What this judgment does NOT decide: it does not extinguish the appellants’ underlying claims, does not decide the corporate insolvency resolution process on its merits, and does not hold that every debenture holder or lender is a related party — the finding turns on the specific deed terms in this case. The forensic-audit observations are recorded as noticed by the Tribunal, not as fresh findings of fraud by the Supreme Court.
- Case
- ECL Finance Ltd. and Anr. v. Abhinav Mukherjee and Ors.
- Court
- Supreme Court of India
- Decision
- Citation
- 2026 INSC 1159
- Bench
- J. B. Pardiwala; K. Vinod Chandran
- Judgment by
- K. Vinod Chandran
- Case numbers
- Civil Appeal No. 6268 of 2022; Civil Appeal No. 6273 of 2022; Contempt Petition (C) No. 730 of 2023 in Civil Appeal No. 6268 of 2022; Contempt Petition (C) No. 731 of 2023 in Civil Appeal No. 6273 of 2022
- Outcome
- Final judgment dismissing two civil appeals and closing two contempt petitions; the NCLAT order excluding the appellants from the committee of creditors stands.
What the Court decided
On 27 October 2026, the Supreme Court dismissed the appeals of ECL Finance Ltd. and IDBI Trusteeship Services Ltd. (ITSL) and closed the two contempt petitions filed in the appeals, leaving intact the National Company Law Appellate Tribunal’s (NCLAT) order that excluded both appellants from the committee of creditors (CoC) of Palm Developers Pvt. Ltd.
The judgment, authored by Justice K. Vinod Chandran for a Bench also comprising Justice J. B. Pardiwala, held ECL a related party of the corporate debtor within Section 5(24)(m)(i) of the Insolvency and Bankruptcy Code, 2016 (IBC), and therefore barred from representation, participation and voting in CoC meetings under the first proviso to Section 21(2). Because ECL held all the debentures, ITSL, as debenture trustee protecting ECL’s interest, was disabled on the same ground.
The loans, the guarantee, and the insolvency
The corporate debtor, Palm Developers Pvt. Ltd., acted as guarantor to Saha Infratech Pvt. Ltd. (SIPL), which issued non-convertible debentures and took a term loan. Under a Debenture Trust Deed dated 13 May 2016, SIPL proposed Rs. 160 crore of Rs. 1 crore debentures in tranches of 110 and 50; only the first tranche was subscribed, and ECL now holds all of those debentures, with ITSL as trustee. Separately, SIPL took a Rs. 90 crore revolving credit facility from ECL under a Facility Agreement dated 22 September 2017, with Palm Developers as guarantor.
The insolvency process against Palm Developers began when a Section 7 petition was admitted on 27 January 2020. ITSL claimed Rs. 131,17,23,044 as on 29 February 2020 in its capacity as debenture trustee, and ECL claimed Rs. 139,02,83,168.68 under the term loan facility. Both were initially treated as financial creditors and included in the CoC, but one homebuyer, acting as an individual financial creditor, objected. The National Company Law Tribunal (NCLT) held that the claims were not financial credit, since no financial debt had been incurred by Palm Developers itself and no amount had been disbursed directly to it, and that both appellants were related parties under Section 5(24)(m)(i). The NCLAT affirmed the exclusion.
The questions before the Court
Only one question remained: whether the appellants were related parties of the corporate debtor within Section 5(24) and therefore excludable from the CoC under the first proviso to Section 21(2). Before reaching it, the Court corrected two errors below and upheld the individual homebuyer’s standing.
First, the Court held that the NCLT had misread Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. v. Axis Bank Ltd., in treating a guarantee as incapable of being a financial debt where the debtor was only a guarantor: the passage relied on itself records that financial debt may include liability under a guarantee or indemnity. Second, it held that the NCLAT had erred in holding the guarantee claim cannot be entertained because the guarantee had not been invoked before insolvency began: under China Development Bank v. Doha Bank Q.P.S.C. and Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd., Section 5(8) does not require a default before a facility qualifies as financial debt.
On standing, the Court accepted that a single homebuyer could object even though homebuyers as a class are represented in the CoC by an authorised representative, whose role is limited to attending meetings and voting for the class; an earlier order passed without hearing the CoC creditors also does not bind them as res judicata.
The test: participation in policy-making, not ‘driving seat’ control
Section 5(24)(m)(i) treats as a related party any person associated with the corporate debtor through participation in its policy-making processes. The Court stressed that this test is less demanding than the ‘control’ test in Section 29A(c) and (g): Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta requires proactive, positive control — being in the driving seat, not merely the power to block decisions.
For related-party status under Section 5(24), the Court held, no such driving-seat control is needed: ‘a role of navigation would suffice, in determining policy and channelising business interests.’ The question is therefore whether the creditor’s contractual rights gave it a hand in steering the debtor’s policy and business, not whether it ran the company day to day.
Why these deed terms crossed the line
The Court found that the documents gave ECL exactly that navigational role. Clause 7.1 of the debtor’s articles entitled the debenture holders or lenders, on an event of default, to appoint a nominee director, and provided that any deadlock at a board or shareholder meeting would be referred to that nominee director or to the debenture holders or lenders, whose decision would be final and binding on the promoters. A January 2017 amendment to the Debenture Trust Deed let the debenture trustee or monitoring agent approve the quarterly construction budget, or require it to be modified, with escrow funds released only per the approved budget.
The facility documents went further: an absolute right to appoint an indemnified director on the borrower’s board, sitting on all board committees, plus an observer entitled to all board papers; Clause 6.8, which barred removing managerial personnel without the lender’s consent; the right to require suitable technical, financial and executive staff to be appointed; Clause 21, which empowered ECL to appoint real estate and distributing agents for the sale of units; a power of attorney conferring sweeping powers over construction, statutory sanctions, raw materials, labour, purchaser communications and finalisation of sales; and Clause 4.1 of the articles, which put project revenues, including payments by allottees, in ECL’s direct control.
From this, the Court concluded it was ‘crystal clear that ECL has an all-pervasive control’ over the projects, exercised both as debenture holder (through ITSL as trustee) and as term-loan lender, and that it was not mere restrictive or negative control. That the control was never actually put in place did not help: the policy implementation and the business carried on were under ECL’s overall supervision. ECL was therefore disabled from the CoC as debenture holder and even as lender, and ITSL with it.
The assignment point, and the final order
The Court also rejected an attempt to cure the disability by assignment: ECL had assigned its rights under the Facility Agreement to the second appellant long after the insolvency process had commenced; the assignment was very recent. Phoenix ARC protects assignees who legitimately took over a related party’s debt, or where the related party stopped being one ‘long ago’; this assignment, the Court held, was very recent and could only be considered as intended to defeat the proviso to Section 21(2), particularly given the Tribunal’s reference to a forensic audit report stating that the corporate debtor had been fraudulently used to move funds from SIPL to two promoter-controlled entities and that the ‘Meghdutam Encore’ project had been initiated fraudulently, without any intention to complete it, to defraud homebuyers.
Finding ‘absolutely no question of law arising’ from the NCLAT’s order and no perversity in its analysis of the facts, the Court dismissed the appeals, closed the contempt petitions, and rejected any pending applications.
BANTHRY ANALYSISFor law students
This judgment draws a clean line students often blur: ‘related party’ and ‘control’ are not the same test. Section 29A asks whether a resolution applicant controls the debtor — the driving seat. Section 5(24)(m)(i) asks something smaller but still potent: did the creditor participate in making the debtor’s policy? A lender that writes itself rights over budgets, board deadlock, key staff and sale proceeds has crossed from arm’s-length finance into policy-making, even if it never exercised those rights.
Note also what the Court preserved along the way: a guarantor’s liability can still be a financial debt, and a creditor excluded from the CoC is not thereby stripped of its claim — it loses representation, participation and voting in the committee, which is different from losing the debt itself.
READING PROMPTSQuestions for a closer reading
- Why does Section 5(24)(m)(i) of the IBC require only participation in policy-making, rather than the ‘driving seat’ control required under Section 29A?
- Which deed terms led the Court to conclude that ECL participated in the policy-making of the corporate debtor?
- Why did the Court hold that a corporate guarantee can be a financial debt even if it was not invoked before the insolvency process began?
