NCLAT directs Airtel to pay INR 112 crore to Aircel

The National Company Law Appellate Tribunal, vide its order dated 13.07.2020, directed Bharti Airtel Ltd. and Bharti Hexacom Ltd. (“Airtel”) to pay INR 112 Crores to Aircel Ltd. and its subsidiary.

The appeal was filed by the resolution professional (“RP”) of the Dishnet Wireless Limited & Aircel Limited (“Aircel Entities”) u/s 61 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) against the impugned order dated 01.05.2019 passed by the National Company Law Tribunal, Mumbai Bench, permitting Airtel to set off an amount of INR112 Crore from the total consideration of INR 453 Crore, payable by Airtel to Aircel Entities.

Why was Airtel obligated to pay an amount of INR 453 Crore to Aircel Entities?

On 08.01.2019, Hon’ble Supreme Court had directed Airtel to pay ₹453 Crore to the Aircel Entities. The orders relate to bank guarantees held by DoT in relation to a spectrum transfer agreement executed between Aircel Entities and Airtel, in 2016.

What was the impugned order passed by NCLT, Mumbai Bench?

NCLT, Mumbai Bench had ruled that Airtel was entitled to retain INR 112 Crore, out of its total obligation of INR 453 Crore, due towards Aircel Entities. The Bench had allowed Airtel to set off INR 112 Crore as “accounting adjustments” from the total consideration of INR 453 Crore.

What were the submissions made by the Appellant (i.e. Aircel Entities)?

1. Mr. Vijay Kumar, who was appearing for the Appellant, submitted that respondents (i.e. Airtel Companies) were obligated to return a sum of INR 453 Crore, in terms of the Hon’ble Supreme Court order dated 08.01.2019. 
2. Mr. Kumar alleged that the Respondents have committed a breach of the orders of Hon’ble Supreme Court, by only paying a sum of approx. INR 341 Crore, and have thereby detained a sum of approx. INR 112 Crore illegally. 
3. The Appellant also submitted that NCLT, Mumbai by permitting the present set off has granted the respondents a preferential payment over other Operational Creditors and it is also against the objectives of IBC, 2016 and is against Article 14 of the Constitution of India.

What were the submissions made by the Respondents (i.e. Airtel Companies)?

1. The Respondent had submitted that they have released a sum of INR 341.80 Crore to Aircel Entities and have applied the balance amount of INR112 Crore approx. for set off against the dues, which were recoverable from Aircel Entities by Airtel. 
2. They submitted that they have claimed set off only to the extent of undisputed principal amounts payable by Aircel Entities to Airtel.
3. They further submitted that the right of a party to apply set off is a well-known concept in Accounting and such right has been recognised for more than a century in the various statutes.
4. The respondents said that this has been done on the basis of mutual debits and credits and mutual dealings between the parties.

What were the findings of NCLAT?

The NCLAT bench, after going through the submissions of the parties, and after perusing the various case laws, and statutory provisions presented before it, observed that-:

1. Section 238 of the IBC, 2016, provides that the provisions of the Code will have overriding effect over the inconsistent provisions of the other laws.
2. Section 14 of IBC, 2016, provides that moratorium will remain into force until the Corporate Insolvency Resolution Process (CIRP) is completed, or resolution plan is approved, or liquidation is ordered.
3. Therefore, the Accounting Conventions, entitling right to claim set-off, cannot supersede the express provisions of IBC, 2016, as the Code overrides the inconsistent provisions of other laws.

With the above-mentioned observations, the NCLAT set aside the order dated 01.05.2019, passed by NCLT, Mumbai Bench and directed Airtel to pay INR 112 Crore (i.e. set off amount) to Aircel Entities.

Can Airtel appeal against the NCLAT Order?

Yes, according to Section 62 of IBC, 2016, the appeal against the orders passed by NCLAT, lies before the Hon’ble Supreme Court, within 45 days (further extendable up to 15 days). So, Airtel will possibly explore the option of appealing against the said order, before the Hon’ble Supreme Court. 

Click here to view the order dated 13.07.2020 passed by NCLAT.