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.

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