Supreme Court Bars Set-Off of Security Deposits During IBC Moratorium
By Communications Committee Posted On : April 24, 2026
The Supreme Court in Central Transmission Utility of India Ltd. v. Sumit Binani and Ors. [(2026) ibclaw.in 142 SC], has clarified that security deposits cannot be appropriated or set-off against pre-CIRP dues once the moratorium under Section 14 kicks in, reinforcing the protective scope of the IBC. The Court held that such deposits continue to remain the property of the corporate debtor until lawfully adjusted, and any unilateral appropriation after commencement of CIRP is illegal. It emphasised that all pre-CIRP claims must be submitted to the Resolution Professional (RP) and cannot be recovered independently by creditors through set-off mechanisms. In the case, a creditor’s attempt to appropriate a security deposit towards past dues during moratorium was struck down as contrary to the IBC framework. The Court reaffirmed that the moratorium creates a legal bar on recovery, enforcement, or adjustment of assets, ensuring equitable treatment of all creditors. It also distinguished permissible adjustments, noting that only pre-existing contractual set-offs crystallised before CIRP may survive, not post-moratorium actions. The judgment strengthens the principle that insolvency is a collective process, not a recovery mechanism for individual creditors.