant and amount payable by the Appellant to the CD has rightly been set-off in the claim filed by the Appellant on 22.10.2021, which had wrongly been not accepted by the Administrator. It is submitted that only issue raised by the Appellant in the Appeal is as to whether in the CIRP of the CD, by filing the claim by the Appellant as an Operational Creditor, whether any set-off was rightly claimed by the Appellant or not. It is submitted that the Appellant is not questioning the payouts in the Resolution Plan to the Appellant, which is Nil. It is submitted that the Appellant is not praying for setting aside the Resolution Plan and only limited prayer in the Appeal is to declare that the claim filed by the Appellant after setting off the amount payable by the Appellant to the CD, was rightly claimed by the Appellant in Form-B in the claim filed on 22.10.2021. Learned Counsel for the Appellant has placed reliance on the judgment of the Hon’ble Supreme Court in Bharti Airtel Ltd. and Anr. vs. Vijaykumar V. Iyer & Ors. in Civil Appeal Nos.3088-3089 of 2020 decided on 02.04.2024, reported in (2024) 6 SCC 418.
# 5. Learned Counsel for the RP refuting the submission of the Appellant submits that the impugned order dated 11.08.2023 has already been affirmed by this Tribunal by judgment dated 05.01.2024 in Company Appeal (AT) (Ins.) No.1072 of 2023 – Authum Investment and Infrastructure Ltd. vs. Rajneesh Sharma Administrator of SREI Equipment Finance Ltd. and SREI Infrastructure Finance Ltd. & Ors., which order has already been affirmed by the Hon’ble Supreme Court vide its judgment dated 07.03.2024 in Civil Appeal No.3606 of 2024 – Authum Investment and Infrastructure Limited vs. Rajneesh Sharma Administrator of SREI Equipment Finance Ltd. and SREI Infrastructure Finance Ltd. & Ors. It is submitted that set-off in the CIRP is not permissible. It is submitted that set-off in the claim is contemplated in the liquidation proceeding as per IBBI (Liquidation Process) Regulation, 2016 (“Liquidation Regulations, 2016”), but CIRP Regulations, 2016 does not contemplate any set-off while filing a claim by Operational Creditor. It is submitted that by virtue of moratorium, which is imposed under Section 14, no creditor can take steps for recovery of its dues or to claim any set-off for amount payable by it to the CD. Permitting set-off is permitting recovery by creditors in the CIRP. It is submitted that the Appellant filed its revised claim for Rs.8,97,05,608/-, which claim was admitted to the extent of Rs.8,66,89,866/-, which fact was never disputed by the Appellant. The Appellant did not challenge the admission of the claim by the Administrator. Hence, the admission of the claim by the Administrator became final and cannot be allowed to be questioned. It is submitted that demand was raised by Administrator of Rs.5,63,25,395/-, which has not been paid by the Appellant. The set-off having not been allowed by the Administrator, the demand for the aforesaid amount was made by letters dated 24.11.2022 and 27.01.2023.
# 6. Learned Counsel for the Successful Resolution Applicant (“SRA”) submits that order impugned has already been affirmed by this Tribunal and the Hon’ble Supreme Court, the Appellant cannot be allowed to challenge the said order. The CIRP of the CD stands concluded with the approval of Resolution Plan. It is submitted that the Appeal has become infructuous and cannot be reopened and reagitated on the above issue. It is submitted that under the Resolution Plan no amount is payable to any Operational Creditor apart from Government dues. The Appellant can have no grievance with regard to admission of claim by the RP. The Appellant has no right to challenge the approval of Resolution Plan when it never challenged the rejection of its claim for set-off by the Administrator before the NCLT. It is submitted that Agreement dated 01.07.2016 and MoU dated 12.01.2018 are two separate transactions. The Appellant has accepted the Administrator decision of admitting the entire claim of Rs.8,97,05,608/-, hence, it cannot be allowed to challenge the impugned order. It is submitted that set-off is permissible under Regulation 29 of the IBBI (Liquidation Process) Regulation, 2019, whereas no set-off is permissible under CIRP. It is submitted that judgment of the Hon’ble Supreme Court in Bharti Airtel Ltd. is not applicable as in that case, it was held that in insolvency proceedings, set-off is not permissible, which judgment in no manner supports the submission of the Appellant.
# 7. We have considered the submissions of the learned Counsel for the parties and have perused the record.
# 8. Before we proceed to consider the respective submissions of the parties, we need to notice the submission of the Appellant that the Appellant is not praying for setting aside the impugned order dated 11.08.2023 approving the Resolution Plan. The Appellant’s case is that it is not aggrieved by the approval of Resolution Plan. It is submitted that the Appellant is also not aggrieved by payout in the Resolution Plan to the Appellant, which is Nil and the limited challenge by the Appellant is only to the extent that Administrator has not allowed set-off of the amount, which was payable by the Appellant to the CD, which after setting of, Claim Form was filed by the Appellant on 22.10.2021. It is submitted that in the Resolution Plan, although Nil amount is payable to the Operational Creditor, but Administrator has claimed payment of dues from the Appellant for an amount of Rs.5,63,25,395/- on the ground that set-off was not allowed in the CIRP. We, thus, proceed on the premise that – (1) The Appellant is not challenging the impugned order dated 11.08.2023 approving the Resolution Plan; and (2) The Appellant is not questioning the Nil payout to the Appellant in the Resolution Plan. The only question to be considered in this Appeal is as to whether in the CIRP, Operational Creditor while filing a claim can set-off any mutual dues payable to the CD by the Appellant.
# 9. We need to first notice the claim, which was filed by the Appellant on 22.10.2021, after publication issued by the Administrator inviting the claims on 11.10.2021. The copy of the Claim Form filed in Form-B is filed as Annexure A-5 to the Appeal. In the covering letter, which is part of Form-B, the Appellant has stated as follows:
“October 22, 2021
To
Mr. Rajneesh Sharma
Interim Resolution Professional
Vishwakarma 86C, Topsia Road (South)
Kolkata, West Bengal-700046.
Dear Sir,
Sub: Proof of claim in the Corporate Insolvency Resolution Process (“CIRP”) of SREI Equipment Finance Limited (“Corporate Debtor”).
With reference to the captioned subject, we, CNH Industrial (India) Private Limited, a company incorporated under the provisions of Companies Act, 1956 (CIN U29220DL1992PTC344615), having its registered office at 4th Floor, Rectangle No. 1, Behind Marriot Hotel, Commercial Complex, D-4, Saket, New Delhi 110017, India and (“Operational Creditor”) and the Corporate Debtor have entered into a Cooperation Agreement dated July 1, 2016 (“Agreement”) for running a Captive Retail Vendor Finance Program (“Program”) for the mutual benefit of both parties. Pursuant to the terms and conditions of the Agreement, the Parties agreed to implement the Program in order to support the sales of the Equipment of the Operational Creditor to the customers of the Equipment in such a manner that this arrangement results profitable to both parties. Operational creditor is in the business of manufacturing, trading and selling various kinds of agricultural equipment’s (“Equipment”) namely Tractors, harvesters, combine, balers, and other farm equipment etc and their spare parts and accessories. The Operational Creditor sells the equipment to customers directly or through its appointed authorised dealers. Corporate Debtor used to finance the Equipment sold by the Operational Creditor and/or the dealers of the Operational Creditor. Operational Creditor used to raise invoices of the fees as per the terms of the Agreement on the Corporate Debtor and Corporate Debtor used to make payment to the Operational Creditor for the equipment sold to customers.
Further, a Memorandum of Understanding dated January 12, 2018 was executed between the Corporate Debtor and the operational Creditor wherein subject to the corporate Debtor granting credit facilities to the customers for the sale of Equipment of the Operational Creditor, the Operational Creditor agreed to provide a fixed amount as loss sharing amount to cover the losses in case of default made by any customer in repaying the credit facility to the Corporate Debtor. For this amount, Corporate Debtor used to raise invoices on the Operational Creditor.
The present claim is for the invoices raised by the Operational Creditor on the Corporate debtor and remained unpaid during the period from Calendar years starting 2016 till date of this claim and after setting off the amount towards loss sharing payable by Operational Creditor to the Corporate Debtor in the relevant period.
The statement of claim as on 22nd October 2021 is as follows:
Operational Creditor is enclosing the following documents in support of the claim of Rs. 3,40,46,082/- along with Form B in accordance with Regulation 7 of the IBBI (IRP of Corporate Persons) Regulations 2016:
1. Summary of statement of claim;
2. Copy of cooperation Agreement dated July 1, 2016 between Corporate Debtor and the Operational Creditor;
3. Copy of invoices raised by the Operational Creditor on the Corporate Debtor;
4. Copy of Memorandum of Understanding dated January 12, 2018;
5. Copy of Ledger Account of the Corporate Debtor in the books of Operational Creditor and:
6. Declaration by the authorized signatory of CNH as required under the Regulations.
Thanking You,
For CNH Industrial (India) Private
Sd/-
Authorised Signatory
Encl: Form B along with documents as stated above in (1) to (6).”
# 10. The above letter clearly mentions that claim of the Operational Creditor against the CD is Rs.8,97,05,608/-, whereas amount payable by the Operational Creditor to the CD is Rs.5,56,59,526/-, hence, the Operational Creditor has filed claim only for Rs.3,40,46,082/-. In Item No.8 of the Form-B, following has been stated:
# 11. The claim was filed in Form-B under IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP Regulations, 2016). Claim by Operational Creditors are dealt in Regulation 7. Regulation 7, sub-regulation (1) is as follows:
“7. Claims by operational creditors – (1) A person claiming to be an operational creditor, other than workman or employee of the corporate debtor, shall 33[submit claim with proof] to the interim resolution professional in person, by post or by electronic means in Form B of the Schedule-I: Provided that such person may submit supplementary documents or clarifications in support of the claim before the constitution of the committee.”
# 12. Schedule-I of the CIRP Regulation prescribes Form-B, which is as follows: . . . . . .
# 13. When we look into the above Form, Column 8 of the Form provides as follows:
# 14. Thus, in the Claim Form, which is to be filed by Operational Creditor, the Regulation itself contemplates details of any mutual credit, mutual debts, or other mutual dealings between the Corporate Debtor and the creditor, which may be set-off against the claim.
# 15. The Claim Form, which was filed by the Appellant, under Colum-8 has clearly provided for set-off of amount of Rs.5,56,59,526/-, which was payable by the Appellant to the CD. The RP did not admit the claim and sent a letter dated 27.01.2023 to the Appellant. Letter dated 27.01.2023 refers to moratorium under Section 14 of the IBC and it is stated that in the Claim Form the Appellant has claimed the amount after deducting the amount payable to the CD, which is not acceptable under the CIRP. Letter dated 27.01.2023 is as follows:
From: Administrator /Srei
Sent: 27 January 2023 14:41
To: Akhil Chadha
Cc: equipment.claims@srei.com; Soumen Bhattacharya /Operations/Srei; Vikash Agarwal /Accounts/srei
Subject: Re: Submission of Claims_CIRP of SREI Equipment Finance Limited
Dear Sir,
Please note that the update regarding the claim of New Case Holland Construction Equipment (India) Pvt. Ltd. is appearing in the updated list uploaded on 19th January 2023.
However, with regards to claims filed by CNH Industrial (India) Pvt. Ltd., we have noted that in the same claim form you have claimed the net amount after deducting the amount payable to the Corporate debtor which is not acceptable under CIRP.
As you are aware, Srei Equipment Finance Limited (“Company”) is currently undergoing corporate insolvency resolution process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 (“Code”) as directed vide order dated October 8, 2021, (“Court Order”) of the Hon’ble National Company Law Tribunal at Kolkata (“NCLT”), which had admitted the application filed by the Reserve Bank of India (“RBI”) on October 8, 2021 under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Provider and Application to Adjudicating Authority) Rules, 2019 (“FSP Rules”).
Please note that as per Rule 5(b)(i) of the FSP Rules, an interim moratorium commences upon the filing of any such application and subsequently, upon admission of such application, a moratorium commences. In this regard, I would like to reiterate and draw your attention to the provisions of Section 14 of the Code, setting out certain actions in respect of the Company which are prohibited from taking place during the CIRP period, including:
(a) the institution of suits or continuation of pending suits or proceedings against the Company, including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing off by the Company or any of its assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
Any outstanding dues of persons during the CIRP for claims having accrued prior to October 8, 2021 are required to be submitted as claims under the prescribed proof of claims against the Company. We understand that you have already submitted your proof claim dated October 21, 2021. The dues arising from such claims will be repaid basis the outcome of the CIRP in the manner provided in the Code.
Basis the above, request you to please file fresh claim form for the amount due by Corporate Debtor which would be tallied with the details provided and accordingly be admitted/ rejected.
We would also request you to please pay the amount due to Corporate Debtor at the earliest possible.
Thanks,
Office of the Administrator”
# 16. It was thereafter the Appellant sent a letter dated 03.02.2023 and submitted a fresh Form-B, claiming an amount of Rs.8,97,05,608/-.
# 17. The first question which needs to be answered is as to whether while submitting a Claim Form by Operational Creditor, can claim set-off and as to whether sett off is permissible or not. We have already extracted Form-B under the CIRP Regulations, 2016 Column-8, which contemplated mutual credit, mutual debts or other mutual dealings between the CD and the creditor, WHICH MAY BE SET OFF AGAINST THE CLAIM. Thus, statutory Form itself contemplates mutual credits, mutual debts or other mutual dealings between the CD and the creditor. We, at this stage, need to hasten to add that Column-8 does not contemplate any disputed mutual credit, mutual debts or other mutual dealings between the CD, nor any disputed issue, may be unilaterally dealt by a creditor. What is contemplated in Column-8 is admitted mutual credit, mutual debts or other mutual dealings. It is relevant to notice that in the present case, both the parties have not disputed about the dues payable by the Appellant to the CD, which is Rs.5,56,59,526/-. The claim of the Appellant has also been admitted by the RP to the tune of Rs.8,66,89,866/-. Thus, the claim admitted in the CIRP of the CD is much more than the amount due from the Appellant to the CD. Section 14 of the IBC, which provides for moratorium, prescribes following:
“14. Moratorium. –
(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: –
(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license or a similar grant or right during moratorium period;”
# 18. The present is not a case where creditor is taking any action to foreclose, recover or enforce any security interest created by the CD in respect of its property, nor it is a case of recovery of any property by an owner or lessor. The Regulations, which have been framed by the Board are Regulations which have been framed under the provisions of the IBC to give effect to provisions of the IBC. No contradiction in the Regulations with the IBC is contemplated, rather Regulations are only to give effect to the object of the IBC. When Regulation 7 read with Form-B, specifically permits set-off, it is clear that at the time of filing of a claim, a creditor can set-off mutual credit, mutual debts or other mutual dealings between the CD and the creditor, which is clearly permissible. Thus, the RP has not acted in accordance with the provisions of CIRP Regulations in refusing to admit the claim filed by the Appellant on 22.10.2021.
# 19. Learned Counsel for the Appellant has placed reliance on the judgment of the Hon’ble Supreme Court in Bharti Airtel Ltd. and Anr. vs. Vijaykumar V. Iyer & Ors. in Civil Appeal Nos.3088-3089 of 2020. The Hon’ble Supreme Court in the above case was considering set- off in CIRP. The Hon’ble Supreme Court in the above case has noticed that although in the Liquidation Regulation, 2016, Regulation 29 provides for mutual credits and set-off, there is no specific provision, which could be applicable in the CIRP. The Hon’ble Supreme Court elaborately dealt the concept of set-off. The Hon’ble Supreme Court has held that set-off permitted under Liquidation Regulations, 2016, cannot be applied to the CIRP. However, two exceptions were mentioned by the Hon’ble Supreme Court in the judgment i.e. (1) Parties entitle to contractual set-off; and (2) equitable set-off. The above has been laid down by the Hon’ble Supreme Court in paragraphs 30 to 33, which are as follows:
“30. Given the aforesaid legal position, we do not think that the provisions of statutory set-off in terms of Order VIII Rule 6 of CPC or insolvency set-off as permitted by Regulation 29 of the Liquidation Regulations can be applied to the Corporate Insolvency Resolution Process. The aforesaid rule would be, however, subject to two exceptions or situations. The first, if at all it can be called an exception, is where a party is entitled to contractual set-off, on the date which is effective before or on the date the Corporate Insolvency Resolution Process is put into motion or commences. The reason is simple. The Corporate Insolvency Resolution Process does not preclude application of contractual set-off. During the moratorium period with initiation of the Corporate Insolvency Resolution Process, recovery, legal proceedings etc. cannot be initiated, enforced or remain in abeyance. Besides the moratorium effect, the terms of the contract remain binding and are not altered or modified.
31. The foundation of contractual set-off is based on the same ground as in the case of equitable set-off, which is impeachment of title, albeit contractual set-off is a result of mutual agreement that permits set-off and adjustment. Therefore, if a debtor’s title to sue is impeached before the Corporate Insolvency Resolution Process is set into motion, so should the title of the Resolution Professional, who in terms of Section 25 of the IBC has the duty to preserve and protect assets of the corporate debtor, including continuing the business operations of the corporate debtor. The Resolution Professional takes the debtor’s property subject to all clogs and fetters affecting it in the hands of the debtor.
32. The second exception will be in the 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.
33. We would in fact borrow the term ‘transactional set-off’ 46 instead of equitable set-off, when we describe the second exception. The reason is that the second exception refers to an ascertained amount, which is a requirement for legal set-off under Order VIII Rule 6 of CPC and at the same time relies on equitable right when the statute is silent and there is no reason to deny set-off under the common law. It is an equitable right because the transactions are close and connected, harbingering the claim and the counterclaim. It would be manifestly unjust to bifurcate the connected transactions to accept and enforce the claim of one party without adjusting the amount due to the second party. This, in our opinion, does not contradict the eclipse by way of moratorium, because the transactions are treated as singular and one. When transactions are closely connected, a claim for transactional set-off during the moratorium period on a claim by the Resolution Professional, is by way of a defence to protect the legitimate expectation and respect legal certainty.”
# 20. The contractual set-off has been referred to as transactional set-off. While dealing with equitable set-off, it was held that equitable set-off should be genuine and clearly established on facts and in law, so as to make it in equitable and unfair that the debtor be asked to pay money, without adjustment sought that is fully justified and legal. When we come to the facts of the present case, the transactions between the parties were as per the Agreement dated 01.07.2016 and MoU dated 12.01.2018. Both the Appellant and CD were entitled to payments with respect to which, claims were made against each other. Payments against each other present a case where there is no dispute regarding the claim and in the present case, both the parties have no dispute that that Appellant was required to pay the amount of Rs.5,56,59,526/- to the CD. The claim of the Appellant also having been admitted by the RP to the tune of Rs.8,66,89,866/-. The claim of the Appellant is much more than the amount payable to it by the CD. The facts of present case are clearly covered by exception laid down by the Hon’ble Supreme Court in the Bharti Airtel Ltd. It is also relevant to notice that in Bharti Airtel Ltd. the Hon’ble Supreme Court has clearly held that insolvency set-off is not permissible, on which reliance has also been placed by learned Counsel for Respondent No.2. In paragraph-48, rejecting the argument of insolvency set-off, following was held by the Hon’ble Supreme Court:
“48. Therefore, we would reject the argument that insolvency set- off is automatic and self-executing. self-execution may be acceptable in cases of contractual set-off, as held above.”
# 21. In the facts of the above case, the Hon’ble Supreme Court noticed that amount, which has become payable as was claimed by the Bharti Airtel Ltd. was payable post the commencement of the CIRP, hence, no set-off could have been claimed and Appeal filed by Bharti Airtel Ltd. claiming set-off was rejected. In paragraph-50 of the judgment, following was held:
“50. On the aspect of mutual dealings and also equity, it is to be noted that adjustment of the inter-connect charges are under a separate and distinct agreement. The telephone service providers use each other’s facilities as the caller or the receiver may be using a different service provider. Accordingly, adjustments of set-off are made on the basis of contractual set-off. These are also justified on the ground of equitable set-off. The set-off to this extent has been permitted and allowed by the Resolution Professional. The transaction for purchase of the right to use the spectrum is an entirely different and unconnected transaction. The agreement to purchase the spectrum encountered obstacles because the DoT had required bank guarantees to be furnished. Accordingly, Airtel entities, on the request of Aircel entities had furnished bank guarantees on their behalf. 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.”
# 22. Thus, in the above case, the amount became payable post the commencement of CIRP. The above was not a case of any contractual set- off or any equitable set-off. The judgment of the Hon’ble Supreme Court in Bharti Airtel Ltd., thus clearly supports the submission of the Appellant that present case is covered by exception. It is relevant to notice that law laid down by Hon’ble Supreme Court in Bharti Airtel Ltd. was not available during the CIRP and has been delivered only on 02.04.2024 during pendency of the Appeal. The law delivered by the Hon’ble Supreme Court being binding on all, we have to decide the issues raised in the appeal in accordance with the above law.
# 23. Learned Counsel for the Respondents have contended that in view of the fact that the Appellant never challenged the admission of the claim and RP’s action of not accepting the claim, which was based on the set-off dated 22.10.2021, the remedy of the Appellant was to file an application under Section 60 of the IBC before the Adjudicating Authority and the Appellant having not agitated the matter, it cannot be allowed to raise the same now. With respect to above, we need to refer to a judgment of the Hon’ble Supreme Court in Greater Noida Industrial Development Authority vs. Prabhjit Singh Soni and Anr. – (2024) 6 SCC 767, where RP’s partial rejection of claim and the categorization of the creditor was questioned at the stage when Resolution Plan was approved on 04.08.2020. In the above context, while examining the Resolution Plan, the Hon’ble Supreme Court laid down following in paragraphs 54.1 and 54.2
“54.1. The resolution plan disclosed that the appellant did not submit its claim, when the unrebutted case of the appellant had been that it had submitted its claim with proof on 30-1-2020 for a sum of Rs 43,40,31,951. No doubt, the record indicates that the appellant was advised to submit its claim in Form B (meant for operational creditor) in place of Form C (meant of financial creditor). But, assuming the appellant did not heed the advice, once the claim was submitted with proof, it could not have been overlooked merely because it was in a different form. As already discussed above, in our view the form in which a claim is to be submitted is directory. What is necessary is that the claim must have support from proof. Here, the resolution plan fails not only in acknowledging the claim made but also in mentioning the correct figure of the amount due and payable. According to the resolution plan, the amount outstanding was Rs 13,47,40,819 whereas, according to the appellant, the amount due and for which claim was made was Rs 43,40,31,951. This omission or error, as the case may be, in our view, materially affected the resolution plan as it was a vital information on which there ought to have been application of mind. Withholding the information adversely affected the interest of the appellant because, firstly, it affected its right of being served notice of the meeting of the CoC, available under Section 24(3)(c) IBC to an operational creditor with aggregate dues of not less than ten per cent of the debt and, secondly, in the proposed plan, outlay for the appellant got reduced, being a percentage of the dues payable. In our view, for the reasons above, the resolution plan stood vitiated. However, neither NCLT nor Nclat addressed itself on the aforesaid aspects which render their orders vulnerable and amenable to judicial review.
54.2. The resolution plan did not specifically place the appellant in the category of a secured creditor even though, by virtue of Section 13-A of the 1976 Act, in respect of the amount payable to it, a charge was created on the assets of the CD. As per Regulation 37 of the CIRP Regulations, 2016, a resolution plan must provide for the measures, as may be necessary, for insolvency resolution of the CD for maximisation of value of its assets, including, but not limited to, satisfaction or modification of any security interest. Further, as per Explanation 1, distribution under clause (b) of sub-section (2) of Section 30 must be fair and equitable to each class of creditors. Non-placement of the appellant in the class of secured creditors did affect its interest. However, neither NCLT nor Nclat noticed this anomaly in the plan, which vitiates their order.”
# 24. In the above case, the RP had contended that the Appellant has not submitted proof of its claim. However, the RP admitted an outstanding amount of Rs.13,47,40,819/-, whereas the claim was made of Rs.43,40,31,951/-. In the above case, the claim was filed in Form-C and RP advised the Appellant to file its claim in Form-B. The Hon’ble Supreme Court held that claim was submitted with proof, which could have been overlooked because it was in different Form. In the present case, there is no dispute with regard to filing of the claim by the Appellant within time and the objection, which was raised by the RP was only with respect to set-off in the Claim Form. It is true that in the facts before the Hon’ble Supreme Court the payout in the Resolution Plan was affected on account of partial admission of the claim and in the present case, payout to the Operational Creditor is not to be affected in any manner, since the payout to the Operational Creditor is Nil. The above judgment clearly indicates that any act of RP while considering the claim of the creditors, which is not in accordance with law, was permitted to be challenged at the stage of challenge of approval of Resolution Plan.
# 25. As noted above, the Appellant in the present case is not challenging the approval of Resolution Plan, nor is questioning the payouts in the Resolution Plan, hence, whether the claim of Appellant which is accepted by the RP for an amount of Rs.8,66,89,866/- or claim is accepted of Rs.3,40,46,082/-, shall not in any manner affect the payout to the Appellant. Whether the claim of Rs.3,40,46,082/- of the Appellant is accepted or the claim of Rs.8,66,89,866/- is accepted, which has been admitted by the RP, the Resolution Plan in no manner is affected, nor payout to the Operational Creditor shall be changed.
# 26. In result of the foregoing discussions, we are of the view that the Appellant’s submission that his claim ought to have been accepted only for an amount of Rs.3,40,46,082/-, after adjusting set-off of the amount of Rs.5,56,59,526/- deserve to be accepted, which in no manner shall affect the approval of the Resolution Plan or the impugned order or its implementation.
# 27. In result of the above discussion, we dispose of the Appeal in following manner:
(I) The order impugned dated 11.08.2023 approving the Resolution Plan of the CD – SREI Infrastructure Finance Limited is not interfered with.
(II) The Appellant’s claim submitted in Form-B on 22.10.2021, claiming an amount of Rs.3,40,46,082/- (after giving set-off of Rs.5,56,59,526/-) shall be treated to have been accepted in the CIRP of the CD, which acceptance of claim in no manner affect the payout to the Operational Creditor under the impugned order.
(III) The Appellant is entitled for set-off the amount due to the CD as per Column-8 of Form-B submitted on 22.10.2021, which was due to the CD.
Any pending IAs are also stand disposed of. Parties shall bear their own costs.
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