Quick answer: Set-off in CIRP is narrow. The Supreme Court in Bharti Airtel (2024) bars statutory and insolvency set-off during CIRP. However, a bank may still use contractual set-off if the right existed before CIRP began, or equitable set-off for connected, undisputed claims. Unilateral adjustments after the moratorium usually fail.
Banks and NBFCs often hold a borrower’s fixed deposits, current account balances or margin money. When that borrower enters insolvency, the first question is simple: can the lender adjust those funds against its loan? This guide explains how set-off in CIRP works today, what the courts allow, and how lenders can protect their position.
What Is Set-Off in CIRP?
Set-off lets a creditor reduce what it owes a debtor by what the debtor owes it. In a corporate insolvency resolution process (CIRP), however, the law treats creditors equally. Therefore, any set-off lets one creditor recover ahead of others. For this reason, tribunals examine set-off claims closely.
Indian law recognises three types. Statutory set-off arises under Order VIII Rule 6 of the CPC. Insolvency set-off appears in Regulation 29 of the IBBI Liquidation Regulations. Finally, contractual and equitable set-off rest on agreements and connected dealings.
Key Case Law on Set-Off in CIRP
Bharti Airtel Ltd. v. Vijaykumar V. Iyer (Supreme Court, 3 January 2024). The Court held that statutory set-off and Regulation 29 insolvency set-off do not apply to CIRP. Regulation 29 belongs to liquidation only. Still, the Court kept two exceptions alive. Contractual set-off survives if the right existed on or before the CIRP start date. Equitable set-off may apply to connected transactions, but only for clear, quantified money claims. Airtel lost because its dues arose after CIRP began.
Central Transmission Utility of India Ltd. v. Sumit Binani (Supreme Court, 23 March 2026; 2026 INSC 284). Here, the creditor appropriated a security deposit of KSK Mahanadi Power towards pre-CIRP dues after the moratorium. The Court held the deposit remained the debtor’s property until lawfully appropriated. It also found no mutual debts and distinguished Bharti Airtel. As a result, pre-CIRP claims must go through the resolution plan.
Sindhu Cargo Services v. Yes Bank (NCLT Bengaluru, 8 July 2025). The bank adjusted an overdraft against fixed deposits pledged as security. The borrower had signed a board resolution and application before CIRP. Accordingly, the NCLT upheld the set-off as a valid contractual set-off that did not breach Section 14.
ICBC v. Anish Niranjan Nanavaty (NCLAT, 25 September 2025). ICBC held a lien on a ₹27.60 crore deposit of Reliance Communications Infrastructure for an affiliate’s default. The NCLAT ordered release. A banker’s lien under Section 171 of the Contract Act covers only the customer’s own dues. Moreover, ICBC had not filed a claim in the CIRP.
For the wider rules on what the moratorium blocks, see our guide on the moratorium under Section 14 IBC.
Does the 2026 Amendment Change Set-Off?
The government brought key provisions of the IBC (Amendment) Act, 2026 into force from 26 May 2026. These changes do not appear to create a set-off rule for CIRP. So, Bharti Airtel and Sumit Binani still decide most disputes.
Checklist for Banks and NBFCs
- Check the date. Confirm that both debts arose before the CIRP commencement date.
- Review the security papers. Look for a signed lien letter, pledge, set-off clause or board resolution.
- Match the parties. Make sure the deposit and the loan belong to the same borrower, not a group company.
- Quantify the claim. Keep the amount clear, undisputed and supported by account statements.
- File a claim anyway. Submit your claim to the IRP or RP for any shortfall and to protect your rights.
- Avoid post-moratorium adjustments. Do not debit accounts for pre-CIRP dues after the moratorium without legal advice.
- Respond quickly to RP challenges. An RP may move the NCLT under Sections 14 and 60(5). Prepare your contract trail early.
FAQs on Set-Off in CIRP
Is set-off allowed during CIRP?
Only in limited cases. The Supreme Court allows contractual set-off based on pre-CIRP rights and equitable set-off for connected, undisputed money claims.
Can a bank adjust a fixed deposit against a loan after the moratorium?
It can if a valid pre-CIRP pledge or set-off agreement covers the deposit, as NCLT Bengaluru held in Sindhu Cargo. Without one, the adjustment will likely breach Section 14.
Does Regulation 29 of the Liquidation Regulations apply in CIRP?
No. Bharti Airtel confines Regulation 29 insolvency set-off to liquidation.
What is the difference between contractual and equitable set-off?
Contractual set-off comes from an agreement signed before CIRP. In contrast, equitable set-off arises from closely connected transactions and depends on fairness.
Can a bank hold a borrower’s deposit for a group company’s debt?
Generally not. In ICBC, the NCLAT held a banker’s lien covers only the customer’s own dues unless the documents name the affiliate.
What happens if an RP challenges the set-off?
The RP can apply to the NCLT. If the tribunal finds the set-off invalid, it may order the bank to return the funds with interest.
Talk to an IBC Lawyer
Lex Pleaders advises banks, NBFCs and businesses on set-off, lien and claim disputes in CIRP before the NCLT and NCLAT. Learn more about our IBC lawyers in India. Write to us at lexpleadersindia@gmail.com to discuss your matter.
Disclaimer: This article offers general information only and does not constitute legal advice.