NCLT Rules on Illegality of Set-Off During Moratorium: Ansal Urban Condominium CIRP Dispute

The Applicant, Ansal Properties and Infrastructure Ltd. (APIL), a 15.81% shareholder of Ansal Urban Condominium Pvt. Ltd. (Corporate Debtor), challenged the Resolution Professional’s (RP) reconciliation of the accounts of Ansal Landmark (Karnal) Township Pvt. Ltd. (ALKTPL). Through this reconciliation, ALKTPL’s receivable balance was reduced from INR 47.31 crores to INR 12.77 crores by permitting a set-off of INR 34.54 crores. The adjustment was based primarily on two documents: first, an arbitral award dated February 25, 2022 (before initiation of CIRP) between ALKTPL and Dalmia Family Office Trust (DFOT), which recorded that DFOT had made a payment of INR 34.54 crores to the Corporate Debtor on ALKTPL’s behalf; and second, a letter dated March 21, 2022 issued by ALKTPL to the RP seeking reconciliation of accounts in line with the arbitral award.

APIL alleged that the RP had effectively permitted a fresh set-off during the moratorium period, in contravention of Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC). It further contended that the arbitral award itself was tainted because ALKTPL and DFOT were related parties under the common control of the Dalmia family. By permitting the adjustment, the RP was said to have acted at the behest of ALKTPL, thereby reducing the corpus of the Corporate Debtor and prejudicing the interests of other stakeholders. APIL also claimed that the forensic audit report dated 15.02.2023, which the RP had relied upon, could not provide a valid basis for such an adjustment.

The RP, in response, denied these allegations. He contended that the set-off was not a fresh adjustment created during CIRP, but flowed entirely from pre-CIRP transactions, culminating in the arbitral award of February 25, 2022, which predated the commencement of moratorium. His role, he argued, was limited to reconstructing the accounts to reflect these existing obligations, consistent with his statutory duties under Section 25(2) of the IBC. The forensic audit report, which raised no adverse findings on the transaction, further confirmed the propriety of his actions. Additionally, the RP emphasised that a similar challenge had already been brought by a related entity, Katra Realtors Pvt. Ltd. (IA-882/2023), and dismissed by the National Company Law Tribunal (NCLT/Tribunal)—a decision later upheld by the Hon’ble National Company Law Appellate Tribunal (NCLAT) as well. Hence, APIL was barred from re-litigating the same issue.

Against this backdrop, the Tribunal framed two key issues for determination: first, whether the set-off allowed by the RP occurred during the moratorium and was therefore illegal under Section 14 of the IBC; and second, whether the RP was legally justified in allowing the set-off on the basis of ALKTPL’s letter dated March 21, 2022 and the forensic audit report dated February 15, 2023.

Key Findings:

1. Set-off and Moratorium: The Tribunal observed that Corporate Insolvency Resolution Process (CIRP) commenced on March 10, 2022, triggering the moratorium under Section 14. However, the set-off in question flowed from earlier arrangements: the 2015 Memorandums of Understanding (MoUs), DFOT’s payment to the Corporate Debtor on ALKTPL’s behalf, and the arbitral award dated February 25, 2022. As these obligations had crystallised before CIRP, their recognition during CIRP could not be treated as an illegal set-off. The Tribunal clarified that Section 14 halts fresh enforcement and recovery, but does not nullify rights and liabilities pre-existing the moratorium.

2. Supreme Court on Contractual/Transactional Set-off: Relying on Bharti Airtel v. Vijaykumar V. Iyer, the Tribunal reiterated that statutory insolvency set-off does not apply to CIRP. However, contractual set-offs valid before CIRP, and “transactional set-offs” where claims and counterclaims are inseparably connected, remain permissible under the IBC.

3. RP’s Role in Reconciling Accounts: The Tribunal clarified that the RP cannot “create” a set-off during CIRP. Under Section 25(2) IBC, his role is administrative—preserving assets, maintaining accounts, and ensuring financial accuracy. Here, the RP merely reconciled the Corporate Debtor’s accounts to reflect pre-existing obligations from the 2015 MoUs, DFOT’s payments, and the arbitral award of February 25, 2022. This was not a fresh adjustment or adjudication, but a recording of existing set-off rights. Since Section 14 of the IBC only bars new enforcement or claims during moratorium, the RP’s reconciliation did not violate it.

4. Reliance on Supporting Records: The forensic audit report dated February 15, 2023 did not flag the transaction as irregular, and the letters exchanged in March 2022 corroborated the award-based adjustment. On this basis, the Tribunal concluded that the set-off had documentary support and was not an act of collusion.

This judgment is a significant step forward in insolvency law, affirming RP’s authority to recognize pre-CIRP set-offs backed by credible documentation, while demanding rigorous scrutiny, especially with related parties. Though it may narrow the asset pool for creditors, it enhances predictability and discourages procedural delays. By balancing the sanctity of the moratorium with recognition of legal rights, the ruling reinforces that insolvency is a process of reorganization, not erasure, and underscores the importance of meticulous documentation in financial transactions.