The Supreme Court on Monday dismissed the appeals filed by the Central Transmission Utility of India Limited and held that once a moratorium under Section 14 of the Insolvency and Bankruptcy Code is imposed, pre-CIRP dues of a creditor cannot be unilaterally appropriated by setting off amounts from a security deposit held by the creditor, as such deposit continues to remain the property of the Corporate Debtor until it is lawfully adjusted in accordance with the provisions of the IBC. A bench comprising Justices Sanjay Kumar and K. Vinod Chandran upheld the orders of the NCLT and NCLAT, which had directed that the entire security deposit of ₹108.44 crores made by KSK Mahanadi Power Company Limited before the commencement of CIRP be adjusted only towards post-CIRP dues. The Court clarified that the appropriation of Rs. 85.13 crores towards pre-CIRP dues made by CTUIL on 28 March 2020 was violative of the moratorium and the scheme of the IBC.
The judgment authored by Justice K. Vinod Chandran observed that the deposit made, even if treated as a guarantee for the default in dues, remains the property of the Corporate Debtor till it is adjusted towards the defaulted dues and if so adjusted after the moratorium kicks in towards pre-CIRP dues, the adjustment would be rendered illegal. The dispute arose from transmission agreements between CTUIL and KMPCL, where KMPCL had deposited ₹108.44 crores in cash pursuant to CERC directions in lieu of a Letter of Credit as security for payment of transmission charges. After CIRP commenced against KMPCL on 3 October 2019, CTUIL appropriated the entire deposit, including ₹85.13 crores towards pre-CIRP dues. The Resolution Professional challenged this before the NCLT, which directed reversal and adjustment only towards post-CIRP dues. The NCLAT affirmed the order, holding that the security deposit remained the property of the Corporate Debtor and that pre-CIRP dues could only be claimed through the Resolution Professional in accordance with the IBC’s claims verification process.
The Supreme Court rejected CTUIL’s contention of permissible set-off, distinguishing the decision in Bharti Airtel Ltd. v. Aircel Ltd. on facts and clarifying that no mutual debts existed here to justify any adjustment. It noted that CTUIL had already filed claims before the Resolution Professional (partially admitted) but did not challenge the limited admission and instead unilaterally appropriated pre-CIRP dues, which was impermissible. The Court further observed that the approved and implemented Resolution Plan had already reckoned the deposit as an asset of the Corporate Debtor. It directed that book adjustments be carried out to reverse the pre-CIRP appropriation and satisfy post-CIRP dues first, with pre-CIRP dues being handled strictly through the claims process before the Resolution Professional, and this would apply equally to the appellant and the ISTS licensees. The appeals were accordingly dismissed with no order as to costs.
Cause Title: Central Transmission Utility of India Limited v. Sumit Binani & Ors.| 2026 INSC 284 (Civil Appeal Nos. 2216-2217 of 2025)
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