Set-Off Under IBC: What the Supreme Court Decided in Bharti Airtel v. Vijaykumar V. Iyer

Two companies that deal with each other in both directions often settle on a net basis. If one of them enters a corporate insolvency resolution process (“CIRP”), the other’s instinct is to keep the money it owes and set it off against what it is owed. The Supreme Court examined whether set-off under the IBC is permissible during CIRP in Bharti Airtel Ltd. v. Vijaykumar V. Iyer, 2024 INSC 15 (3 January 2024), decided by a Bench of Sanjiv Khanna and S.V.N. Bhatti, JJ.

The Five Kinds of Set-Off

The Court identified five types of set-off relevant under insolvency law:

1. Statutory or legal set-off, created by statute, for example under Order VIII Rule 6 of the Code of Civil Procedure, 1908, where a defendant in a money suit may set off an ascertained sum legally recoverable from the plaintiff;
2. Common law set-off, of mutual debts;
3. Equitable set-off, available for an ascertained sum where the claims are so connected that it would be inequitable to require separate proceedings;
4. Contractual set-off, agreed between the parties, within the limits of legality and public policy; and
5. Insolvency set-off, a statutory netting of mutual dealings on the commencement of an insolvency process.

Set-Off During CIRP: The Supreme Court’s Core Holding

The Court held that set-off under the IBC is not available during the CIRP. The provisions governing CIRP in Chapter II of Part II of the IBC do not recognise insolvency set-off. Its reasoning included:

• The CIRP is not a recovery or distribution process. It is directed at rehabilitation and resolution of the corporate debtor, unlike liquidation, which gathers assets for distribution in the statutory order of preference.
• The earlier company law regime was different. Section 529 of the Companies Act, 1956 and Section 325 of the Companies Act, 2013 (since omitted) applied insolvency rules including set-off. The IBC did not carry that forward for the CIRP.
• The Code does provide for set-off elsewhere. Section 173 permits set-off in individual and partnership insolvency, and Regulation 29 of the IBBI (Liquidation Process) Regulations, 2016 provides for mutual credits and set-off in liquidation. The Liquidation Regulations apply to Chapter III of Part II and not to the CIRP.
• Section 36(4). That provision allows the IBBI to specify assets subject to set-off on account of mutual dealings, and excludes specified assets from the liquidation estate. If a creditor were allowed set-off during a CIRP, it would obtain a preferred position over others, including secured creditors, to the extent of the set-off.
• Section 238. The Code overrides inconsistent provisions of other laws.

The practical effect is that a counterparty that owes money to a company in CIRP must pay it to the corporate debtor and file its own claim with the resolution professional, rather than netting the two.

What the Decision Leaves Open

• Liquidation. Regulation 29 continues to provide for set-off of mutual dealings in liquidation.
• Contractual netting in specific frameworks. Arrangements governed by their own statutory netting regime, such as bilateral netting of qualified financial contracts, operate under their own law.
• Defensive set-off. Commentary published in 2025 discusses whether a defence in the nature of set-off may be raised in proceedings brought by the corporate debtor after a plan is approved. Readers should check the current state of authority on that question.

How the 2026 Amendments Fit

The Insolvency and Bankruptcy Code (Amendment) Act, 2026, in force in the relevant respects from 26 May 2026, reinforces the position:

• Section 14 Explanation. The moratorium now expressly applies where a surety seeks to initiate or continue action against the corporate debtor under a contract of guarantee.
• Section 67B. Contravention of the moratorium attracts a penalty of not less than ₹1 lakh and up to ₹2 crore, imposed by the Adjudicating Authority on application by the IBBI, the Central Government or an authorised person. The corresponding criminal offence in Section 74 has been omitted, and pending prosecutions are preserved by the Explanation to Section 235A.
• Liquidation moratorium. Section 33(1)(b)(iv) requires the liquidation order to declare a moratorium, subject to Section 52.

Application: Tax Refunds During CIRP

The principle has been applied beyond commercial counterparties. In Devarajan Raman, Liquidator of Kotak Urja Pvt. Ltd. v. Principal Commissioner of Income Tax (NCLAT, 24 May 2024), the Income Tax Department had adjusted a refund due to the corporate debtor against its tax demands after the CIRP period expired but before a liquidation order. Relying on Bharti Airtel, the NCLAT held that the moratorium continued until a plan was approved or liquidation ordered, that Regulation 29 applies only in liquidation, and directed the Department to return the amount and file its claim. The decision illustrates how the restriction on set-off during CIRP can apply even where the counterparty is a tax authority rather than a commercial creditor.

Practical Points

• Where a counterparty is admitted into CIRP, amounts payable to it should be paid, and claims filed separately in the process.
• A contractual netting clause does not by itself authorise set-off during CIRP.
• Parties with continuing mutual dealings should track the insolvency commencement date carefully, since transactions after that date are governed by the moratorium and by the resolution professional’s management of the company.

FAQs

Can set-off be claimed during CIRP under the IBC?

Generally, no. Bharti Airtel Ltd. v. Vijaykumar V. Iyer held that insolvency set-off is not available during CIRP.

Can contractual set-off operate during CIRP?

A contractual set-off clause does not, by itself, permit netting during CIRP where it would effectively amount to insolvency set-off.

Is set-off permitted during liquidation?

Yes. Regulation 29 of the IBBI (Liquidation Process) Regulations, 2016 provides for set-off of mutual dealings in liquidation.

What should a counterparty do if it owes money to a company in CIRP?

It should generally pay the amount due to the corporate debtor and separately submit its own claim to the resolution professional.

Legal Information Disclaimer

This article provides general information about Indian law as it stood on 16 September 2026. It is not legal advice, and reading it does not create an advocate–client relationship. Statutes, rules and judicial interpretations change, and their application depends on the facts of each matter. Readers should consult the current official text of the laws and judgments cited and should not act on this information without advice specific to their circumstances. This article is published for legal awareness and education and is not intended to advertise or solicit professional work.

Sources / Authorities

1. Bharti Airtel Ltd. v. Vijaykumar V. Iyer, 2024 INSC 15, Civil Appeal Nos. 3088–3089 of 2020, Supreme Court of India, 3 January 2024 — Indian Kanoon
2. Insolvency and Bankruptcy Code, 2016 — Sections 14, 33, 36(4), 67B, 173, 235A, 238 (as amended) — IBBI – Legal Framework
3. Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026) — Gazette text (IBBI); Notification S.O. 2625(E) dated 22 May 2026 — IBBI
4. IBBI (Liquidation Process) Regulations, 2016 — Regulation 29 — IBBI – Regulations
5. Code of Civil Procedure, 1908 — Order VIII Rule 6
6. Devarajan Raman, Liquidator of Kotak Urja Pvt. Ltd. v. Principal Commissioner of Income Tax, Company Appeal (AT) (Insolvency) No. 977 of 2023, NCLAT, 24 May 2024 — summary, IBC Laws