ECL Finance Ruling: When a Builder's Lender Loses Its Vote in Insolvency

A homebuyer of a Greater Noida builder in insolvency looked at the list of creditors who would decide the builder's future and objected to two names on it. One was the lender that had funded the project. The other was the trustee for the debentures that lender held. Together they claimed more than Rs 270 crore. The buyer argued that a lender which had effectively been running the builder's business should not also get to vote on how the business is rescued. On October 27, 2026, the Supreme Court agreed.

The Supreme Court's judgment in ECL Finance Ltd. v. Abhinav Mukherjee, reported as 2026 INSC 1159, arose under the Insolvency and Bankruptcy Code from a project in Uttar Pradesh, not Karnataka. But the Code applies across India, and the lender rights examined here, such as board seats, escrow control and sales rights, sat in ordinary loan and debenture documents. For buyers in any lender funded project, the ruling explains who can be kept out of the room when a builder goes into insolvency, and how one buyer can raise that objection.

The short answer. The Supreme Court held that a lender and debenture holder whose agreements gave it pervasive control over the builder's board deadlocks, construction budgets, key staff, unit sales and project revenues is a related party of the corporate debtor, and so cannot be represented, participate or vote in the Committee of Creditors. It also upheld the right of an individual homebuyer to raise that objection. The trade-off: the ruling concerns the lender's right to sit and vote on the committee, and the Court separately found its claims to be financial debt.

What was the dispute in ECL Finance v. Abhinav Mukherjee?

It was about who sits on the Committee of Creditors of Palm Developers Private Limited, the corporate debtor. According to the judgment, Palm Developers was a guarantor for Saha Infratech Private Limited, which raised money for its projects. In 2016, Saha Infratech proposed non-convertible debentures of Rs 1 crore face value each, for Rs 160 crore in two tranches. Only the first tranche of Rs 110 crore was subscribed, and all those debentures are now held by ECL Finance. IDBI Trusteeship Services Limited was the debenture trustee. Part of the money was meant to fund construction of Project Encore at Greater Noida.

In 2017, ECL also extended a revolving credit facility of Rs 90 crore to Saha Infratech, with Palm Developers again a guarantor. The security included a corporate guarantee from Palm Developers, a first charge and mortgage over Project Encore's land and buildings, hypothecation of its receivables and an escrow account for its revenue. Insolvency proceedings against Palm Developers were admitted on January 27, 2020. The trustee claimed about Rs 131.17 crore and ECL about Rs 139.03 crore, and both were placed on the committee. A homebuyer objected individually.

Did the Supreme Court treat the lender's claim as a real debt?

Yes. The National Company Law Tribunal had found that the claims were not financial debt because Palm Developers was only a guarantor and received no direct disbursal. The Supreme Court said the Tribunal misread its earlier decision in Anuj Jain v. Axis Bank. Relying on China Development Bank v. Doha Bank, it also said the appellate tribunal erred in holding that the claim could not be entertained because the corporate guarantee was not invoked before insolvency began. The Court noted that a person to whom financial debt is owed becomes a financial creditor even if there is no default.

That matters for buyers because the case did not turn on whether the lender was owed money. It turned on a narrower question that the Court itself framed: whether the appellants were related parties of the corporate debtor under Section 5(24) of the Code, and so liable to be excluded from the committee under the first proviso to Section 21(2).

What makes a lender a related party under the Code?

Under Section 5(24)(m)(i), any person associated with the corporate debtor on account of participation in its policy making processes is a related party. The first proviso to Section 21(2) says a financial creditor, or its authorised representative, that is a related party shall not have any right of representation, participation or voting in a committee meeting. The appellants relied on the test of control used for resolution applicants under Section 29A, which an earlier Supreme Court ruling, Arcelor Mittal v. Satish Kumar Gupta, describes as positive, proactive control rather than a mere power to block decisions.

The Court did not apply that stricter test here. It said reading Section 5(24) with Section 21 does not require proactive control of the kind Section 29A needs, and that the rigour for finding a financial creditor to be a related party is a tad lesser. In its words, the requirement would not be to the extent of being in the driving seat, but a role of navigation would suffice, in determining policy and channelising business interests.

Why did the Court find ECL controlled the builder?

Because the documents gave it control over almost every lever that matters to a homebuyer. The objecting buyer listed control over board decisions, the final say in deadlocks, appointment and removal of key managerial personnel, approval of business plans, the modalities of sale of units, sale and registration of units with buyers, all revenue accounts, and acting as a selling partner.

The Court said it was crystal clear that ECL had all pervasive control over the projects that the debentures and loan were meant to fund, and that the guarantor's own articles showed this control over its management was not merely restrictive or negative. It rejected the argument that the control was never actually exercised, saying policy implementation and the business carried out were under ECL's overall supervision. Since ECL held all the debentures, the trustee protecting its interest was excluded too, and ECL was disabled from participating even in its separate status as a lender.

Can a single homebuyer challenge who sits on the committee?

In this case, yes. Homebuyers as a class act on the committee through an authorised representative who votes for the whole class. The appellate tribunal, relying on its own earlier ruling, held that this representative acts for a limited purpose, attending committee meetings and voting, and that buyers who are themselves financial creditors are not shut out of adjudication just because the representative did not file the objection. The Supreme Court upheld that view, citing Phoenix ARC v. Spade Financial Services, where other financial creditors were held entitled to seek exclusion of related parties.

The Court also dealt with an attempt to sidestep the bar. ECL had assigned its rights under the Facility Agreement to a second appellant. Phoenix ARC had held that an assignee may be outside the related party definition if it legitimately took over the debt, or if the related party had stopped being one long ago. Here, the Court said the assignment was made long after insolvency began, was very recent, and could only be seen as intended to defeat the proviso. The assignee was excluded as well.

What did the forensic audit say about the project?

It painted a grim picture, according to the extracts the Court relied on. The appellate tribunal had referred to a forensic audit report stating that Palm Developers, the corporate guarantor, was fraudulently used as a vehicle to transfer funds from Saha Infratech to two other entities controlled by the promoters of the corporate debtor, over whose assets ECL had complete charge. The extract also said the project, called Meghdutam Encore, was initiated fraudulently without any intention to complete it, to defraud homebuyers and to mortgage it for loans, with the funds diverted to connected entities.

The Supreme Court found no question of law arising from the appellate tribunal's order and no perversity in its conclusion that the appellants were related parties. It dismissed both appeals and closed the connected contempt petitions. The bench was Justices J.B. Pardiwala and K. Vinod Chandran.

What should Bengaluru buyers check about a project's lender?

Find out who really holds the levers before you pay, and keep records that let you object later if needed. The Court's reasoning rested on ordinary documents: the sanction letter, the articles, the debenture deed and the buyer agreement. Our report on the Karnataka High Court case on a builder selling a financed flat and today's piece on the Supreme Court's Lodha Bellezza tripartite loan ruling look at other ways lenders and builders shape a buyer's risk.

1. Ask the builder which lenders or debenture holders have a charge on the project land and receivables.
2. Check whether your payments go to an escrow account and who controls withdrawals from it.
3. Ask whether any lender has a nominee director or observer on the builder's board.
4. Read your agreement for clauses naming a lender or its agents as the party handling sales.
5. Keep every receipt, allotment letter and agreement in one place in case insolvency begins.
6. If a case is admitted, file your claim with the resolution professional on time.
7. Track who is admitted to the committee and raise objections promptly, with legal help.

Frequently asked questions

What did the Supreme Court decide in ECL Finance v. Abhinav Mukherjee?

On October 27, 2026, it held that ECL Finance and the debenture trustee were related parties of Palm Developers under Section 5(24) of the Insolvency and Bankruptcy Code, because of pervasive control over the builder's projects, and so could not be represented, participate or vote in its Committee of Creditors.

Does a lender have to run the company to be a related party?

No. The Court said that for Section 5(24)(m)(i) read with Section 21, the test is a tad lesser than the proactive control required under Section 29A. A lender need not be in the driving seat; a role of navigation in determining policy and channelising business interests would suffice.

Can one homebuyer object without the authorised representative?

In this case, yes. The Supreme Court upheld the appellate tribunal's view that an authorised representative acts for homebuyers only for a limited purpose, attending committee meetings and voting, so an individual homebuyer could object before the tribunal to the lender's inclusion in the committee.

Can a lender avoid the bar by assigning its loan?

Not here. ECL assigned its rights under the Facility Agreement after insolvency began. The Court said the assignment was very recent, not long ago, and could only be seen as intended to defeat the bar on related parties, so the assignee was also excluded from the committee.

Last updated 2026-10-29. PropNewz Team.