TMI Blog2019 (6) TMI 1332X X X X Extracts X X X X X X X X Extracts X X X X ..... pproach is always is to be adopted. There is no specific bar or barrier in the Insolvency Code that up to CIRP process only gross amount/claims are to be taken into account and the netting is permissible only in case of start of Liquidation. In the absence of any such restriction this Bench obviously has a liberty to take an independent view which is not at variance with the provisions of The Code, rather remove the ambiguity between a gross claim or net claim, that too at what stage. This Bench is of the view that the applicant is legally entitled under the insolvency code to set off the amount of ₹ 112 Crores while making a payment of the amount retained out of the total consideration settled as per Spectrum Trading Agreement - application allowed. - MA NO.219 And 230 of 2019 AND CP NO. 298 And CP No. 302/IBC/NCLT/MB/MAH/2018 - - - Dated:- 1-5-2019 - MR M.K. SHRAWAT, MEMBER (J) For The Appellant : Navroz Seervai, Sr. Adv., Darrius Khambata, Adv., Vividh Tandon, Adv., Mehak Suri, Diason Wagdi and Nupur Jalan, Advs. For The Respondent : Mr . Janak Dwarkadas, Sr. Adv., Ravi Kadam, Prateek Seksaria, Meghna Rajadhyaksha, Anoop Rawa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities (Corporate Debtor/Seller) as a condition for granting the requisite approval. Aircel Entities approached the Hon'ble TDSAT (Telecom Disputes Settlement and Appellate Tribunal) against the DoT's condition. However, the Hon'ble TDSAT passed an interim order dated 03.06.2016 affirming the DoT's condition and directed the Aircel Entities (Seller) to furnish bank guarantees. 5. Pursuant to TDSAT's order, Aircel entities (Corporate Debtor/Seller) approached the Airtel Entities (Buyer) for submitting bank guarantees on behalf of Aircel Entities for the consummation of the transaction of spectrum trading. For this purpose, 'Airtel Entities' and 'Aircel Entities' entered into Letters of Understanding (LoUs) dated 06.07.2016 wherein the parties agreed that an amount of approx. ₹ 453.73 Crores would be retained by Airtel Entities from the total consideration amount of approximately ₹ 4022.75 Crores under the STAs. Airtel Entities (Buyer) to submit bank guarantees of approx. ₹ 453.73 Crores to the DoT on behalf of the Aircel Entities (Seller). Under the said LoU, Airtel Entities (Buyer) were required to make payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 58,63,66,774/- from the Transfer Consideration payable to Seller by Buyer as envisaged under the Agreement or Transfer consideration under any other Spectrum Trading Agreement executed between the Buyer and the Seller in respect to any other Licenced Service area. Subject to the Buyer having deducted the said amount, an amount of ₹ 39,33,98,168/- shall be paid to the Sellers upon Sellers replacing the Bank Guarantee furnished by the Buyers to DoT and the Buyers receiving back the original Bank Guarantee from DoT. This Letter shall be read along with the Agreement and shall not be in conflict thereof. Capitalized terms used herein but not defined, shall have the same meaning as given in the Agreement. The provisions of Clause 13 (Governing Law and Dispute Resolution) of the Agreement shall apply mutatis mutandis in this letter as if specifically incorporated in full in this letter. You are requested to countersign this letter in token of your confirmation and agreement of the contents of this letter. For Bharti Airtel Limited Sd/- Authorised Signatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erational Debt being related to services provided and inter-connection agreements executed between the parties. Under the Insolvency Code, the Airtel Entities (Buyer) have to be treated as 'Operational Creditor' in respect of Operational Debt of ₹ 139.34 Crores to be paid by the Corporate Debtor, Aircel Entities (Seller). 7.1 In view of the above admitted factual position that the Aircel Entities (Corporate Debtor) had to make a total payment of approximately ₹ 145.20 Crores to Airtel Entities (Operational Creditor) pertaining to alleged unpaid Invoices for certain services provided, the Airtel Entities (Operational Creditor) lodged claim on the requisite Form on 28.03.2018 and 11.04.2018 respectively in the cases of Aircel Limited and Dishnet Wireless Ltd., both Corporate Debtors under Corporate Insolvency Resolution Process. The Miscellaneous Application contains Form B as prescribed under the Insolvency Code which is a Proof of Claim by Operational Creditor except Workmen and Employees under Regulation 7 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, addressed to Mr. Vijaykumar Iyer, IRP/RP describing the unp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, released the withheld amount of approximately INR 453.73 Crores in the following manner: i. Payment of INR 341.80 Crores (i.e. 75% of the withheld amount) to Aircel Entities on 10.01.2019; and ii. Application of the balance amount (i.e. approx. INR 112 Crores) for set off against the dues of approx. INR 145.20 Crores owed by Aircel Entities to Airtel Entities. 9.1 To understand the transaction it is appropriate to put the figures on record hence it is clarified that out of the withheld amount of ₹ 453.73 Crores which was to be paid by the Airtel Entities to Aircel Entities, the Airtel Entities had retained a sum of ₹ 112 Crores and balance ₹ 341.80 Crores was remitted by the Airtel Entities to the account of Aircel Entities. Since the Airtel Entities (Operational Creditor/Buyer) have retained ₹ 112 Crores by setting off against the total claim of ₹ 453.73 Crores and paid only balance ₹ 341.80 Crores to Aircel Entities, therefore, this Application is moved with the purpose to get an affirmation order about the action of the Operational Creditor of adjustment on net payment to Corporate Debtor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OR OTHER MUTUAL DEALINGS BETWEEN THE CORPORATE PERSON AND THE OPERATIONAL CREDITOR WHICH MAY BE SET-OFF AGAINST THE CLAIM Declaration: [Please state details of any mutual credit, mutual debts, or other mutual dealings between the corporate person and the operational creditor which may be set-off against the claim.] iii. According to the arguments the meaning of Debt as defined under Section 3(11) of The Code has an inbuilt provision of set-off because of the terminology Claim and Due is used. The arguments can be summarised as under:- (A) Meaning and concept of Debt: (i) The term 'debt' is defined in the IBC in section 3(11), as reproduced below: 3(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; (ii) This is a two-way definition, i.e. it includes both a debt due from the corporate debtor (financial as well as operational) or a debt due to a corporate debtor. (iii) There is admittedly both an amount due from the Airtel Entities to the Aircel Entities (i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The corporate debtor owes ₹ 70 to X. After set off, ₹ 30 is payable by X to the corporate debtor. The reason for placing reliance on this Regulation is that a mutual set-off is mandated in the Insolvency Code, therefore, the Airtel Entities have rightly claimed for set-off which was a legal entitlement duly approved by the aforementioned Regulation. vi. Further to buttress their arguments, certain comparisons have been referred to establish that in such circumstances, the claim of set-off is otherwise admissible as well as acceptable under various other enactments. For e.g. UNCITRAL Legislative Guide vide a specific chapter on 'rights of set off has made a provision as under: - .....In the majority of jurisdictions, set-off rights are not affected by the stay in insolvency and may be exercised after the commencement of insolvency proceedings, irrespective of whether the mutual obligations arose under a single contract or multiple contracts and irrespective of whether the mutual obligations matured before or after commencement of insolvency proceedings. In some jurisdictions a distinction is made; post-commence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. In the present circumstances, obviously, had the Bank demanded for payment of sum due to it under overdraft, the company, (in liquidation) was entitled to claim set off against the amount due under the FDRs notwithstanding that the same were not hypothecated as security for discharge of the debts due. If that could be done we see no reason, why the bank could not claim the set off because the company (in liquidation) has taken the initiative to call upon the bank to pay the amount due under the FDRs. 15. In the matter of Gokul Chit Funds and Trades (P.) Ltd. v. Thoundasseri Kochu Ouseph Vareed (MANU/KE/0023/1977) decided on 25.08.1976 it was held : The 'mutual dealings' referred to in the section may consist of several distinct or independent transactions entered into between the same parties functioning the same right or capacity. It is not, therefore, necessary that the debts or claims sought to be set off against each other should have arisen out of the one and the same transactions. As observed by Montague Smith, J. in the leading case Naoroji v. Chartered Bank of India (1868) 3 CP 444, to bring a case within the act, it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor has already received from a guarantor. This is subject, however, to one point, which has been called the charge point to which I now turn. . 18. That in addition to the case laws referred above, from the side of the Applicant few more case laws have also been referred from where relevant portions also read during the course of hearing, however, keeping brevity in mind those paragraphs not reproduced but citations quoted are as hereunder:- Case Laws referred:- (1) Ex parte BARNETT, In re 1874 Jan. 16. (2) Bankers v. Jarvis 1908 Jan. 28 (3) Paschal Nazereth v. Denis Lobo AIR 1958 Mys. 126. (4) Andhra Paper Mills Co. Ltd. v. Anand Bros AIR 1951 Mad 783. (5) Supreme court of India Civil Original/Appellate jurisdiction Writ Petition (civil) No. 99 of 2018 [Swiss Ribbons Pvt. Ltd. Anr. Versus Union of India And Ors. order dated 25.01.2019.. (6) Official Liquidator of High Court of Karnataka v. Smt. V. Lakshmikutty [1981] 3 SCC 32. (7) Gopal L. Raheja v. Vijay B. Raheja [Cross Appeal (L) No. 4 of 2005, dated 25- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim has been determined. (iii) Bankruptcy/Insolvency Set Off Bankruptcy Set Off, on the other hand, affects the substantive rights of the parties by enabling the bankrupt's creditor to use his indebtedness to the bankrupt as a form of security. Instead of having to prove with other creditors for the whole of his debt in the bankruptcy, he can set off pound for pound what he owes the bankrupt and prove for or pay only the balance. In Foster v. Wilson (1843 12 M. W. 191, 204, Parke B. said that the purpose of insolvency set off was to do substantial justice between the parties . Although it is also often said that the justice of the rules is obvious, it is worth noticing that it is by no means universal. Wood on English and International Set Off (1989), PP 1165 21169, Paras 24-49 to 224-56). It has however been part of the English law bankruptcy since at least the time off the first queen Elizabeth : 19.1 In the light of the types of set off explained by Learned Mr. Janak Dwarkadas he has narrated the facts revolving claim of set-off. Bharti Airtel Limited and Bharti Hexacom Limited ( Airtel Entities ) had entered int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion of claims had not reached, as the stage ought to be 'Liquidation' proceedings and not Corporate Insolvency Resolution Process. It is pleaded that it is significant to note that at the time of filing the claim form, Airtel Entities did not seek any set-off (legal or equitable) from the amount withheld for provision of the BGs. 19.3 Even assuming if the RP were to admit the claims, it would not entitle Airtel Entities to any priority over the other creditors as Airtel will remain as an Operational Creditor for the aggregate amount of the admitted claims. As particularly set out hereinafter, Airtel Entities are not entitled to claim legal or equitable set-off as attempted to the extent of ₹ 112 Crore, therefore, by doing so, the Airtel Entities put themselves in an advantageous position, over and above rest of the financial and operational creditors, by recovering its debt, argued by the Ld. Advocate. 19.4 Vide orders dated 28.11.2018 the Hon'ble Supreme Court has given the direction as under:- ORDER IA 113342/2018 IA 98556/2018: Having heard learned counsel for all parties, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38 of 2016, within one week from today. If that is not done by the respondent then the three bank guarantees shall stand cancelled and shall no longer be used by the respondent for any purpose whatsoever. This Court, on 23.07.2018, ordered that the said order dated 16.07.2018 shall be subject to the outcome of the appeal. By an another order dated 28.11.2018, this Court reiterated that the said order will operate in the meanwhile and stated that a sum of ₹ 298,00,00,000/- (Rupees Two Hundred and Ninety Eight Crores) would be refunded by the DoT. Given the aforesaid, the present application is allowed in the following terms: All parties including Axis bank and Bharti Airtel Ltd.) to proceed on the basis that the three bank guarantees referred to in the opening paragraph of this Court's order dated 28.11.2018 and in the TDSAT order dated 16.07.2018 (particulars at page 18 of I.A. No. 180450 of 2018) stands cancelled and shall no longer be used for any purpose whatsoever. Needless to add, this order will be subject to what happens ultimately in the appeal. 19.6 So, it is informed that on 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in a catena of cases and even the division bench of the Bombay High Court have laid down the following principles for governing equitable set-off: (a) the right of set-off exists not only in cases of mutual debits and credits, but also where cross-demands arise out of the same transaction; (b) a plea in the nature of equitable set-off is not available when the cross-demands do not arise out of the same transaction and not connected in its nature and circumstances; (c) a wrongdoer who has wrongfully withheld moneys belonging to another cannot invoke any principles of equity in his favour and seek to deduct therefrom the amounts that have fallen due to him; (d) all cross-demands are to arise out of the same transaction or the demands are so connected in the nature and circumstances that they can be looked upon as a part of one transaction; (e) both the parties must fill the same character in respect of the two claims sought to be set-off or adjusted. 19.10 On this issue reliance was placed on the following decisions:- (i) Jitendra Kumar Khan v. Peerless General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncially stressed Companies. The existing law at that point of time was related to Winding Up of Companies under Companies Act, which now stood replaced by this Code to ensure that the Financial Creditors have primary role to play for expeditious recovery of money from the Debtors. In this case the Airtel Entities have already filed claims on Form-B before the RP in the month of March, 2018 as an Operational Creditor and now claiming set-off which is contrary to the object of IBC. For its claim an Operational Creditor is required to be in the queue with other Operational Creditors so that no Creditor shall have preference over other Creditors. By this set-off the Operational Creditor is recovering its Debt which is nothing but upsetting the queue and suo motu enjoying preference treatment, it is pleaded. If claim is allowed to Airtel Entities to retain ₹ 112 Crores, naturally the 'Airtel Entities' would get preference over other Creditors of Aircel Entities. With these remarks Learned Counsel has concluded his arguments. (D) Submissions by the Resolution professional: 20. Representing Resolution Professional Ld. Senior Advocate Mr. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess and ensuring that the Company may continue as a going concern while the creditors take a view on Resolution of default and the moratorium on initiation and continuation in legal proceedings including debt enforcement action ensures a stand still period during which creditors cannot resort to individual enforcement action which may frustrate the object of the Corporate Insolvency Resolution Process 20.4 The above report was drafted in March, 2018. The intent of the legislature was always the same. In the report of the Bankruptcy Law Reforms Committee drafted in November, 2015, the discussion on the aspect of moratorium was that, the motivation behind the moratorium is that it is value maximising for the entity to continue operations even as viability is being assessed during the IRP. There should be no additional stress on the business after the public announcement of the IRP. The order of the moratorium during the IRP imposes a stay not just a Debt Recovery actions, but also any claims or expected claims from old law suits or a new law suits for any manner of recovery from the entity . 20.5 In support of the arguments reliance was placed on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor, which is under Insolvency, whether an adjustment or set-off of its due is to be granted so that only the net amount can be disbursed ? 21.2 Let us apply the controversy as formulated in above paragraph on the facts of this case, in simple language, although the transaction apparently was little complex. Admittedly 'Airtel Entities' is an Operational Creditor of 'Aircel Entity' undisputedly under Insolvency. Somewhat situation is reverse in this case; to the extent that before this Operational Creditor (Airtel Entity) could ask for its claim of Operational Debt due to be recovered from the Debtor Company (Aircel Entity), vide an order of the Hon'ble Court, this Creditor was ordered to make a payment to the Debtor Company. Why 'Airtel Entity' was an Operational Creditor is because it has to recover an Operational Debt of ₹ 112 Cr (mentioned the figure to simplify the understanding of transaction) from Aircel Entity (Corporate Debtor) . On the other hand there was another transaction (Spectrum Trading Agreement) owing to which Airtel Entity was to make a payment of retention money to Aircel Entity. That amount was kept in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specially when Moratorium is in operation on Aircel Entity (Corporate Debtor). 21.4 After the afore said adjustment/set-off the Airtel Entities have moved this Miscellaneous Application (MA 230/2019 MA 219/2019) to get an order of this Tribunal (NCLT) affirming their action of set-off. 21.5 The first Question which is to be answered is that what is scope of Moratorium under these facts and circumstances ?. In my mind a question is that whether a Corporate Debtor is to be allowed to claim all its dues without adjustment of their dues admittedly payable by the said Corporate Debtor. Rather it is like this that first make my (i.e. Corporate Debtor's) payment due upon you and I will consider your (Operational Creditor's) payment at the time of my Liquidation if some amount shall remain available. On the face of it this approach appears to be unjustifiable. In normal course of business transaction if an amount is payable by one party to another party, the net amount is paid after factoring of payment due minus payment recoverable. Had it been a case where there was no Insolvency proceedings were involved, then this simple principle of netting- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and a creditor claiming a Debt, an account shall be taken of what is due from one party to the other, in respect of such mutual dealings, and the sum due from the one party shall be set-off against any sum due from the other party, therefore only the balance, no more, shall be paid on either side respectively. At this juncture an argument of the Respondent (Aircel) is that similar provision is in IBC but that Regulation 29 of IBBI Liquidation Process Regulations, 2016 is applicable at the stage of Liquidation and not at the stage of CIRP, therefore, per Respondent wrongly cited. The relevance of this judgment shall be discussed herein-below at appropriate place however at this juncture it is worth to remark that the doctrine of mutual dealing is an accepted norm in settling the account between a Creditor and Debtor. 21.9 Likewise in the case of The Andhra Paper Mills Co. Ltd. (in liquidation) by its Official Liquidator (supra) an important observation was that, quote On principle and in the interests of fairness and justice, we think that a party against whom the company has instituted a suit, should not be prevented from establishing that on a proper taking of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply in regard to debts provable against a company in winding up. Consequently, when the respondent in the present case claimed to prove her debt against the company in liquidation, she was entitled to the benefit of the rule enacted in Section 46 of the Provincial Insolvency Act and she could legitimately claim that since there were admittedly mutual dealings between her and the company in liquidation, an account should be taken in respect of such mutual dealings and only that amount should be payable or receivable by her which is due at the foot of such account. 2. It is true that Section 530 provides for preferential payments, but that provisions cannot in any way detract from full effect being given to Section 529 and in fact the only way in which these two sections can be reconciled is by reading them together so as to provide that whenever any creditor seeks to prove his debt against the company in liquidation, the rule enacted in section 46 of the Provincial Insolvency Act should apply and only that amount which is ultimately found due from him at the foot of the account in respect of mutual dealings should be recoverable from him and not that the amount du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efendant into bankruptcy to prove his claim ? Let us try what the rights of the parties would have been under the old law in such a case. A trustee brings an action to recover a debt due; a set-off is pleaded, and it is suggested that it would have been a good replication that the bankrupt could only pay 1s. in the pound, thus wiping out the set-off or reducing it to 1s. in the pound. It is enough to say that such a thing was never heard of. A set-off can only be set up where an action is brought; what is the right of the defendant after an action is commenced against him ? Clearly it is to set off a debt due to him from the plaintiff; if the debt due to him is of the same kind as that in respect of which he is being sued, he can set it off. The right of set-off depends on the existence of a debt due to the defendant, and the fact of his debtor being a bankrupt does not prevent the set-off arising, through it prevents his obtaining in the bankruptcy more than his share of the assets; 21.13 The Applicant has also placed reliance on a decision of 'House of Lords' (Lord Keith, Lord Ackner, Lord Lloyd, Lord Nicholls) in the matter of Stein (supra) wherein facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealings before the bankruptcy for which a creditor would be entitled to prove as a bankruptcy debt.' In this judgment it further considered cross-claims in the following manner :- 5. Taking the account under section 323 Bankruptcy set-off therefore requires an account to be taken of liabilities which, at the time of bankruptcy, may be due but not yet payable or may be ascertained in amount or subject to contingency. Nevertheless, the law says that the account shall be deemed to have been taken and the sums due from one party set off against the other as at the date of the bankruptcy. This is in accordance with the general principle of bankruptcy law, which governs payment of interest, conversion of foreign currencies etc., that the debts of the bankrupt are treated as having been ascertained and his assets simultaneously distributed among his creditors of the bankruptcy date: see In Re Dynamics Corporation of America [1976] 1 W.L.R. 757, 762. it is clear, therefore, that when section 323(2) speaks of taking an account of what is due from each party, it does not mean that the sums in question must have been due and payable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT and on the other hand there was a contingent liability on the said company of Secretary of State pertaining to Employees payment, so the question was that whether VAT credit to be set-off against Secretary of State's claim and that whether Crown could act as 'debtor' and 'creditor' in the same capacity on the occasion of settlement of cross-claims. Allowing the Appeal, allowed set-off by holding that the term 'mutual debts' require no more than commensurable cross-obligation between the same people in the same capacity. An observation is worth reproduction :- 7 The rule requires that there should have been mutual credits, mutual debts or other mutual dealings between the company and the Secretary of State before the company went into liquidation, that is to say, before the date of the resolution to wind it up. I shall call this the insolvency date . In considering whether this requirement was satisfied, I shall put aside two matters for later consideration. One is the question of whether the Customs and Excise is the same party as the Secretary of State and the second is that the effect of the words or other mutual dealings . I sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itor to set-off pound-for-pound what he owes the insolvent and to prove for or pay only the balance. A creditor with relevant mutual dealings is thus treated much more favourably than an unsecured creditor with none. As Professor Roy Goode commented in Principles of Corporate Insolvency Law at paras 7-22 Set-off on insolvency represents a major incursion into the pari passu principle, for its effect is that a creditor who owes money to the company on a separate account may resort to self-help by setting off the debt due to him against his own indebtedness to the company, thus [ensuring] payment of his claim pro tanto ahead of other creditors. (e) Unlike legal set-off, insolvency set-off operates in relation to sums which are not necessarily due and payable at the date of the bankruptcy or winding up order, but which may be future or contingent. It addresses the problems arising from the adoption of this broad approach by using the hindsight principle and by estimating the value of claims of the creditor. As to claims against the creditor on the other side of the account Lord Hoffman observed (on the state of the law as it then was) (at 253B) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finition of Property as defined under Section 3(27) of The Code means money, actionable claim, goods, land etc. So it is submitted that the impugned set-off of ₹ 112 Crore although a property of Airtel Entities cannot be allowed to be recovered in the guise of set-off while discharging the Debt belonging to Aircel recoverable from Airtel Entities. This Bench is not agreeable to this argument because Section 14(l)(d) has taken into consideration only one type of situation when a Creditor has to recover any property which is in possession of the Corporate Debtor. In this case, the position is somewhat reverse because the major amount i.e. ₹ 453 Crores is to be recovered from the Operational Creditor by the Corporate Debtor, however, as against that only sum of ₹ 112 Crores is the property of the said Operational Creditor, that too, not in possession of the Corporate Debtor. The intent of introduction of Section 14(l)(d) appears to be on the ground that the Corporate Debtor be not put in an inconvenient situation that as soon as he is declared insolvent, all the Creditors may come rushing, demanding their property back under possession of the said Corporate Debtor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as the debit entry. Therefore, an exception is carved out in Section 18(l)(f) that certain assets shall not be included while taking action u/s. l8(l)(f) of The Code. The Explanation below section 18 reads as follows:- (a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment; (b) assets of any Indian or foreign subsidiary of the corporate debtor; and (c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator. The purpose of insertion of this explanation is obvious that assets of any nature must not be forced to put under control of the Resolution Professional. An asset owned by a Third party in possession of a Corporate Debtor held under trust or under contractual arrangement shall not be affected by Sub-Section (f). Therefore, the Resolution Professional can take control/custody over an asset belonging to or in possession of the Corporate Debtor but the exception is that if an asset although in possession of the Corporate Debtor but held under trust or under co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of other Creditors. The Operational Creditor therefore be treated a preferred creditor over the claims of other creditors. In this connection what is to be seen is the correct position of law as well as the accurate position of accounts. This argument is nothing but an innovative reasoning because otherwise neither the RP nor the Corporate Debtor is acting in such manner which could be alleged to be a preferential treatment. Rather, the true picture is that before disbursement of the claim amount of the Corporate Debtor, the Operational Creditor has retained its money over which on merits there was no controversy. It is pleaded from the side of the RP/Respondent that the said Operational Creditor (Airtel Entities) has lodged their respective claims on Form No. B which is required to be treated at par with other claimants. If this method is permitted, then there was no use of submission of Form No. B as the same shall stood paid as an adjustment leaving behind no outstanding claim to be received from Aircel Entities. At this juncture, it is worth to mention that in the case of Swiss Ribbons (P.) Ltd. (supra) although it is noted that a Corporate Debtor is required to be preserved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, a true and correct position of account should emerge from the records of both the sides. I am also of the strong view that if there is no restriction or prohibition in the statute, then a fair and reasonable approach is always is to be adopted. There is no specific bar or barrier in the Insolvency Code that up to CIRP process only gross amount/claims are to be taken into account and the netting is permissible only in case of start of Liquidation. In the absence of any such restriction this Bench obviously has a liberty to take an independent view which is not at variance with the provisions of The Code, rather remove the ambiguity between a gross claim or net claim, that too at what stage. 25. As far as the stand of the Respondent /Aircel entities is concerned that set off is admissible but only at the stage of Liquidation being specifically provided under Regulation 29 of IBBI (Liquidation process) Regulations 2016, which allows mutual credit and set out that where there are mutual dealings between the Corporate Debtor and other party the adjustment is permissible. This regulation is unambiguous by making a provision that a sum due from one party shall be set off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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