1. Petition under Section 7, IBC seeking CIRP against co-borrower corporate debtor for default on loan against property. (Para 1 , 2 )
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2026 Supreme(Online)(NCLT) 4908
NATIONAL COMPANY LAW TRIBUNAL
Manni Sankariah Shanmuga Sundaram, Judicial Member, Reena Sinha Puri, Technical Member
IIFL Home Finance Limited – Appellant
Versus
MMC Realtech Solutions OPC Private Limited – Respondent
CP (IB) No. 543/ND/2025 | I.A. No. 5608/2025
Important Points
A loan is not a 'financial debt' of a corporate debtor merely because the company is named as a co-borrower; it requires evidence of corporate authorization, disbursement to the company, or use of funds for the company's business purposes.
Subject
Insolvency and Bankruptcy - Corporate Insolvency Resolution Process
Act Referred
Insolvency and Bankruptcy Code, 2016: S.5(7), S.7
Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016: R.4, R.11, R.32
National Company Law Tribunal Rules, 2016: R.11
Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016: R.4, R.11, R.32
National Company Law Tribunal Rules, 2016: R.11
Headnote
(A) Insolvency and Bankruptcy Code, 2016 - Sections 5(7), 5(8), 5(8)(a), and 7 - Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 - Rules 4, 11, and 32 - National Company Law Tribunal Rules, 2016 - Rule 11 - Initiation of Corporate Insolvency Resolution Process (CIRP) - Financial Debt - Loan against property where a company is listed as co-borrower - Whether a personal loan advanced to promoters/directors constitutes financial debt of the corporate entity - If funds are disbursed to personal accounts and secured by individual properties, and no corporate authorization or business utilization is proven, the debt cannot be termed a financial debt of the company merely because the company's name appears in the sanction letter. (Paras 10-17)
(B) Personal Borrowing - Borrowing of a promoter or director, by reason of association with the company, cannot be treated as financial debt of the company to trigger CIRP. (Para 18)
Facts of the case:
The Financial Creditor sought to initiate CIRP against the Corporate Debtor for default in two loan facilities. Although the Corporate Debtor was named as a co-borrower, the loan products were home equity facilities. The loan amounts were disbursed directly into the personal bank accounts of individual borrowers. The properties mortgaged as security were owned by individuals and not by the Corporate Debtor, and the Corporate Debtor's index of charges showed no record of these loans.
Findings of Court:
The transaction was a secured personal home equity loan and not a borrowing for business purposes. There was no evidence of Board Resolutions, financial statement entries, or any material suggesting the Corporate Debtor received or utilized the funds in its corporate capacity.
Issues: Whether the loan facilities provided to individual co-borrowers, where the Corporate Debtor was also a signatory, constitute a "Financial Debt" under Section 5(8) of the Code.
Ratio Decidendi: The court held that for a debt to be "financial debt," the time value of money test must be satisfied vis-à-vis the Corporate Debtor. Mere inclusion of a company's name in sanction letters without proof of corporate authorization, disbursement to the company, or benefit to the company does not make the company the real obligor.
Result: Application dismissed.
(B) Personal Borrowing - Borrowing of a promoter or director, by reason of association with the company, cannot be treated as financial debt of the company to trigger CIRP. (Para 18)
Facts of the case:
The Financial Creditor sought to initiate CIRP against the Corporate Debtor for default in two loan facilities. Although the Corporate Debtor was named as a co-borrower, the loan products were home equity facilities. The loan amounts were disbursed directly into the personal bank accounts of individual borrowers. The properties mortgaged as security were owned by individuals and not by the Corporate Debtor, and the Corporate Debtor's index of charges showed no record of these loans.
Findings of Court:
The transaction was a secured personal home equity loan and not a borrowing for business purposes. There was no evidence of Board Resolutions, financial statement entries, or any material suggesting the Corporate Debtor received or utilized the funds in its corporate capacity.
Issues: Whether the loan facilities provided to individual co-borrowers, where the Corporate Debtor was also a signatory, constitute a "Financial Debt" under Section 5(8) of the Code.
Ratio Decidendi: The court held that for a debt to be "financial debt," the time value of money test must be satisfied vis-à-vis the Corporate Debtor. Mere inclusion of a company's name in sanction letters without proof of corporate authorization, disbursement to the company, or benefit to the company does not make the company the real obligor.
Result: Application dismissed.
Legal Category Hierarchy
- insolvency and bankruptcy
- practice and procedure
Advocates:
For the Appellants/Petitioners: Kaushik Mishra, Shailesh K. Rajora
For the Appellants/Petitioners: Kaushik Mishra, Shailesh K. Rajora
Table of Contents
2. Financial creditor argued debt is financial debt; court questioned maintainability as loans were personal home equity facilities. (Para 3 , 4 , 5 , 6 , 7 )
3. True nature of transaction, disbursement to individuals, no corporate benefit or authorization; debt is personal home equity, not corporate financial debt. (Para 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 )
4. Personal loan of promoter/director cannot be financial debt of company under Section 5(8) IBC without evidence of corporate borrowing. (Para 18 )
5. Section 7 application dismissed as maintainable; no financial debt established; IA disposed of. (Para 20 , 21 )
6. Does the mere inclusion of a company's name as a co-borrower in a loan document establish it as a corporate debtor under the IBC?
No. The true nature of the transaction must be examined. Disbursement to individuals, lack of corporate authorization, and absence of corporate benefit preclude treating it as a corporate financial debt. (Para 11 , 12 , 13 )
7. Can a personal home equity loan availed by individuals be considered a financial debt of a corporate co-borrower under Section 5(8) IBC?
No. The loan must be disbursed against consideration for the time value of money and referable to the corporate debtor itself as borrower, supported by corporate acts and benefit. (Para 12 , 13 , 14 , 15 )
8. What evidence is required to establish a debt as a financial debt of a corporate debtor under the IBC?
Cogent material showing funds were disbursed to or for the corporate debtor's benefit, such as a Board Resolution, entry in books of account, or demonstrable deployment of funds for business activities. (Para 13 )
9. Is a Section 7 petition maintainable against a co-borrower who is a personal guarantor for a loan primarily availed by individuals?
No. The IBC cannot be used as a substitute for mortgage enforcement or personal loan recovery unless the co-borrower is the real obligor with corporate liability. (Para 17 , 18 )
10. Does the mere filing of a default report with an Information Utility establish the existence of a financial debt against a corporate debtor?
No. An inconsistent or subsequently altered NeSL report, lacking a consistent debtor identity and not corroborated by other corporate records, cannot establish a financial debt. (Para 16 )
ORDER
1. The C.P. (IB) No. 543/2025 has been filed under Section 7 of the Code, (Insolvency and Bankruptcy Code, 2016.) read with Rule 4 and Rule 32 of the IBC Rules 2016, (Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.), by IIFL Home Finance Limited (hereinafter referred to as 'Applicant/Financial Creditor'), seeking to initiate Corporate Insolvency Resolution Process ("CIRP") against M/s MMC Real tech Solutions OPC Private Limited ('Corporate Debtor'). The Applicant has also filed an I.A 5608/2025 under Rule 11 of the NCLT Rules, (National Company Law Tribunal Rules, 2016.), to bring on record Annexure A-1 to A-3, comprising copies of NeSL Form-D in respect of both loan accounts and Form-C in respect of Loan Account No. IL10420418. Since both applications have been filed by the same Applicant and involve similar issues, they will be considered together insofar as the issue of maintainability is concerned.
Regarding CP IB NO. 543/2025
2. It is the case of the Financial Creditor that the Corporate Debtor, along with other Co-borrowers, Mr. Deepanshu Madaan, Mr. Veena Madaan and MMC Enterprises availed two loan facilities comprising of Rs 2.96 crore, secured against units 501–504, 5th Floor of PP Tower, Netaji Subhash Place, Wazirpur, Pitampura, Delhi, being Loan Account No. 986603; and Rs 1.91 crore, secured against Unit No. A-3218, 2nd Floor, Paschim Vihar, Delhi, being Loan Account No. IL10420418. These Loan agreements, (Annexure A4 and A5, Page 25 to 34 of the Application u/s 95) were executed on 02.03.2023 and 28.08.2023, and the Corporate Debtor and co-borrowers were jointly and severally liable to repay the loans within 120 months. According to the Financial Creditor, the borrowers defaulted on their repayment obligations. Consequently, a Demand Notice dated 28.07.2025 was issued, demanding Rs 4,55,32,638.80, being the outstanding amount as of 25.07.2025, together with further interest and charges. It is further stated that despite service of the notice and repeated reminders, no payment was made or dispute raised. The Financial Creditor therefore filed the present petition and relied upon the Form-C filed with NeSL (Information Utility) in respect of Loan Account No. 986603 as evidence of the default.
3. The Adjudicating Authority, by order dated 30.04.2026, directed the Applicant to file an affidavit specifically addressing the maintainability of the Section 7 application. The issue arose because the Applicant is a Housing Finance Company, and the Authority questioned whether the loans were in substance personal loans granted to individual borrowers, with the Corporate Debtor merely being a co-borrower. The Authority further sought clarification on whether a Section 7 insolvency petition could be maintained against the Corporate Debtor, particularly where the principal loan disbursement was made jointly to the individual co-borrowers.
4. In compliance with the aforesaid direction, the Applicant, by way of affidavit, submitted that the subject loan facilities were not housing loans for residential self-occupation, but were sanctioned and disbursed as Loan Against Property (LAP) facilities. It was stated that the Corporate Debtor, along with the individual co-borrowers, namely Mr. Deepanshu Madaan, Mrs. Veena Madaan and M/s MMC Enterprises, availed the facilities for business purposes and commercial expansion in connection with the Corporate Debtor's real estate activities. It was claimed that the direct commercial nexus between the facilities and the Corporate Debtor establishes that the debt constitutes a Financial Debt, and not a personal loan advanced to an individual.
5. It was also submitted that the sanction letters, (Annexure A8 and A9, Page no. 79-106 of the Petition.) dated 28.08.2023 and 28.02.2023 expressly identify the Corporate Debtor as a co-borrower. Reliance was placed on Amit Narang, (Amit Narang v. Aditya Birla Finance Limited & Anr. Company Appeal (AT) (Insolvency) No.
