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2026 Supreme(Online)(NCLAT) 264

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
NARESH SALECHA, Technical Member
J.C. Flowers Asset Reconstruction Pvt. Ltd. – Appellant
Versus
Vithal M. Dahake – Respondent
Comp. App. (AT) (Ins) No. 1801 of 2024 | I.A. No. 6576, 6577 of 2024

For the Appellants/Petitioners:Mr. Abhijeet Sinha Sr. Adv. With Mr. Chitranshul A. Sinha, Mr. Shivam Shorewala, Ms. Rakshita Bhargava & Ms. Esha Sharma, Advocates
For the Respondents:Mr. Amit Arsiwala, Mr. Yash Jariwala & Ms. Neha Arya, Advocates

Mortgage deed with 'covenant to pay' constitutes guarantee and English mortgage, qualifying as financial debt under IBC Section 5(8) without direct disbursement to corporate debtor if transaction has commercial effect of borrowing.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 5(7), 5(8), 5(8)(f), 5(8)(h), 5(8)(i), 61 - Transfer of Property Act, 1882 - Sections 58(e), 68 - Indian Contract Act, 1872 - Sections 126, 128 - Mortgage deed containing explicit 'covenant to pay' constitutes English mortgage and contract of guarantee, creating personal liability on mortgagor co-extensive with principal borrower - Direct disbursement to corporate debtor not sine qua non for 'financial debt'; transaction having commercial effect of borrowing qualifies under Section 5(8)(f) - Mortgagee entitled to status as secured financial creditor, not merely other secured creditor. (Paras 52, 67, 69, 78-81, 86-87, 90)

(B) Financial Debt - Definition expansive; includes liability from guarantee or mortgage with covenant to pay even without direct funds to corporate debtor - Supreme Court rulings distinguish mere security from arrangements with payment undertaking triggering financial creditor status. (Paras 66, 72-73, 76)

Facts of the case:
Appeal against order classifying appellant's claim under mortgage securing third-party loan as 'other secured creditor' claim rather than secured financial creditor. Mortgage over project land created to secure term loan for development; corporate debtor covenanted to repay mortgage debt upon principal borrower's default. No direct disbursement to corporate debtor; benefits derived via development rights yielding saleable area.

Findings of Court:
Impugned order set aside; claim admitted as secured financial debt. Corporate debtor's mortgage with covenant to pay qualifies as English mortgage and guarantee; appellant recognized as secured financial creditor. Matter remanded for proceedings accordingly.

Issues: (I) Whether disbursement to corporate debtor prerequisite for 'financial debt' under Section 5(8)? (II) Whether appellant qualifies as financial creditor with secured financial debt? (III) Whether 'covenant to pay' creates guarantee or merely secures mortgage? (Para 52)

Ratio Decidendi: Direct disbursement not mandatory under Section 5(8); covenant to pay in mortgage deed (Clauses 3, 25) imposes direct personal liability akin to guarantee under Section 126, read with English mortgage under Section 58(e), satisfying financial debt criteria. Corporate debtor benefited commercially from loan proceeds. Anuj Jain distinguished due to absence of covenant therein. (Paras 62-70, 78-87)

Result: Appeal allowed.

Table of Content
1. background of loans, mortgages, and cirp commencement. (Para 1 , 2 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 53 , 54 , 55 , 56)
2. appellant claims secured financial creditor via covenant to pay. (Para 18 , 19 , 20 , 21 , 22 , 23 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35)
3. respondent denies financial debt absent direct disbursement. (Para 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 58 , 59 , 60 , 61)
4. court frames issues and examines mortgage clauses. (Para 52 , 62 , 63 , 64 , 65 , 66 , 67 , 68 , 69 , 70 , 71 , 72 , 73 , 74 , 75 , 76 , 77 , 78)
5. direct disbursement not sine qua non for financial debt. (Para 79 , 80 , 81)
6. covenant to pay constitutes guarantee under section 126. (Para 82 , 83 , 84 , 85 , 86 , 87)
7. mortgage qualifies as english mortgage under tpa section 58. (Para 88 , 89 , 90 , 91 , 92)
8. appeal allowed; appellant is secured financial creditor. (Para 93)

JUDGEMENT

( 24 .02.2026)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present appeal has been filed by the Appellant i.e., J.C. Flowers Asset Reconstruction Pvt. Ltd, under Section 61 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) against the Impugned Order dated 07.08.2024 passed by the National Company Law Tribunal, Mumbai Bench ("Adjudicating Authority") in I.A No. 1157/MB/2022 in C.P No. 380/2021.

Mr. Vithal M. Dahake, Resolution Professional of the Corporate Debtor i.e.

Radius Estate Projects Pvt. Ltd., is the Respondent herein.

2. Two appeals namely, Company Appeal (AT) (Ins.) No. 1110 of 2024 & Company Appeal (AT) (Ins.) No. 1801 of 2024 were tagged together and heard together, since, few issues were common. However, Parties and facts of both the appeals are different, thus, for the sake of convenience and for better appreciation of facts and law, we are pronouncing separate judgements in both above appeals. 3. The Appellant stated that it is a company incorporated under the Companies Act, 2013, and is registered with the Reserve Bank of India as an Asset Reconstruction Company under Section 3 of SARFAESI Act. The Appellant further submitted that it is the assignee of the financial assets pertaining to the Corporate Debtor, which were originally extended by YES Bank Ltd.

4. The Appellant submitted that YES Bank sanctioned a Term Loan of ₹350 Crore to Sumer Radius Realty Pvt. Ltd. (Principal Borrower/SRRPL) vide Facility Letter no. YBL/MUM/FL/1487/2015-16 dated 31.03.2016 in two tranches: ₹111 Crore (Term Loan-I) for construction, development, and tenant settlement costs of the Corporate Debtor’s “Avenue 54” project, and ₹239 Crore (Term Loan-II) for securing various project-related contracts.

5. The Appellant stated that a Loan Agreement was executed on 11.05.2016 and the facilities were secured by a Deed of Mortgage dated 12.05.2016 executed by the Corporate Debtor (formerly Vishwaroop Realtors Pvt. Ltd.) over 50% undivided share in freehold land admeasuring approx. 21,774.1 sq. mtrs at Bandra Village, Mumbai, known as Willingdon Catholic Colony (Santacruz SRA Project), in favour of IDBI Trusteeship Services Ltd. as Security Trustee for YES Bank, with the Corporate Debtor undertaking to repay upon default by the Principal Borrower.

6. The Appellant further submitted that, to comply with the Facility Letter and Loan Agreement, the Principal Borrower additionally mortgaged its “Ghia Compound” property, recorded by a Supplemental Deed of Mortgage dated 06.02.2018; the Santacruz SRA Project and Ghia Compound together constitute the “Avenue 54 Project”.

7. The Appellant stated that, despite the prior mortgage in favour of YES Bank, the Corporate Debtor unlawfully created a second mortgage over the Avenue 54 Project on 30.07.2018 in favour of Dewan Housing Finance Corporation Ltd. (now Piramal Capital & Housing Finance Ltd.), which was objected to by the Appellant and is subject to separate proceedings.

8. The Appellant submitted that the Principal Borrower defaulted in repaymen

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2026 Supreme(Online)(NCLAT) 264

NATIONAL COMPANY LAW APPELLATE TRIBUNALNARESH SALECHA, Technical MemberJ.C. Flowers Asset Reconstruction Pvt. Ltd. – AppellantVersusVithal M. Dahake – RespondentComp. App. (AT) (Ins) No. 1801 of 2024 | I.A. No. 6576, 6577 of 2024

Mortgage deed with 'covenant to pay' constitutes guarantee and English mortgage, qualifying as financial debt under IBC Section 5(8) without direct disbursement to corporate debtor if transaction has commercial effect of borrowing.

Cases Referred (3)

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
NARESH SALECHA, Technical Member
J.C. Flowers Asset Reconstruction Pvt. Ltd. – Appellant
Versus
Vithal M. Dahake – Respondent
Comp. App. (AT) (Ins) No. 1801 of 2024 | I.A. No. 6576, 6577 of 2024