BHARTI AIRTEL LIMITED AND ANOTHER VERSUS VIJAYKUMAR V. IYER AND OTHERS
CIVIL APPEAL NOS. 3088-3089 OF 2020
Facts:
1.In April 2016, Bharti Airtel Limited and Bharti Hexacom Limited entered into eight spectrum trading agreements with Aircel Limited and Dishnet Wireless Limited 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.
2.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 approached the Telecom Disputes Settlement and Appellate Tribunal. 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.
3.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. 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.
4.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. Supreme 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. 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.
5.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 charges to the Airtel entities.
6.Corporate Insolvency Resolution Process was initiated against Aircel entities, namely Aircel Limited and Dishnet Wireless Limited. Claims on account of the interconnect charges were filed by Bharti Airtel Limited, including the claim on behalf of Telenor (India) Communications Private Limited in light of Telenor’s merger with Bharti Airtel Limited, effective from 14th May 2018. Claim was also filed by Bharti Hexacom Limited. 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.
7.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 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
8.An application was filed by Airtel for setting off the claim which was allowed by the NCLT Mumbai. Appeal against the order of NCLT was filed by the RP which was allowed by the NCLAT and held that set-off is violative of the basic principles and protection accorded under any insolvency law.
Issue: Whether the appellant is having 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, 2016 to take custody and control of all the assets of the corporate debtor.?
Decision: Supreme court dismissed the appeal.
Rationale:
1.It noted that 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. It further noted that Section 36(4) in Chapter III Part II of the IBC 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 India to specify assets which could be subject to set-off on account of mutual dealings between the corporate debtor and the creditor
2.It held that The expression ‘mutual dealings’ is the condition to be satisfied for insolvency set-off under Regulation 29. It held that 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.
3.It noted that 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 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.
4.It held that 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.
5.It held that 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 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.
6.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.
7.It held that 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.
Order Copy:
