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2025 Supreme(Online)(NCLT) 274
NATIONAL COMPANY LAW TRIBUNAL
Sri Rajeev Bhardwaj, Sri Sanjay Puri, JJ
THE SUPERINTENDING ENGINEER – Appellant
Versus
Mr Shivarama Prasad Bhamidi – Respondent
IA(I.B.C) - 2465/2024
For the Petitioner:V RAGHUNATH
For the Respondent:Srikanth Godavarthi
Set-off of claims is not permissible during Corporate Insolvency Resolution Process but is allowed during liquidation under Regulation 29 of the IBC, recognizing subsidiaries as separate legal entities.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Regulation 29 - Corporate Debtor - Set-off of claims during liquidation - The court addressed whether the Southern Power Distribution Company can set off its dues from a subsidiary of the Corporate Debtor. The court clarified that while set-off is not permissible during Corporate Insolvency Resolution Process (CIRP), it is allowed during liquidation under Regulation 29. The court emphasized that a subsidiary is treated as a separate legal entity, thus preventing the set-off of its dues against the holding company's remaining amounts. (Paras 13-16)
(B) Legal principles - The court reaffirmed that mutual credits and set-offs are recognized during liquidation but not during CIRP, as per the IBC provisions. (Paras 13-14)
Facts of the case:
The APSPDCL sought to set off its claim against M/s.Parikh Socks & Accessories Private Limited, a subsidiary of M/s.Parikh Fabrics Private Limited, during the liquidation process of the latter. The APSPDCL had previously executed agreements for electricity supply, which led to disputes over unpaid dues.
Findings of Court:
The court directed APSPDCL to pay Rs.5,51,522/- to the Corporate Debtor and modified the attachment of its bank account to reflect this amount only.
Issues: The main issues were whether APSPDCL could set off its dues against the subsidiary and the treatment of subsidiaries under the IBC.
Ratio Decidendi: The court ruled that set-off is not permissible against a subsidiary's dues during liquidation, as they are separate legal entities under the IBC.
Result: IA(IBC) No.2309 of 2024 and IA(IBC) No.2465 of 2024 disposed of with directions.
ORDER
1. The issue involved in the IA Nos. IA No.2309 of 2024 and IA(IBC) No.2465 of 2024 is whether the Superintendent Engineer (Operational), Southern Power Distribution Company of AP (APSPDCL) can set off its claim for its dues from M/s.Parikh Socks & Accessories Private Limited (PSAPL) which is claimed to be a subsidiary of M/s.Parikh Fabrics Private Limited (PEPL/Corporate Debtor/CD).
2. The PEPL was put in Corporate Insolvency Resolution Process (CIRP) in CP No.12/10/HDB/2019 vide order dated 8th December, 2019 and then the liquidation order was passed on 21st January, 2020.
3. Before the CIRP, the APSPDCL and the PFPL executed agreements dated 13.4.2010 and 25.07.2011 for the supply of electricity to PFPL under HTSC No. 439. When the electricity charges were not paid, the power supply was disconnected on 13th January, 2020.
4. The APSPDCL has also executed separate power supply agreement with PSAPL. For non-payment of the dues, this agreement was terminated on 20.11.2013 and on that date, the arrears was Rs.1,06,52,829/- under HTSC No.459. Accordingly, notice dated 12.02.2016 (Annexure 5 of IA 2309 was also issued to PSAPL. Another notice dated 16.02.2016 (Annexure 6 of IA 2309) was sent to PSAPL.
5. For the payment of arrears of electrical charges of the PFPL, the APSPDCL after adjusting CC charges against the security amount, informed the PFPL vide letter dated 28.07.2020 that remaining amount of Rs.5,51,522 is available.
6. The PFPL then approached this Authority by filing an IA No.643 of 2021 for refund of the entire security amount of Rs.32,24,100/- as part of the liquidation estate and vide order dated 31.01.2023 (Annexure 1 of IA 2309), the APSPDCL was directed to refund the security amount of Rs.32,24,100/-. Against the said order, the APSPDCL filed Company Appeal 104 of 2023 and vide order dated 02.08.2023 (Annexure 2 of IA 2309) the said Appeal was dismissed. This order was further challenged by the PFPL by filing a Civil Appeal No.4179 of 2024 before the Hon’ble Supreme Court.
7. When the Civil Appeal No.4179 was pending before the Hon’ble Supreme Court, the APSPDCL filed an IA No.1715 of 2023 for execution of the order passed in IA No.643 of 2021 and accordingly the Branch Manager, SBI, Tirupati was directed to attach the bank account No.38095680685 of the APSPDCL to the extent of R.32,24,100/-.
8. Meanwhile, Civil Appeal No.4179 of 2024 was disposed of vide order dated 29.07.2024 (Annexure 4 of IA 2309) with the direction that the APSPDCL will be entitled to contractual and insolvency set off in view of the judgement in Bharti Airtel Limited & Anr vs Vijay Kumar vs Iyer & Ors (2024)1 SCR 140.
9. As per the decision of the Hon’ble Supreme Court in Civil Appeal No.2179 of 2024, the PFPL/CD after setting off the claim of APSPDCL has raised a demand for refund of Rs.5,51,512/- on 27.09.2024 and when the latter did not respond, IA No.2309 has been filed by the CD seeking necessary directions in this regard.
10. The APSPDCL has also filed an IA No.2464 for lifting the attachment of the bank account No.38095680685 to an extent of Rs.32,24,100/- vide order dated 11.07.2024 in IA No.1715 of 2023.
11. The stand of the APSPDCL is that according to the judgement of the Hon’ble in Bharti Airtel (supra), the entire security deposit of Rs.32,24,100/- is to be set off against the electricity bills of the PFPL and PSAPL because the PSAPL is the subsidiary of the PFPL. Further, management of the PFPL and PSAPL are the same and the agreements of both the companies were also executed by the same authorised representative.
12. We have heard the learned counsels for both the parties and have gone through the entire records.
13. Setting off claims is not permissible under the CIRP. However, it is allowed during liquidation under Regulation 29 of the IBBI (Liquidation Process)
Regulations, 2016, which states:
Regulation 29: Mutual credits and set-off.
“Where there are mutual dealings between the corporate debtor and another party, the sums due fr
