Lender With Policy Role Is IBC Related Party: Supreme Court

Lender With Board, Budget and Sales Powers Is a Related Party, Barred From the CoC: Supreme Court

Published: 27 October 2026 · NyayVidhan

The Supreme Court upheld the exclusion of ECL Finance, sole debenture holder and lender, and its debenture trustee from the Committee of Creditors of a guarantor company as related parties under Section 5(24)(m)(i) of the IBC. That clause needs only association through participation in policy making, not the proactive control required under Section 29A, and the Court found no question of law or perversity in the tribunals' findings (paras 17, 23-24, 27).

Key holdings

Section 5(24)(m)(i) is met by a role of navigation in determining policy; being in the driving seat is not required (para 17).

Deadlock-breaking, budget-approval, management-veto, sales and revenue controls in the Articles and loan papers showed policy participation (paras 19-23).

A debenture trustee acting for a sole debenture holder that is a related party is excluded with it (paras 23-24).

A recent assignment made after the CIRP began, aimed at the Section 21(2) proviso, does not cleanse a related party's debt (paras 25-26).

A corporate guarantee can be a financial debt even if not invoked before the CIRP (paras 8-9).

Judgment digest by NyayVidhan: a summary of the court's judgment, not its text. The judgment itself is the authoritative version.

Brief Facts

Palm Developers Private Limited, the corporate debtor, guaranteed Rs.110 crores of debentures issued by Saha Infratech Private Limited (SIPL) under a 2016 trust deed, all now held by ECL Finance with IDBI Trusteeship Services as trustee, and a Rs.90 crore facility ECL extended to SIPL in 2017 (paras 3-6). Its CIRP began on 27.01.2020; the trustee and ECL claimed over Rs.131 crores and Rs.139 crores and were placed in the CoC (para 7). On an individual homebuyer's objection, the NCLT held the claims were not financial debt and both were related parties under Section 5(24)(m)(i); the NCLAT affirmed (opening paragraph, para 7).

Court's Findings

The NCLT misread Anuj Jain, since a guarantee liability can be a financial debt, and the NCLAT erred in rejecting the claims because the guarantee was not invoked before the CIRP (paras 8-9). Under Phoenix ARC, an individual homebuyer could seek exclusion of related parties (paras 10-11). Section 5(24)(m)(i) needs only association through participation in policy making; the proactive control required under Section 29A(c) and (g) in Arcelor Mittal is not needed, and a role of navigation suffices (paras 13-17). The corporate debtor's Articles let debenture holders or lenders appoint a nominee director on default and finally decide board deadlocks (para 19); the trust deed let the trustee approve construction budgets and escrow releases (para 20); ECL could appoint a director and an observer, veto removal of key managers, appoint sales agents, act under a sweeping power of attorney and control project revenues (paras 21-22). This was all-pervasive, not negative, control; the plea that it was never put in place failed (para 23). Disabled as sole debenture holder, ECL is disabled as lender too, and the trustee with it (paras 23-24). A very recent post-CIRP assignment of ECL's facility rights failed the bona fide test (paras 25-26).

Legal Principle

A financial creditor is a related party under Section 5(24)(m)(i) of the IBC if it is associated with the corporate debtor through participation in its policy making; proactive control of the Section 29A kind is not required. Such a creditor, its debenture trustee, and an assignee lacking bona fides cannot sit in the CoC (paras 17, 23-26).

NyayVidhan's view · Practice note

Why It Matters

Lenders who write board seats, deadlock votes, budget approvals, sales agents and escrow control into a developer's loan papers and a guarantor's Articles should expect to be treated as related parties if the guarantor goes into insolvency, and to lose their seat and vote in the CoC (paras 17, 23-24). The test is participation in policy making, not Section 29A control, and a plea that the control was never put in place failed where the business ran under the lender's supervision (para 23). A trustee for a single debenture holder shares its fate, and a late assignment of the debt will be tested for bona fides (paras 24-26). Compare Kamal Pasha on withdrawal of an approved resolution plan.

Editorial comment by the NyayVidhan Editorial Desk. It is not part of the Court's judgment and is not legal advice.

Precedents Relied Upon

Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. v. Axis Bank Limited and Others (2020) 8 SCC 401
Explained Discussed at ¶ 8
The NCLT misread it to hold that the corporate debtor's liability as guarantor, not principal borrower, is not a financial debt under Section 5(8); the passage the NCLT itself extracted says a financial debt may include a liability under a guarantee or indemnity for the items in sub-clauses (a) to (h).
China Development Bank v. Doha Bank Q.P.S.C. and Others (2025) 7 SCC 729
Relied Upon Discussed at ¶ 9
Section 5(8) does not require a default for a facility to be a financial debt, and a person to whom financial debt is owed is a financial creditor under Section 5(7) even without default; relied on to hold that the NCLAT erred in refusing the claims because the corporate guarantee was not invoked before the CIRP began.
Phoenix ARC Private Limited v. Spade Financial Services Limited and Others (2021) 3 SCC 475
Applied Discussed at ¶ 10, 11, 25
Financial creditors may seek exclusion of related parties from the CoC, and an earlier order passed without hearing them is not res judicata; that dictum applies squarely to an individual homebuyer objecting before the NCLT. An assignee of a related party is outside the definition only if it legitimately took over the debt or the related party stopped being one long ago; applied to reject a very recent assignment made after the CIRP began.

View all precedents (4)

Arcelor Mittal India Private Limited v. Satish Kumar Gupta and Others (2019) 2 SCC 1
Distinguished Discussed at ¶ 13, 15, 17
Relied on by the Tribunal: control under Section 29A(c) and (g) means de jure or de facto proactive and positive control, not mere negative control. The Court held that Section 5(24)(m)(i) read with Section 21 needs only association through participation in policy making, a tad lesser rigour, where a role of navigation suffices.