Mortgage Created 7 Years After Debenture Deal Is Preferential Transaction In Radius Estate CIRP: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has held that a mortgage created nearly seven years after a financing agreement, and just weeks before the start of insolvency proceedings, amounted to a preferential transaction under the Insolvency and Bankruptcy Code.

The tribunal dismissed Suraksha Realty Limited's appeal against the avoidance of its security interest in the corporate insolvency resolution process of Radius Estate Projects Pvt. Ltd

The bench of Chairperson Justice Ashok Bhushan and Technical Member Indevar Pandey observed:

“The test under Section 43 is not whether the creditor became the highest-ranking secured creditor, but whether the creditor was placed in a more beneficial position than it would otherwise have occupied under Section 53. In the present case, the answer to this question is clearly in the affirmative. ", it observed.

"The object of Section 43(3) is to protect routine and ordinary commercial transactions undertaken in the normal course of business. A mortgage executed seven years after disbursement of funds, securing an old debt, and executed after application under Sec. 7 of the Code is registered against the Corporate Debtor and only weeks before commencement of CIRP, cannot be treated as an ordinary commercial transaction. Such delayed creation of security is clearly distinguishable from ordinary financing transactions where security is created contemporaneously with the lending itself." It added.

The appeal arose from an October 10, 2025 order of the Mumbai bench of the National Company Law Tribunal.

Radius Estate Projects Pvt. Ltd. entered into a Debenture Subscription Agreement with Suraksha Realty in December 2014. Under the agreement, Suraksha invested ₹112.5 crore through secured non-convertible debentures. Radius was required to create a mortgage within 30 days to secure Suraksha's interest.

However, no mortgage was created for nearly seven years. During this period, Radius created first charges in favour of Yes Bank in 2015 and 2016. It also created further encumbrances in favour of DHFL in 2018.

The tribunal noted that despite being aware of these developments, Suraksha did not take effective steps to ensure perfection of its claimed security.

It was only on July 29, 2021 that Radius executed a registered mortgage deed creating a second charge over 61,803 sq. ft. in favour of Suraksha. CIRP commenced on September 6, 2021.

Following a transaction audit that classified the mortgage as preferential, the Resolution Professional filed an avoidance application. The NCLT subsequently directed release and discharge of the security interest. Suraksha then appealed.

Suraksha argued that the 2021 mortgage merely perfected a pre-existing security arrangement contemplated under the 2014 agreement. It argued that the mortgage did not create any fresh preferential benefit, but merely formalised an existing arrangement. It also argued that the corporate debtor could not rely on its own failure to honour contractual obligations to claim the later mortgage was preferential.

The Resolution Professional argued that Suraksha remained an unsecured financial creditor because no perfected security had been created for nearly seven years. The RP said the mortgage materially improved Suraksha's position by converting it into a secured creditor within the statutory look-back period.

The NCLAT agreed.

It noted that the agreement required the mortgage to be created by January 17, 2015. It also contemplated a first charge. Instead, the eventual 2021 transaction created only a second charge after multiple prior encumbrances had already been created.

The tribunal rejected the argument that the mortgage merely related back to 2014. It held that a contractual promise to create security is distinct from a perfected security interest enforceable in insolvency.

“Under the waterfall mechanism provided under Section 53 of the Code, even a second charge holder occupies a significantly better position than an unsecured financial creditor. Therefore, the transaction undoubtedly improved the position of the Appellant,” the bench said.

Holding that the transfer secured antecedent debt, improved Suraksha's position, fell within the one-year look-back period, and was not in the ordinary course of business, the NCLAT upheld the NCLT's order and dismissed the appeal.