Adjustment Of Security Deposit During Moratorium Violates Section 14 Of IBC: NCLT Mumbai Directs MSEDCL To Refund ₹13.23 Lakh To Corporate Debtor
Pranav B Prem
The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Mohan Prasad Tiwari (Judicial Member) and Charanjeet Singh Gulati (Technical Member), has held that the adjustment of a security deposit by an electricity distribution company against outstanding energy bills during the moratorium period amounts to a violation of Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016. The bench directed the Maharashtra State Electricity Distribution Company Limited (MSEDCL) to refund ₹13,23,102/-—the security deposit of the corporate debtor—into the designated account of the company under liquidation.
Background
The corporate debtor, Hybro Foods Private Limited, was admitted into Corporate Insolvency Resolution Process (CIRP) by the NCLT on March 3, 2023, and was later ordered to undergo liquidation on March 27, 2025. During the CIRP, the Resolution Professional (RP) filed an interlocutory application (IA/651/2024) under Section 60(5) read with Section 14 of the IBC, seeking directions to MSEDCL to refund the security deposit of ₹13,23,102/-, which had been adjusted by the electricity company against the outstanding energy bills of the corporate debtor.The RP contended that the security deposit formed part of the assets of the corporate debtor, and its adjustment during the moratorium period was impermissible under Section 14 of the IBC.
Submissions
The applicant argued that the security deposit, paid prior to the initiation of insolvency, was adjusted by MSEDCL after the moratorium had commenced. It was submitted that such adjustment was in direct contravention of the moratorium provisions, which prohibit recovery or enforcement actions against the assets of the corporate debtor. In support of the plea, the RP relied on the ruling of the NCLAT (Chennai) in Superintending Engineer v. Sivrama Prasad Bhamidi [Company Appeal (AT) (CH) (INS) No. 104/2023, decided on 02.08.2023], wherein it was held that adjustment of a security deposit during the moratorium period violates Section 14 of the IBC.
Respondent’s Stand
MSEDCL, represented by its counsel, opposed the application, contending that it is a government entity governed by the Electricity Act, 2003 and the Maharashtra Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2021. It was submitted that the security deposit adjustment was made in accordance with Regulation 13.8 of the Supply Code Regulations. MSEDCL further argued that the adjustment was a routine process following disconnection of supply due to non-payment and therefore did not violate the IBC.
According to MSEDCL, an energy bill amounting to ₹25,82,060/- for the month of November 2022 had remained unpaid, leading to temporary disconnection of electricity on December 30, 2022, followed by permanent disconnection on February 15, 2023. A final bill was issued on September 6, 2023, adjusting the security deposit. The respondent contended that since the dues predated the initiation of CIRP, the adjustment was justified.
Tribunal’s Observations
The Tribunal noted that the CIRP against the corporate debtor was admitted on March 3, 2023, and the adjustment of the security deposit was made later, on September 6, 2023, during the subsistence of the moratorium. The bench observed that once the moratorium under Section 14 of the IBC comes into effect, no creditor can appropriate or adjust any amount belonging to the corporate debtor, irrespective of whether the claim relates to a pre-insolvency period.
Emphasizing the overriding effect of the IBC, the bench stated that Section 238 of the Code makes it clear that the IBC shall prevail over any other inconsistent law. Therefore, even if MSEDCL acted under the provisions of the Electricity Supply Code, such action would be overridden by the IBC once the moratorium is in force. The order stated: “It is undisputed that as of 06.09.2023, moratorium under Section 14 of the IBC was in force and the security deposit to the extent it was with the respondent was the asset of the corporate debtor and could not have been appropriated or adjusted by them.”Accordingly, the Tribunal held that the adjustment of ₹13,23,102/- against the energy bill during the moratorium period was in violation of Section 14 of the IBC.
Holding the action of the electricity company contrary to law, the NCLT directed MSEDCL to refund ₹13,23,102/-—the adjusted security deposit—to the designated account of the corporate debtor within one month. “Having considered the facts and circumstances of the case and noting that the adjustment of the security deposit was done during the moratorium, which is in violation of Section 14 of the IBC, it is only imperative that the respondent be directed to refund the said amount,” the bench held. The application was accordingly disposed of with directions for refund.
Appearance
For Applicant: Adv. Ayush J Rajani a/w. Adv. Khushboo Shah Rajani a/w Adv. Mitali Bhatt i/b AKR Legal (VC); Adv. Nikhil Rajani (PH); Adv Deepak Saxena (R2); Adv. Sarosh Damania (R1)
For Respondent: Adv. Nirav Shah (R1) MSEDCL (VC)
Cause Title: Kotak Mahindra Bank Ltd. Vs. Hybro Foods Pvt. Ltd.
Case No: IA/2940/2024 IA/651/2024 IA/5570/2023 IA/5571/2023 C.P. (IB)/295(MB)2022
Coram: Shri Mohan Prasad Tiwari (Member-Judicial), Shri Charanjeet Singh Gulati (Member-Technical)
