1. Corporate debtor defaulted on power transmission charges; claimant operational creditor unilaterally appropriated a cash security deposit against pre-CIRP dues after the commencement of insolvency proceedings. (Para 1 , 2 , 3 )
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2026 Supreme(SC) 310
SUPREME COURT OF INDIA
SANJAY KUMAR, K. VINOD CHANDRAN, JJ.
Central Transmission Utility of India Limited – Appellant
Versus
Sumit Binani & Ors. – Respondents
Civil Appeal Nos. 2216-2217 of 2025
Decided On : 23-03-2026
Important Points
Pre-CIRP dues cannot be set off against payments due post-CIRP during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016.
Subject
Corporate Law - Insolvency
Act Referred
CIVIL PROCEDURE CODE: O.8 R.6
INSOLVENCY AND BANKRUPTCY CODE: S.14, S.238, S.29, S.5
LIQUIDATION REGULATIONS: Reg.29
INSOLVENCY AND BANKRUPTCY CODE: S.14, S.238, S.29, S.5
LIQUIDATION REGULATIONS: Reg.29
Headnote
(A) Insolvency and Bankruptcy Code, 2016 - Section 14 - Moratorium - Corporate Debtor's dues cannot be appropriated to pre-CIRP dues during moratorium - The adjustment of Rs.108.44 crores against pre-CIRP dues by the appellant was found violative of Section 14 moratorium. (Paras 3, 4, 25)
(B) Corporate law - Payment Security Mechanism (PSM) - Security deposits made prior to initiation of CIRP cannot be utilized for pre-CIRP dues - The appellant’s invocation of PSM against amounts due prior to CIRP was held impermissible. (Paras 4, 25)
(C) Set-off - Set-off against dues owed by the Corporate Debtor cannot occur post-CIRP as per principles established in *Bharti Airtel Ltd.* - The principle of insolvency set-off does not apply to pre-CIRP dues against post-CIRP claims. (Paras 18, 25)
(B) Corporate law - Payment Security Mechanism (PSM) - Security deposits made prior to initiation of CIRP cannot be utilized for pre-CIRP dues - The appellant’s invocation of PSM against amounts due prior to CIRP was held impermissible. (Paras 4, 25)
(C) Set-off - Set-off against dues owed by the Corporate Debtor cannot occur post-CIRP as per principles established in *Bharti Airtel Ltd.* - The principle of insolvency set-off does not apply to pre-CIRP dues against post-CIRP claims. (Paras 18, 25)
Legal Category Hierarchy
Advocates appeared:
For the Appellant : Mr. M.G. Ramachandran, Sr. Adv., Ms. Ranjitha Ramachandran, Adv., Mr. Aneesh Bajaj, Adv., Mr. Somesh Chandra Jha, AOR, Mr. Yashvardhan Singh, Adv., Mr. Rishit Vimadalal, Adv.
For the Respondents: Mr. Navin Pahwa, Sr. Adv., Mr. S.S. Shroff, AOR, Mr. Vaijayant Paliwal, Adv., Ms. Charu Bansal, Adv., Ms. Kirti Gupta, Adv., Ms. Srideepa Bhattachharyya, Adv., Ms. Neha Shivhare, Adv., Mr. Vikash Kumar Jha, Adv., M/s. Cyril Amarchand Mangaldas, AOR.
For the Appellant : Mr. M.G. Ramachandran, Sr. Adv., Ms. Ranjitha Ramachandran, Adv., Mr. Aneesh Bajaj, Adv., Mr. Somesh Chandra Jha, AOR, Mr. Yashvardhan Singh, Adv., Mr. Rishit Vimadalal, Adv.
For the Respondents: Mr. Navin Pahwa, Sr. Adv., Mr. S.S. Shroff, AOR, Mr. Vaijayant Paliwal, Adv., Ms. Charu Bansal, Adv., Ms. Kirti Gupta, Adv., Ms. Srideepa Bhattachharyya, Adv., Ms. Neha Shivhare, Adv., Mr. Vikash Kumar Jha, Adv., M/s. Cyril Amarchand Mangaldas, AOR.
Table of Contents
2. Claimant argued security deposit appropriation was a valid contractual set-off mechanism despite moratorium; respondent contended such unilateral set-off violated IBC moratorium and pari passu distribution principles. (Para 5 , 6 , 7 , 8 , 9 )
3. Deposit held as security for ongoing service remained the corporate debtor's asset; post-commencement unilateral appropriation of pre-CIRP dues violates the Section 14 moratorium under the IBC. (Para 15 , 16 , 17 , 18 , 24 , 25 )
4. Unilateral set-off of pre-CIRP dues against security deposits available with an operational creditor constitutes a violation of the moratorium and the IBC insolvency scheme. (Para 4 , 16 , 22 )
5. Appellate court affirmed the order prohibiting appropriation of security deposit for pre-CIRP dues and directed adjustment solely against post-CIRP liabilities. (Para 25 , 26 )
6. Can an operational creditor unilaterally set off pre-CIRP dues against a cash security deposit held for the corporate debtor during the CIRP?
No. Under the IBC, once the moratorium commences, a creditor cannot unilaterally appropriate pre-CIRP claims against assets of the corporate debtor, including security deposits, as such action violates the moratorium and the statutory scheme of pari passu distribution. (Para 3 , 4 , 16 , 18 )
7. Does the principle of contractual set-off allow for the appropriation of security deposits against pre-CIRP dues during an ongoing corporate insolvency resolution process?
No. Contractual set-off for pre-CIRP dues is impermissible after the insolvency commencement date, as it contravenes the moratorium under Section 14 and the overriding legislative mandate of the Insolvency and Bankruptcy Code. (Para 16 , 17 , 24 )
8. Is an operational creditor entitled to treat a cash security deposit as an independent asset for enforcement after the commencement of the moratorium?
No. A security deposit provided by the corporate debtor remains its asset. Because the deposit is not in the nature of an independent bank guarantee or irrevocable letter of credit that could trigger exceptions, its appropriation after the moratorium constitutes an illegal preference. (Para 4 , 15 , 20 , 22 )
JUDGMENT :
K.Vinod Chandran, J.
1. The appellant provides an established transmission system for use to power generation units and consumers with whom Transmission Service Agreements (TSA) are entered into. The power generation units along with its users or their nominated purchase entities entered into a Bulk TSA with the appellant’s predecessor Power Grid Corporation of India Limited (PGCIL), one of which units; the KSK Mahanadi Power Company Limited (KMPCL) ended up in an insolvency proceeding. KMPCL had also entered into a TSA with the appellant and Power Purchase Agreements with end users. The 2nd respondent is the creditor who initiated the Corporate Insolvency Resolution Process (CIRP) which was admitted by the National Company Law Tribunal (NCLT) on 03.10.2019. The 1st respondent is the Resolution Professional (RP) appointed for the generation unit, the Corporate Debtor (‘CD’-‘KMPCL’ referred to alternatively, post and pre CIRP respectively). The appeal is concerned with a cash deposit of Rs.108.44 crores, KMPCL made with the appellant prior to the CIRP but apportioned and disbursed against the bills raised before and after the CIRP; the controversy in this appeal relates specifically to Rs.85.13 crores which undisputedly are pre-CIRP dues.
2. On the appellant invoking the Payment Security Mechanism (PSM) as against Rs.108.44 crores and issuance of a regulation notice dated 03.06.2020 obligating the reinstatement of the PSM, the RP filed I.A. No.487 of 2020 before NCLT, the Adjudicating Authority, inter alia resisting the appropriation of Rs.108.44 crores and seeking its adjustment towards post-CIRP dues. We have to immediately notice that out of Rs.108.44 crores, Rs.23.31 crores were adjusted against post-CIRP dues being the bills raised, one of 04.10.2019 and three of 06.11.2019. Hence essentially the adjustment of the pre-CIRP dues was of Rs.85.13 crores; whether this amount can be apportioned or not against the pre-CIRP dues as claimed by the appellant is the only issue arising before us, despite other issues too having been dealt by the NCLT regarding what transpired in the interregnum after the CIRP commenced on 03.10.2019.
3. The NCLT found that there were various agreements entered into between the parties and the CD had outstanding dues to be paid to the appellant and in terms of the directions of the Central Electricity Regulatory Commission (CERC), the KMPCL had made payment of Rs.100 crores and was supposed to maintain its dues below Rs.122 crores in a 45 day period. The deposit of Rs.108.44 crores in cash was in lieu of a Letter of Credit (LoC) stipulated in the TSA which deposit was made as ordered by the CERC on a request made by the KMPCL. The PGCIL, the predecessor of the appellant herein, being an Operational Creditor had already submitted a claim before the RP towards operational debt including the dues and admitting the deposit of Rs.108.44 crores made as a security mechanism in lieu of LoC. The appropriation of such deposit available with the operational creditor on 28.03.2020 after the initiation of CIRP on 03.10.2019 towards pre-CIRP dues was found impermissible and contrary to the provisions of IBC specifically the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 20161[‘the IBC’]. The invocation of PSM as against Rs.108.44 crores was found to be contrary to law with a consequent direction to the appellant herein to adjust the appropriated security amounts towards post-CIRP dues, finding that sub-section (2A) of Section 14 permits such appropriation only to post-CIRP dues.
4. On appeal by the appellant herein, the National Company Law Appellate Tribunal (NCLAT) noticed the provisions of the IBC, specifically Section 5 (12) to find the Insolvency Commencement Date in the present case to be 03.10.2019 from which date Section 14 moratorium kicks in. Section 238 of the IBC gives the provisions of the IBC a precedence over the provisions of any other law or any instrument hav
