Can Pre-CIRP Dues Be Settled During Insolvency Proceedings? Supreme Court Clarifies
Central Transmission Utility of India Limited vs Sumit Binani & Ors.
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• 4 min readKey Takeaways
• A court cannot appropriate pre-CIRP dues during insolvency proceedings merely because a cash deposit exists.
• Section 14 of the IBC imposes a moratorium that prohibits the recovery of pre-CIRP dues once insolvency proceedings commence.
• The security deposit made prior to CIRP remains the property of the corporate debtor until adjusted according to IBC provisions.
• Operational creditors cannot claim set-off against pre-CIRP dues once the moratorium is in effect.
• The principle of pari passu must be maintained during insolvency proceedings, preventing preferential treatment of certain creditors.
Introduction
The Supreme Court of India recently addressed a critical issue concerning the treatment of pre-Corporate Insolvency Resolution Process (CIRP) dues in the case of Central Transmission Utility of India Limited vs Sumit Binani & Ors. The judgment clarifies the implications of the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) and the rights of operational creditors during insolvency proceedings.
Case Background
The appellant, Central Transmission Utility of India Limited, provides a transmission system for power generation units and consumers. The case arose from the insolvency proceedings of KSK Mahanadi Power Company Limited (KMPCL), which had entered into Transmission Service Agreements (TSA) with the appellant. Following the initiation of CIRP against KMPCL, a dispute emerged regarding a cash deposit of Rs. 108.44 crores made by KMPCL, which was to be appropriated against outstanding dues.
The National Company Law Tribunal (NCLT) found that the adjustment of Rs. 85.13 crores, which were pre-CIRP dues, was impermissible under the IBC. The NCLT emphasized that the moratorium under Section 14 prohibits the recovery of pre-CIRP dues, and thus, the appellant was directed to adjust the amounts against post-CIRP dues instead.
What The Lower Authorities Held
The NCLT ruled that the cash deposit made by KMPCL was a security mechanism in lieu of a Letter of Credit (LoC) and could not be appropriated against pre-CIRP dues. The NCLAT upheld this decision, reiterating that the provisions of the IBC take precedence over other laws and that the security deposit remains the property of the corporate debtor until properly adjusted.
The NCLAT also highlighted that the moratorium applies to all recovery actions against the corporate debtor, ensuring that the interests of all creditors are protected during the insolvency process. The court emphasized that operational creditors must file their claims with the Resolution Professional (RP) and cannot unilaterally appropriate amounts from the corporate debtor's assets.
The Court's Reasoning
The Supreme Court affirmed the findings of the lower authorities, emphasizing the importance of the moratorium under Section 14 of the IBC. The court clarified that the moratorium prohibits any recovery actions against the corporate debtor, including the appropriation of pre-CIRP dues. The court noted that the security deposit made by KMPCL was not a performance guarantee but rather a security against default in payment, which must be treated according to the provisions of the IBC.
The court further elaborated on the nature of set-off in insolvency proceedings, referencing the decision in Bharti Airtel Ltd. v. Aircel Ltd. The court reiterated that set-off of pre-CIRP dues against post-CIRP dues is not permissible under the IBC, as it undermines the principle of pari passu, which mandates equal treatment of all creditors.
Statutory Interpretation
The Supreme Court's ruling involved a detailed interpretation of the IBC, particularly Section 14, which imposes a moratorium on the recovery of debts once insolvency proceedings commence. The court emphasized that the provisions of the IBC take precedence over any other law, ensuring that the interests of the corporate debtor and its creditors are balanced during the resolution process.
The court also examined the nature of security deposits and their treatment under the IBC. It clarified that such deposits remain the property of the corporate debtor until they are adjusted according to the IBC's provisions, reinforcing the need for compliance with the statutory framework during insolvency proceedings.
Why This Judgment Matters
This judgment is significant for legal practice as it clarifies the treatment of pre-CIRP dues in insolvency proceedings. It reinforces the importance of the moratorium under the IBC and the need for operational creditors to adhere to the statutory framework when filing claims. The ruling also emphasizes the principle of pari passu, ensuring that all creditors are treated equitably during the resolution process.
Final Outcome
The Supreme Court upheld the decisions of the NCLT and NCLAT, affirming that the appropriation of pre-CIRP dues by the appellant was impermissible under the IBC. The court directed that the amounts should be adjusted against post-CIRP dues, thereby reinforcing the statutory protections afforded to corporate debtors during insolvency proceedings.
Case Details
- Case Title: Central Transmission Utility of India Limited vs Sumit Binani & Ors.
- Citation: 2026 INSC 284
- Court: IN THE SUPREME COURT OF INDIA
- Bench: SANJAY KUMAR, J. & K. VINOD CHANDRAN, J.
- Date of Judgment: 2026-03-23