Holding

The IBC, by virtue of sections 238 and 243, bars statutory and insolvency set‑off in the CIRP, and Regulation 29 does not apply; only pre‑existing contractual set‑off and limited equitable set‑off are permissible.

Summary

Bharti Airtel Ltd. and Bharti Hexacom Ltd. entered into spectrum trading agreements with Aircel Ltd. and Dishnet Wireless Ltd., which later led to disputes over bank guarantees and payments. When Aircel entered the Corporate Insolvency Resolution Process (CIRP), Airtel claimed a right to set‑off Rs. 112.87 crore against amounts it owed Aircel, invoking statutory and insolvency set‑off provisions. The National Company Law Appellate Tribunal rejected this claim, and the Supreme Court examined whether the Insolvency and Bankruptcy Code (IBC) permits statutory, insolvency, or regulatory set‑off during the CIRP. The Court held that the IBC is a complete code; sections 238 and 243 preclude statutory or insolvency set‑off in the CIRP, and Regulation 29 of the Liquidation Regulations does not apply to Chapter II Part II. Only contractual set‑off (if existing before the CIRP) and limited equitable (transactional) set‑off are permissible. Consequently, the appeals were dismissed.

Issues considered

The applicability of statutory or insolvency set‑off under the IBC during the Corporate Insolvency Resolution Process.
Whether Regulation 29 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 applies to the CIRP.
The extent to which contractual or equitable set‑off can be allowed during the moratorium period of the CIRP.

Legislation cited

Code of Civil Procedure, 1908s. Order VIII Rule 6
Companies Act, 2013s. 326
Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016s. Regulation 29
Insolvency and Bankruptcy Code, 2016s. 14, s. 25, s. 3, s. 30, s. 30(2)(b)(ii), s. 36(4), s. 38, s. 53, s. 60(5)

Subjects

InsolvencyCorporate Insolvency Resolution ProcessSet-offStatutory or legal set-offCommon law set-offEquitable set-offContractual set-offInsolvency set-offMutual dealings

Judgment

[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 sub-
section (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,
* Author
[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 Telecommunications 4, 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 set-
off 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.
[2024] 1 S.C.R. 151

BHARTI AIRTEL LIMITED AND ANOTHER v.
VIJAYKUMAR V. IYER AND OTHERS

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 set-
offs 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 4th ed. 2010).
152 [2024] 1 S.C.R.

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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 bank-
ruptcy 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.
[2024] 1 S.C.R. 153

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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 IBC 28 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’.
154 [2024] 1 S.C.R.

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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. Blake 31 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)
[2024] 1 S.C.R. 155

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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.
156 [2024] 1 S.C.R.

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’. The
court observed that it is not necessary that the claim and cross-claim
should arise on the same contract, albeit it should be a close and
inseparable relationship or connection between the dealings and
the transactions which give rise to the respective claims, such that it
would offend one’s sense of fairness or justice to allow one’s claim to
be enforced without regard to the other. The law relating to equitable
set-off in India is explained in paragraph 9 supra. Claim for equitable
set-off should arise out of the same transaction, or transactions that
can be regarded as one transaction. There should be a connection

34 (1991) 171 CLR 609.
35 (2020) SGCA 09.
[2024] 1 S.C.R. 157

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between the plaintiff’s claim for the debt and the defendant’s claim
for set-off, which would make it inequitable to drive the defendant
to a separate suit.
21. On the question of mutual dealings, Airtel entities have referred to
the judgment of the High Court of Kerala in Gokul Chit Funds and
Trades Private Ltd. v. Thoundasseri Kochu Ouseph Vareed and
Others36, which we believe allows set-off in terms of the Kerala
Insolvency Act, 1955. In the context of mutual dealings, it observes
that mutuality can exist when there are even several distinct and
independent transactions, albeit between the same parties functioning
in the same right or capacity. It is not necessary that the same should
arise out of a single transaction. When the transactions between
the parties, which are connected, give rise to reciprocal claims and
demands on account of the parties acting on the same right or
capacity, principle of mutuality will be satisfied. Thus, the contention
that each kuri is a distinct and separate transaction was not accepted
so as to defeat the mandatory right to set-off observing that rights
and liabilities arising out of the different chit fund transactions should
be allowed to be adjusted against each other.
22. In light of the aforesaid discussion, 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 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.
23. The relationship and the nature of identity of the Corporate Debtor
undergo a change on the commencement of the Corporate Insolvency
Resolution Process. Set-off of the dues payable by the Corporate

36 AIR 1977 Ker 68.
158 [2024] 1 S.C.R.

DIGITAL SUPREME COURT REPORTS

Debtor for a period prior to the commencement of the Corporate
Insolvency Resolution Process cannot be made and is not permitted
in law from the dues payable to the Corporate Debtor post the
commencement of the Corporate Insolvency Resolution Process.37
Further, a debtor cannot, after notice of assignment of his debt by
the creditor, improve his position as regards set-off by acquiring
debts incurred by the assignor creditor which are payable to a third
party. This will not meet the mandate of mutual dealing. This will be
contrary to equity and would amount to misuse of the provision for
insolvency set-off.38 One must also be on guard against misuse of
insolvency set-off in case of voluntary winding up.
24. Insolvency set-off as a proposition mitigates against the doctrine of
pari passu. Insolvency set-off gives primacy and an overriding effect
to the creditor who is entitled to set-off mutual credits. When cross
demands are set-off, the assets available for distribution amongst
the general body of creditors, would be depleted in favour of a
single creditor with a set-off entitlement. This consequently results in
reduction of the dividend payable. In other words, it puts and grants
priority to the creditor, even an operational creditor, to the extent of
the set-off. Some jurists have doubted the efficacy of the justification
that right to set-off acts as a stimulus to trade and commerce on the
ground that rarely any party would treat the possibility of set-off as
a form of security. The principle of pari passu though not explicitly
mentioned in the IBC, is apparent as the edifice of Section 53 read
with Section 52 of the IBC, as these provisions create a liquidation
hierarchy with the stipulation that each class of creditors shall rank
equally among each other. The same class of creditors should be
given equal treatment. As set-offs can mitigate against the pari
passu principle, they should be allowed when mandated, or can be
justified by law.
25. Apart from the pari passu principle which refers to treating creditors of
the same class in the same manner, the United Kingdom insolvency

37 The position may be different where the dues are payable by the debtor to the Corporate Debtor, in
which case the liquidator may seek adjustment as a form of payment by the debtor. The reason is that
the liquidator is under a statutory obligation to recover the dues from the debtor. Adjustment in such
cases is statutory or legal set-off under the IBC/Companies Act. Insolvency set-off in Regulation 29 will
not apply for want of mutuality.
38 This will not satisfy the requirements of legal/statutory set-off and equitable set-off under the Code of
Civil Procedure, 1908.
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law also relies on the common law principle of anti-deprivation. The
principle encapsulates that a person cannot contract to obtain a
more beneficial position in the event of bankruptcy, than what the
law otherwise provides. A contract which states that a man’s property
shall remain his until his bankruptcy, and in that event shall go to
someone else, is not a valid contract. Both, the pari passu principle
and the anti-deprivation principle sprout from the common ground
that parties cannot contract out of an insolvency legislation. Their
distinction lies in their impacts. The pari passu principle is aimed at
ensuring that all creditors get their proportional dues by preventing
any one creditor from getting more than their deserved share.39 The
anti-deprivation principle on the other hand aims at conservation of
the insolvent estate for the benefit of the creditors.40
26. Having examined the different concepts of set-off including insolvency
set-off, we would now like to examine the contentions raised by the
parties with reference to the provisions of the Corporate Insolvency
Resolution Process under the IBC.
27. The IBC is an Act to consolidate and amend the laws relating to
reorganisation and insolvency resolution of corporate persons,
partnership firms and individuals in a time bound manner for
maximisation of value of assets of such persons, to promote
entrepreneurship, availability of credit and balance the interest
of stakeholders, etc. The IBC codifies the law of insolvency and
bankruptcy. The IBC is a complete code in itself, except where it
refers and permits application of the provisions of other enactments,
as has been consistently held by this Court in Indian Overseas
Bank v. RCM Infrastructure Ltd. and Another41, Innoventive
Industries Limited v. ICICI Bank and Another42, Embassy Property
Developments Private Limited. v. State of Karnataka and Others43,
and V. Nagarajan v. SKS Ispat and Power Limited and Others44.

39 Belmont Park Investments v. BNY Corporate Trustee Services Ltd. [2012] 1 AC 383.
40 In the present decision, we are not examining the extent of, and the manner in which the anti-depriva-
tion principle is applicable in India.
41 (2022) 8 SCC 516.
42 (2018) 1 SCC 407.
43 (2020) 13 SCC 308.
44 (2022) 2 SCC 244.
160 [2024] 1 S.C.R.

DIGITAL SUPREME COURT REPORTS

28. Section 23845 of the IBC states that the provisions of the Code would
override other laws. The provisions of this Code shall have effect,
notwithstanding anything inconsistent therewith contained in any
other law for the time being in force.
29. Section 243 deals with the repeal of certain enactments and also
incorporates the savings clause. Sub-section (1) states that Provincial
Insolvency Act, 1920 is hereby repealed. Sub-section (2) does not
apply in the present case. Provincial Insolvency Act, 1920 did not
apply to the Corporate Insolvency Resolution Process stage.
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.

45 Section 238. Provisions of this Code to override other laws.—The provisions of this Code shall
have effect, notwithstanding anything inconsistent therewith contained in any other law for the time
being in force or any instrument having effect by virtue of any such law.
[2024] 1 S.C.R. 161

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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.
34. Thus, while accepting contractual and transactional set-off on the
conditions specified, we have struck a balance with the doctrines
of pari passu and anti-deprivation, which we believe is just and
fair. Insolvency set-off in terms of Regulation 29 of the Liquidation
Regulations is statutory.

46 See Derham, supra note 25 and Gerard McCormack, Set-off under the European Insolvency Regula-
tion (and English Law), 29 IIR 100, 100-117 (2020).
162 [2024] 1 S.C.R.

DIGITAL SUPREME COURT REPORTS

35. In the context of the present case, the aforesaid legal position
takes care of the argument raised on behalf of the appellant Airtel
entities that the Resolution Professional had allowed set-off of about
Rs. 64 crores which was due and payable by the corporate debtor
Aircel entities under the operational services agreement, the SMSs
services agreement, and the interconnect usage agreements prior
to commencement of the Corporate Insolvency Resolution Process
from the dues payable by the corporate debtor (Aircel entities) to
the Airtel entities. The contractual set-off had occurred prior to the
commencement date. This aspect has been further elucidated in
paragraph 50 below.
36. The decision of the House of Lords in British Eagle International
Airlines Ltd v. Compagnie Nationale Air France47 demonstrates
the interaction between the contractual set-off mechanism and the
set-off rules as applicable to insolvency in the United Kingdom. In this
case, the company under liquidation was a member of International
Airport Transport Association which had a clearing house system
for ticket sales by member airlines. All payments were channelised
through the clearing house and at the end of the accounting period,
all debits and credits due to transactions were totalled to arrive at a
figure for a net debit or credit. In the said case, British Eagle went
into liquidation and were net debtors to the clearing house. They had
a claim against Air France. The House of Lords held that Air France
was bound to pay the liquidator the money owed to British Eagles.48
The majority judgment also observed that the clearing house medium
was possibly analogous to that of secured creditors, albeit without
creation and registration of security interests. Therefore, preference
to the clearing house agent would be contrary to public policy. 49
37. Our finding that the IBC is a complete code relying upon the opening
part of the enactment and Sections 238 and 243 takes care and
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

47 1975 1 WLR 758.
48 McCormack, supra note 46.
49 The contractual and consequently the legal position has undergone a change as the IATA clearing
house rules have since been amended. Therefore, this judgment should be read and understood with
caution.
[2024] 1 S.C.R. 163

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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. In support
of our conclusion, we would like to refer to the statutory provisions,
and meet the arguments to the contrary raised by the appellants.
38. This brings us to the argument raised by the Airtel entities who have
placed reliance on Section 30(2)(b)(ii) and Section 53 of the IBC.
The relevant provisions of the said Sections read as under:
“30. Submission of resolution plan. –

xx xx xx
(2) The resolution professional shall examine each
resolution plan received by him to confirm that each
resolution plan-
(b) provides for the payment of debts of operational
creditors in such manner as may be specified by the Board
which shall not be less than—

xx xx xx
(ii) the amount that would have been paid to such creditors,
if the amount to be distributed under the resolution plan
had been distributed in accordance with the order of priority
in sub-section (1) of Section 53,

xx xx xx
53. Distribution of assets.— (1) Notwithstanding anything
to the contrary contained in any law enacted by the
Parliament or any State Legislature for the time being
in force, the proceeds from the sale of the liquidation
assets shall be distributed in the following order of priority
and within such period and in such manner as may be
specified, namely—
(a) the insolvency resolution process costs and the
liquidation costs paid in full;
(b) the following debts which shall rank equally between
and among the following—
164 [2024] 1 S.C.R.

DIGITAL SUPREME COURT REPORTS

(i) workmen’s dues for the period of twenty-four
months preceding the liquidation commencement
date; and
(ii) debts owed to a secured creditor in the event
such secured creditor has relinquished security
in the manner set out in Section 52;
(c) wages and any unpaid dues owed to employees
other than workmen for the period of twelve months
preceding the liquidation commencement date;
(d) financial debts owed to unsecured creditors;
(e) the following dues shall rank equally between and
among the following:—
(i) any amount due to the Central Government and
the State Government including the amount to
be received on account of the Consolidated
Fund of India and the Consolidated Fund of
a State, if any, in respect of the whole or any
part of the period of two years preceding the
liquidation commencement date;
(ii) debts owed to a secured creditor for any amount
unpaid following the enforcement of security
interest;
(f) any remaining debts and dues;
(g) preference shareholders, if any; and
(h) equity shareholders or partners, as the case may be.
(2) Any contractual arrangements between recipients under
sub-section (1) with equal ranking, if disrupting the order
of priority under that sub-section shall be disregarded by
the liquidator.
(3) The fees payable to the liquidator shall be deducted
proportionately from the proceeds payable to each class of
recipients under sub-section (1), and the proceeds to the
relevant recipient shall be distributed after such deduction.
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Explanation.—For the purpose of this section—
(i) it is hereby clarified that at each stage of the
distribution of proceeds in respect of a class of
recipients that rank equally, each of the debts will
either be paid in full, or will be paid in equal proportion
within the same class of recipients, if the proceeds
are insufficient to meet the debts in full; and
(ii) the term “workmen’s dues” shall have the same
meaning as assigned to it in Section 326 of the
Companies Act, 2013 (18 of 2013).”
39. The Airtel entities have contested the conclusion by urging that Section
30 of the IBC seeks to ensure that the assets and liabilities of the
corporate debtor, as recorded in the resolution plan, correspond to the
liquidation estate of the corporate debtor in the event of liquidation.
The provision is to ensure smooth transition between reorganisation
under the Corporate Insolvency Resolution Process and the liquidation
process. In case a contrary view is taken, anomalies will arise. In the
event the corporate debtor undergoes liquidation, Section 36(4)(e) and
Regulation 29 would apply. However, if the Resolution Professional
proceeds in terms of Section 25 and secures the assets from the
creditors, the creditors would not be entitled to claim set-off during
the course of the Corporate Insolvency Resolution Process, which
is earlier in the point of time.
40. The arguments are fallacious and should not be accepted. Sub-
section (2)(b)(ii) to Section 30 does not support the contention
of the Airtel entities. Sub-section (2) to Section 30 deals with the
resolution plan and the quantum of payment required to be made
when considering a resolution plan under Chapter II Part II of the
IBC. The provision requires that the Resolution Professional shall
examine each resolution plan received by him to confirm that each
plan provides for payment of debts of the operational creditor in
the manner as may be specified by the Board. The Board has not
specified the manner in which payment of debts to the operational
creditor shall be made. However, the stipulation that the payment of
debts to the operational creditor shall not be less than the amount
that the operational creditors are entitled to in terms of the order
of priority in sub-section (1) to Section 53 of the IBC is mandatory.
166 [2024] 1 S.C.R.

DIGITAL SUPREME COURT REPORTS

41. There are several reasons why in our opinion clause (ii) to sub-
section (2)(b) of Section 30 does not support the plea of insolvency
set-off. The section does not make Chapter III Part II, that is, Section
36(4)(e) or Regulation 29, applicable to the Corporate Insolvency
Resolution Process under Chapter II Part II of the IBC. Secondly,
clause (ii) to Section 30(2)(b) deals with the amounts to be paid to
the creditors and not the amount payable by the creditors to the
corporate debtor. Thirdly, clause (ii) to Section 30(2)(b) has appliance
when the resolution plan is being considered for approval. Fourthly,
and for the reasons elaborated earlier, and in view of the specific
legislative mandate as incorporated and reflected in Chapter II Part
II of the IBC, we should hold that the provisions of the IBC relating
to Corporate Insolvency Resolution Process do not recognise the
principle of insolvency set-off. We would not extend it by implication,
when the legislature has not accepted applicability of mutual set-
off at the initial stage, that is, the Corporate Insolvency Resolution
Process stage.
42. The judgment of this Court in Ebix Singapore Private Limited
v. Committee of Creditors of Educomp Solutions Limited and
Another.50, that one of the objects of the IBC is to provide for a
comprehensive and a time-bound framework with smooth transition
in between organisation and liquidation, has no application and
relevance to the context and issue in question. The observations
were made in the context of the time bound framework specified in
the IBC and the need to adhere to the timelines. Reorganisation or
resolution process should not get prolonged or continued indefinitely.
43. Similarly, the decision in Swiss Ribbons Private Limited and
Another v. Union of India and Others51, which refers to a claim for
set-off being considered by the Resolution Professional during the
resolution process, is an obiter dicta and not a ratio decidendi to the
issue in question. The judgment states that a set-off between the
corporate debtor and a financial creditor is a rarity. It also observes
that it is not the case that legitimate set-offs may not be considered
at all, and that they can be considered at the stage of filing proof

50 (2022) 2 SCC 401.
51 (2019) 4 SCC 17.
[2024] 1 S.C.R. 167

BHARTI AIRTEL LIMITED AND ANOTHER v.
VIJAYKUMAR V. IYER AND OTHERS

of claims. These observations were made to differentiate between
financial and operational creditors, and how the process of filing
an application for initiating the resolution process is distinct viz. the
financial creditors and operational creditors under the IBC. Whether
the set-off should be considered at the stage of filing of proof of
claims during the resolution process was not an issue before the
court in Swiss Ribbons (supra). These observations are not ratio
decidendi when we apply the inversion test and other tests for the
issue in question.52
44. The judgment of this Court in The Official Liquidator of High Court
of Karnataka v. Smt. V. Lakshmikutty53 had applied Section 46 of
the Provincial Insolvency Act, 1920 and had accordingly permitted
insolvency set-off on interpretation and application of Sections 529
and 530 of the Companies Act, 1956. In that context, it is observed
that the English courts, on interpretation of corresponding provisions
of the English Companies Act, had taken a similar view. In the present
matter, we are dealing with the provisions of the IBC. Secondly, the
corporate debtor is not an insolvent company undergoing liquidation
process, but is undergoing the Corporate Insolvency Resolution
Process.
45. Similarly, the reliance placed by Airtel entities on Section 60(5)54 of
the IBC, which confers jurisdiction on the Adjudicatory Authority to
entertain and dispose of any application or proceeding by or against
a corporate debtor, including claims against any of the subsidiaries
or any question of priority or question of law and facts, arising out
of or in relation to insolvency resolution or liquidation proceeds of
the corporate debtor, does not come to the aid of the Airtel entities.
These are enabling provisions which entitle the Adjudicating Authority

52 Career Institute Educational Society v. Om Shree Thakurji Educational Society, 2023 SCC OnLine SC
586.
53 (1981) 3 SCC 32.
54 Section 60 Adjudicating authority for corporate persons.—
(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the
National Company Law Tribunal shall have jurisdiction to entertain or dispose of—
(a) any application or proceeding by or against the corporate debtor or corporate person;
(b) any claim made by or against the corporate debtor or corporate person, including claims by or against
any of its subsidiaries situated in India; and
(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency reso-
lution or liquidation proceedings of the corporate debtor or corporate person under this Code.
168 [2024] 1 S.C.R.

DIGITAL SUPREME COURT REPORTS

to go into several aspects to aid and assist the Corporate Insolvency
Resolution Process. They cannot be read as allowing a creditor/debtor
to claim set-off in the Corporate Insolvency Resolution Process.
46. Relying upon several decisions under the United Kingdom Insolvency
Act and Rules, it has been argued that insolvency set-off is self-
executing. Reliance is placed on Innoventive Industries Ltd. (supra),
wherein it is observed that the English Insolvency Act has served as
a model for the IBC. We do not agree that insolvency set-off under
the IBC is automatic and self-executing. We do not find any provision
in the IBC which states so. In the context of the IBC, insolvency
set-off is neither automatic, nor self-executing.
47. Airtel entities have also argued that the definitions of ‘claim’ and
‘debt’ in sub-sections (6) and (11) of Section 3 of the IBC buttress
the argument that set-off under the IBC is self-executing.55 The
argument is self-serving and evasive because neither clause uses
the expression ‘set-off’, nor is it implied. We would not extend on
and remodel the definitions on the basis of predisposed and self-
serving suppositions.
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.
49. Reference is also made to the UNCITRAL Legislative Guide on
Insolvency Law56 which states that right to set-off is essential to avoid
misuse of insolvency proceedings by a corporate debtor. The said guide
states that insolvency law of set-off of mutual obligations arising out
of pre-commencement transactions or activities of the debtor leads to
commercial predictability and availability of credit. It checks strategic
misuse of the insolvency proceedings. In the context of Chapter II
Part II of the IBC, we are not concerned with the liquidation estate or

55 Section 3 Definitions. —
(6) “claim” means—(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed,
undisputed, legal, equitable, secured or unsecured;
(b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise
to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured,
disputed, undisputed, secured or unsecured.
(11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a
financial debt and operational debt.
56 UNCITRAL Legislative Guide on Insolvency Law, Chapter G. p.155-156 (2005).
[2024] 1 S.C.R. 169

BHARTI AIRTEL LIMITED AND ANOTHER v.
VIJAYKUMAR V. IYER AND OTHERS

the liquidation process. At this stage, we are examining the question
of rehabilitation and revival of the corporate debtor. The focus and
objective is entirely different. Therefore, in our opinion, the said guide
is of no avail or instructive to us. Further, the provisions relating to
Chapter II Part II being explicit and not ambiguous, do not require
purposive interpretation. We should, however, take on record that the
UNCITRAL guide does distinguish between the set-off obligations
maturing prior to the commencement of the insolvency proceedings
and set-off obligations after the commencement of the insolvency
proceedings.57 Only the former should be permitted in insolvency
proceedings, while the latter should be disallowed or allowed to a
limited extent.
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.

57 Ibid.
170 [2024] 1 S.C.R.

DIGITAL SUPREME COURT REPORTS

Conclusion
51. Having considered the contentions raised by the appellant Airtel
entities in detail, and in light of the provisions of the IBC relating to
the Corporate Insolvency Resolution Process, we do not find any
merit in the present appeals and the same are dismissed. There will
be no order as to costs.

Headnotes prepared by: Ankit Gyan Result of the case: Appeals dismissed.