The Supreme Court’s decision in Central Transmission Utility of India Ltd. v. Sumit Binani & Ors.(Civil Appeal Nos. 2216–2217 of 2025, decided on 23 March 2026) is an important pronouncement on the treatment of cash security deposits during the Corporate Insolvency Resolution Process (“CIRP”). The judgment clarifies that a cash deposit furnished as security does not, merely by reason of its commercial purpose, cease to remain the property of the corporate debtor. Until validly appropriated in accordance with law, such a deposit continues to be an asset of the corporate debtor. Accordingly, once the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) comes into effect, an operational creditor cannot unilaterally adjust that deposit towards pre-CIRP liabilities.
Factual Background
KSK Mahanadi Power Company Limited (“KMPCL”) had entered into transmission service agreements with Central Transmission Utility of India Limited (“CTUIL”). Under the contractual framework, KMPCL was required to furnish a Letter of Credit (“LoC”) or Bank Guarantee (“BG”) as security. Since KMPCL was unable to do so, the Central Electricity Regulatory Commission permitted it to deposit a sum of ₹108.44 crores with CTUIL in substitution for the LoC.
KMPCL defaulted in payment of several bills raised between July, 2019 and September, 2019. CIRP against KMPCL commenced on 3rd October 2019. Thereafter, CTUIL also raised certain post-CIRP bills in October and November 2019. In March 2020, after the moratorium had come into operation, CTUIL invoked the payment security mechanism and adjusted the entire deposit of ₹108.44 crores towards both pre-CIRP and post-CIRP dues. Of this amount, ₹85.13 crores was appropriated towards bills that had fallen due prior to the insolvency commencement date. The Resolution Professional objected to such appropriation on the ground that the deposit remained an asset of the corporate debtor and that its adjustment against pre-CIRP liabilities during the moratorium violated Section 14 of the IBC.
Findings of the NCLT, NCLAT and the Supreme Court
The National Company Law Tribunal held in favour of the Resolution Professional, concluding that although the amount had been deposited as security, it nevertheless remained the property of KMPCL until actual and lawful appropriation. Consequently, adjustment of that amount towards pre-CIRP dues after the insolvency commencement date was held to be contrary to the moratorium under Section 14. The National Company Law Appellate Tribunal affirmed that view.
Before the Supreme Court, CTUIL contended that the deposit had effectively been furnished in lieu of an LoC and ought therefore to be treated, in substance, as equivalent to an LoC or BG. It also sought to invoke the principle of set-off, relying upon Bharti Airtel Ltd. v. Aircel Ltd. (2024) 4 SCC 668. The Supreme Court rejected both submissions.
First, the Court held that a cash deposit cannot be equated in law with an LoC or BG. Even if the deposit was commercially intended to serve the same purpose, it did not acquire the legal incidents of an LoC or BG. The deposit remained an asset of the corporate debtor, merely held by CTUIL as security. Title did not pass merely because the money was lying with the creditor.
Secondly, the Court held that no question of set-off arose on the facts. Set-off requires mutual cross-obligations. Here, CTUIL was not indebted to KMPCL; rather, the dues were one-directional, namely transmission charges payable by KMPCL to CTUIL. In such circumstances, the doctrine of set-off had no application.
Thirdly, the Court rejected the argument founded on Section 14(3)(d) of the IBC. Even assuming some analogy with a guarantee, the exception carved out in that provision was of no assistance because the arrangement in question was not a guarantee enforceable for the benefit of the corporate debtor. It was, at best, security for obligations owed by the corporate debtor.
Fourthly, the Court placed significant emphasis on timing. The bills in question had remained unpaid from July to September 2019, and CTUIL had sufficient opportunity to invoke the security prior to the insolvency commencement date. Having failed to do so, it could not, after commencement of CIRP, appropriate the deposit so as to secure payment of pre-CIRP dues in priority to the insolvency framework. The Court made it clear that the moratorium cannot be circumvented by belated enforcement steps after the commencement of CIRP.
Finally, the Court held that the fact that CTUIL had disbursed amounts to transmission licensees did not alter the position. Pre-CIRP dues would have to be addressed through the insolvency process in accordance with admitted claims under the resolution plan. Post-CIRP dues, however, being dues necessary for keeping the corporate debtor as a going concern, could be met from the deposit.
Legal Significance
The judgment carries several important implications for operational creditors.
To begin with, it underscores that timing is critical. If a creditor intends to invoke contractual security for unpaid dues, it must do so before the insolvency commencement date. Once the Section 14 moratorium comes into force, enforcement against assets of the corporate debtor in respect of pre-CIRP dues is prohibited.
Secondly, the decision reinforces the distinction between cash deposits and independent third-party instruments such as bank guarantees or letters of credit. Although these mechanisms may be commercially similar, they are not legally interchangeable. A cash deposit remains the money of the corporate debtor until lawfully appropriated.
Thirdly, the judgment confirms that set-off during CIRP is of limited application and cannot be invoked merely because the creditor happens to hold funds that originated from the corporate debtor.
Fourthly, the Court makes clear that the mere existence of security in the form of a deposit does not automatically elevate the creditor to the status of a secured creditor under the IBC. CTUIL remained an operational creditor, and the deposit did not, by itself, constitute a security interest that would confer the benefits available to secured creditors in the distribution waterfall.
Most importantly, the judgment reaffirms the centrality of the IBC’s collective framework. Section 14 is intended to prevent individual creditors from taking unilateral recovery steps that would disrupt the pari passu and collective nature of insolvency resolution. A cash deposit standing to the credit of the corporate debtor cannot be privately appropriated during the moratorium in order to satisfy pre-CIRP liabilities.
Practical Implications for Contract Drafting
From a transactional and risk-management perspective, the decision offers a clear lesson. Where feasible, parties should insist upon actual bank guarantees or letters of credit, since such instruments provide recourse against a third party and may stand on a different footing from a cash deposit during insolvency.
Further, where cash deposits are accepted, contractual documentation should provide for short cure periods and clear appropriation mechanisms, so that defaults can be acted upon promptly and before any insolvency commencement date intervenes. Creditors would also do well to monitor counterparties’ financial health closely, as repeated payment delays may be an early sign of distress requiring immediate commercial action.
Conclusion
The Supreme Court’s ruling is a significant reminder that insolvency law does not merely rearrange priorities among creditors; it fundamentally subjects all stakeholders to a collective statutory process. Once CIRP begins, individual enforcement rights in respect of the corporate debtor’s assets are subordinated to that process. A cash security deposit, even when furnished in substitution for an LoC or BG, remains the corporate debtor’s asset until validly appropriated. Consequently, its unilateral adjustment towards pre-CIRP dues after commencement of CIRP is barred by Section 14 of the IBC.
*Anuja Pethia, Partner, Swarnim Legal