Company That Mortgaged Its Property For SBI Loan Of Corporate Debtor Cannot Be Treated As Financial Creditor: NCLAT

The National Company Law Appellate Tribunal at Delhi has held that in the facts of a case, a company that mortgaged its property to help a borrower secure a bank loan could not claim to be a financial creditor in the borrower's insolvency proceedings merely because it was promised interest in return.

The ruling came in a case where a Raipur-based company had mortgaged its land to help Setubandhan Infrastructure Ltd. secure loan facilities from State Bank of India and later sought recognition as a secured financial creditor in the company's insolvency process.

The bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra observed the following:

“Clearly, present is not a case where there has been any disbursal of monies by Amisha to the Corporate Debtor. This is admittedly a case where there has been only a set of properties which have been allowed by Amisha to be used as collateral for credit disbursed by SBI to the Corporate Debtor. This mortgage of property cannot assume the character of disbursal of financial debt in terms of Section 5(8) of IBC”

The tribunal dismissed the appeal filed by Amisha In Sky Creation Pvt. Ltd., which had sought recognition as a secured financial creditor in the insolvency proceedings of Setubandhan Infrastructure Ltd. It partially allowed the cross-appeal filed by Resolution Professional Sandeep D Maheshwari.

Setubandhan Infrastructure Ltd. was admitted into insolvency proceedings on November 28, 2022. Before insolvency, the company had obtained loan facilities from the State Bank of India. To help secure those loans, Amisha mortgaged its land parcels in Raipur in favour of SBI.

Under a deed of agreement dated August 9, 2016, Setubandhan agreed to repay SBI within three years and secure release of Amisha's property. In return, it agreed to pay Amisha interest at 1.5% per month and issued post-dated cheques towards those payments. Amisha also executed a corporate guarantee with SBI on March 28, 2017.

After Setubandhan defaulted, Amisha filed a claim before the Resolution Professional in January 2023 seeking recognition as an unsecured financial creditor. The claim was rejected twice, first in January 2023 and again in May 2023. Amisha then approached the Mumbai bench of the National Company Law Tribunal, challenging that decision.

While dismissing Amisha's application, the NCLT nevertheless categorised it as a secured financial creditor. This led to cross appeals before the appellate tribunal.

Amisha argued that since SBI disbursed the loan to Setubandhan on the strength of the security created by it, the transaction effectively amounted to the disbursement of debt. It also argued that the agreed interest payments showed consideration for time value of money and gave the arrangement the commercial effect of borrowing.

The Resolution Professional argued that Amisha had not disbursed any funds to Setubandhan. It said the guarantee was given to SBI, not to the corporate debtor. It also argued that post-dated cheques were merely promises to pay and did not create any security interest over Setubandhan's assets.

On the post-dated cheques, the tribunal said:

“However, these post-dated cheques, which were not claimed by Amisha to have been encashed, were at best only a promise to pay a specified sum of money at a future date without creating any mortgage, charge, or hypothecation on any property owned by the Corporate Debtor.”

The tribunal also noted that the guarantee agreement was executed between Amisha and SBI, not with Setubandhan.

It further observed that Amisha itself had originally filed its claim as an unsecured financial creditor. It argued for secured status only at the appellate stage.

The tribunal held that while Amisha could not be treated as a financial creditor, it could still lodge a claim as an “other creditor” because it had mortgaged its property for the benefit of the corporate debtor.

Accordingly, the tribunal set aside the NCLT's order. It dismissed Amisha's appeal and partly allowed the Resolution Professional's appeal. It directed that Amisha's claim be treated as that of an “other creditor”, with further steps depending on the terms of the approved resolution plan.