CENTRAL TRANSMISSION UTILITY OF INDIA LIMITED v. SUMIT BINANI
Prohibition of Set-off Against Pre-CIRP Dues from Security Deposits During Moratorium Under the Insolvency and Bankruptcy Code.
Court: Supreme Court of India
Citation: 2026 INSC 284
Decision Date: 23-03-2026
List of Laws
Insolvency and Bankruptcy Code, 2016; CERC (Sharing of Inter-State Transmission Charges and Losses) Regulations, 2010; Indian Contract Act, 1872; Principles of Set-off and Pari Passu
- Facts: The Corporate Debtor (CD), KSK Mahanadi Power Company Limited, entered into a Transmission Service Agreement (TSA) with the appellant's predecessor. To secure payments, the CD deposited Rs.108.44 crores in cash as a Payment Security Mechanism (PSM) in lieu of a Letter of Credit, following directions from the Central Electricity Regulatory Commission. On 03.10.2019, the CD entered Corporate Insolvency Resolution Process (CIRP). Post-commencement, the appellant appropriated the security deposit on 28.03.2020 to satisfy both pre-CIRP and post-CIRP dues. Specifically, Rs.85.13 crores were adjusted against pre-CIRP arrears. The Resolution Professional (RP) challenged this appropriation, contending it violated the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC).
- Procedural Posture: The National Company Law Tribunal (NCLT) held the appropriation of pre-CIRP dues to be illegal and directed the adjustment of the amount toward post-CIRP dues. This was affirmed by the National Company Law Appellate Tribunal (NCLAT). The appellant subsequently moved the Supreme Court of India.
- Issue: Whether a creditor can adjust or set off a security deposit against pre-CIRP dues after the commencement of the insolvency process and during the subsistence of a moratorium under Section 14 of the IBC.
- Holding: No, the appropriation of a security deposit towards pre-CIRP dues after the insolvency commencement date is impermissible and violative of the moratorium.
- Reasoning: The Court reasoned that once CIRP commences, the moratorium under Section 14 of the IBC prohibits any action to recover or enforce a security interest against the CD. The security deposit remains the property of the CD until it is lawfully adjusted. Relying on "Bharti Airtel Ltd. v. Aircel Ltd.", the Court emphasized that "insolvency set-off" is not recognized during the CIRP stage as it violates the "pari passu" principle and the scheme of the IBC. While payments for essential services during the moratorium to keep the CD as a "going concern" are permitted under Section 14(2A), the recovery of past dues must follow the claim submission process before the RP. Since the appellant was an operational creditor and had already submitted claims, it could not unilaterally appropriate assets to satisfy pre-insolvency debts.
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