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Central Transmission Utility of India Limitedv.Sumit Binani & Ors

Citation:
2026 INSC 284
Date:
24 March 2026
Reading time:
15 min read

Synopsis

This judgment addresses the validity of appropriation by an operational creditor of a cash deposit held as security against pre‑CIRP dues after the initiation of Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). The appellant (Central Transmission Utility of India Limited) had received a cash deposit of ₹108.44 crores from the corporate debtor (KSK Mahanadi Power Company Limited) in lieu of a Letter of Credit (LoC) as part of the payment security mechanism. After the corporate debtor entered CIRP, the appellant appropriated the deposit towards outstanding pre‑CIRP bills. The NCLT and NCLAT held that such appropriation violated the moratorium under Section 14 of the IBC and directed adjustment of the entire deposit against post‑CIRP dues. The Supreme Court affirmed, holding that the deposit was an asset of the corporate debtor; any adjustment towards pre‑CIRP dues after the insolvency commencement date was impermissible. The Court distinguished the concept of set‑off as recognised in Bharti Airtel Ltd. v. Aircel Ltd. and held that the present case did not involve mutual debts or contractual set‑off. The appeal was dismissed.


2. Basic Information of the Judgment

Case Title: Central Transmission Utility of India Limited vs. Sumit Binani & Ors.

Civil Appeal Nos.: 2216–2217 of 2025

Bench/Coram: Justice Sanjay Kumar and Justice K. Vinod Chandran

Judgment Author: Justice K. Vinod Chandran

Date of Decision: March 23, 2026

Citation: 2026 INSC 284

Appeal From: Order of the National Company Law Appellate Tribunal (NCLAT) affirming the order of the National Company Law Tribunal (NCLT) in I.A. No. 487 of 2020.


3. Legal Framework

This judgment involves the interpretation of the Insolvency and Bankruptcy Code, 2016, the law relating to set‑off in insolvency, and the nature of security deposits under transmission service agreements.

A. Key Provisions of Law:

  • Insolvency and Bankruptcy Code, 2016 (IBC):
    Section 14: Imposes a moratorium on legal proceedings, recovery of property, and enforcement of security interests against the corporate debtor from the insolvency commencement date. Sub‑section (2A) permits payments for supply of goods and services during the moratorium.
    Section 5(12): Defines “insolvency commencement date” as the date of admission of the application for CIRP.
    Section 5(21): Defines “operational debt”.
    Section 3(31): Defines “security interest” as a right, title, or interest over property created by a transaction that secures payment of a debt.
    Section 238: IBC has overriding effect over other laws.

  • Central Electricity Regulatory Commission (Sharing of Inter‑State Transmission Charges and Losses) Regulations, 2010:
    Provided for Billing, Collection and Disbursement (BCD) procedures, including the requirement of Letter of Credit as payment security.

B. Related Precedents (Discussed in the Judgment):

  • Bharti Airtel Ltd. v. Aircel Ltd. & Dishnet Wireless Ltd. (Resolution Professional) (2023) 8 SCC 714: This decision elaborated on the concept of set‑off in the context of CIRP. It held that statutory set‑off (Order VIII Rule 6 CPC) or insolvency set‑off (Regulation 29 of Liquidation Regulations) is not applicable during CIRP. However, contractual set‑off that crystallised before the insolvency commencement date may be permissible. The Court also distinguished between mutual debts under separate agreements and held that set‑off of dues arising after commencement against pre‑CIRP dues is not permitted.

  • Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co. (2007) 8 SCC 110: Stated that Bank Guarantees and Letters of Credit are independent contracts and can be restrained only in cases of fraud or irretrievable injustice.

  • Standard Chartered Bank v. Heavy Engineering Corporation Ltd. (2020) 13 SCC 187: Reiterated the principle that an unconditional Bank Guarantee must be honoured irrespective of underlying disputes.

  • Jaypee Kensington Boulevard Apartments Welfare Assn. v. NBCC (India) Ltd. (2021) 18 SCC 604: Dealt with the rights of dissenting financial creditors and the enforcement of security interest.

  • Vistra ITCL (India) Ltd. v. Dinkar Venkatasubramanian (2022) 8 SCC 621: Distinguished pledge from guarantee and held that a secured creditor may retain security interest even if not classified as financial or operational creditor.

  • DBS Bank Ltd. Singapore v. Ruchi Soya Industries Ltd. (2024) 4 SCC 301: Clarified that a dissenting financial creditor is entitled to receive the value of its security interest in money.


4. Relevant Facts of the Case

  1. Transmission Service Agreement (TSA): The corporate debtor, KSK Mahanadi Power Company Limited (KMPCL), entered into a Bulk Power Transmission Agreement with the appellant’s predecessor (PGCIL) for long‑term access to the inter‑state transmission system. A TSA was executed.

  2. Payment Security Mechanism (PSM): Under the CERC regulations, the corporate debtor was required to furnish a Letter of Credit (LoC) for 105% of estimated average monthly billing. Due to disputes, the corporate debtor deposited ₹108.44 crores in cash with the appellant in lieu of the LoC, pursuant to an interim order of the CERC dated 30.08.2018.

  3. Default and CIRP: Several transmission bills raised between July and September 2019 remained unpaid. On 03.10.2019, the NCLT admitted an application for CIRP against KMPCL; that date is the “insolvency commencement date”.

  4. Appropriation of Deposit: On 28.03.2020, the appellant appropriated the entire ₹108.44 crores deposit against outstanding dues, of which ₹85.13 crores was towards pre‑CIRP bills (raised before 03.10.2019) and ₹23.31 crores towards post‑CIRP bills (raised after 03.10.2019).

  5. Claim Before RP: The appellant had filed its claim as an operational creditor before the Resolution Professional (RP) on 03.01.2020 for ₹356.41 crores, which was admitted partially to ₹96.75 crores. The appellant did not challenge the limited admission. It filed further claims later, but never treated the deposit as a security interest.

  6. NCLT and NCLAT Orders: The RP filed I.A. No. 487 of 2020 before the NCLT resisting the appropriation. The NCLT held that appropriation towards pre‑CIRP dues violated the moratorium under Section 14 IBC and directed the appellant to adjust the entire deposit towards post‑CIRP dues. The NCLAT affirmed.

  7. Resolution Plan: During the pendency of the appeals, the CoC approved a resolution plan on 13.02.2025, which was implemented. The Information Memorandum (IM) prepared by the RP listed the ₹108.44 crores deposit as an asset of the corporate debtor.


5. Issues Identified by the Supreme Court

The Supreme Court considered the following issues:

  1. Whether the appropriation by the appellant of the cash deposit (held in lieu of LoC) towards pre‑CIRP dues after the insolvency commencement date was valid under the IBC, particularly in light of the moratorium under Section 14.

  2. Whether the appellant could claim a right of set‑off against the deposit, and if so, whether such set‑off was permissible during CIRP.

  3. Whether the deposit constituted a security interest that could be enforced despite the moratorium.


6. Ratio Decidendi (The Reasoning and Decision of the Court)

The Supreme Court dismissed the appeal and affirmed the NCLAT’s order. The reasoning is as follows:

  • Nature of the Deposit: The cash deposit of ₹108.44 crores was a security held by the appellant in lieu of a Letter of Credit. It remained the property of the corporate debtor until appropriated against dues. The deposit was not a performance guarantee or a debt due to the appellant; it was an asset of the corporate debtor shown in its balance sheet.

  • Moratorium Under Section 14: The insolvency commencement date was 03.10.2019. From that date, the moratorium under Section 14 IBC prohibits recovery of any debt or enforcement of any security interest. The appellant’s appropriation of the deposit towards pre‑CIRP dues on 28.03.2020 was a unilateral recovery of a pre‑CIRP debt, which is expressly prohibited by Section 14(1)(a).

  • Set‑off Not Applicable: The appellant argued that it was entitled to set‑off the deposit against the dues. The Court examined Bharti Airtel Ltd. v. Aircel Ltd. in detail. In that case, set‑off was allowed only for mutual debts arising under separate agreements that crystallised before CIRP. Here, there was no mutual debt. The deposit was not a debt owed by the appellant to the corporate debtor; it was a security. The bills raised were debts owed by the corporate debtor to the appellant. There was no cross‑claim or reciprocity that could give rise to a set‑off.

  • No Contractual Set‑off: The appellant claimed that the deposit was made in lieu of an LoC, and if an LoC had been furnished, it could have been invoked even after the moratorium (as a contract of guarantee may be enforceable under Section 14(3)(b)). However, the Court held that the deposit was not a LoC or a Bank Guarantee. Even if it were a LoC, the moratorium would not permit enforcement against the corporate debtor for pre‑CIRP dues unless the exception in Section 14(3)(b) applied. That exception pertains to a “contract of guarantee to a corporate debtor” (i.e., a third‑party guarantee for the corporate debtor’s obligation), not a security provided by the corporate debtor itself.

  • Claim Already Submitted: The appellant had submitted its claim as an operational creditor before the RP. The claim included the pre‑CIRP bills. The RP admitted the claim to the extent of ₹96.75 crores, and the appellant did not challenge that decision. By appropriating the deposit without following the IBC process, the appellant sought to recover more than what was admitted and in a manner inconsistent with the resolution framework.

  • Resolution Plan Implementation: The resolution plan had been approved and implemented. The Information Memorandum treated the deposit as an asset of the corporate debtor. Allowing the appropriation would disturb the resolution process and give the appellant an undue preference over other creditors.

  • Distinction from Bharti Airtel: In Bharti Airtel, a contractual set‑off was permitted for amounts due under interconnect agreements that were mutual and had crystallised before CIRP. Here, there was no such mutual dealing; the deposit was simply a security that could be appropriated only upon default, and such appropriation was attempted after the moratorium.

  • Direction to Adjust Against Post‑CIRP Dues: The NCLT had directed the appellant to adjust the entire deposit towards post‑CIRP dues. The Court upheld this because post‑CIRP bills were for services supplied during the moratorium period, and Section 14(2A) permits payments for such supplies. The post‑CIRP bills were raised after 03.10.2019, and the appellant was entitled to be paid for those services from the deposit.


7. New Legal Principles Established / Reiterated

This judgment reinforces and clarifies the following principles:

  1. Security Deposit Remains Asset of Corporate Debtor: A cash deposit held as security by an operational creditor remains the property of the corporate debtor until appropriated. After the insolvency commencement date, it cannot be appropriated towards pre‑CIRP dues without following the IBC process.

  2. No Set‑off for Pre‑CIRP Security Deposits: The right of set‑off under the IBC, as interpreted in Bharti Airtel, is limited to mutual debts that crystallised before the insolvency commencement date. A security deposit is not a “debt” owed by the creditor to the corporate debtor; it is an asset of the corporate debtor. Therefore, no set‑off is available.

  3. Exception for Contract of Guarantee: Section 14(3)(b) permits enforcement of a “contract of guarantee to a corporate debtor” during the moratorium, meaning a guarantee given by a third party for the corporate debtor’s obligation. It does not permit enforcement of a security provided by the corporate debtor itself.

  4. Primacy of Claim Process: Once the CIRP commences, all claims must be submitted to the Resolution Professional and dealt with in accordance with the IBC. A creditor cannot unilaterally adjust amounts held as security to recover its pre‑CIRP dues.

  5. Resolution Plan’s Finality: After a resolution plan is approved and implemented, the rights of creditors are determined by the plan. A creditor cannot later seek to recover additional amounts by invoking security that was not properly disclosed or adjudicated.


8. The Court’s Analysis and Examination of Concepts

  • Distinction Between Security Deposit and Mutual Debt: The Court carefully analysed the nature of the deposit. It noted that the deposit was akin to a security for performance; it did not create a reciprocal debt. In Bharti Airtel, the set‑off was allowed because there were mutual debts under separate agreements (interconnect charges). Here, there was no such mutuality.

  • Moratorium and Its Exceptions: The Court examined Section 14(3)(b) and held that the exception applies only to guarantees given to the corporate debtor (i.e., where a third party has guaranteed the corporate debtor’s debt). It does not apply to security given by the corporate debtor.

  • Impact of Resolution Plan: The Court emphasised that the resolution plan had been approved and implemented. The Information Memorandum listed the deposit as an asset. The successful resolution applicant (SRA) would have factored that asset into its valuation. Allowing the appellant to retain the deposit would unjustly enrich it at the expense of other creditors.

  • Role of the Resolution Professional: The Court noted that the RP had admitted the appellant’s claim partially. The appellant did not challenge the admission. By subsequently appropriating the deposit, the appellant was effectively bypassing the RP’s decision and the entire CIRP framework.

  • Book Adjustments: The Court rejected the appellant’s argument that it had already disbursed the appropriated funds to transmission licensees. It observed that book adjustments could be made to reverse the appropriation, and any claims of the transmission licensees would also be subject to the IBC process.


9. Critical Analysis of the Judgment

This judgment is a significant application of the Bharti Airtel principles to a different factual scenario involving a security deposit.

  • Strength – Upholding the IBC Framework: The Court correctly held that the appropriation was a unilateral recovery of a pre‑CIRP debt in violation of the moratorium. This reinforces the core objective of the IBC: to provide a collective, orderly resolution process where all creditors are treated pari passu.

  • Consistency with Bharti Airtel: The Court carefully distinguished Bharti Airtel, which allowed set‑off only for mutual debts that crystallised before CIRP. Here, there was no mutual debt. The judgment thus maintains consistency while clarifying that set‑off cannot be extended to security deposits.

  • Practical Implications: The decision protects the corporate debtor’s assets for the benefit of all creditors. It prevents operational creditors from using security deposits as a means of self‑help recovery after CIRP has begun.

  • Potential Critique – Harsh on Operational Creditors: One could argue that the appellant had received the deposit as security in good faith, and the corporate debtor had defaulted on bills before CIRP. The Court’s decision forces the appellant to rely on the resolution plan for recovery, which may result in only partial realisation. However, this is precisely the consequence of the IBC’s design—to ensure that all creditors participate in the resolution process.

  • Treatment of Post‑CIRP Bills: The Court allowed the deposit to be adjusted against post‑CIRP bills because those were for services supplied during the moratorium and Section 14(2A) permits payment for such supplies. This is a fair balance: the appellant is entitled to be paid for services rendered after CIRP, but it cannot use the deposit to recover pre‑CIRP dues.


10. Final Outcome

The Supreme Court dismissed the appeals. It affirmed the orders of the NCLT and NCLAT, which had directed the appellant to adjust the entire cash deposit of ₹108.44 crores towards post‑CIRP dues (the bills raised after 03.10.2019). The appropriation of ₹85.13 crores towards pre‑CIRP dues was held to be illegal and violative of the moratorium under Section 14 IBC. Pending applications were disposed of.


11.  (MCQs)


1. Under the Insolvency and Bankruptcy Code, 2016, which of the following actions is prohibited by the moratorium under Section 14 after the insolvency commencement date?
a) Continuation of the corporate debtor’s business.
b) Payment for goods and services supplied during the moratorium.
c) Recovery of pre‑CIRP debts by an operational creditor.
d) Filing of claims before the Resolution Professional.


2. According to the judgment, why was the appellant not entitled to a set‑off against the security deposit?
a) Because the deposit was not a mutual debt; it was an asset of the corporate debtor, not a debt owed by the appellant to the corporate debtor.
b) Because the appellant had not filed its claim before the Resolution Professional.
c) Because the deposit was made before the CIRP commenced.
d) Because the deposit was a Letter of Credit and could be enforced under Section 14(3)(b).


3. What was the legal effect of the appellant not challenging the Resolution Professional’s limited admission of its claim?
a) It was not required because the deposit was a separate security.
b) It estopped the appellant from later claiming that the deposit should be set off against pre‑CIRP dues.
c) It automatically entitled the appellant to the full amount claimed.
d) It had no effect on the dispute regarding the deposit.


4. Which of the following was the key reason the Court distinguished Bharti Airtel Ltd. v. Aircel Ltd. from the present case?
a) In Bharti Airtel, the corporate debtor was a telecom company; here it is a power generator.
b) In Bharti Airtel, there were mutual debts under separate agreements; here there was no mutual debt.
c) In Bharti Airtel, the resolution plan had not been approved; here it was approved.
d) In Bharti Airtel, the deposit was made by the corporate debtor; here it was made by a third party.

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