Set-Off Under IBBI Liquidation Rules Applies Only Between Same Parties, Not Group Companies: NCLAT
The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that the benefit of set-off under the IBBI (Liquidation Process) Regulations, 2016 is available only where the mutual dealings are between the same parties and cannot be invoked to adjust dues owed by other group companies.
The bench of Judicial Member Justice R.N. Seshasayee, Technical Member Arun Baroka, and Technical Member Indevar Pandey observed:
“We observe that per Regulation 29 of the IBBI (Liquidation Process) Regulations, 2016, if the Corporate Debtor and another party owe money to each other, then the amounts should be adjusted against each other. After setting- off what each side owes, only the final balance amount either payable to the Corporate Debtor or to the other party will be considered as due. The benefit of set-off under Regulation 29 is available only if the same parties (i.e. CD and Appellant) are involved and the same cannot be applied in case of third-party entities. In this case, there are third party entities and these parties have also undergone dissolution.”
The present appeal was filed by the Assam Power Distribution Company Ltd. (APDCL), challenging the NCLT Guwahati order directing it to pay the outstanding dues of Rs. 37,66,906.80 along with interest.
Corporate Insolvency Resolution Process (CIRP) of Brahmaputra Rollings Mills Pvt. Ltd. was started in 2022 failing which its liquidation order was passed. While verifying the claim of APDCL, the liquidator found that the after adjustment of the electricity dues against the load security deposit, APDCL was itself liable to refund Rs. 37.66 lakhs to Brahma Putra Rollings.
The amount was communicated to APDCL, which acknowledged the liability but refused payment on the ground that other companies forming part of the BISCON/Brahmaputra Group collectively owed it over Rs. 9 crores.
The liquidator moved the NCLT seeking recovery of the admitted amount which allowed the application and directed the APDCL to pay the amount along with interest. Aggrieved by the order of the NCLT, the APDCL preferred the present appeal. It argued that the Regulation 29 of the IBBI (liquidation process) Regulations, 2016 and the group companies doctrine entitled it to adjust the dues payable by other group entities.
Rejecting the argument of the appellant, the NCLAT observed that the corporate debtor is a separate juristic person. It is different from other group entities of BISCON group and each of them have undergone separate CIRP and later on liquidation proceedings.
The tribunal also observed that pursuant to an order passed by the NCLT Guwahati, all the group companies have already been dissolved. It ruled that the group companies cannot be tagged along with the corporate debtor, as the liquidation proceedings of each company were done as separate entities.
The NCLAT also observed that under section 35 of the IBC, the liquidator was under a statutory obligation to realise assets and actionable claims of the corporate debtor. it added that the admitted refund formed part of the liquidation estate and its recovery was necessary for distribution of amongst the stakeholders under section 53 of the code.
For Appellant: Senior Advocate Nalin Kohli with Advocates Anshul Malik, Ayuushman Arora and Aditya Rathee
For Respondent: Advocates Shaunak Mita and Mr. Saurav Jain, Advocates; Ms. Meena Sureka, Advocate for the Liquidator