Case at a Glance
In the insolvency of a real estate company that had guaranteed loans and debentures of another company, the debenture-holder ECL Finance and the debenture trustee were admitted to the Committee of Creditors. A homebuyer, acting individually, objected that they were related parties of the corporate debtor. The NCLT and NCLAT agreed, and the Supreme Court has now dismissed the lenders’ appeals. Although it held that a corporate guarantee need not be invoked before insolvency to found a claim, the Court found ECL had ‘all-pervasive control’ over the projects, making it a related party excluded from the CoC, and held a later assignment of its rights was not bona fide.
Palm Developers Pvt. Ltd., the corporate debtor, guaranteed the obligations of Saha Infratech Pvt. Ltd., which issued debentures under a Debenture Trust Deed dated 13 May 2016, with IDBI Trusteeship Services Ltd. as debenture trustee. Of the planned Rs 160 crore, only the first tranche of Rs 110 crore was subscribed, all of it by ECL Finance. A Facility Agreement dated 22 September 2017 for a Rs 90 crore revolving credit facility named the corporate debtor as an obligor. The corporate insolvency resolution process began on 27 January 2020, after which the trustee claimed about Rs 131.17 crore and ECL about Rs 139.03 crore.
A homebuyer, one of the financial creditors, objected individually to the inclusion of ECL and the trustee in the Committee of Creditors on the ground that they were related parties of the corporate debtor. The NCLT held them to be related parties and the NCLAT affirmed, also accepting the homebuyer’s locus. The lenders — with ECL’s rights later assigned to the second appellant — appealed to the Supreme Court.
The Key Question Before the Court
Were ECL Finance and the debenture trustee ‘related parties’ of the corporate debtor under Section 5(24)(m)(i) of the IBC, and therefore barred from the Committee of Creditors by the first proviso to Section 21(2)?
‘A role of navigation would suffice’
Justice K. Vinod Chandran, writing for the Bench, first held that the NCLAT “erred in finding that the appellants’ claim cannot be entertained for reason of the corporate guarantee not being invoked prior to the commencement of CIRP,” relying on Phoenix ARC Private Limited v. Spade Financial Services Limited, (2021) 02 SC CK 0002, (2021) 3 SCC 475, China Development Bank v. Doha Bank Q.P.S.C., (2024) 12 SC CK 0044, (2025) 7 SCC 729 and Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. v. Axis Bank Limited, (2020) 02 SC CK 0075, (2020) 8 SCC 401. On locus, following Phoenix ARC, (2021) 02 SC CK 0005, a creditor not otherwise represented was entitled to challenge the inclusion of others in the CoC.
On related-party status, Section 5(24)(m)(i) looks at ‘participation in policy making processes of the corporate debtor’. The Court held this test is less rigorous than ‘control’ under Section 29A (discussed in Arcelor Mittal India Private Limited v. Satish Kumar Gupta, (2019) 2 SCC 1): “The requirement would not be to the extent of being in the driving seat, but a role of navigation would suffice.” Examining the amended trust deed, the facility agreement, the articles of association and a power of attorney, it found ECL had an “all- pervasive control” over the projects. The assignment of ECL’s rights, made long after CIRP began, “can only be considered as one intended to defeat the rigour of the proviso” and “fails the test of a bona fide assignment,” the Court relying on a forensic audit report and the Insolvency Law Committee Report, 2020.
What the Court Actually Held
- A claim based on a corporate guarantee is not defeated merely because the guarantee was not invoked before the commencement of CIRP.
- An individual homebuyer, as a financial creditor, had locus to object to the inclusion of related parties in the Committee of Creditors.
- ECL Finance and the debenture trustee were related parties under Section 5(24)(m)(i); the test is participation in policy-making, less rigorous than Section 29A ‘control’, and the later assignment of ECL’s rights was not bona fide.
- Finding no question of law or perversity in the NCLAT’s related-party finding, the Court dismissed the appeals and closed the contempt petitions.
Why This Judgment Matters
- It protects the integrity of the CoC, where homebuyers often sit alongside powerful financiers.
- It clarifies that ‘related party’ under Section 5(24)(m)(i) can be shown by participation in policy-making, without full Section 29A-style control.
- It warns that post-CIRP assignments designed to dodge the related-party bar will not be accepted.
What Should Advocates Take Away From the Judgment?
For Homebuyers
- An individual homebuyer can challenge a lender’s inclusion in the CoC as a related party.
- Look for financing documents giving the lender a say in project decisions; these can establish related-party status.
For Counsel and Lenders
- Structured-finance lenders with deep contractual control over a project risk exclusion from the CoC under Section 21(2).
- Guarantee-based claims survive even if the guarantee was not invoked before CIRP.
- Assignments made after CIRP begins will be tested for bona fides.
Key Takeaways
- Uninvoked corporate guarantees can still found a financial debt claim.
- Related-party status needs only ‘a role of navigation’, not being ‘in the driving seat’.
- A single homebuyer had locus to raise the objection.
- ECL and the trustee stay out of the CoC; the appeals were dismissed.
Frequently Asked Questions
Who is a related party of a corporate debtor under Section 5(24)(m)(i) IBC?
Among others, a person who participates in the policy-making processes of the corporate debtor. The Court held this is less demanding than Section 29A ‘control’ — ‘a role of navigation would suffice’.
Can a single homebuyer object to a lender being on the Committee of Creditors?
Yes. Relying on Phoenix ARC, the Court upheld the locus of an individual homebuyer, as a financial creditor, to challenge the inclusion of related parties.
Does a guarantee have to be invoked before insolvency for the creditor to claim?
No. The Court held the NCLAT erred in rejecting the claim on that ground, though the lenders still lost because they were related parties.
Conclusion
The judgment shows how the related-party bar in Section 21(2) can be triggered by the substance of a financing arrangement, not just shareholding or formal control. For homebuyers in stalled real estate insolvencies, it confirms that one creditor acting alone can test whether a powerful financier belongs in the room where the resolution is decided.
Practical takeaway: Scrutinise trust deeds, facility agreements and powers of attorney when a project financier seeks a CoC seat; participation in policy-making can make it a related party.
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