TaxTMI 
TaxTMI 
2026 (3) TMI 1595
X X X X Extracts X X X X
X X X X Extracts X X X X
....ellant'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 with end users. The 2nd respondent is the creditor who initiated the Corporate Insolvency Resolution Process (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. 2. 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 Au....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sions 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 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. 5. Sri. Shyam Divan, learned Senior Counsel and Ms. Ranj....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e v. Ruchi Soya Industries Ltd. (2024) 3 SCC 752 are also relied on. 7. 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. 8. 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 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 equ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rsuant 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 2018. 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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. 14. The claim of set-off raised by the appellant is primarily based on the decision in Bharti Airtel Ltd, the facts and law declared in which will have to be looked into at the outset. 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 wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. 16. 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; (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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9.07.2019, 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 ITCL 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. 22. 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 secur....