# Case Details Bharti Airtel Limited and Another v. Vijaykumar V. Iyer and Others

- **Citation:** 2024 INSC 15
- **Court:** Supreme Court of India
- **Decided:** 2024-01-03
- **Case number:** Civil Appeal Nos. 3088-3089 of 2020
- **Bench:** Sanjiv Khanna, S.V.N. Bhatti
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-bharti-airtel-limited-and-another-v-vijaykumar-v-iyer-and-others-37374
- **Pages:** 31

## Headnote

The present appeals raise a 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
s.25 of the Insolvency and Bankruptcy Code, 2016 to take custody
and control of all the assets of the corporate debtor.
Headnotes
Insolvency and Bankruptcy Code, 2016 - clause (a) to subsection (2) of s.25, s.238, s.243 - Insolvency and Bankruptcy
Board of India (Liquidation Process) Regulations, 2016 - Regn.
29 - The appellant-Airtel entities argued that they are entitled
to statutory set-off or insolvency set-off, in the Corporate
Insolvency Resolution Proceedings under Chapter II Part II
of the IBC:
Held: The IBC is a complete code relying upon the opening part of
the enactment and s.238 and s.243 nullifies the argument raised
by the appellant Airtel entities that they are entitled to statutory
set-off or insolvency set-off, in the Corporate Insolvency Resolution
Proceedings under Chapter II Part II of the IBC - Regulation 29
of the Liquidation Regulations does not apply to Part II of the
IBC - The legislation or even the legislative intent permits neither
statutory set-off, nor insolvency set-off. [Para 37]
Insolvency and Bankruptcy Code, 2016 - Difference between
the Corporate Insolvency Resolution Process and the
liquidation process:
Held: There is a difference between the Corporate Insolvency
Resolution Process and the liquidation process of the IBC - The
Corporate Insolvency Resolution Process focuses on and fosters
rehabilitation, revival and resolution of the corporate debtor,
[2024] 1 S.C.R.
141
BHARTI AIRTEL LIMITED AND ANOTHER v.
VIJAYKUMAR V. IYER AND OTHERS
whereas the liquidation process focuses on the constellation of
assets of the company in liquidation, and distribution and payment
to the creditors from the liquidation estate in terms of the order of
preference set out in the insolvency statute. [Para 12]
Insolvency and Bankruptcy Code, 2016 - Insolvency and
Bankruptcy Board of India (Liquidation Process) Regulations,
2016 - Regn. 29 - Code of Civil Procedure, 1908 - Or. VIII, r.6 -
Application of the Provisions of statutory set-off to Corporate
Insolvency Resolution Process:
Held: The provisions of statutory set-off in terms of Or. VIII, r. 6
of CPC or insolvency set-off as permitted by Regulation 29 of
the Liquidation Regulations cannot 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 - 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. [Paras 30 and 32]
Words and Phrases - Set-off - Meaning of:
Held: Set-off in generic sense recognises the right of a debtor
to adjust the smaller claim owed to him against the larger claim
payable to his creditor - Set-off is given legal preference for three
reasons - First, in economic terms, set-off is a form of security
recognised in law - It is, however, not a security in a strict sense,
but a right that enhances provision of credit and acts as a stimulus
to trade and commerce by giving a degree o

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* Author
[2024] 1 S.C.R. 140 : 2024 INSC 15
Case Details
Bharti Airtel Limited and Another
v.
Vijaykumar V. Iyer and Others
(Civil Appeal Nos. 3088-3089 of 2020)
03 January 2024
[Sanjiv Khanna* and S.V.N. Bhatti, JJ.]
Issue for Consideration
The present appeals raise a 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
s.25 of the Insolvency and Bankruptcy Code, 2016 to take custody
and control of all the assets of the corporate debtor.
Headnotes
Insolvency and Bankruptcy Code, 2016 - clause (a) to subsection (2) of s.25, s.238, s.243 - Insolvency and Bankruptcy
Board of India (Liquidation Process) Regulations, 2016 - Regn.
29 - The appellant-Airtel entities argued that they are entitled
to statutory set-off or insolvency set-off, in the Corporate
Insolvency Resolution Proceedings under Chapter II Part II
of the IBC:
Held: The IBC is a complete code relying upon the opening part of
the enactment and s.238 and s.243 nullifies the argument raised
by the appellant Airtel entities that they are entitled to statutory
set-off or insolvency set-off, in the Corporate Insolvency Resolution
Proceedings under Chapter II Part II of the IBC - Regulation 29
of the Liquidation Regulations does not apply to Part II of the
IBC - The legislation or even the legislative intent permits neither
statutory set-off, nor insolvency set-off. [Para 37]
Insolvency and Bankruptcy Code, 2016 - Difference between
the Corporate Insolvency Resolution Process and the
liquidation process:
Held: There is a difference between the Corporate Insolvency
Resolution Process and the liquidation process of the IBC - The
Corporate Insolvency Resolution Process focuses on and fosters
rehabilitation, revival and resolution of the corporate debtor,
[2024] 1 S.C.R.
141
BHARTI AIRTEL LIMITED AND ANOTHER v.
VIJAYKUMAR V. IYER AND OTHERS
whereas the liquidation process focuses on the constellation of
assets of the company in liquidation, and distribution and payment
to the creditors from the liquidation estate in terms of the order of
preference set out in the insolvency statute. [Para 12]
Insolvency and Bankruptcy Code, 2016 - Insolvency and
Bankruptcy Board of India (Liquidation Process) Regulations,
2016 - Regn. 29 - Code of Civil Procedure, 1908 - Or. VIII, r.6 -
Application of the Provisions of statutory set-off to Corporate
Insolvency Resolution Process:
Held: The provisions of statutory set-off in terms of Or. VIII, r. 6
of CPC or insolvency set-off as permitted by Regulation 29 of
the Liquidation Regulations cannot 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 - 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. [Paras 30 and 32]
Words and Phrases - Set-off - Meaning of:
Held: Set-off in generic sense recognises the right of a debtor
to adjust the smaller claim owed to him against the larger claim
payable to his creditor - Set-off is given legal preference for three
reasons - First, in economic terms, set-off is a form of security
recognised in law - It is, however, not a security in a strict sense,
but a right that enhances provision of credit and acts as a stimulus
to trade and commerce by giving a degree of confidence to parties
dealing with each other - Secondly, it helps reduce litigation,
promotes economy of time and is an efficient method in resolving
debt between parties - Thirdly, natural equity requires that cross-
142
[2024] 1 S.C.R.
DIGITAL SUPREME COURT REPORTS
demands should compensate each other by deducting the lesser
sum from the greater - At least five different meanings can be
ascribed to the term 'set-off', namely, (a) statutory or legal set-off;
(b) common law set-off; (c) equitable set-off; (d) contractual set-off;
and (e) insolvency set-off. [Paras 3, 4 and 5]
Words and Phrases - Contractual set-off - Meaning of:
Held: Contractual set-off is a matter of agreement, rather than a
separate application of set-off - The parties are free to mutually
agree on the outcomes they desire - Being consensual, when
expressly stated, the normal rules of set-off regarding mutuality of
credits or debts, liquid debts, and connected debts-aspects relevant
and noticed below while dealing with statutory/legal set-offs or
even insolvency set-off - may not apply - The contract, however,
should be within bounds of legality and public policy - Further,
the normal requirements of the law of contracts, viz. intention to
create legal relationship, acceptance, consideration etc. should
be established for a valid contractual set-off - Ascertaining the
applicability of contractual set-off requires an assessment of the
understanding whether the right is conferred by the agreement, as
the court gives effect to the intention of the parties as to how they
should deal - The right to set-off may be explicit in the words of
the agreement, or can be gathered by existence of oral or implied
agreement to set-off, reflecting an understanding to the said effect.
[Paras 6 and 7]
Words and Phrases - Statutory or legal set-off:
Held: Statutory or legal set-off is created by a statute - For
example, Order VIII Rule 6 of the CPC states that where a suit for
recovery of money is filed, the defendant can claim set-off against
the plaintiff's demand for any ascertained sum of money legally
recoverable by the defendant from the plaintiff, but not exceeding
the pecuniary limits of the jurisdiction of the court - It requires that
both the parties should fill the same character as they fill in the
plaintiff's suit. [Para 8]
Insolvency and Bankruptcy Board of India (Liquidation
Process) Regulations, 2016 - Regn. 29 - Mutual dealings:
Held: The expression 'mutual dealings' for the purpose of
Regulation 29 of the Liquidation Regulations, is wider than the
statutory set-off postulated under Order VIII Rule 6 of CPC, as
well as, equitable set-off under the common law as applicable in
[2024] 1 S.C.R.
143
BHARTI AIRTEL LIMITED AND ANOTHER v.
VIJAYKUMAR V. IYER AND OTHERS
India - Insolvency set-off applies when demands are between the
same parties - There must be commonality of identity between
the person who has made the claim and the person against
whom the claim exists - Even when there are several distinct and
independent transactions, mutuality can exist between the same
parties functioning in the same right or capacity - Mutual dealings
are not so much concerned with the nature of the claims, but with
the relationship and apposite identity of the parties giving rise to
the respective claims, such that it would offend one's sense of
fairness or justice to allow one to be enforced without regard to
the other. [Para 22]
List Of Citations and Other References
Indian Overseas Bank v. RCM Infrastructure Ltd. and
Another:(2022) 8 SCC 516; Innoventive Industries
Limited v. ICICI Bank and Another [2017] 8 SCR
33:(2018) 1 SCC 407; Embassy Property Developments
Private Limited. v. State of Karnataka and Others [2019]
17 SCR 559:(2020) 13 SCC 308; V. Nagarajan v. SKS
Ispat and Power Limited and Others (2022) 2 SCC
244; Career Institute Educational Society v. Om Shree
Thakurji Educational Society, 2023 SCC OnLine SC
586; The Official Liquidator of High Court of Karnataka
v. Smt. V. Lakshmikutty [1981] 2 SCR 349:(1981) 3
SCC 32 - referred to.
Ebix Singapore Private Limited v. Committee of Creditors
of Educomp Solutions Limited and Another. (2022) 2
SCC 401; Swiss Ribbons Private Limited and Another
v. Union of India and Others [2019] 3 SCR 535:(2019)
4 SCC 17 - held inapplicable.
Jurong Aromatics Corporation Pte Ltd. and Others v.
BP Singapore Pte Ltd. and Another, (2018) SGHC 215;
Federal Commerce and Navigation Co. v. Molena Alpha
Inc., (1978) Q.B. 927; Ministre du Revenu national c.
Caisse Populaire du bon Conseil, 2009 SCC 29; Jeffs
v. Wood, [1723] 2 Eq Ca. Ab. 10; Citibank Canada v.
Confederation of Life Insurance Company, 42 CRB (3)
(d) 288; Ramdhari v. Premanand, 19 Cal WN 1183;
Re.: Bank of Credit and Commerce International SA
(No. 8) [1996] Ch. 245; Stein v. Blake [1996] A.C.
243; National Westminster Bank Ltd. v. Halesowen
144
[2024] 1 S.C.R.
DIGITAL SUPREME COURT REPORTS
Presswork & Assemblies Ltd. 1972 AC 785; Gye v.
McIntyre (1991) 171 CLR 609; BP Singapore Pte Ltd
v. Jurong Aromatics Corp Pte Ltd and Others (2020)
SGCA 09; Belmont Park Investments v. BNY Corporate
Trustee Services Ltd. [2012] 1 AC 383; British Eagle
International Airlines Ltd v. Compagnie Nationale Air
France 1975 1 WLR 758 - referred to.
Maheswari Metals & Metal Refinery, Bangalore v.
Madras State Small Industries Corporation, AIR 1974
Mad 39; Gokul Chit Funds and Trades Private Ltd. v.
Thoundasseri Kochu Ouseph Vareed and Others AIR
1977 Ker 68 - referred to.
Philip R. Wood, Set-off and Netting, Derivatives,
Clearing Systems, (Sweet & Maxwell 2007); Kelly
R. Palmer, The Law of Set Off in Canada (Canada
Law Book 1993); Canadian Encyclopedic Digest,
Release 3, "Personal Property" by Gloria Mintah, §
187, CD-ROM (Thomson Reuters Canada Limited,
August 2009); Rory Derham, Derham on the Law of
Set-Off (Oxford University Press 4th ed. 2010) ;Gerard
McCormack, Set-off under the European Insolvency
Regulation (and English Law), 29 IIR 100, 100-117
(2020); UNCITRAL Legislative Guide on Insolvency
Law, Chapter G. p.155-156 (2005) - referred to.
List of Acts
Insolvency and Bankruptcy Code, 2016 - Insolvency and Bankruptcy
Board of India (Liquidation Process) Regulations, 2016 - Code of
Civil Procedure, 1908.
List of Keywords
Insolvency; Corporate Insolvency Resolution Process; Set-off;
Statutory or legal set-off; Common law set-off; Equitable set-off;
Contractual set-off; Insolvency set-off; Mutual dealings.
Other Case Details Including Impugned Order and
Appearances
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.3088-3089 of
2020.
[2024] 1 S.C.R.
145
BHARTI AIRTEL LIMITED AND ANOTHER v.
VIJAYKUMAR V. IYER AND OTHERS
From the Judgment and Order dated 13.07.2020 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal
(AT) (Insolvency) Nos.530 and 700 of 2019.
Appearances:
Darius Khambata, Sr. Adv., Harsh Kaushik, Sandeep Devashish Das,
Ramakant Rai, Somesh Srivastava, Tushar Hathiramani, Kumar
Gourav, Varun Kumar Tikmani, Advs. for the Appellants.
N Venkataraman, A.S.G., Shyam Divan, Sr. Adv., Rishi Agrawala,
Mahesh Agarwal, Victor Das, E. C. Agrawala, M/s. Cyril Amarchand
Mangaldas, Raunak Dhillon, Ms. Ananya Dhar Choudhury, Ms.
Niharika Shukla, Advs. for the Respondents.
Judgment / Order of The Supreme Court
Judgment
Sanjiv Khanna, J.
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.
2.
In order to decide the issue raised in these appeals, we are required
to refer to the facts in brief:
2.1 In April 2016, Bharti Airtel Limited and Bharti Hexacom Limited2
entered into eight spectrum trading agreements with Aircel
Limited and Dishnet Wireless Limited3 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 Telecommunications4, 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. Challenging this direction, the Aircel entities
1
For short, 'IBC'.
2
For short- 'The appellants' or 'Airtel entities'.
3
For short- 'Aircel entities'.
4
 For short- 'DoT'.
146
[2024] 1 S.C.R.
DIGITAL SUPREME COURT REPORTS
approached the Telecom Disputes Settlement and Appellate
Tribunal5. By the interim order dated 3rd June 2016, TDSAT
directed Aircel entities to submit the bank guarantees. As the
Aircel entities did not have the means to procure and submit
the bank guarantees for approximately Rs.453.73 crores, they
approached the Airtel entities to submit bank guarantees on
their behalf to the DoT.
2.2 In terms of the eight spectrum transfer agreements, the Airtel
Entities were to pay Rs.4,022.75 crores to the Aircel entities.
The 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.
The Airtel entities were to deduct Rs.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.
2.3 TDSAT vide order dated 9th January 2018 held that the DOT's
demand of Rs.298 crores against the Aircel entities was
untenable, and directed the DoT to return the bank guarantees
to the Aircel entities. However, the bank guarantees were not
returned by the DoT, which preferred Civil Appeal No. 5816
of 2018 before this Court. Cross-appeals were filed by Aircel
entities.
2.4 This Court by order dated 28th November 2018 held at the
interim stage, that the order of the TDSAT dated 9th January
2018, insofar as bank guarantees are concerned, shall be given
effect to. However, the DoT did not return the bank guarantees.
2.5 In view of the aforesaid, the Airtel entities wrote to the bank
seeking confirmation of cancellation of the bank guarantees.
As the banks were reluctant, the Airtel entities approached this
Court, which vide order dated 8th January 2019, directed that
the bank guarantees shall be cancelled and shall not be used
for any purpose whatsoever.
5
 For short- 'the TDSAT'.
[2024] 1 S.C.R.
147
BHARTI AIRTEL LIMITED AND ANOTHER v.
VIJAYKUMAR V. IYER AND OTHERS
2.6 Thereupon the Airtel entities made a payment of Rs.341.80
crores due to the Aircel entities on 10th January 2019. The
balance amount of Rs.145.20 crores was set-off by the Airtel
entities on the ground that this amount was owed by the
Aircel entities to the Airtel entities. According to Airtel entities,
Rs.145.20 crores was the adjusted or the net amount payable
by the Aircel entities towards operational charges, SMS charges
and interconnect usage charges6 to the Airtel entities.
2.7 In the meanwhile, Corporate Insolvency Resolution Process
was initiated against Aircel entities, namely Aircel Limited and
Dishnet Wireless Limited. The Adjudicating Authority7, Mumbai
Bench, admitted the petitions against Aircel Limited and Dishnet
Wireless Limited vide the orders dated 12th March 2018 and
19th March 2018.
2.8 Claims on account of the interconnect charges were filed by
Bharti Airtel Limited, including the claim on behalf of Telenor
(India) Communications Private Limited8, in light of Telenor's
merger with Bharti Airtel Limited, effective from 14th May 2018.
Claim was also filed by Bharti Hexacom Limited. The total claim
by the Airtel Entities was Rs.203.46 crores. However, the Airtel
entities also owed Rs.64.11 crores towards interconnect charges
to the Aircel entities.
2.9 The claims submitted by the Airtel entities were admitted by the
Resolution Professional to the extent of Rs.112 crores. Claim on
account of receivable of about Rs.5.85 crores owed by Aircel
entities to Telenor India, which had been merged with Bharti
Airtel Limited, was not accepted.
2.10 By the letter dated 12th January 2019, the 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 Rs.453.73 crores payable by Airtel entities
to Aircel entities, consequent to the discharge and cancellation
6
For short- 'interconnect charges'.
7
Section 5(1) of IBC- "Adjudicating Authority", for the purposes of this Part, means National Company
Law Tribunal constituted under Section 408 of the Companies Act, 2013 (18 of 2013).
8
 For short- 'Telenor India'.
148
[2024] 1 S.C.R.
DIGITAL SUPREME COURT REPORTS
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. The 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.
2.11 The Airtel entities thereupon approached the Adjudicating
Authority in Mumbai, who, vide order dated 1st May 2019 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.
2.12 This order was challenged by the Resolution Professional
before the National Company Law Appellate Tribunal9. The
NCLAT vide order dated 17th May 2019 allowed the appeal,
inter alia, holding that set-off is violative of the basic principles
and protection accorded under any insolvency law. Set-off is
antithetical to the objective of the IBC. Reference was made to
the non-obstante provisions in the form of Section 238 of the
IBC. As moratorium under Section 14(4) applies till the date of
completion of the Corporate Insolvency Resolution Process,
which is till the resolution plan is approved or the liquidation
order is passed, to permit set-off will be contrary to law. Further,
the set-off being claimed is in respect of two separate and
unrelated transactions.
Meaning of set-off and types and principles of set-off.
3.
Set-off in generic sense recognises the right of a debtor to adjust
the smaller claim owed to him against the larger claim payable to
his creditor.10 Philip R. Wood11 calls it a form of payment. Palmer12
notes a distinction between 'set-off' as in accounting, and 'set-off' as
a defence. The former focuses on the practical effect of set-off which
9
For short- 'NCLAT'.
10
Philip R. Wood, Set-off and Netting, Derivatives, Clearing Systems, (Sweet & Maxwell 2007).
11
Ibid.
12
Kelly R. Palmer, The Law of Set Off in Canada (Canada Law Book 1993).
[2024] 1 S.C.R.
149
BHARTI AIRTEL LIMITED AND ANOTHER v.
VIJAYKUMAR V. IYER AND OTHERS
results in discharge of reciprocal obligations, while the latter focuses
on set-off pleaded as a defence to a claim, albeit not as a 'sword'.
4.
Set-off is given legal preference for three reasons. First, in economic
terms, set-off is a form of security recognised in law. It is, however,
not a security in a strict sense, but a right that enhances provision
of credit and acts as a stimulus to trade and commerce by giving a
degree of confidence to parties dealing with each other. Secondly,
it helps reduce litigation, promotes economy of time and is an
efficient method in resolving debt between parties. Thirdly, natural
equity requires that cross-demands should compensate each other
by deducting the lesser sum from the greater.
5.
At least five different meanings can be ascribed to the term 'set-off',
namely, (a) statutory or legal set-off; (b) common law set-off; (c)
equitable set-off; (d) contractual set-off; and (e) insolvency set-off.13
It is observed that the streams of common law and equity on the
right of set-off have flown together and have so combined as to be in
the modern era indistinguishable from one another.14 It is necessary
to briefly explain the contours of contractual set-off, statutory/legal
set-off, equitable set-off and insolvency set-off.
6.
Contractual set-off is a matter of agreement, rather than a separate
application of set-off. The parties are free to mutually agree on the
outcomes they desire. Being consensual, when expressly stated, the
normal rules of set-off regarding mutuality of credits or debts, liquid
debts, and connected debts - aspects relevant and noticed below
while dealing with statutory/legal set-offs or even insolvency set-off
- may not apply. The contract, however, should be within bounds
of legality and public policy.15 Further, the normal requirements
of the law of contracts, viz. intention to create legal relationship,
acceptance, consideration etc. should be established for a valid
contractual set-off.16
7.
Ascertaining the applicability of contractual set-off requires an
assessment of the understanding whether the right is conferred by
13
Jurong Aromatics Corporation Pte Ltd. and Others v. BP Singapore Pte Ltd. and Another, (2018) SGHC
215. (High Court of Republic of Singapore)
14
Federal Commerce and Navigation Co. v. Molena Alpha Inc., (1978) Q.B. 927. (Lord Denning)
15
Palmer, supra note 12, at 263.
16
Palmer, supra note 12, at 263.
150
[2024] 1 S.C.R.
DIGITAL SUPREME COURT REPORTS
the agreement, as the court gives effect to the intention of the parties
as to how they should deal.17 The right to set-off may be explicit in
the words of the agreement, or can be gathered by existence of oral
or implied agreement to set-off, reflecting an understanding to the
said effect. There are earlier judgments in common law countries
that suggest that courts may rely on the equitable foundations of setoff to relax the evidentiary burden required to prove an agreement
to set-off.18 It is suggested that courts accept slighter evidence of
agreement to set-off than is usually required in order to establish
disputed facts,19 but this is too broad a statement. Rather, the courts
should consider that netting of cross dues is both legitimate and
equitable, and in that context make an assessment of the relevant
facts to decide whether or not the set-off rights are conferred.
8.
Statutory or legal set-off is created by a statute. For example,
Order VIII Rule 6 of the Code of Civil Procedure, 190820 states that
where a suit for recovery of money is filed, the defendant can claim
set-off against the plaintiff's demand for any ascertained sum of
money legally recoverable by the defendant from the plaintiff, but
not exceeding the pecuniary limits of the jurisdiction of the court. It
requires that both the parties should fill the same character as they
fill in the plaintiff's suit. The defendant may, at the first hearing of
the suit, and not afterwards, unless permitted by the court, present
the written statement containing particulars of debts sought to be
set-off.21 For set-off in law, the obligations existing between the
17
Ministre du Revenu national c. Caisse Populaire du bon Conseil, 2009 SCC 29 (S.C.C.) (Supreme
Court of Canada)
18
Jeffs v. Wood, [1723] 2 Eq Ca. Ab. 10.
19
 Canadian Encyclopedic Digest, Release 3, "Personal Property" by Gloria Mintah, § 187, CD-ROM
(Thomson Reuters Canada Limited, August 2009); See also Palmer, supra note 12, at 263.
20
 Order VIII Rule 6. Particulars of set-off to be given in written statement.-(1) Where in a suit for
the recovery of money the defendant claims to set-off against the plaintiff's demand any ascertained
sum of money legally recoverable by him from the plaintiff, not exceeding the pecuniary limits of the
jurisdiction of the Court, and both parties fill the same character as they fill in the plaintiff's suit, the
defendant may, at the first hearing of the suit, but not afterwards unless permitted by the Court, present
a written statement containing the particulars of the debt sought to be set-off.
(2) Effect of set-off.-The written statement shall have the same effect as a plaint in a cross-suit so
as to enable the Court to pronounce a final judgment in respect both of the original claim and of the
set-off, but this shall not affect the lien, upon the amount decreed, of any pleader in respect of the costs
payable to him under the decree.
(3) The rules relating to a written statement by a defendant apply to a written statement in answer to a
claim of set-off.
21
For the purpose of the present decision, we need not examine the contours and conditions of Order
VIII Rule 6 CPC.
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two parties must be debts which are for liquidated sums or money
demands which can be ascertained with certainty. Both the debts
must be mutual cross-obligations, that is, cross-claims between the
parties in the same right.22
9.
A few judgments of this Court and the High Courts allow the defendant
to claim equitable set-off in respect of an unascertained sum of
money payable as damages. Equitable set-off can also be claimed
in respect of an ascertained sum of money.23 However, the claim for
an equitable set-off must have a connection between the plaintiff's
claim for the debt and the defendant's claim to set-off, which would
make it inequitable to drive the defendant to a separate suit.24 It
has been accordingly held that the claim for set-off should arise
out of the same transaction, or transactions which can be regarded
as one transaction. Equitable set-off is allowed in common law, as
distinguished from legal set-off, which is allowed by the court only for
an ascertained sum of money and is a statutory right. We shall be
subsequently examining the right to equitable set-off while examining
the provisions of the IBC.
10. Rory Derham on the law of set-offs observes that insolvency setoffs should not be equated with equitable set-offs.25 This statement
reflects the development of law in the United Kingdom, which has
resulted in enactment of special provisions on set-off in case of
insolvency. We need not examine in detail the law as applicable to
insolvency set-off in the United Kingdom for the present decision,
albeit it is relevant to state that they are broader and wider than
the provisions of equitable set-off. Insolvency set-off under the law
of the United Kingdom is permitted when there are mutual debts,
mutual credits and other mutual dealings between the parties at the
relevant cut-off time, which is essentially the stage of commencement
of the liquidation process. We shall subsequently examine the term
"mutual dealings" as applicable to liquidation proceedings in India.
22
Citibank Canada v. Confederation of Life Insurance Company, 42 CRB (3)(d) 288.
23
Ramdhari v. Premanand, 19 Cal WN 1183.
24
Maheswari Metals & Metal Refinery, Bangalore v. Madras State Small Industries Corporation, AIR 1974
Mad 39.
25
Rory Derham, Derham on the Law of Set-Off (Oxford University Press 4
th ed. 2010).
152
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DIGITAL SUPREME COURT REPORTS
Analysis of the provisions of IBC relating to the Corporate
Insolvency Resolution Process, liquidation proceedings and
application to the facts of present case.
11. In the present case we are examining and concerned with the
provisions as applicable to the Corporate Insolvency Resolution
Process in Chapter II Part II of the IBC, which consists of the
compendium of Sections from 6 to 32A of the IBC. In the course of
our discussion, we would also be referring to Section 53 of the IBC,
which is a part of Chapter III Part II, and relates to the liquidation
process.
12. At the outset we should record, that there is a difference between
the Corporate Insolvency Resolution Process and the liquidation
process of the IBC. The Corporate Insolvency Resolution Process
focuses on and fosters rehabilitation, revival and resolution of the
corporate debtor, whereas the liquidation process focuses on the
constellation of assets of the company in liquidation, and distribution
and payment to the creditors from the liquidation estate in terms of
the order of preference set out in the insolvency statute.
13. Unlike the provisions of the Companies Act, 1956 or the Companies
Act, 2013, IBC in the case of Corporate Insolvency Resolution Process
does not give the indebted creditors the right to set-off against the
corporate debtor. The earlier enactments - the Companies Act,
1956 vide Section 529, and the Companies Act, 2013 vide Section
325 (now omitted) - did permit set-off per the Provincial Insolvency
Act, 1920, which enactment is now repealed. Accordingly, under
the Companies Acts, in terms of the provisions of Section 46 of the
Provincial Insolvency Act, 1920, indebted creditors' right to set-off
against the corporate debtor was statutorily recognised subject
to satisfaction of certain conditions. Significantly, in the case of
partnerships and individual bankruptcies, Section 17326 of the IBC
26
 Section 173. Mutual credit and set-off.-(1) Where before the bankruptcy commencement date,
there have been mutual dealings between the bankrupt and any creditor, the bankruptcy trustee shall-
(a) take an account of what is due from each party to the other in respect of the mutual dealings and
the sums due from one party shall be set-off against the sums due from the other; and
(b) only the balance shall be provable as a bankruptcy debt or as the amount payable to the bankruptcy trustee as part of the estate of the bankrupt.
(2) Sums due from the bankrupt to another party shall not be included in the account taken by the
bankruptcy trustee under sub-section (1), if that other party had notice at the time they became due
that an application for bankruptcy relating to the bankrupt was pending.
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BHARTI AIRTEL LIMITED AND ANOTHER v.
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permits set-off. Regulation 29 of the Insolvency and Bankruptcy
Board of India (Liquidation Process) Regulations, 201627 provides
for mutual credits and set-off and reads:
"29. Mutual credits and set-off.- Where there are mutual
dealings between the corporate debtor and another party,
the sums due from one party shall be set off against the
sums due from the other to arrive at the net amount payable
to the corporate debtor or to the other party."
The title of the Liquidation Regulations states that they
shall apply to the process under Chapter III Part II of the
IBC. In other words, the Liquidation Regulations are not
applicable to Chapter II Part II of the IBC, which relates
to the Corporate Insolvency Resolution Process.
14. Section 36(4) in Chapter III Part II of the IBC28 deals with the
exclusion of assets that do not form part of the liquidation estate.
Section 36(4) permits the Insolvency and Bankruptcy Board of India29
to specify assets which could be subject to set-off on account of
mutual dealings between the corporate debtor and the creditor. When
an asset is excluded from the liquidation estate, it is not available
for distribution in the liquidation process. It follows that if a creditor
exercises and is allowed set-off, then in terms of Section 36(4) of
the IBC this creditor is given a preferred status over others, including
the secured creditors, to the extent of the set-off value.
27
 For short- 'the Liquidation Regulations'.
28
 Section 36 (4). The following shall not be included in the liquidation estate assets and shall not
be used for recovery in the liquidation-
(a) assets owned by a third party which are in possession of the corporate debtor, including-
(i) assets held in trust for any third party;
(ii) bailment contracts;
(iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity
fund;
(iv) other contractual arrangements which do not stipulate transfer of title but only use of the assets; and
(v) such other assets as may be notified by the Central Government in consultation with any financial sector
regulator;
(b) assets in security collateral held by financial services providers and are subject to netting and set-off in
multilateral trading or clearing transactions;
(c) personal assets of any shareholder or partner of a corporate debtor as the case may be provided such
assets are not held on account of avoidance transactions that may be avoided under this Chapter;
(d) assets of any Indian or foreign subsidiary of the corporate debtor; or
(e) any other assets as may be specified by the Board, including assets which could be subject to set off on
account of mutual dealings between the corporate debtor and any creditor.
29
For short- 'the Board'.
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15. The Liquidation Regulations have been framed in exercise of powers
conferred on the Board by Sections 5, 33, 34, 35, 37, 38, 39, 40,
41, 43, 45, 49, 50, 51, 52, 54, 196 and 208 read with Section 240 of
the IBC. Notwithstanding the omission in the Liquidation Regulations
to refer to Section 36(4) of the IBC, set-off on account of mutual
dealings is permitted in terms of Regulation 29 of the Liquidation
Regulations. The sums due mutually can be set off to arrive at the
net amount payable to the corporate debtor or the other party. The
exclusion will result in reduction of the liquidation estate and therefore
has consequences as noticed above. In the present case, we are
not concerned with what is to be included and is a part, or not a
part of the liquidation estate.
16. The expression 'mutual dealings' is the condition to be satisfied
for insolvency set-off under Regulation 29. We will examine what
is meant by the expression 'mutual dealings', and how insolvency
set-off is different from contractual, statutory and equitable set-off.
17. Insolvency set-off under the United Kingdom insolvency law was
examined in Re.: Bank of Credit and Commerce International
SA (No. 8) 30, to imply that the set-off must relate to dealings prior
to bankruptcy. It states in explicit terms that the requirement of
mutuality is central to bankruptcy set-off and must be rigorously
enforced. It is held that it is not the function of an insolvency set-off
to confer a benefit to a debtor who has not been a part of mutual
dealings, or to give preference to a creditor who has secondary or
no liability. The insolvency set-off regime in the United Kingdom is
wider than statutory/legal set-off or equitable set-off. However, there
is a requirement that the debt should have been provable in the
insolvency process.
17.1 An earlier decision in Stein v. Blake31 had held that the
bankruptcy set-off applies to all claims from mutual credits or
dealings prior to bankruptcy, including claims, which at the
time of bankruptcy were due but not payable, unascertained
or contingent. This is supplemented by the United Kingdom
insolvency set-off regime permitting the estimation of liabilities
and calculation of trends. The parties are not required at any
30
[1996] Ch. 245. (Appeal Committee of the House of Lords)
31
[1996] A.C. 243. (House of Lords)
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BHARTI AIRTEL LIMITED AND ANOTHER v.
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particular time to meet and calculate the extent of each other's
liabilities. Further, the account is a deemed account by which
the claim and counterclaim are automatically reduced to a net
balance. The original choses in action, that is, the claim and
the counterclaim, are in effect replaced by a claim to a net
balance. We must also note that the provisions of Section 323
of the Insolvency Act, 1986, as applicable in the United Kingdom
uses the expressions "mutual credits, mutual debts, or other
mutual dealings between the bankrupt and any creditor of the
bankrupt, proving or claiming to prove for a bankruptcy debt."
Further, Rule 2.85 of the Insolvency Rules, 1986, applicable to
the administration, which is similar to the Corporate Insolvency
Resolution Process, states that at the time of distribution,
only the balance (if any) of the account held by the creditor
is provable in the administration. Alternatively, the balance (if
any) owed to the company is payable to the administrator as
a part of the assets, subject to the exceptions as provided.
17.2 There are also decisions as in the case of National Westminster
Bank Ltd. v. Halesowen Presswork & Assemblies Ltd.32,
which highlight the mandatory nature of insolvency set-off in the
United Kingdom. The Insolvency Rules, 1986 imply that the right
to set-off co-exists with the moratorium during administration,
because of the time at which the dues owed to each party are
calculated.33 The set-off does not occur automatically once
the company enters into the administration process. It applies
once the intention to distribute the assets is announced by
the administrator. Also, the doctrine of set-off does not apply
in case of company voluntary arrangement under Part I of
the Insolvency Act, 1986. Rory Derham observes that the
insolvency set-off section not being expressly applicable to a
company voluntary arrangement, any set-off, in the absence
of contractual right of set-off, does not apply. He observes that
the right to set-off in the absence of contractual right to set-off
depends on the statute of set-off and equitable set-off. Further, a
claim against the corporate debtor incurred after initiation of the
administration cannot be set-off against the debtor's cross-claim
32
1972 AC 785.
33
Derham, supra note 25, ¶6.124.
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DIGITAL SUPREME COURT REPORTS
for lack of mutuality. A claim against the debtor after initiation
of administration is not against the corporate debtor itself.
18. The High Court of Australia in Gye v. McIntyre34 states that the
word 'mutual' conveys the notion of reciprocity rather than that of
correspondence. Mutuality means that the demands must be between
the same parties and they must be held in the same capacity, or
right or interest. Mutuality is concerned with the status of the parties
and their relationship with each other, and not with the nature of the
claims themselves. There must be identity between the persons
beneficially interested in the claims and the person against whom the
claim existed. Therefore, an obligation arising out of an instrument
may be set-off against a simple contract debt, and a secured debt
may be set-off against an unsecured creditor. The court, however,
expressed that the requirement of same parties means that A's
right to sue B cannot be set-off against A's debt to C or that a joint
demand cannot be set-off against a separate demand.
19. The Court of Appeal of Republic of Singapore in BP Singapore Pte
Ltd v. Jurong Aromatics Corp Pte Ltd and Others35 observes
that the requirement of mutuality will fail in respect of prior claims
against the debtor company, where the receiver (read - Resolution
Professional) carries on business of the debtor company under a
specific agreement to which the creditor and the corporate debtor
are also parties.
20. The Court of Appeal of Republic of Singapore in BP Singapore
Pte Ltd. (supra) had also examined whether the claim of set-off in
the said case was available under the head 'equitable set-off'.