Lender's Relinquishment Of Security In Borrower Liquidation Does Not Extinguish Third-Party Mortgage: NCLT Mumbai
Kirit Singhania
19 March 2026 11:46 AM IST
The National Company Law Tribunal (NCLT) at Mumbai on Tuesday held that relinquishment of security in the liquidation of a principal borrower does not affect a mortgage created in favour of the lender by a third-party corporate debtor, and the lender can still claim secured creditor status in the debtor's separate insolvency proceedings.
A bench of Judicial Member K.R. Saji Kumar and Technical Member Anil Raj Chellan, while deciding an application filed by IFCI Ltd seeking recognition of its claim of Rs. 520.04 crore as a secured creditor in the CIRP of Replenish Reality Pvt Ltd, observed:
“Merely because the Principal Borrower has undergone a liquidation process in separate proceedings, and for that matter, the security interest created by the Principal Borrower has been relinquished by the Applicant, has no impact on the third party securities.”
The dispute arose from credit facilities extended by IFCI to RMOL Engineering & Offshore Ltd under a loan agreement dated March 30, 2013. To secure these facilities, Replenish Reality, as a third-party mortgagor, created a mortgage over land in Jhansi on November 27, 2017. After default, IFCI initiated SARFAESI proceedings and issued a demand notice on November 26, 2020 followed by a possession notice on March 25, 2023.
CIRP against the corporate debtor commenced on April 17, 2024, and IFCI submitted its claim on May 30, 2024. The resolution professional rejected the claim on October 10, 2024, and December 18, 2024, on the ground that IFCI had relinquished its security in the liquidation of the principal borrower.
Rejecting this reasoning, the tribunal held that the liquidation of the principal borrower and CIRP of the corporate debtor are distinct proceedings. It observed that relinquishment of security in the borrower's liquidation pertains only to assets of that entity and does not extinguish third-party security interests.
It also noted that IFCI had taken steps under SARFAESI, including symbolic possession.
The tribunal thus set aside the rejection of the claim and directed the resolution professional to consider IFCI's claim as a secured creditor in accordance with law.
For Applicant: Advocates Nikhil Rajani, Mrunalini Deshpande i/b V. Deshpande & Co.
For Respondent: Advocates Avinash R. Khanolkar, Surekha Yadav, Khushbu Bhanushali