1. Section 7 petition seeking CIRP against corporate debtor for default on loan facilities — Maintainability challenged. (Para 1 , 2 )
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2026 Supreme(Online)(NCLT) 5188
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 | IA No. 5608/2025
Important Points
A debt is not a 'Financial Debt' under Section 5(8) of the IBC if it is essentially a personal loan to promoters/directors, even if the company is listed as a co-borrower, provided there is no evidence of corporate authorization, receipt of funds, or business usage.
Subject
Insolvency and Bankruptcy - Corporate Insolvency Resolution Process (CIRP)
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), and 7 - Financial Debt - In order to invoke jurisdiction under Section 7, it must be established that a "Financial Debt" is owed by the Corporate Debtor, defined as a debt disbursed against the consideration for the time value of money and referable to the Corporate Debtor as borrower. Mere inclusion of the name of the Corporate Debtor in the loan and sanction documents is insufficient to conclude corporate liability; the true nature of the transaction must be gathered from the contract as a whole and the surrounding loan structure (Paras 10 and 11).
(B) Corporate liability vs. Personal borrowing - For a debt to qualify as a financial debt against a Corporate Debtor, there must be cogent material to show that funds were disbursed to or for the benefit of the corporate entity in its corporate capacity, evidenced by board resolutions, entries in books of account, or deployment of funds for business activities. Personal borrowing of a promoter or director cannot be treated as a financial debt of the company merely by reason of their association with the company (Paras 13 and 18).
Facts of the case:
The Applicant filed for the initiation of CIRP against the Corporate Debtor, alleging defaults on two loan facilities totaling approximately Rs 4.87 crore. The Applicant contended that the Corporate Debtor was a co-borrower and thus liable. However, the evidence showed that the loans were 'Home Equity' products, the funds were disbursed directly into the personal bank accounts of individual co-borrowers, and the mortgaged properties were owned by individuals and not the Corporate Debtor. There was no board resolution or financial statement reflecting these loans as corporate borrowings.
Findings of Court:
The court found that the loans were secured personal home equity facilities and not borrowings for business purposes. The lack of corporate authorization and the fact that the Corporate Debtor did not own the security properties or receive the loan proceeds indicated that the Corporate Debtor did not undertake the borrowing in its corporate capacity.
Issues: Whether the loan facilities availed by individual co-borrowers, where the Corporate Debtor was merely listed as a co-borrower in the sanction letters, constitute a 'Financial Debt' under Section 5(8) of the IBC.
Ratio Decidendi: The court ruled that insolvency jurisdiction under Section 7 cannot be invoked simply because a company's name appears in a sanction letter if there is no evidence that the company is the real obligor. Personal loans to promoters cannot be converted into corporate debts to trigger CIRP.
Result: Application dismissed.
(B) Corporate liability vs. Personal borrowing - For a debt to qualify as a financial debt against a Corporate Debtor, there must be cogent material to show that funds were disbursed to or for the benefit of the corporate entity in its corporate capacity, evidenced by board resolutions, entries in books of account, or deployment of funds for business activities. Personal borrowing of a promoter or director cannot be treated as a financial debt of the company merely by reason of their association with the company (Paras 13 and 18).
Facts of the case:
The Applicant filed for the initiation of CIRP against the Corporate Debtor, alleging defaults on two loan facilities totaling approximately Rs 4.87 crore. The Applicant contended that the Corporate Debtor was a co-borrower and thus liable. However, the evidence showed that the loans were 'Home Equity' products, the funds were disbursed directly into the personal bank accounts of individual co-borrowers, and the mortgaged properties were owned by individuals and not the Corporate Debtor. There was no board resolution or financial statement reflecting these loans as corporate borrowings.
Findings of Court:
The court found that the loans were secured personal home equity facilities and not borrowings for business purposes. The lack of corporate authorization and the fact that the Corporate Debtor did not own the security properties or receive the loan proceeds indicated that the Corporate Debtor did not undertake the borrowing in its corporate capacity.
Issues: Whether the loan facilities availed by individual co-borrowers, where the Corporate Debtor was merely listed as a co-borrower in the sanction letters, constitute a 'Financial Debt' under Section 5(8) of the IBC.
Ratio Decidendi: The court ruled that insolvency jurisdiction under Section 7 cannot be invoked simply because a company's name appears in a sanction letter if there is no evidence that the company is the real obligor. Personal loans to promoters cannot be converted into corporate debts to trigger CIRP.
Result: Application dismissed.
Legal Category Hierarchy
- practice and procedure
- contract law
Advocates:
For the Appellants/Petitioners: Kaushik Mishra, Shailesh K. Rajora
For the Appellants/Petitioners: Kaushik Mishra, Shailesh K. Rajora
Table of Contents
2. Applicant argued debt is financial debt with co-extensive liability; Authority questioned whether debt was personal loan disguised as corporate borrowing. (Para 3 , 4 , 5 , 6 , 7 )
3. Court found loan was personal home equity facility; no corporate authorization, no reflection in books, funds disbursed to individuals. (Para 10 , 11 , 12 , 13 , 14 , 15 , 16 )
4. Mere inclusion of company name in loan documents does not create a financial debt; company must be real obligor with evidence of corporate borrowing. (Para 13 , 17 , 18 )
5. Petition under Section 7 dismissed as not maintainable; connected IA disposed of. (Para 20 , 21 )
6. Does mere inclusion of a company's name in a loan sanction letter create a financial debt under the IBC?
No. There must be cogent evidence that the company itself is the real obligor, such as board resolution, books of account entry, or deployment of funds for business. (Para 11 , 13 , 17 )
7. Can a corporate debtor be treated as a co-borrower for a personal loan merely because it is named as such in the agreement?
No. The true nature of the transaction must be gathered from the contract as a whole and the surrounding loan structure, including disbursement and ownership of security. (Para 11 , 12 , 14 )
8. What evidence is required to establish that a debt is a financial debt of a corporate debtor under Section 5(8) of the IBC?
There must be material showing funds were disbursed to or for the benefit of the corporate debtor in its corporate capacity, and that it assumed repayment liability through recognized corporate acts. (Para 13 )
9. Is a Section 7 petition maintainable against a corporate debtor for a loan that was disbursed to individuals and secured by personal property?
No. If the borrowing is in substance a personal loan, the insolvency jurisdiction cannot be used as a substitute for mortgage enforcement or recovery of personal loan liabilities. (Para 12 , 17 , 19 )
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.
