Set-Off in Form B: NCLAT Upholds Operational Creditor’s Right to Adjust Mutual Dues During CIRP

The Hon’ble NCLAT, in its judgment dated October 14, 2025, addressed the specific issue of whether an Operational Creditor can adjust the amount it owes to a Corporate Debtor against the amount the Corporate Debtor owes to it, thereby filing a claim only for the net balance.

The Appellant, CNH Industrial, had a cooperation agreement with the Corporate Debtor (CD), SREI Equipment Finance Ltd., for financing equipment. Under the arrangement, the CD owed the Appellant approximately INR 8.97 Crores (sourcing payouts), while the Appellant owed the CD approximately INR 5.56 Crores (risk pool arrangement).

When Corporate Insolvency Resolution Process (CIRP) was initiated against the CD, the Appellant filed its claim in Form B for the net amount of INR 3.40 Crores, specifically disclosing the set-off in Column 8 of the form. The Administrator rejected this set-off, citing the moratorium under Section 14, and demanded the Appellant pay the full INR 5.56 Crores while admitting the Appellant’s gross claim of INR 8.97 Crores. Since the Resolution Plan proposed “Nil” payment to operational creditors, the Appellant would have recovered nothing while being forced to pay its dues to the CD.

The NCLAT observed that Regulation 7 of the CIRP Regulations, 2016, requires Operational Creditors to file claims in Form B. Crucially, Column 8 of Form B explicitly asks for: “Details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the creditor which may be set-off against the claim”. The NCLAT held that the regulations themselves contemplate set-off, and the Resolution Professional (RP) erred in rejecting a claim filed in accordance with the statutory format.

The Administrator relied on the Supreme Court’s judgment in Bharti Airtel Ltd. v. Vijaykumar V. Iyer, which generally barred insolvency set-off in CIRP. However, the NCLAT noted that Bharti Airtel carved out exceptions for “contractual” or “transactional” set-off where transactions are closely connected.

The NCLAT distinguished the present case from Bharti Airtel on two grounds:

1. Nature of Set-off: The Court found this to be a case of contractual/transactional set-off where the claim and counter-claim were undisputed and stemmed from connected agreements.

2. Timing of Dues: In Bharti Airtel, the dues claimed for set-off arose post-CIRP. In the present case, the mutual dealings and dues existed prior to the insolvency commencement date.

The NCLAT allowed the appeal, ruling that the Appellant’s claim for the net amount (after set-off) is treated as accepted. This judgment clarifies that while the moratorium prevents legal recovery, it does not negate the statutory right of a creditor to declare mutual set-offs in Form B when such adjustments are based on pre-existing, connected contractual arrangements.