Set-Off Of Transactions Executed Prior To Commencement Of CIRP Based On Arbitral Award Is Permissible During CIRP: NCLT New Delhi

The National Company Law Tribunal (NCLT), New Delhi Bench of Shri Bachu Venkat Balaram Das (Hon'ble Member Judicial) and Shri Atul Chaturvedi (Hon'ble Member Technical) has held that a set off of transactions based on arbitral award entered into prior to the commencement of the Corporate Insolvency Resolution Process (CIRP) is permissible even during the currency of the CIRP, and such set-offs are not barred by Section 14 of the IBC. The present application has been filed under section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC) seeking reversal of an illegal set off allowed by the Respondent and initiation of disciplinary proceedings by IBBI against the Respondent for acting against the IBC at the behest of a shareholder of the Corporate Debtor. The Applicant submitted that the Respondent reduced the receivable balance from Ansal Landmark (Karnal) Township Private Limited ("ALKTPL") by Rs. 34,54,53,125/- on the basis of the letter received from ALKTPL, bypassing the provision of the Code without verifying the existence and authenticity of the Arbitration Award. When a moratorium is in force, any dues owed to the Corporate Debtor cannot be set off and directed reversal of the transaction. Per contra, the Respondent submitted that vide letter dated 18.03.2022 and 21.03.2022, the Dalmia Family Office Trust (DFOT) and ALKTPL, respectively, informed the Respondent-Resolution Professional that the parties have acted in accordance with the Arbitral Award and made appropriate entries in their books of account. These transactions have taken place prior to the commencement of the CIRP of the Corporate Debtor as indicated in the letter dated 01.03.2022 issued by ALKTPL to the Corporate Debtor. The Tribunal noted that the Resolutional Professional while discharging his official duties under section 25(2) of the IBC came across an arbitral award, MoU and several letters which disclosed that the transaction in question occurred in 2015. Based on these documents, the RP allowed the set off which cannot be said to be hit by section 14 of the IBC. The Supreme Court in Bharti Airtel vs. Vijaykumar V. Iyer and Ors. held that the set-off can be allowed by the Resolution Professional during the moratorium period in the CIRP of the Corporate Debtor. It held that “No set-off was permitted by the Respondent in respect of any transaction during the CIRP. The Respondent merely discharged an administrative duty of compiling the accounts of the Corporate Debtor, strictly based on existing records pertaining to transactions finalized prior to the commencement of the CIRP.” It observed that the last audited financial statement of the corporate debtor was from the financial year 2014-15. Due to the absence of a provisional balance sheet at the commencement of Corporate Insolvency Resolution Process (CIRP), the RP was not in a position to prepare valuation reports as mandated under Regulation 27 of the CIRP Regulations and had to reconstruct the corporate debtor's accounts. It held that no irregularity was found in the actions taken by the RP as they were in compliance with section 25(2) of the IBC. Additionally, the Applicant had filed an application in which similar issues had been agitated which came to be dismissed by the NCLAT. Hence, the Applicant cannot re-agitate the same issues. It concluded that the present application has been filed to delay and obstruct the CIRP of the corporate debtor therefore the application deserves to be rejected. Case Title: Ansal Properties and Infrastructure Limited Vs. Mr. Rajesh Ramani Case Number:IA-118/2024 In (IB)-113(ND)/2021 Order Date: 15/07/2025 Click Here To Download Order

Set-Off Of Transactions Executed Prior To Commencement Of CIRP Based On Arbitral Award Is Permissible During CIRP: NCLT New Delhi

Mohd Malik Chauhan

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