SC holds invocation of payment security after CIRP commencement violative of Section 14 moratorium

A bench of Justices Sanjay Kumar and K. Vinod Chandran heard appeals by the Central Transmission Utility of India Limited (CTUIL) challenging NCLT and NCLAT orders that set aside CTUIL’s appropriation of a cash deposit of Rs.108.44 crores placed by KSK Mahanadi Power Company Limited (KMPCL) and directed repayment or adjustment in accordance with the Insolvency and Bankruptcy Code (IBC). The primary question concerned whether Rs.85.13 crores of the deposit, undisputedly relating to pre‑CIRP dues, could be apportioned against pre‑insolvency bills after the commencement of the Corporate Insolvency Resolution Process (CIRP).

The Court summarised that the impugned appropriation contravened the moratorium under Section 14 of the IBC and affirmed the concurrent findings of the NCLT and NCLAT. The Court held that the deposit in lieu of a Letter of Credit (LoC) remained the property of the corporate debtor (KMPCL) until validly adjusted through the CIRP processes and that unilateral invocation of the Payment Security Mechanism after the insolvency commencement date was impermissible. The Court, in its reasoning, observed: “Set‑off of the dues payable by the Corporate Debtor for a period prior to the commencement of the CIRP cannot be made and is not permitted in law from the dues payable to the Corporate Debtor post the commencement of the CIRP.” The Court further noted that “the deposit made even if treated as a guarantee for the default in dues remains the property of the CD 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 appeals were dismissed and the impugned orders were affirmed, with directions that book adjustments be effected and that pre‑CIRP dues be addressed through the claims process under the CIRP.

Background
The dispute arose from long‑term transmission arrangements under a Bulk TSA between KMPCL and PGCIL (later CTUIL). Following defaults in transmission charges, the Central Electricity Regulatory Commission (CERC) directed that KMPCL furnish payment security; KMPCL deposited Rs.108.44 crores in cash in lieu of an LoC in 2018. CIRP against KMPCL commenced on 3 October 2019. CTUIL appropriated the deposit on 28 March 2020 and adjusted it against a series of bills raised both before and after the insolvency commencement date; Rs.23.31 crores related to post‑CIRP bills and Rs.85.13 crores related to pre‑CIRP bills, the latter being the core dispute.

The Resolution Professional (RP) objected and filed applications before the NCLT, which held the appropriation impermissible under Section 14 moratorium and directed adjustment towards post‑CIRP dues. NCLAT affirmed that the deposit was an asset of the corporate debtor and that recovery of pre‑CIRP dues must follow the insolvency process; the NCLAT found the unilateral apportionment to be violative of the IBC scheme. CTUIL contended that the deposit was in lieu of an LoC and could be invoked despite CIRP, relying on precedents on enforcement of guarantees and set‑off principles, including Bharti Airtel Ltd. v. Aircel Ltd. The RP and respondents urged that no LoC or BG was actually issued, that the deposit had been declared as an asset in the Information Memorandum, and that the appropriation was contrary to the moratorium. The Supreme Court examined the statutory scheme, the nature of set‑off recognised in Bharti Airtel, the claim admission process under Form B, and the status of the deposit as shown in the RP’s balance sheet and Information Memorandum. The Court recorded that the resolution plan was approved by the NCLT on 13 February 2025 and implemented from 6 March 2025. It held that book adjustments should reverse the apportionment to pre‑CIRP dues and that pre‑CIRP claims would be met through the RP’s admitted claims process; it rejected CTUIL’s claim to treat itself as a secured creditor entitled to enforce the deposit outside CIRP. The appeals were dismissed and pending applications were disposed of.

Case Details:
Case No.: Civil Appeal Nos. 2216-2217 of 2025
NeutralCitation: 2026 INSC 284
Case Title: Central Transmission Utility of India Limited v. Sumit Binani & Ors.
Appearances:
For the Petitioner(s): Shyam Divan, Senior Counsel; Ranjitha Ramachandran, Counsel
For the Respondent(s): Navin Pahwa, Senior Counsel