The National Company Law Appellate Tribunal has clarified that mortgaging property to facilitate a corporate debtor’s loan from a bank does not constitute a financial debt under the Insolvency and Bankruptcy Code, 2016. The judgment delineates the boundaries of Section 5(8) and reinforces that disbursement of funds is an indispensable requirement for creditor status.
Background & Facts
The Dispute
Amisha In Sky Creation Pvt. Ltd. (Amisha) mortgaged its properties to enable Setubandhan Infrastructure Limited (Corporate Debtor) to secure a loan from State Bank of India (SBI). In return, Amisha entered into a Deed of Agreement dated 09.08.2016 with the Corporate Debtor, under which the latter agreed to pay interest at 1.5% per month on the loan amount disbursed by SBI and indemnify Amisha against losses. The Corporate Debtor also issued post-dated cheques to Amisha as security for these payments. Despite repeated requests, the Corporate Debtor failed to release the mortgaged properties after the loan term expired. When the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (CIRP) on 28.11.2022, Amisha filed a claim as an unsecured financial creditor.
Key Facts
- On 02.06.2016, Amisha’s Board authorised Mr. Vishal Mukesh Ahuja to negotiate the Deed of Agreement.
- On 09.08.2016, a notarised Deed of Agreement was executed between Amisha and the Corporate Debtor.
- On 28.03.2017, Amisha executed a corporate guarantee in favour of SBI, mortgaging its properties.
- In March 2018 and March 2019, Amisha requested release of its properties; no action was taken.
- On 18.08.2019, Amisha issued a legal notice demanding compliance with the Deed of Agreement.
- On 16.10.2019, the Corporate Debtor disputed the validity of the Deed of Agreement, alleging lack of board authority.
- The Corporate Debtor was admitted into CIRP on 28.11.2022.
- The Interim Resolution Professional (IRP) invited claims on 30.11.2022; the last date for submission was 12.12.2022.
- Amisha filed its claim with the Resolution Professional (RP) on 09.01.2023.
- The RP rejected the claim on 17.01.2023 and again on 18.05.2023, citing absence of financial debt.
- The Committee of Creditors (CoC) approved the resolution plan on 26.12.2023.
- Amisha filed I.A. No. 1674 of 2024 before the NCLT Mumbai on 08.04.2024.
- The Adjudicating Authority dismissed the application on 04.03.2025 but reclassified Amisha as a secured financial creditor.
Procedural History
- 28.11.2022: Corporate Debtor admitted into CIRP.
- 30.11.2022: IRP invited claims.
- 12.12.2022: Deadline for claim submission.
- 09.01.2023: Amisha filed claim with RP.
- 17.01.2023: First rejection of claim by RP.
- 18.05.2023: Second rejection of claim by RP.
- 26.12.2023: CoC approved resolution plan.
- 08.04.2024: I.A. No. 1674 of 2024 filed before NCLT Mumbai.
- 04.03.2025: Adjudicating Authority dismissed claim but classified Amisha as secured financial creditor.
- 12.05.2026: NCLAT delivered judgment on Company Appeal (AT) (Insolvency) Nos. 578 and 640 of 2025.
The Parties' Positions
Amisha’s Position: Contended that the Deed of Agreement created a financial debt under Section 5(8) of the IBC due to the interest obligation and indemnity clause. Relied on Pioneer Urban Land & Infrastructure Ltd. v. Union of India to argue that indirect disbursement through property mortgage qualifies as financial debt. Asserted that post-dated cheques and indemnity obligations demonstrated commercial effect of borrowing.
RP’s Position: Argued that no funds were disbursed by Amisha to the Corporate Debtor, a mandatory requirement under Section 5(8). Emphasised that the guarantee was given to SBI, not the Corporate Debtor. Contended that post-dated cheques are mere promises to pay and do not create a security interest under Section 3(31) of the IBC. Cited Anuj Jain v. Axis Bank and New Okhla Industries v. Anand Sonbhadra to affirm that disbursement is non-negotiable.
Relief Sought
Amisha sought: Admission of its claim of Rs. 81,05,08,075.61 as a secured financial creditor, setting aside the rejection, and inclusion in the resolution plan.
RP sought: Upholding the rejection of Amisha’s claim and overturning the Adjudicating Authority’s reclassification of Amisha as a secured financial creditor.
The Legal Issue
The central question was whether Section 5(8) of the Insolvency and Bankruptcy Code includes a transaction where a party mortgages its property to enable a corporate debtor to obtain a loan from a third-party financial institution, and receives interest and indemnity in return, without any direct disbursement of funds.
Arguments Presented
For the Appellant (Amisha)
Amisha relied on Pioneer Urban Land & Infrastructure Ltd. v. Union of India to argue that indirect financial support through property mortgage constitutes a financial debt. It contended that the 1.5% monthly interest obligation and indemnity clause under the Deed of Agreement reflected the commercial effect of borrowing. It further asserted that the post-dated cheques constituted a security interest under Section 3(31) of the IBC. Amisha maintained that the RP exceeded his jurisdiction by adjudicating the validity of the agreement and that the claim was filed within the 90-day window.
For the Respondent (RP)
The RP countered that Section 5(8) requires actual disbursement of funds from creditor to debtor. It argued that Amisha’s mortgage to SBI was a guarantee to a third party, not a debt owed by the Corporate Debtor. The post-dated cheques were not enforceable securities and did not create a charge. The RP cited Anuj Jain v. Axis Bank and New Okhla Industries v. Anand Sonbhadra to affirm that disbursement is the foundational element of financial debt. It also noted that Amisha had never claimed secured creditor status before the Adjudicating Authority and that the reclassification was procedurally flawed.
The Court's Analysis
The NCLAT undertook a rigorous textual and precedential analysis of Section 5(8) of the IBC. It reaffirmed the Supreme Court’s holding in Anuj Jain v. Axis Bank that the essential element of financial debt is disbursement against the consideration for the time value of money. The Tribunal observed that while Section 5(8)(f) includes transactions with the commercial effect of borrowing, such transactions must still trace back to a disbursement.
"The requirement of existence of a debt, which is disbursed against the consideration for time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in sub-clauses (a) to (i) of Section 5(8)..."
The Court noted that Amisha had not disbursed any funds to the Corporate Debtor. The loan was provided by SBI, and Amisha’s role was that of a guarantor-mortgagor. The guarantee was executed in favour of SBI, not the Corporate Debtor, and no payment was made by Amisha to discharge the Corporate Debtor’s liability. The post-dated cheques, though issued, were not encashed and did not create a charge, hypothecation, or mortgage over the Corporate Debtor’s assets.
The Tribunal further held that the Corporate Debtor’s conduct - accepting the mortgage to secure the SBI loan and later disputing the Deed of Agreement - constituted approbation and reprobation, which is legally impermissible. However, this did not convert the transaction into a financial debt.
The Court also examined the timing of the claim. Amisha filed its claim on 09.01.2023, within the 90-day window from the invitation of claims on 30.11.2022. The Adjudicating Authority’s rejection on grounds of delay was therefore unsustainable, as the delay was neither intentional nor beyond the statutory period.
The Verdict
The NCLAT dismissed Amisha’s appeal challenging the rejection of its claim as a secured financial creditor. It partially allowed the RP’s appeal by setting aside the Adjudicating Authority’s reclassification of Amisha as a secured financial creditor. However, it directed the RP to treat Amisha’s claim as that of an other creditor and, if the resolution plan provides for distribution to such creditors, to place an addendum before the CoC for approval. Amisha’s claim amount of Rs. 81,05,08,075.61 is eligible for inclusion under this category. Parties were directed to bear their own costs.
What This Means For Similar Cases
Disbursement Is Non-Negotiable
- Practitioners must establish direct or indirect disbursement of funds from the creditor to the debtor to claim financial creditor status under Section 5(8).
- Mortgages, guarantees, or indemnities in favour of third-party lenders do not, by themselves, create financial debt against the corporate debtor.
Security Interest Must Be Created by the Debtor
- A security interest under Section 3(31) requires a charge, mortgage, or hypothecation created by the corporate debtor over its own assets.
- Post-dated cheques issued by the debtor to a third party do not constitute a security interest unless they are pledged or enforced as collateral.
Claims Can Be Reconsidered as Other Creditors
- Even if a claimant fails to qualify as a financial creditor, the tribunal may permit reclassification as an other creditor if the underlying obligation is substantiated.
- RP must not reject claims on procedural grounds if filed within the statutory window, even if the legal classification is contested.
Procedural Fairness Over Technicality
- Delay in challenging a rejection is not fatal if the initial claim was filed on time and the challenge is pursued diligently.
- The IBC’s objective of equitable treatment of stakeholders overrides rigid application of limitation where no prejudice is caused to the resolution process.
