Supreme Court Affirms NCLT and NCLAT Ruling on Insolvency Proceedings Involving Central Transmission Utility of India Limited Adjustment of Pre-CIRP Dues from Security Deposit Violates Insolvency and Bankruptcy Code's Moratorium Provisions
In a landmark judgment delivered on March 23, 2026, the Supreme Court of India upheld the decisions of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) concerning the insolvency proceedings of KSK Mahanadi Power Company Limited (KMPCL). The case, Central Transmission Utility of India Limited v. Sumit Binani, revolves around the impermissible adjustment of pre-Corporate Insolvency Resolution Process (CIRP) dues from a security deposit made by KMPCL.
The appellant, Central Transmission Utility of India Limited, challenged the NCLT and NCLAT's rulings that barred the adjustment of Rs. 85.13 crores from a security deposit of Rs. 108.44 crores made by KMPCL before the initiation of CIRP. The Supreme Court bench, comprising Justices Sanjay Kumar and K. Vinod Chandran, affirmed that such adjustments violate Section 14 of the Insolvency and Bankruptcy Code (IBC), which imposes a moratorium on the recovery of pre-CIRP dues.
Justice K. Vinod Chandran, delivering the judgment, emphasized that the security deposit remains the property of the Corporate Debtor (KMPCL) until legally appropriated and can only be adjusted against post-CIRP dues. The judgment reinforced the primacy of the IBC over other laws and agreements, asserting that any adjustment of pre-CIRP dues contravenes the moratorium provisions outlined in Section 14 of the IBC.
The case delved into the intricacies of payment security mechanisms and the legal interpretation of set-offs under insolvency proceedings. The appellant argued for the permissibility of set-offs, citing various precedents, including Bharti Airtel Ltd. v. Aircel Ltd. However, the Supreme Court clarified that set-offs for dues payable by the Corporate Debtor prior to the commencement of CIRP cannot be made from dues payable post-CIRP.
The judgment also addressed the nature of the security deposit, which was made in lieu of a Letter of Credit (LoC) and was deemed not to constitute a performance guarantee. It highlighted the distinction between pre-CIRP and post-CIRP dues, elucidating that while payments for maintaining the supply of goods and services during the moratorium are permissible, recovery of pre-CIRP dues must adhere to the procedure envisaged in the IBC.
The Supreme Court's ruling directs the appellant to adjust the appropriated security amounts solely against post-CIRP dues, maintaining the integrity of the insolvency process and protecting the interests of the Corporate Debtor. This decision reaffirms the IBC's objective to ensure a structured and equitable resolution process during insolvency proceedings.
The judgment is expected to have significant implications for insolvency cases across India, reinforcing the legal framework governing the resolution of corporate debts and the protection afforded to debtors under the IBC.
Bottom Line:
Adjustment of security deposit towards pre-CIRP dues is violative of Section 14 of Insolvency and Bankruptcy Code, 2016 (IBC) and contrary to the moratorium provisions.
Statutory provision(s): Section 14, Section 5(12), Section 238, Section 14(2A) of the Insolvency and Bankruptcy Code, 2016
Central Transmission Utility of India Limited v. Sumit Binani, (SC) : Law Finder Doc id # 2871191
