Full Judgment Text
Reportable
2026 INSC 284
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal Nos. 2216-2217 of 2025
Central Transmission
Utility of India Limited
...Appellant
Versus
Sumit Binani & Ors.
...Respondents
J U D G M E N T
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
Signature Not Verified
Digitally signed by
Deepak Guglani
Date: 2026.03.24
16:36:23 IST
Reason:
nd
with end users. The 2 respondent is the creditor who
initiated the Corporate Insolvency Resolution Process
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(CIRP) which was admitted by the National Company Law
st
Tribunal (NCLT) on 03.10.2019. The 1 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
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Civil Appeal 2216-2217 of 2025
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
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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
1
of the Insolvency and Bankruptcy Code, 2016 . The
invocation of PSM as against Rs.108.44 crores was found to
be contrary to law with a consequent direction to the
appellant herein to adjust the appropriated security
amounts towards post-CIRP dues, finding that sub-section
(2A) of Section 14 permits such appropriation only to post-
CIRP dues.
4. On appeal by the appellant herein, the National
Company Law Appellate Tribunal (NCLAT) noticed the
provisions of the IBC, specifically Section 5(12) to find the
Insolvency Commencement Date in the present case to be
03.10.2019 from which date Section 14 moratorium kicks in.
Section 238 of the IBC gives the provisions of the IBC a
precedence over the provisions of any other law or any
instrument having effect by virtue of such law. It was
categorically found that the present case is a security
1
‘the IBC’
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deposit which till an adjustment is duly made remains the
property of the entity who made the deposit, herein KMPCL
who is now the CD. The security deposit was also not in the
nature of a performance guarantee, and it was held merely
as a security against default in payment. The scheme of IBC
provides that such a moratorium applies till the completion
of the CIRP. However, payments for maintaining supply of
goods and services arising during the moratorium period;
to keep the CD as an ongoing concern, was permissible
while the recovery of pre-CIRP dues has to concede to the
procedure envisaged in the IBC. The creditor has to file the
claim before the RP, which has been done in the present
case by the appellant and orders passed admitting the claim
to an extent. Finding the adjustment made as against pre-
CIRP dues by the appellant, from the security deposit, to be
violative of the scheme of the IBC, the impugned order of
the NCLT was affirmed.
5. Sri. Shyam Divan, learned Senior Counsel and Ms.
Ranjitha Ramachandran learned Counsel ably assisting,
contended that adjustment or set-off are permissible even
under the scheme of IBC. The facts and circumstances would
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clearly indicate that the deposit made was in lieu of LoC
which could have been invoked despite the initiation of
CIRP. It is asserted that security deposit was made at the
request of KMPCL on the orders of the CERC, an application
having been moved at their instance before the CERC which
stood withdrawn noticing the deposit made in lieu of LoC.
We were taken through the terms of the agreement and the
Billing Collection and Disbursement Procedure under the
CERC (Sharing of Inter-State Transmission Charges and
2
Losses) Regulations, 2010 providing for the LoC and the
default clauses enabling enforcement of dues, upon which
the defaulter is obliged to recoup the security to the extent
enforced.
6. The argument of adjustment or set off is urged on the
ground that the title to the money deposited is already
impeached as on the issuance of a bill which stood defaulted
for which reliance is placed on Bharti Airtel Ltd. v. Aircel
3
Ltd. & Dishnet Wireless Ltd. (Resolution Professional) .
The definition of ‘security interest’ under Section 3(31), the
prohibition under clause (c) of Section 14(1) and the
2
Regulation of 2010
3
(2024) 4 SCC 668
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exception thereat provided by clause (d) of Section 14(3)
are specifically relied on to contend that an LoC could have
been enforced after the commencement date which in turn
would translate as the debt to the entity who provided the
LoC; which in effect was the appropriation made of the
amounts deposited in lieu of LoC. Reliance is placed on
Himadri Chemicals Industries Ltd. v. Coal Tar Refining
4
Co. and Standard Chartered Bank v. Heavy Engineering
5
Corporation Limited to put forth the nature of a Bank
Guarantee (BG)/LoC. It is an independent contract between
the bank and the beneficiary, unconditional and
irrevocable, making it obligatory on the bank to honour it
without reference to any disputes between the parties to a
contract in pursuance of which the BG/LoC is issued unless
there is a ground raised of fraud or irretrievable harm or
injury. Jaypee Kensington Boulevard Apartments Welfare
6
Assn. v. NBCC (India) Ltd. , Vistra ITCL (India) Ltd. v.
4
(2007) 8 SCC 110
5
(2020) 13 SCC 574
6
(2022) 1 SCC 401
Page 7 of 27
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7
Dinkar Venkatasubramanian and DBS Bank Limited
8
Singapore v. Ruchi Soya Industries Ltd. are also relied on.
7. It is pointed out that the appellant is only a nodal
agency and the apportionment is made based on the bills
issued by the transmission licensees to whom the appellant
disbursed the entire amounts, deposited as security. The
appellant if asked to deposit the same with the RP,
necessarily it would result in an illegal enrichment to the
Successful Resolution Applicant (SRA) which is not the
intention of the IBC. The amount disbursed to the
transmission licensees in any way are reimbursed by the
ultimate power user, which can be proceeded with either
by the RP or the SRA. The priority of a security creditor as
6
delineated in Jaypee Kensington has not been reckoned
by the impugned orders.
8. Sri. Navin Pahwa learned Senior Counsel appearing
for the respondent commences his argument pointing out
Section 62 which restricts an appeal to the Supreme Court
on a question of law which is totally absent in the present
case. It is pointed out that the prescription as available from
7
(2023) 7 SCC 324
8
(2024) 3 SCC 752
Page 8 of 27
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the TSA is of a provision of LoC, BG or any other mode of
security. The deposit made cannot be said to be in lieu of
LoC nor can it be equated with a LoC or BG which claim in
any event was not raised before the NCLT or NCLAT.
9. The appellant had submitted a claim of Rs.356.41
crores initially before the RP which was admitted to the
extent of Rs.96.75 crores. There was no challenge taken by
the appellant to the limited admission of debt due, by the
RP. The NCLT had approved the resolution plan based on
the decision of the Committee of Creditors (CoC) on
13.02.2025 which also has attained finality and stands
implemented commencing from 06.03.2025. The appellant
cannot take the contention of a third-party surety as
excluded under Section 14(3)(b) which is a surety to the CD
and not for the CD. The reliance placed on Bharti Airtel
3
Ltd. is assailed on a reading of the very same decision.
There is no claim of set-off arising hereunder neither on the
basis of the contract nor on the grounds of equity. Again, a
claim in Form B was submitted by the appellant first for
356.41 crores on 03.01.2020 and then for an amount of Rs.
1.71 crores on 09.07.2021and on the third instance, for Rs.
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3.76 crores on 12.10.2020. At no point in either of these
claims Rs.108.44 crores deposit was claimed as a security.
Reliance is placed on Section 29 of the IBC to point out that
the ingredients of the Information Memorandum (IM) cannot
be interfered with.
10. The RP also placed before us the balance sheets of the
CD and the IM which clearly indicates Rs.108.44 crores
having been shown as a deposit and the asset of the CD as
on the ‘insolvency commencement date’. It is also pointed
out that despite the permissible default period having
expired, the appellant had not chosen to invoke the PSM and
appropriate the amounts immediately after the default
period, which would have been before the ‘insolvency
commencement date’. Even after the commencement of the
proceedings when a claim was raised, the deposit was
never shown as a security interest and despite the claims
raised having not been fully accepted, still without
challenging any of the admitted amounts, the appropriation
was made with respect to the pre-CIRP dues which stands
vitiated as per the scheme of IBC.
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11. Shorn of the details, the brief facts to be noticed are
that the KMPCL entered into a Bulk Power Transmission
Agreement (BPTA) with PGCIL (later substituted by the
appellant) for obtaining long term access to the Inter-State
Transmission System. Pursuant to the same, the TSA was
executed with the appellant and consequential Power
Purchase Agreements were also executed, with which we
are not concerned. The PGCIL issued termination notice
dated 01.08.2018 on account of the LoC not being opened.
The KMPCL then moved an application before the CERC
pointing out that Rs.22 crores in cash has been deposited
with PGCIL towards PSM and that Rs.108.44 crores relatable
to the entire capacity would be deposited by September
2018. A stay of the termination notice dated 01.08.2018 was
sought responding to which PGCIL submitted that the
outstanding dues for September and October 2018 were
undertaken to be paid and in pursuance to that, the
regulation of power supply notice issued by PGCIL was kept
on hold. However, this was subject to furnishing the
requisite LoC failing which termination was the only option.
It was also prayed before the CERC that KMPCL may be
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directed to file an affidavit that the complete outstanding
dues are paid within 60 days from the date of default. The
CERC granted an interim relief directing PGCIL not to take
any coercive measures in terms of notice dated 01.08.2018
subject to the petitioner depositing Rs.108 crores or
opening an LoC on or before 20.09.2018 as PSM. Though no
LoC was furnished as per the undertaking before the CERC,
the deposit of Rs.108.44 crores was made based on which
the CERC closed the petition filed by KMPCL on 08.02.2019.
The appellant had also withdrawn the notice of regulation.
12. As for the terms and conditions applicable to the
present dispute, the agreement for long-term access as
disclosed in Exhibit P1 provided for detailed instructions
with respect to payment of transmission charges in addition
to the opening of LoC for 105% of the estimated average
monthly billing and irrevocable BG equivalent to two
months estimated average monthly billing. The security
mechanism was to be initially valid for three years and then
renewed from time to time; review was also made possible
every six months, based on the change in estimated
average transmission charges. The default in payment of
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Civil Appeal 2216-2217 of 2025
monthly charges enabled PGCIL to encash or adjust the BG
immediately upon which the same had to be replenished or
recouped by the long-term transmission customers before
the next billing cycle. The furnishing of LoC is in accordance
with Billing, Collection and Disbursement (BCD) Procedure
under the Regulations of 2010 produced as Annexure A4.
Specifically, Clause 3.7 empowers the CTU to proceed
under the Regulations of 2010, if any bill raised is
outstanding beyond 30 days after the due date or in case the
required LoC or any other agreed PSM is not maintained by
CERC; in this case the deposit made of Rs.108.44 crores.
13. The dates relevant to the controversy is that the
KMPCL had defaulted payments of Bill No. 91106950 dated
04.07.2019 for an amount of Rs.69,83,47,035/-, Bill
No.91107010 dated 29.07.2019 for Rs.11,73,70,009/-, Bill
No.91107026 dated 09.08.2019 for Rs.8,50,92,594/-, two Bills
dated 13.08.2019 bearing Nos. 91107063 & 91107088
respectively of Rs.8,08,72,823/- & Rs.30,41,35,771/- Bill No.
91107161 dated 04.09.2019 for Rs.8,66,76,521/- and Bill
No.91107268 dated 06.09.2019 of Rs.5,81,89,205/-; which
are pre-CIRP dues. On 03.10.2019, NCLT, the Adjudicating
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Authority passed an order initiating CIRP against the CD
which is the ‘Insolvency Commencement Date’. And post-
CIRP, Bill No. 91107297 dated 04.10.2019 of Rs. 8,39,30,713
and three bills dated 06.11.2019 of respectively
Rs.57,33,798/- Rs.28,31,79,190/- & Rs.6,15,95,268/- were
raised. There was a regulation notice issued later to that by
the appellant which is not germane to the present
controversy. The appellant had raised claims under Form
‘B’ thrice on 03.01.2020, 09.07.2021 and 12.10.2020, a
portion of which was admitted by the RP; which limited
acceptance was not challenged. The bone of contention is
the appropriation made of Rs.108.44 crores by the appellant
on 28.03.2020 in satisfaction of the above referred bills of
both pre-CIRP and post-CIRP dues. The NCLT and the
NCLAT having directed the adjustment of the entire
amounts furnished under the PSM as against the post-CIRP
dues; limits the controversy to the adjustment of Rs.85.13
crores as against the pre-CIRP dues.
14. The claim of set-off raised by the appellant is primarily
3
based on the decision in Bharti Airtel Ltd , the facts and law
declared in which will have to be looked into at the outset.
Page 14 of 27
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Therein two groups termed as ‘Airtel entities’ and ‘Aircel
entities’ entered into eight spectrum purchase agreements
by which the former agreed to purchase the right to use the
spectrum allocated to the later. The agreements were
contingent on the approval of the Department of Telecom
(DoT) to whom the Aircel entities were obligated to submit
BG of approximately Rs.453.73 crores. Since, Aircel entities
did not have the means to furnish the BG, Airtel agreed to
submit the BG on behalf of Aircel to DoT and the
consideration of the spectrum agreements were reduced
based on the furnishing of BG, which further obligated Airtel
to pay a definite sum, on cancellation of the BG. Aircel
finally succeeded before the Telecom Disputes Settlement
and Appellate Tribunal (for short, the Tribunal) and
eventually the BG furnished by Airtel on behalf of Aircel to
the DoT was cancelled. Airtel entities, as per the
understanding, paid certain amounts to Aircel but after
setting off the amounts due to it as interconnect usage
charges. The payment after set-off was made on 10.01.2019
prior to which CIRP was initiated against Aircel entities by
orders dated 12.03.2018 and 19.03.2018. The RP appointed
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Civil Appeal 2216-2217 of 2025
for Aircel entities protested to the adjustment of an amount
of Rs.112.87 crores which the Airtel entities objected to and
claimed as set-off. The NCLT allowed the claim while the
NCLAT reversed it and found the set-off to be violative of the
basic principles and protection afforded under the
insolvency law to the CD, finding set-off to be antithetical to
the very objective of the IBC.
15. The meaning of set-off, various types and principles
3
involved were elaborately considered in Bharti Airtel Ltd.
It was held that, “ Set-off in a generic sense recognises the
right of a debtor to adjust the smaller claim owed to him
against the larger claim payable to his creditor ” (sic para 15) .
Immediately, we have to notice that therein amounts were
due from Airtel to Aircel and vice versa based on which the
set-off was attempted; part of which alone was eventually
held justified, denying such set-off on the additional
amounts due on cancellation. Herein, there were no debts
due to the CD from which a set-off could have been made
by the appellant of the dues arising on default of payment of
monthly bills. Bills were raised by the CTUIL, the appellant
herein which were remaining due as on the insolvency
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Civil Appeal 2216-2217 of 2025
commencement date, The amount of Rs.108.44 crores is
deposited with the appellant in lieu of a LoC, which is a
security for due payment of the bills raised by the appellant
during the validity period of the TSA. As long as the TSA
continued if the bills are paid regularly, KMPCL could not
have sought for refund of the money so deposited. On the
other hand, in the event of default, the appellant had the
authority to apportion the due amounts to the extent of
satisfaction of such amounts due on the bills raised. The
amounts apportioned also related to pre-CIRP and post-
CIRP bills. The mutual dues, arising from a distinct contract,
3
found in Bharti Airtel Ltd. justifying a set-off does not arise
in this case. On the contrary the deposit herein made in lieu
of LoC is similar to the additional amounts due on
cancellation of BG, from Airtel to Aircel as found in Bharti
3
Airtel Ltd. ; remaining with one as the asset of the other not
subjected to any set-off contractually, equitably, statutorily
or in common law.
3
16. Coming back to the decision in Bharti Airtel Ltd. five
different meanings were ascribed to set-off viz., (a) statutory
or legal set-off; (b) common law set-off; (c) equitable set-off;
Page 17 of 27
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(d) contractual set-off; and (e) insolvency set-off, of which,
common law and equitable set-off were found to have
always flown together. Looking at the IBC, it was found that
statutory set-off in terms of Order VIII Rule 6 of CPC or
insolvency set-off as permitted by Regulation 29 of the
Liquidation Regulations cannot be applied to CIRP. The
exception being only of the contractual set-off being
permitted before or on the date CIRP is put in motion or
commenced, since pre-moratorium the terms of the contract
are binding and are not altered or modified. It was
categorically held in para 39 that: “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” (sic para 39) .
3
17. Bharti Airtel Ltd. categorically found that the plea of
set-off based on Section 30(2)(b) is fallacious since (i) it does
not make Chapter III Part II ie: Section 36(4)(e) or Regulation
29 of the Liquidation Regulations applicable to CIRP under
Chapter II Part II IBC, (ii) sub clause (ii) of Section 30(2)(b)
deals with amounts payable to creditors and not by the
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Civil Appeal 2216-2217 of 2025
creditors to CD, (ii) the provision has application when the
resolution plan is considered for approval and (iv) the
specific legislative mandate of IBC, all of which does not
recognize the principle of insolvency set-off in CIRP. The
set-off of Rs.64 crores which was due and payable by Aircel
entities under the operational services agreement as
allowed by the RP was found to be perfectly justified since
it was on the aspect of mutual dealings and also equity. The
adjustment of interconnect charges were under a separate
and distinct agreement, distinct from the purchase of the
right to use the spectrum which was found to be entirely
different and unconnected transaction. Hence, when the
telephone service providers used each other’s facilities, the
adjustment of set-off were made on the basis of the
contractual set-off, justified also on the ground of equitable
set-off. The adjustment insofar as the amounts payable by
Airtel entities to the CD, on return/cancellation of BGs, post
commencement of CIRP was not amenable to a set-off, was
the clear finding.
18. As we noticed, in the present case the amounts were
deposited as security for due payment of the bills raised.
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Civil Appeal 2216-2217 of 2025
The payment of a bill was to be made within 30 days and
there is an extended time of another 30 days within which
the default can be satisfied. As far as the pre-CIRP dues, the
bills were issued on 04.07.2019, 29.07.2019, 09.08.2019,
13.08.2019, 04.09.2019 and the last on 06.09.2019, all prior
to the commencement date; 03.10.2019. If the due amounts
were apportioned prior to the commencement date then
there could be no dispute raised. Pertinently, after the
commencement of the insolvency proceedings, a claim was
submitted in Form B on 03.01.2020 for Rs.356.41 crores of
which Rs.96.70 crores was admitted by the RP. The claim
submitted included in Part A, Rs. 354,37,76,489/- and in Part
B, Rs. 2,04,05,539/- which are stated to be the claim amount
as on date and the future monthly transmission charges
estimated on the average of last three months billing was
asserted to be Rs. 57.40 crores. Part A of the claim was also
described as arising from the unpaid invoices raised
towards transmission charges as per Bulk TSA & CEC
Regulations, the invoices having been produced therein as
Annexure-2. Part B arose from the unpaid invoices raised on
the strength respectively of the agreements dated
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Civil Appeal 2216-2217 of 2025
16.12.2010 and 05.02.2014 as also the MOU dated
20.10.2016; the breakup relating to each of such agreements
and the MoU, given at Column No. 7 with invoices produced
as Annexures 6, 8 &10. Obviously, the claim raised included
the bills pending as due and defaulted till the date of filing
of Form B. The amounts now apportioned to pre-CIRP dues
hence was claimed before the RP. Form B was again filed
twice on 09.07.2021 and 12.10.2020, after the apportionment
on 18.03.2020.
19. In fact the second Form B filed explained the
downward revision from Rs. 356,41,82,028/- to Rs.
1,71,94,716/- as due to three reasons the second of which
was as below:
2. Subsequent to raising of the above
adjustment bill, the LC amount of Rs.108.44 Cr
(submitted on 24.08.2018, 28.08.2018 & 18.09.2018
as per Record of Proceeding of CERC dated
30.08.2018) available in cash with CTU even prior
to CIRP date, was also adjusted against the
outstanding dues on FIFO basis during Mar’20 as
per BCD procedure of CERC Sharing Regulation
2010 and the same was communicated to KSK vide
our mail dated 28.03.2020.
On the filing of Form B which included the pre-CIRP dues,
the claims were admitted to an extent which order of the RP
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Civil Appeal 2216-2217 of 2025
was not challenged by the appellant, Subsequently the
apportionment was made unilaterally of pre-CIRP dues from
the deposit clearly violating the moratorium.
4
20. Himadri Chemicals Industries Ltd. dealt with
injunctions restraining encashment of BG and LoC which
were held to be permissible only in two exceptional cases
of, fraud or irretrievable harm or injury. Standard
5
Chartered Bank found that when a beneficiary seeks
enforcement of a BG, it is obligatory, unconditional and
irrevocable. The dispute between the parties to a contract,
pursuant to which the BG was issued, cannot result in the
bank refusing encashment especially since on issuance of
the BG, it is an independent contract between the bank and
the beneficiary. In the present case, we cannot but notice
that there is no BG or LoC issued. Though, the deposit is said
to be in lieu of an LoC, the fact remains that even if it was an
LoC after the ‘insolvency commencement date’ as per
Section 5(12) of the IBC, there could not have been an
encashment through or enforcement of the LoC by reason of
the moratorium under Section 14 of the IBC. Section 14(2)(b)
speaks of a ‘contract of guarantee to a Corporate Debtor’,
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Civil Appeal 2216-2217 of 2025
which can be enforced to make payment dues to the CD and
not from the CD.
6
21. Jaypee Kensington is with respect to ‘the entitlement
of a dissenting financial creditor who is also a secured creditor
to receive the amount payable by allowing enforcement of a
security interest to the extent of the value receivable by him
and in the order of priority available to him’ . The appellant
herein is neither a financial creditor nor can be deemed to
7
be a secured creditor. Vistra ITCL dealt with a pledge of
shares held by the CD in another company to the financier
for disbursing loan to two other entities, the end benefit of
which inured to the CD itself. It was found that pledge is
distinguishable from a guarantee insofar as it limits the
liability of the CD to the value of the pledged shares. The
appellant therein was held to be neither a financial creditor
nor an operational creditor and in its status as a secured
creditor, being denied of the benefits available to a financial
or an operational creditor in terms of Sections 52 and 53, the
appellant was allowed to retain the security interest on the
pledge of shares made by the CD.
Page 23 of 27
Civil Appeal 2216-2217 of 2025
8
22. DBS Bank Limited Singapore , clarified that Jaypee
6
Kensington only held that the dissenting financial creditor,
if the occasion arises, is entitled to receive the extent of
value in money equal to the security interest held by him.
The security interest gets converted from the asset to the
value of the asset, which is to be paid in the form of money.
It is pertinent that the specific finding was with respect to a
dissenting financial creditor in whom was created a security
interest of the immovable properties of the CD. In the
present case, there is no security interest created through
pledge or otherwise by the CD to the appellant. 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 deposit made is not a debt due to
KMPCL, the CD.
23. The NCLT approved the Resolution Plan and the same
is implemented, which was not challenged by the appellant
as was argued by the learned Senior Counsel for the
respondent. The very claim of set-off was not raised before
Page 24 of 27
Civil Appeal 2216-2217 of 2025
the NCLT or the NCLAT and there was no contention raised
by the appellant that they had the status of a secured
creditor. The appellant has the status of an operational
creditor and the apportionment of the defaulted bills
remained defaulted for long till 18.03.2020, long after the
commencement of the CIRP. The apportionment was
objected to by the RP by filing an appropriate application
before the NCLT which has resulted in the present
proceedings.
24. We have also been shown the IM as prepared by the
RP which discloses Rs.108.44 crores in the balance sheet
under the assets and liabilities of the CD as an asset and
later, after information as to its apportionment, as a disputed
issue pending before the NCLT. The Resolution Plans were
submitted out of which one has turned successful, reckoning
Rs.108.44 crores as an asset of the CD. The appellant ought
not to have apportioned the claim once the CIRP
proceedings commenced. As has been found in Bharti
3
Airtel Ltd. set-off would mitigate against the pari passu
principle which is apparent from the scheme of the IBC.
Page 25 of 27
Civil Appeal 2216-2217 of 2025
25. The NCLT and the NCLAT has rightly found the
apportionment made by the appellant to be violative of the
provisions of the IBC and in derogation of the moratorium
under Section 14. The direction of the NCLT is also to
apportion the entire amounts to the post-CIRP dues, a
portion of which by the apportionment itself is to post-CIRP
dues. An argument was raised on behalf of the appellant
that the amounts apportioned have been disbursed to the
ISTS licensees in payment of their defaulted bills and hence,
the appellant would be liable to make good the amounts
from its own funds. We have no reason to accept the above
contention since even the ISTS licensees would be hit by the
moratorium under Section 14. On the directions issued by
the NCLT as confirmed by the NCLAT, book adjustments
alone would have to be carried out, especially since the CD
is a running concern. The pre-CIRP dues, whether it be to
the appellant or the ISTS licensees, will have to be subjected
to the RPs decision first made, on submission of Form B
dated 03.01.2020. The CD is continuing its operations
during the CIRP period and book adjustments would
reverse the apportionment made to pre-CIRP dues so as to
Page 26 of 27
Civil Appeal 2216-2217 of 2025
satisfy the post-CIRP dues, the pre-CIRP dues being
satisfied through the claim allowed by the RP with respect
to that. This would apply equally to the appellant and the
ISTS licensees.
26. We hence, affirm the impugned orders and reject the
appeals.
27. Pending applications, if any, shall stand disposed of.
……...…….……………………. J.
(SANJAY KUMAR)
...………….……………………. J.
(K. VINOD CHANDRAN)
NEW DELHI;
MARCH 23, 2026.
Page 27 of 27
Civil Appeal 2216-2217 of 2025
2026 INSC 284
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal Nos. 2216-2217 of 2025
Central Transmission
Utility of India Limited
...Appellant
Versus
Sumit Binani & Ors.
...Respondents
J U D G M E N T
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
Signature Not Verified
Digitally signed by
Deepak Guglani
Date: 2026.03.24
16:36:23 IST
Reason:
nd
with end users. The 2 respondent is the creditor who
initiated the Corporate Insolvency Resolution Process
Page 1 of 27
Civil Appeal 2216-2217 of 2025
(CIRP) which was admitted by the National Company Law
st
Tribunal (NCLT) on 03.10.2019. The 1 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
Page 2 of 27
Civil Appeal 2216-2217 of 2025
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
Page 3 of 27
Civil Appeal 2216-2217 of 2025
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
1
of the Insolvency and Bankruptcy Code, 2016 . The
invocation of PSM as against Rs.108.44 crores was found to
be contrary to law with a consequent direction to the
appellant herein to adjust the appropriated security
amounts towards post-CIRP dues, finding that sub-section
(2A) of Section 14 permits such appropriation only to post-
CIRP dues.
4. On appeal by the appellant herein, the National
Company Law Appellate Tribunal (NCLAT) noticed the
provisions of the IBC, specifically Section 5(12) to find the
Insolvency Commencement Date in the present case to be
03.10.2019 from which date Section 14 moratorium kicks in.
Section 238 of the IBC gives the provisions of the IBC a
precedence over the provisions of any other law or any
instrument having effect by virtue of such law. It was
categorically found that the present case is a security
1
‘the IBC’
Page 4 of 27
Civil Appeal 2216-2217 of 2025
deposit which till an adjustment is duly made remains the
property of the entity who made the deposit, herein KMPCL
who is now the CD. The security deposit was also not in the
nature of a performance guarantee, and it was held merely
as a security against default in payment. The scheme of IBC
provides that such a moratorium applies till the completion
of the CIRP. However, payments for maintaining supply of
goods and services arising during the moratorium period;
to keep the CD as an ongoing concern, was permissible
while the recovery of pre-CIRP dues has to concede to the
procedure envisaged in the IBC. The creditor has to file the
claim before the RP, which has been done in the present
case by the appellant and orders passed admitting the claim
to an extent. Finding the adjustment made as against pre-
CIRP dues by the appellant, from the security deposit, to be
violative of the scheme of the IBC, the impugned order of
the NCLT was affirmed.
5. Sri. Shyam Divan, learned Senior Counsel and Ms.
Ranjitha Ramachandran learned Counsel ably assisting,
contended that adjustment or set-off are permissible even
under the scheme of IBC. The facts and circumstances would
Page 5 of 27
Civil Appeal 2216-2217 of 2025
clearly indicate that the deposit made was in lieu of LoC
which could have been invoked despite the initiation of
CIRP. It is asserted that security deposit was made at the
request of KMPCL on the orders of the CERC, an application
having been moved at their instance before the CERC which
stood withdrawn noticing the deposit made in lieu of LoC.
We were taken through the terms of the agreement and the
Billing Collection and Disbursement Procedure under the
CERC (Sharing of Inter-State Transmission Charges and
2
Losses) Regulations, 2010 providing for the LoC and the
default clauses enabling enforcement of dues, upon which
the defaulter is obliged to recoup the security to the extent
enforced.
6. The argument of adjustment or set off is urged on the
ground that the title to the money deposited is already
impeached as on the issuance of a bill which stood defaulted
for which reliance is placed on Bharti Airtel Ltd. v. Aircel
3
Ltd. & Dishnet Wireless Ltd. (Resolution Professional) .
The definition of ‘security interest’ under Section 3(31), the
prohibition under clause (c) of Section 14(1) and the
2
Regulation of 2010
3
(2024) 4 SCC 668
Page 6 of 27
Civil Appeal 2216-2217 of 2025
exception thereat provided by clause (d) of Section 14(3)
are specifically relied on to contend that an LoC could have
been enforced after the commencement date which in turn
would translate as the debt to the entity who provided the
LoC; which in effect was the appropriation made of the
amounts deposited in lieu of LoC. Reliance is placed on
Himadri Chemicals Industries Ltd. v. Coal Tar Refining
4
Co. and Standard Chartered Bank v. Heavy Engineering
5
Corporation Limited to put forth the nature of a Bank
Guarantee (BG)/LoC. It is an independent contract between
the bank and the beneficiary, unconditional and
irrevocable, making it obligatory on the bank to honour it
without reference to any disputes between the parties to a
contract in pursuance of which the BG/LoC is issued unless
there is a ground raised of fraud or irretrievable harm or
injury. Jaypee Kensington Boulevard Apartments Welfare
6
Assn. v. NBCC (India) Ltd. , Vistra ITCL (India) Ltd. v.
4
(2007) 8 SCC 110
5
(2020) 13 SCC 574
6
(2022) 1 SCC 401
Page 7 of 27
Civil Appeal 2216-2217 of 2025
7
Dinkar Venkatasubramanian and DBS Bank Limited
8
Singapore v. Ruchi Soya Industries Ltd. are also relied on.
7. It is pointed out that the appellant is only a nodal
agency and the apportionment is made based on the bills
issued by the transmission licensees to whom the appellant
disbursed the entire amounts, deposited as security. The
appellant if asked to deposit the same with the RP,
necessarily it would result in an illegal enrichment to the
Successful Resolution Applicant (SRA) which is not the
intention of the IBC. The amount disbursed to the
transmission licensees in any way are reimbursed by the
ultimate power user, which can be proceeded with either
by the RP or the SRA. The priority of a security creditor as
6
delineated in Jaypee Kensington has not been reckoned
by the impugned orders.
8. Sri. Navin Pahwa learned Senior Counsel appearing
for the respondent commences his argument pointing out
Section 62 which restricts an appeal to the Supreme Court
on a question of law which is totally absent in the present
case. It is pointed out that the prescription as available from
7
(2023) 7 SCC 324
8
(2024) 3 SCC 752
Page 8 of 27
Civil Appeal 2216-2217 of 2025
the TSA is of a provision of LoC, BG or any other mode of
security. The deposit made cannot be said to be in lieu of
LoC nor can it be equated with a LoC or BG which claim in
any event was not raised before the NCLT or NCLAT.
9. The appellant had submitted a claim of Rs.356.41
crores initially before the RP which was admitted to the
extent of Rs.96.75 crores. There was no challenge taken by
the appellant to the limited admission of debt due, by the
RP. The NCLT had approved the resolution plan based on
the decision of the Committee of Creditors (CoC) on
13.02.2025 which also has attained finality and stands
implemented commencing from 06.03.2025. The appellant
cannot take the contention of a third-party surety as
excluded under Section 14(3)(b) which is a surety to the CD
and not for the CD. The reliance placed on Bharti Airtel
3
Ltd. is assailed on a reading of the very same decision.
There is no claim of set-off arising hereunder neither on the
basis of the contract nor on the grounds of equity. Again, a
claim in Form B was submitted by the appellant first for
356.41 crores on 03.01.2020 and then for an amount of Rs.
1.71 crores on 09.07.2021and on the third instance, for Rs.
Page 9 of 27
Civil Appeal 2216-2217 of 2025
3.76 crores on 12.10.2020. At no point in either of these
claims Rs.108.44 crores deposit was claimed as a security.
Reliance is placed on Section 29 of the IBC to point out that
the ingredients of the Information Memorandum (IM) cannot
be interfered with.
10. The RP also placed before us the balance sheets of the
CD and the IM which clearly indicates Rs.108.44 crores
having been shown as a deposit and the asset of the CD as
on the ‘insolvency commencement date’. It is also pointed
out that despite the permissible default period having
expired, the appellant had not chosen to invoke the PSM and
appropriate the amounts immediately after the default
period, which would have been before the ‘insolvency
commencement date’. Even after the commencement of the
proceedings when a claim was raised, the deposit was
never shown as a security interest and despite the claims
raised having not been fully accepted, still without
challenging any of the admitted amounts, the appropriation
was made with respect to the pre-CIRP dues which stands
vitiated as per the scheme of IBC.
Page 10 of 27
Civil Appeal 2216-2217 of 2025
11. Shorn of the details, the brief facts to be noticed are
that the KMPCL entered into a Bulk Power Transmission
Agreement (BPTA) with PGCIL (later substituted by the
appellant) for obtaining long term access to the Inter-State
Transmission System. Pursuant to the same, the TSA was
executed with the appellant and consequential Power
Purchase Agreements were also executed, with which we
are not concerned. The PGCIL issued termination notice
dated 01.08.2018 on account of the LoC not being opened.
The KMPCL then moved an application before the CERC
pointing out that Rs.22 crores in cash has been deposited
with PGCIL towards PSM and that Rs.108.44 crores relatable
to the entire capacity would be deposited by September
2018. A stay of the termination notice dated 01.08.2018 was
sought responding to which PGCIL submitted that the
outstanding dues for September and October 2018 were
undertaken to be paid and in pursuance to that, the
regulation of power supply notice issued by PGCIL was kept
on hold. However, this was subject to furnishing the
requisite LoC failing which termination was the only option.
It was also prayed before the CERC that KMPCL may be
Page 11 of 27
Civil Appeal 2216-2217 of 2025
directed to file an affidavit that the complete outstanding
dues are paid within 60 days from the date of default. The
CERC granted an interim relief directing PGCIL not to take
any coercive measures in terms of notice dated 01.08.2018
subject to the petitioner depositing Rs.108 crores or
opening an LoC on or before 20.09.2018 as PSM. Though no
LoC was furnished as per the undertaking before the CERC,
the deposit of Rs.108.44 crores was made based on which
the CERC closed the petition filed by KMPCL on 08.02.2019.
The appellant had also withdrawn the notice of regulation.
12. As for the terms and conditions applicable to the
present dispute, the agreement for long-term access as
disclosed in Exhibit P1 provided for detailed instructions
with respect to payment of transmission charges in addition
to the opening of LoC for 105% of the estimated average
monthly billing and irrevocable BG equivalent to two
months estimated average monthly billing. The security
mechanism was to be initially valid for three years and then
renewed from time to time; review was also made possible
every six months, based on the change in estimated
average transmission charges. The default in payment of
Page 12 of 27
Civil Appeal 2216-2217 of 2025
monthly charges enabled PGCIL to encash or adjust the BG
immediately upon which the same had to be replenished or
recouped by the long-term transmission customers before
the next billing cycle. The furnishing of LoC is in accordance
with Billing, Collection and Disbursement (BCD) Procedure
under the Regulations of 2010 produced as Annexure A4.
Specifically, Clause 3.7 empowers the CTU to proceed
under the Regulations of 2010, if any bill raised is
outstanding beyond 30 days after the due date or in case the
required LoC or any other agreed PSM is not maintained by
CERC; in this case the deposit made of Rs.108.44 crores.
13. The dates relevant to the controversy is that the
KMPCL had defaulted payments of Bill No. 91106950 dated
04.07.2019 for an amount of Rs.69,83,47,035/-, Bill
No.91107010 dated 29.07.2019 for Rs.11,73,70,009/-, Bill
No.91107026 dated 09.08.2019 for Rs.8,50,92,594/-, two Bills
dated 13.08.2019 bearing Nos. 91107063 & 91107088
respectively of Rs.8,08,72,823/- & Rs.30,41,35,771/- Bill No.
91107161 dated 04.09.2019 for Rs.8,66,76,521/- and Bill
No.91107268 dated 06.09.2019 of Rs.5,81,89,205/-; which
are pre-CIRP dues. On 03.10.2019, NCLT, the Adjudicating
Page 13 of 27
Civil Appeal 2216-2217 of 2025
Authority passed an order initiating CIRP against the CD
which is the ‘Insolvency Commencement Date’. And post-
CIRP, Bill No. 91107297 dated 04.10.2019 of Rs. 8,39,30,713
and three bills dated 06.11.2019 of respectively
Rs.57,33,798/- Rs.28,31,79,190/- & Rs.6,15,95,268/- were
raised. There was a regulation notice issued later to that by
the appellant which is not germane to the present
controversy. The appellant had raised claims under Form
‘B’ thrice on 03.01.2020, 09.07.2021 and 12.10.2020, a
portion of which was admitted by the RP; which limited
acceptance was not challenged. The bone of contention is
the appropriation made of Rs.108.44 crores by the appellant
on 28.03.2020 in satisfaction of the above referred bills of
both pre-CIRP and post-CIRP dues. The NCLT and the
NCLAT having directed the adjustment of the entire
amounts furnished under the PSM as against the post-CIRP
dues; limits the controversy to the adjustment of Rs.85.13
crores as against the pre-CIRP dues.
14. The claim of set-off raised by the appellant is primarily
3
based on the decision in Bharti Airtel Ltd , the facts and law
declared in which will have to be looked into at the outset.
Page 14 of 27
Civil Appeal 2216-2217 of 2025
Therein two groups termed as ‘Airtel entities’ and ‘Aircel
entities’ entered into eight spectrum purchase agreements
by which the former agreed to purchase the right to use the
spectrum allocated to the later. The agreements were
contingent on the approval of the Department of Telecom
(DoT) to whom the Aircel entities were obligated to submit
BG of approximately Rs.453.73 crores. Since, Aircel entities
did not have the means to furnish the BG, Airtel agreed to
submit the BG on behalf of Aircel to DoT and the
consideration of the spectrum agreements were reduced
based on the furnishing of BG, which further obligated Airtel
to pay a definite sum, on cancellation of the BG. Aircel
finally succeeded before the Telecom Disputes Settlement
and Appellate Tribunal (for short, the Tribunal) and
eventually the BG furnished by Airtel on behalf of Aircel to
the DoT was cancelled. Airtel entities, as per the
understanding, paid certain amounts to Aircel but after
setting off the amounts due to it as interconnect usage
charges. The payment after set-off was made on 10.01.2019
prior to which CIRP was initiated against Aircel entities by
orders dated 12.03.2018 and 19.03.2018. The RP appointed
Page 15 of 27
Civil Appeal 2216-2217 of 2025
for Aircel entities protested to the adjustment of an amount
of Rs.112.87 crores which the Airtel entities objected to and
claimed as set-off. The NCLT allowed the claim while the
NCLAT reversed it and found the set-off to be violative of the
basic principles and protection afforded under the
insolvency law to the CD, finding set-off to be antithetical to
the very objective of the IBC.
15. The meaning of set-off, various types and principles
3
involved were elaborately considered in Bharti Airtel Ltd.
It was held that, “ Set-off in a generic sense recognises the
right of a debtor to adjust the smaller claim owed to him
against the larger claim payable to his creditor ” (sic para 15) .
Immediately, we have to notice that therein amounts were
due from Airtel to Aircel and vice versa based on which the
set-off was attempted; part of which alone was eventually
held justified, denying such set-off on the additional
amounts due on cancellation. Herein, there were no debts
due to the CD from which a set-off could have been made
by the appellant of the dues arising on default of payment of
monthly bills. Bills were raised by the CTUIL, the appellant
herein which were remaining due as on the insolvency
Page 16 of 27
Civil Appeal 2216-2217 of 2025
commencement date, The amount of Rs.108.44 crores is
deposited with the appellant in lieu of a LoC, which is a
security for due payment of the bills raised by the appellant
during the validity period of the TSA. As long as the TSA
continued if the bills are paid regularly, KMPCL could not
have sought for refund of the money so deposited. On the
other hand, in the event of default, the appellant had the
authority to apportion the due amounts to the extent of
satisfaction of such amounts due on the bills raised. The
amounts apportioned also related to pre-CIRP and post-
CIRP bills. The mutual dues, arising from a distinct contract,
3
found in Bharti Airtel Ltd. justifying a set-off does not arise
in this case. On the contrary the deposit herein made in lieu
of LoC is similar to the additional amounts due on
cancellation of BG, from Airtel to Aircel as found in Bharti
3
Airtel Ltd. ; remaining with one as the asset of the other not
subjected to any set-off contractually, equitably, statutorily
or in common law.
3
16. Coming back to the decision in Bharti Airtel Ltd. five
different meanings were ascribed to set-off viz., (a) statutory
or legal set-off; (b) common law set-off; (c) equitable set-off;
Page 17 of 27
Civil Appeal 2216-2217 of 2025
(d) contractual set-off; and (e) insolvency set-off, of which,
common law and equitable set-off were found to have
always flown together. Looking at the IBC, it was found that
statutory set-off in terms of Order VIII Rule 6 of CPC or
insolvency set-off as permitted by Regulation 29 of the
Liquidation Regulations cannot be applied to CIRP. The
exception being only of the contractual set-off being
permitted before or on the date CIRP is put in motion or
commenced, since pre-moratorium the terms of the contract
are binding and are not altered or modified. It was
categorically held in para 39 that: “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” (sic para 39) .
3
17. Bharti Airtel Ltd. categorically found that the plea of
set-off based on Section 30(2)(b) is fallacious since (i) it does
not make Chapter III Part II ie: Section 36(4)(e) or Regulation
29 of the Liquidation Regulations applicable to CIRP under
Chapter II Part II IBC, (ii) sub clause (ii) of Section 30(2)(b)
deals with amounts payable to creditors and not by the
Page 18 of 27
Civil Appeal 2216-2217 of 2025
creditors to CD, (ii) the provision has application when the
resolution plan is considered for approval and (iv) the
specific legislative mandate of IBC, all of which does not
recognize the principle of insolvency set-off in CIRP. The
set-off of Rs.64 crores which was due and payable by Aircel
entities under the operational services agreement as
allowed by the RP was found to be perfectly justified since
it was on the aspect of mutual dealings and also equity. The
adjustment of interconnect charges were under a separate
and distinct agreement, distinct from the purchase of the
right to use the spectrum which was found to be entirely
different and unconnected transaction. Hence, when the
telephone service providers used each other’s facilities, the
adjustment of set-off were made on the basis of the
contractual set-off, justified also on the ground of equitable
set-off. The adjustment insofar as the amounts payable by
Airtel entities to the CD, on return/cancellation of BGs, post
commencement of CIRP was not amenable to a set-off, was
the clear finding.
18. As we noticed, in the present case the amounts were
deposited as security for due payment of the bills raised.
Page 19 of 27
Civil Appeal 2216-2217 of 2025
The payment of a bill was to be made within 30 days and
there is an extended time of another 30 days within which
the default can be satisfied. As far as the pre-CIRP dues, the
bills were issued on 04.07.2019, 29.07.2019, 09.08.2019,
13.08.2019, 04.09.2019 and the last on 06.09.2019, all prior
to the commencement date; 03.10.2019. If the due amounts
were apportioned prior to the commencement date then
there could be no dispute raised. Pertinently, after the
commencement of the insolvency proceedings, a claim was
submitted in Form B on 03.01.2020 for Rs.356.41 crores of
which Rs.96.70 crores was admitted by the RP. The claim
submitted included in Part A, Rs. 354,37,76,489/- and in Part
B, Rs. 2,04,05,539/- which are stated to be the claim amount
as on date and the future monthly transmission charges
estimated on the average of last three months billing was
asserted to be Rs. 57.40 crores. Part A of the claim was also
described as arising from the unpaid invoices raised
towards transmission charges as per Bulk TSA & CEC
Regulations, the invoices having been produced therein as
Annexure-2. Part B arose from the unpaid invoices raised on
the strength respectively of the agreements dated
Page 20 of 27
Civil Appeal 2216-2217 of 2025
16.12.2010 and 05.02.2014 as also the MOU dated
20.10.2016; the breakup relating to each of such agreements
and the MoU, given at Column No. 7 with invoices produced
as Annexures 6, 8 &10. Obviously, the claim raised included
the bills pending as due and defaulted till the date of filing
of Form B. The amounts now apportioned to pre-CIRP dues
hence was claimed before the RP. Form B was again filed
twice on 09.07.2021 and 12.10.2020, after the apportionment
on 18.03.2020.
19. In fact the second Form B filed explained the
downward revision from Rs. 356,41,82,028/- to Rs.
1,71,94,716/- as due to three reasons the second of which
was as below:
2. Subsequent to raising of the above
adjustment bill, the LC amount of Rs.108.44 Cr
(submitted on 24.08.2018, 28.08.2018 & 18.09.2018
as per Record of Proceeding of CERC dated
30.08.2018) available in cash with CTU even prior
to CIRP date, was also adjusted against the
outstanding dues on FIFO basis during Mar’20 as
per BCD procedure of CERC Sharing Regulation
2010 and the same was communicated to KSK vide
our mail dated 28.03.2020.
On the filing of Form B which included the pre-CIRP dues,
the claims were admitted to an extent which order of the RP
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Civil Appeal 2216-2217 of 2025
was not challenged by the appellant, Subsequently the
apportionment was made unilaterally of pre-CIRP dues from
the deposit clearly violating the moratorium.
4
20. Himadri Chemicals Industries Ltd. dealt with
injunctions restraining encashment of BG and LoC which
were held to be permissible only in two exceptional cases
of, fraud or irretrievable harm or injury. Standard
5
Chartered Bank found that when a beneficiary seeks
enforcement of a BG, it is obligatory, unconditional and
irrevocable. The dispute between the parties to a contract,
pursuant to which the BG was issued, cannot result in the
bank refusing encashment especially since on issuance of
the BG, it is an independent contract between the bank and
the beneficiary. In the present case, we cannot but notice
that there is no BG or LoC issued. Though, the deposit is said
to be in lieu of an LoC, the fact remains that even if it was an
LoC after the ‘insolvency commencement date’ as per
Section 5(12) of the IBC, there could not have been an
encashment through or enforcement of the LoC by reason of
the moratorium under Section 14 of the IBC. Section 14(2)(b)
speaks of a ‘contract of guarantee to a Corporate Debtor’,
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Civil Appeal 2216-2217 of 2025
which can be enforced to make payment dues to the CD and
not from the CD.
6
21. Jaypee Kensington is with respect to ‘the entitlement
of a dissenting financial creditor who is also a secured creditor
to receive the amount payable by allowing enforcement of a
security interest to the extent of the value receivable by him
and in the order of priority available to him’ . The appellant
herein is neither a financial creditor nor can be deemed to
7
be a secured creditor. Vistra ITCL dealt with a pledge of
shares held by the CD in another company to the financier
for disbursing loan to two other entities, the end benefit of
which inured to the CD itself. It was found that pledge is
distinguishable from a guarantee insofar as it limits the
liability of the CD to the value of the pledged shares. The
appellant therein was held to be neither a financial creditor
nor an operational creditor and in its status as a secured
creditor, being denied of the benefits available to a financial
or an operational creditor in terms of Sections 52 and 53, the
appellant was allowed to retain the security interest on the
pledge of shares made by the CD.
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Civil Appeal 2216-2217 of 2025
8
22. DBS Bank Limited Singapore , clarified that Jaypee
6
Kensington only held that the dissenting financial creditor,
if the occasion arises, is entitled to receive the extent of
value in money equal to the security interest held by him.
The security interest gets converted from the asset to the
value of the asset, which is to be paid in the form of money.
It is pertinent that the specific finding was with respect to a
dissenting financial creditor in whom was created a security
interest of the immovable properties of the CD. In the
present case, there is no security interest created through
pledge or otherwise by the CD to the appellant. 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 deposit made is not a debt due to
KMPCL, the CD.
23. The NCLT approved the Resolution Plan and the same
is implemented, which was not challenged by the appellant
as was argued by the learned Senior Counsel for the
respondent. The very claim of set-off was not raised before
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Civil Appeal 2216-2217 of 2025
the NCLT or the NCLAT and there was no contention raised
by the appellant that they had the status of a secured
creditor. The appellant has the status of an operational
creditor and the apportionment of the defaulted bills
remained defaulted for long till 18.03.2020, long after the
commencement of the CIRP. The apportionment was
objected to by the RP by filing an appropriate application
before the NCLT which has resulted in the present
proceedings.
24. We have also been shown the IM as prepared by the
RP which discloses Rs.108.44 crores in the balance sheet
under the assets and liabilities of the CD as an asset and
later, after information as to its apportionment, as a disputed
issue pending before the NCLT. The Resolution Plans were
submitted out of which one has turned successful, reckoning
Rs.108.44 crores as an asset of the CD. The appellant ought
not to have apportioned the claim once the CIRP
proceedings commenced. As has been found in Bharti
3
Airtel Ltd. set-off would mitigate against the pari passu
principle which is apparent from the scheme of the IBC.
Page 25 of 27
Civil Appeal 2216-2217 of 2025
25. The NCLT and the NCLAT has rightly found the
apportionment made by the appellant to be violative of the
provisions of the IBC and in derogation of the moratorium
under Section 14. The direction of the NCLT is also to
apportion the entire amounts to the post-CIRP dues, a
portion of which by the apportionment itself is to post-CIRP
dues. An argument was raised on behalf of the appellant
that the amounts apportioned have been disbursed to the
ISTS licensees in payment of their defaulted bills and hence,
the appellant would be liable to make good the amounts
from its own funds. We have no reason to accept the above
contention since even the ISTS licensees would be hit by the
moratorium under Section 14. On the directions issued by
the NCLT as confirmed by the NCLAT, book adjustments
alone would have to be carried out, especially since the CD
is a running concern. The pre-CIRP dues, whether it be to
the appellant or the ISTS licensees, will have to be subjected
to the RPs decision first made, on submission of Form B
dated 03.01.2020. The CD is continuing its operations
during the CIRP period and book adjustments would
reverse the apportionment made to pre-CIRP dues so as to
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Civil Appeal 2216-2217 of 2025
satisfy the post-CIRP dues, the pre-CIRP dues being
satisfied through the claim allowed by the RP with respect
to that. This would apply equally to the appellant and the
ISTS licensees.
26. We hence, affirm the impugned orders and reject the
appeals.
27. Pending applications, if any, shall stand disposed of.
……...…….……………………. J.
(SANJAY KUMAR)
...………….……………………. J.
(K. VINOD CHANDRAN)
NEW DELHI;
MARCH 23, 2026.
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Civil Appeal 2216-2217 of 2025