Mere Inclusion Of Company's Name In Loan Documents Not Enough To Trigger Insolvency: NCLT Delhi

The Delhi bench of the National Company Law Tribunal (NCLT) has ruled that merely including a company's name in loan and sanction documents is not enough to establish that the company itself is the real obligor for the purpose of initiating insolvency proceedings.

“The insolvency jurisdiction under Section 7 cannot be permitted to be invoked merely because the name of a company appears in the sanction letter, absent clear evidence that the company itself is the real obligor in respect of the financial transaction. The provisions of the IBC cannot be employed as a substitute for enforcement of mortgage security or recovery of personal loan liabilities," the bench of Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Reena Sinha Puri observed.

Section 7 of the Insolvency and Bankruptcy Code, 2016 permits a financial creditor to initiate insolvency proceedings against a corporate debtor in case of default on a financial debt.

The ruling came on a petition filed by IIFL Home Finance Limited against MMC Realtech Solutions OPC Private Limited.

IIFL had extended two loan facilities of ₹2.96 crore and ₹1.91 crore in 2023. The facilities were secured against properties in Delhi and were availed by MMC Realtech along with Deepanshu Madaan, Veena Madaan and MMC Enterprises.

The lender alleged that the borrowers defaulted on repayment. It issued a demand notice dated July 28, 2025, seeking ₹4.55 crore as the outstanding amount and subsequently approached the NCLT under Section 7.

IIFL argued that MMC Realtech was a co-borrower under the loan agreements and was jointly and severally liable for repayment. It also contended that the facilities were Loan Against Property (LAP) loans availed for business purposes and commercial expansion connected with the company's real estate activities.

The lender further argued that a co-borrower's liability under a common loan agreement is co-extensive with that of the primary borrower. It maintained that MMC Realtech was not merely a guarantor or surety, but a direct party to the loan agreements, which were executed through its authorised director.

The bench examined the loan agreements, sanction letters, disbursal request forms, and other documents. It observed that the mere inclusion of MMC Realtech's name in the loan and sanction documents could not by itself establish that the company owed the financial debt.

The loan products were described in the final sanction letters as “HOME EQUITY BALANCE TRANSFER” and “HOME EQUITY – SAMMAAN”.

The disbursal records showed that ₹1.40 crore from the ₹2.96-crore facility went to Bajaj Housing Finance Ltd, ₹1.50 crore to the personal HDFC Bank account of Mr Deepanshu Madaan and ₹6 lakh to Bajaj General Insurance Company for insurance.

Similarly, ₹1.87 crore from the ₹1.91-crore facility was disbursed to the personal HDFC Bank account of Mrs Anu Madan, while ₹4 lakh went to ICICI Prudential Life Insurance Company towards insurance.

These terms, the bench observed, indicated that the transactions were in the nature of secured personal home-equity facilities rather than borrowings raised for the company's business or commercial expansion.

The bench also found no Board Resolution, financial statement entry, business-purpose document or other material showing that the facilities formed part of MMC Realtech's commercial borrowings.

It further noted that the company's master data did not show any charge in its Index of Charges in respect of the mortgaged properties. The properties securing the loans were owned by individuals, and there was no material showing that MMC Realtech had received or utilised the loan proceeds.

The bench also noted an inconsistency in the NeSL default reports. Deepanshu Madaan was initially reflected as the debtor from April 13, 2023, while MMC Realtech was subsequently shown as the debtor from June 10, 2025.

The bench held that IIFL had failed to establish that the amount claimed was a financial debt owed by MMC Realtech under Section 5(8) of the IBC. Consequently, IIFL did not qualify as a financial creditor in respect of the company for the purpose of the petition.

“At best, the documents enclosed with the petition disclose a mortgage-backed personal lending transaction,” the bench observed.

It added that IIFL could pursue remedies otherwise available under the contractual documents and other recovery mechanisms.

The Section 7 petition was accordingly dismissed.