IMPORTANT POINTS
(1) Set-off – Claim for an equitable set-off must have a connection between plaintiff’s claim for debt and defendant’s claim to set-off, which would make it inequitable to drive defendant to a separate suit.
(2) Set-off of dues payable by Corporate Debtor for a period prior to commencement of Corporate Insolvency Resolution Process cannot be made and is not permitted in law from dues payable to Corporate Debtor post commencement of Corporate Insolvency Resolution Process.

JUDGMENT :

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[For short, ‘IBC’.] 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[For short-‘The appellants’ or ‘Airtel entities’.] entered into eight spectrum trading agreements with Aircel Limited and Dishnet Wireless Limited³[For short-‘Aircel entities’.] 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[For short-‘DoT’.], 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 approached the Telecom Disputes Settlement and Appellate Tribunal⁵[For short-‘the TDSAT’.]. 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.

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[For short-‘interconnect charges’.] 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[Section 5(1) of IBC– “Adjudicating Authority”, for the purposes of this Part, means National Com