Punjab National Bank vs Unijules Life Sciences Limited

ORDER

a. That this Tribunal be pleased to declare that the adjustment of pre-CIRP tax dues against post-CIRP tax refunds by the Respondent is illegal void ad initio, and in contravention of the provisions of the IBC.

b. That this Tribunal be pleased to direct the Respondent to forthwith reverse the unlawful adjustment and release the refund amount of INR 25,90,790/- along with applicable interest, to the Corporate Debtor;

c. That this Tribunal be pleased to direct the Respondent to refrain from making such adjustments in future as well.

d. That this Tribunal be pleased to pass any such further other orders and reliefs as this Tribunal deem fit and proper given the facts and circumstances of the present case.

It held that “30. Given the aforesaid legal position, we do not think that the provisions of statutory set-off in terms of Order VIII Rule 6 of CPC or insolvency set-off as permitted by Regulation 29 of the Liquidation Regulations can be applied to the Corporate Insolvency Resolution Process. The aforesaid rule would be, however, subject to two exceptions or situations. The first, if at all it can be called an exception, is where a party is entitled to contractual set-off, on the date which is effective before or on the date the Corporate Insolvency Resolution Process is put into motion or commences. The reason is simple. The Corporate Insolvency Resolution Process does not preclude application of contractual set-off. During the moratorium period with initiation of the Corporate Insolvency Resolution Process, recovery, legal proceedings etc. cannot be initiated, enforced or remain in abeyance. Besides the moratorium effect, the terms of the contract remain binding and are not altered or modified.” In the present case, it is undisputed fact that the debt was owed by the Corporate Debtor to the Respondent Income Tax Department prior to commencement of CIRP and the amounts against which such debt was set of by the Income Tax Department were determined payable to the Corporate Debtor on filing of Income Tax Returns for the relevant years during the CIRP process. Hence, this exception does not apply to the present case.

“32.

The second exception will be in the case of ‘equitable set-off’ when the claim and counter claim in the form of set-off are linked and connected on account of one or more transactions that can be treated as one. The set-off should be genuine and clearly established on facts and in law, so as to make it inequitable and unfair that the debtor be asked to pay money, without adjustment sought that is fully justified and legal. The amount to be adjusted should be a quantifiable and unquestionable monetary claim, as the Corporate Insolvency Resolution Process is a time-bound summary procedure. It is not a civil suit where disputed questions of law and facts are adjudicated after recording evidence. Set-off of this nature does not require legal proceedings. Further, set-off of money is to be given against money alone. It will not apply to assets. Lastly, being an equitable right, it can be denied when grant of relief will defeat equity and justice.” In the present case, the amounts determined payable to the Corporate Debtor during the CIRP period pertains to different Assessment Year(s) as the amounts payable by the Corporate Debtor as on Insolvency Commencement date pertains to. Accordingly, this exception also does not apply.

“41.

There are several reasons why in our opinion clause (ii) to sub-section (2)(b) of Section 30 does not support the plea of insolvency set-off. The section does not make Chapter III Part II, that is, Section 36(4)(e) or Regulation 29, applicable to the Corporate Insolvency Resolution Process under Chapter II Part II of the IBC. Secondly, clause (ii) to Section 30(2)(b) deals with the amounts to be paid to the creditors and not the amount payable by the creditors to the corporate debtor. Thirdly, clause (ii) to Section 30(2)(b) has appliance when the resolution plan is being considered for approval. Fourthly, and for the reasons elaborated earlier, and in view of the specific legislative mandate as incorporated and reflected in Chapter II Part II of the IBC, we should hold that the provisions of the IBC relating to Corporate Insolvency Resolution Process do not recognise the principle of insolvency set-off. We would not extend it by implication, when the legislature has not accepted applicability of mutual set-off at the initial stage, that is, the Corporate Insolvency Resolution Process stage.”