A lender with pervasive control over a corporate debtor’s projects is a related party under the insolvency law and cannot sit on the Committee of Creditors, the Supreme Court has held, dismissing appeals by ECL Finance and a debenture trustee.
New Delhi: The Supreme Court on October 27, 2026 upheld the exclusion of a non-banking lender and its debenture trustee from the Committee of Creditors of Palm Developers Private Limited, holding that a creditor which navigates the debtor’s policy and channelises its business interests is an associate in policy-making and therefore a related party under the Insolvency and Bankruptcy Code [ECL Finance Ltd. and Another v. Abhinav Mukherjee and Others].
A Bench of Justice J. B. Pardiwala and Justice K. Vinod Chandran dismissed Civil Appeal Nos. 6268 and 6273 of 2022 against the order of the National Company Law Appellate Tribunal. The judgment was authored by Justice Chandran. Senior Advocate Gaurav Mitra appeared for the appellants, while Senior Advocates Jayat Mehta and Arijit Prasad appeared for the respondents.
How the case reached the Supreme Court
Palm Developers Private Limited had guaranteed the obligations of Saha Infratech Private Limited. Under a Debenture Trust Deed of May 13, 2016, only the first tranche of Rs 110 crore was subscribed, and ECL Finance holds all the debentures. Under a Facility Agreement of September 22, 2017, Saha Infratech could borrow up to Rs 90 crore from ECL, again with Palm Developers as guarantor.
The corporate insolvency resolution process against Palm Developers began when a Section 7 petition was admitted on January 27, 2020. The debenture trustee claimed Rs 131.17 crore and ECL separately claimed Rs 139.02 crore. A homebuyer objected to their inclusion in the Committee of Creditors, and the National Company Law Tribunal held that the two were related parties and not eligible financial creditors. The NCLAT affirmed that finding and upheld the homebuyer’s right to raise the objection, which led to the present appeals.
The legal position
Section 5(24)(m)(i) of the Code treats as a related party a person associated with the corporate debtor through participation in its policy-making processes. Under the first proviso to Section 21(2), a related-party financial creditor has no right of representation, participation or voting in the Committee of Creditors. The Court contrasted this with the control test under Section 29A, which governs resolution applicants, and held that the related-party test is less demanding.
What the Court said
The Court held that complete control is not needed, and that a creditor’s role in steering policy is enough:
a role of navigation would suffice, in determining policy and channelising business interests.
Applying that test, the Court relied on the guarantor’s articles of association, which gave debenture holders nominee-director rights and the final say on deadlocks, on a January 16, 2017 amendment to the Debenture Trust Deed giving the trustee approval over quarterly budgets, and on Facility Agreement terms covering nominee directors, observers, management consent rights and a power of attorney. It rejected the argument that the control was merely negative or restrictive and recorded:
ECL has an all pervasive control, insofar as the projects of the principal Borrower are concerned
The Court held that this disqualified ECL both as debenture holder and as lender, and that the disqualification extended to the debenture trustee acting for it. It also found that an assignment of rights made after the insolvency process began was not bona fide and could only be seen as an attempt to defeat the rigour of the proviso to Section 21(2).
Other findings
Though the appeals failed, the Court corrected some reasoning below. It held that a guarantee can fall within financial debt and that an uninvoked corporate guarantee does not bar a claim, and it found that res judicata did not apply because the earlier order had been passed without hearing the objecting creditors. Finding no question of law arising from the NCLAT order, it dismissed the appeals, closed the connected contempt petitions and rejected pending applications.
Why the judgment matters
The ruling tells institutional lenders that contractual rights to appoint directors, approve budgets and steer projects can cost them a seat on the Committee of Creditors, whatever label the debt carries. By setting the bar at participation in policy-making rather than the full control tested under Section 29A, it widens the net for related-party exclusion.
It also guards the Committee’s independence for homebuyers and other creditors, since an assignment made mid-process cannot be used to bring an excluded creditor back in. The Court limited its inquiry to ECL’s association with the debtor as debenture holder.
Case Title: ECL Finance Ltd. and Another v. Abhinav Mukherjee and Others [Civil Appeal Nos. 6268 and 6273 of 2022; Contempt Petitions (C) Nos. 730 and 731 of 2023]
Bench: Justice J. B. Pardiwala and Justice K. Vinod Chandran, Supreme Court of India
Date of Judgment: October 27, 2026
Appearances: Senior Advocate Gaurav Mitra for the appellants; Senior Advocates Jayat Mehta and Arijit Prasad for the respondents.