The Supreme Court of India dismissed the civil appeals preferred by a Debenture Trustee (IDBI Trusteeship Services Ltd.) and a Debenture Holder/Lender (ECL Finance Ltd.), affirming the orders passed by the National Company Law Appellate Tribunal (NCLAT) and the National Company Law Tribunal (NCLT). The Bench comprising Hon’ble Mr. Justice J.B. Pardiwala and Hon’ble Mr. Justice K. Vinod Chandran held that where lenders exercise pervasive control over the management, policy-making decisions, quarterly budgets, key personnel, and revenue accounts of a Corporate Debtor, such entities fall within the definition of a “related party” under Section 5(24)(m)(i) of the Insolvency and Bankruptcy Code, 2016 (IBC). Consequently, under the first proviso to Section 21(2) of the IBC, such related-party financial creditors are disqualified from participating, representing, or voting in the Committee of Creditors (CoC). The Court further ruled that an un-invoked corporate guarantee constitutes a valid financial debt under Section 5(8), an individual homebuyer has locus standi to challenge CoC composition, and a post-CIRP assignment of debt executed in bad faith cannot circumvent the statutory disqualification of a related party.
- Factual Matrix & Background
- Debenture & Facility Agreements: Saha Infratech Private Limited (SIPL) proposed issuing Non-Convertible Debentures (NCDs) worth ₹160 Crores in two tranches. IDBI Trusteeship Services Ltd. (ITSL) was appointed Debenture Trustee. The first tranche of ₹110 Crores was entirely subscribed by ECL Finance Ltd. (ECL). Later, SIPL availed a revolving credit facility of ₹90 Crores from ECL.
- Role of Corporate Debtor: The Corporate Debtor (CD), Palm Developers Private Limited, acted as an Obligor/Guarantor for SIPL, providing unconditional corporate guarantees, mortgages, share pledges, and escrow account hypothecations over its assets (“Project Encore”).
- Admission into CIRP & Claims: Section 7 CIRP against the CD was admitted on January 27, 2020. ITSL filed a claim of ₹131.17 Crores and ECL filed a claim of ₹139.02 Crores. Both were initially included in the CoC as Financial Creditors.
- Challenge by Homebuyer: An individual homebuyer filed an application before the NCLT objecting to the inclusion of ECL and ITSL in the CoC, contending that they were “related parties” under Section 5(24) of the IBC and that no direct financial debt was disbursed to the CD.
- Prior Orders: NCLT and NCLAT held that the appellants were related parties under Section 5(24)(m)(i) and excluded them from the CoC.
- Key Legal Issues and Supreme Court Holdings
- Locus Standi of an Individual Homebuyer / Financial Creditor in Class
- Finding: An individual homebuyer (financial creditor in a class) has the legal right to approach the Adjudicating Authority to challenge the inclusion of related parties in the CoC.
- Reasoning: Relying on Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd. and Aashray Social Welfare Society, the Court held that the Authorized Representative (AR) represents homebuyers for the limited statutory purpose of attending CoC meetings and voting. The presence of an AR does not deprive individual homebuyers of their right to seek exclusion of ineligible entities from the CoC.
- Corporate Guarantee as Financial Debt Without Prior Invocation
- Finding: A corporate guarantee qualifies as a “financial debt” under Section 5(8) of the IBC even if the guarantee was not formally invoked prior to the commencement of CIRP.
- Reasoning: Distinguishing and clarifying Anuj Jain and relying on China Development Bank v. Doha Bank Q.P.S.C., the Court observed that Section 5(8) does not require a default to occur for a facility to qualify as financial debt. Section 3(12) (‘default’) is relevant for initiating CIRP under Section 7, whereas any person to whom a financial debt is owed is a financial creditor under Section 5(7) and must submit a claim upon public announcement.
- “Related Party” Test under Section 5(24)(m)(i) vs. “Control” under Section 29A
- Finding: The threshold to establish a “related party” via participation in policy-making under Section 5(24)(m)(i) is lower than the strict requirement of “proactive/positive control” needed for disqualification under Section 29A(c) & (g).
- Reasoning:
- In ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, “control” under Section 29A was defined as positive/proactive control (being in the “driving seat” controlling steering, gears, and accelerator).
- Conversely, Section 5(24)(m)(i) read with the first proviso to Section 21(2) merely requires association with the CD by way of participation in policy-making processes. A role of navigation in determining policies and channelising business interests is sufficient.
- Pervasive Control Conferred by Transaction Documents
- Finding: ECL and ITSL held all-pervasive control over the business decisions, management, and revenue of the Corporate Debtor, making them related parties under Section 5(24)(m)(i).
- Factual Evidences Cited:
- Articles of Association (AoA): Clause 7.1 gave the nominee director of the Debenture Holder/Lender the final, binding say in any deadlock at Board or Shareholder meetings.
- Debenture Trust Deed: Conferred authority on the Debenture Trustee/Monitoring Agent to approve or modify quarterly construction budgets and release escrow funds.
- Facility Agreement & Sanction Letter: Empowered ECL to approve/remove key managerial personnel, mandate technical/financial staff appointments, inspect financial/cost accounting systems, appoint real estate sales agents, and exercise sweeping Power of Attorney over construction, statutory approvals, and buyer dealings.
- Result: Because ECL was a related party, it could not participate in the CoC. Since ITSL held debentures solely for the benefit of ECL, ITSL was likewise disabled from representing or participating in the CoC.
- Post-CIRP Assignment of Debt
- Finding: A post-CIRP assignment of debt to a third party executed to circumvent the proviso to Section 21(2) is non-bona fide and fails to grant CoC participation rights to the assignee.
- Reasoning: Citing Phoenix ARC and the Insolvency Law Committee Report (2020), the Court noted that ECL assigned its rights long after CIRP commenced. Pointing to Forensic Audit findings—which revealed that the CD was fraudulently used to divert funds and defraud homebuyers—the Court held the assignment to be a bad-faith transaction intended to bypass statutory disqualifications.
- Final Order
- The Civil Appeals were dismissed, finding no question of law or perversity in the order of the NCLAT.
- The disqualification of ECL Finance Ltd. and IDBI Trusteeship Services Ltd. from the Committee of Creditors (CoC) was upheld.
- Contempt Petitions were closed and all pending applications were rejected.
2026 INSC 1159
ECL Finance Ltd. and Anr. v. Abhinav Mukherjee and Ors. (with Civil Appeal No. 6273 of 2022, Contempt Petition (C) No. 730 of 2023 in Civil Appeal No. 6268 of 2022, and Contempt Petition (C) No. 731 of 2023 in Civil Appeal No. 6273 of 2022) (D.O.J. 27.10.2026)




