Central Transmission Utility vs Sumit Binani - Insolvency Dispute

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• Know your Kanoon - Doc Gen Hub - Counter Argument - Case Predict AI - Talk with IK Doc -... Upgrade to Premium [Cites 12, Cited by 0 ] ### Supreme Court of India

Central Transmission Utility Of India ... vs Sumit Binani on 23 March, 2026

2026 INSC 284 Reportable

                                      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

                                                     JUDGMENT 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 with end users. The 2nd respondent is the creditor who Reason: 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

Tribunal (NCLT) on 03.10.2019. The 1st 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.

1. 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.

1. 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

of the Insolvency and Bankruptcy Code, 20161. 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.

1. 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.

1. 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

Losses) Regulations, 20102 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.

1. 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

Ltd. & Dishnet Wireless Ltd. (Resolution Professional)3.

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

Co.4](https://indiankanoon.org/doc/854142/) and [Standard Chartered Bank v. Heavy Engineering

Corporation Limited5](https://indiankanoon.org/doc/72238050/) 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

Assn. v. NBCC (India) Ltd.6](https://indiankanoon.org/doc/123645104/), 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
Dinkar Venkatasubramanian7 and DBS Bank Limited

Singapore v. Ruchi Soya Industries Ltd.8are also relied on.

1. 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

delineated in Jaypee Kensington6 has not been reckoned

by the impugned orders.

1. 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.

1. 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

Ltd.3 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.

1. 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

1. 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

1. 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.

1. 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.

1. 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.

1. The claim of set-off raised by the appellant is primarily

based on the decision in Bharti Airtel Ltd3, 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.

1. The meaning of set-off, various types and principles

involved were elaborately considered in Bharti Airtel Ltd.3

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,

found in Bharti Airtel Ltd.3 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

Airtel Ltd.3; remaining with one as the asset of the other not

subjected to any set-off contractually, equitably, statutorily

or in common law.

1. Coming back to the decision in Bharti Airtel Ltd.3 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).

1. Bharti Airtel Ltd.3 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](https://indiankanoon.org/doc/114322047/) 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.

1. 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.

1. 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:

1. 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 Page 21 of 27 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.

1. Himadri Chemicals Industries Ltd.4 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

Chartered Bank5 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’, Page 22 of 27 Civil Appeal 2216-2217 of 2025
which can be enforced to make payment dues to the CD and

not from the CD.

1. Jaypee Kensington6 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

be a secured creditor. Vistra ITCL7 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

1. DBS Bank Limited Singapore8, clarified that Jaypee

Kensington6 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.

1. 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.

1. 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

Airtel Ltd.3 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

1. 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.

1. We hence, affirm the impugned orders and reject the

appeals.

1. 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