Supreme Court Holds Security Deposit Cannot Be Adjusted Towards Pre-CIRP Dues Due to IBC Moratorium

Case Name: Central Transmission Utility of India Limited v. Sumit Binani & Ors.

Citation: 2026 INSC 284

Date of Judgment/Order: 23 March 2026

Bench: Hon’ble Mr. Justice Sanjay Kumar and Hon’ble Mr. Justice K. Vinod Chandran

Held: The Supreme Court held that a security deposit held by an operational creditor cannot be appropriated towards pre-CIRP dues after the commencement of insolvency proceedings, as such adjustment violates the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016. The Court clarified that such deposits remain the property of the corporate debtor until validly adjusted prior to the insolvency commencement date, and any unilateral appropriation post-moratorium is impermissible.

Summary: The dispute arose from a transmission service arrangement where the corporate debtor had deposited Rs.108.44 crores with the appellant as a security mechanism in lieu of a Letter of Credit. After initiation of CIRP, the appellant appropriated the deposit towards outstanding dues, including Rs.85.13 crores relating to pre-CIRP liabilities. The Resolution Professional challenged this appropriation before the NCLT, which held that such adjustment violated the moratorium under Section 14 of the IBC and directed that the amount be adjusted only towards post-CIRP dues. The NCLAT affirmed this finding. Before the Supreme Court, the appellant argued that the deposit was akin to a security interest or Letter of Credit and could be adjusted or set-off even after commencement of CIRP. The Court rejected this contention, holding that the deposit did not constitute a security interest or independent guarantee and remained an asset of the corporate debtor. It distinguished the concept of set-off under Bharti Airtel Ltd., observing that no mutual or reciprocal debts existed to justify such adjustment. The Court emphasized that permitting such appropriation would defeat the pari passu principle and the statutory scheme of insolvency resolution, which mandates that pre-CIRP dues must be resolved through the claims process before the Resolution Professional.

Decision: The Supreme Court dismissed the appeals and affirmed the orders of the NCLT and NCLAT, holding that the appropriation of the security deposit towards pre-CIRP dues was illegal, and directing that the amounts be adjusted only against post-CIRP dues, with pre-CIRP claims to be dealt with under the insolvency resolution process.