Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member-Technical), has upheld the unilateral set-off claimed by the corporate debtor against a financial creditor, even though the term sheet expressly excluded such a right.

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The appeal arose from an order of the NCLT, Mumbai Bench, which rejected the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), filed by Future Consumer Ltd. (financial creditor) against Aussee Oats India Ltd. (corporate debtor). The financial creditor alleged that it had advanced an Inter-Corporate Deposit (ICD) of ₹2 crores, out of which only ₹1.35 crore was repaid, leaving a balance of ₹65 lakhs plus interest. This default, according to the creditor, amounted to ₹1,00,12,157/-, for which it sought initiation of the corporate insolvency resolution process (CIRP).

Contentions of the Parties

The appellant contended that the term sheet governing the ICD clearly barred any right of set-off, and therefore, the corporate debtor’s unilateral adjustment of the dues was impermissible under IBC. It was further argued that the NCLT erred by relying on equitable principles, which, according to the creditor, have no application under the strict framework of the Code.

On the other hand, the respondent argued that the audited financial statements of the corporate debtor—signed by the nominee director of the financial creditor—reflected that there was no outstanding loan liability, while instead showing receivables from the financial creditor. In this light, the corporate debtor maintained that the claim of default was meritless.

Tribunal’s Observations

The NCLAT referred to the audited financial statements of the corporate debtor for the year ending 31.03.2021, which recorded a “NIL” loan liability towards the financial creditor and disclosed receivables of ₹7,51,131/- from the same creditor. The Tribunal noted that these financial statements had been duly approved by shareholders, including the associate company of the financial creditor holding a majority stake, and were signed by Mr. Shailesh Kedawat, the nominee director of the financial creditor and its then CFO.

The Bench emphasized that the signing of the financial statements by the nominee director indicated knowledge and acknowledgment of the set-off. It rejected the financial creditor’s submission that the statements were signed subject to further reconciliation, holding that no evidence of disagreement over the receivables was ever produced. Importantly, the NCLAT held that even if the term sheet specifically excluded set-off, the audited and approved financial statements showing appropriation of receivables would prevail. The Tribunal endorsed the NCLT’s view that it would be inequitable to initiate insolvency against a debtor for alleged default when the creditor itself owed more to the debtor.

The order also recorded that there were disputes between the shareholders of the financial creditor and the corporate debtor, further supporting the NCLT’s finding that the petition was not intended for resolution of the debtor but arose out of inter se disputes.

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Upholding the NCLT’s reasoning, the NCLAT ruled that there was no financial debt due and payable by the corporate debtor as on 31.03.2021, and therefore, no default existed for the purposes of Section 7 of the IBC. The appeal filed by the financial creditor was accordingly dismissed.

Appearance 

For Appellant: Mr. Darpon Wadhwa, Sr. Advocate with Ms. Petrushka Das Gupta, Mr. Mridul Yadvy, Mr. Kewal Buddhev, Mr. Anand Singh Sengar, Advocates.

For Respondent: Mr. Kunal Kanungo, Ms. Tanushree Sogani, Mr. Atishay Jain, Advocates.

Cause Title: Future Consumer Ltd. V. Aussee Oats India Ltd.

Case No: Company Appeal (AT) (Insolvency) No. 1382 of 2025  & I.A. No. 5379 of 2025

Coram: Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member-Technical)