The Supreme Court of India has clarified that a lender may be treated as a related party of a corporate debtor under the Insolvency and Bankruptcy Code, 2016 (IBC), if it participates in the corporate debtor’s policy-making process. Such a lender is disqualified from representation, participation and voting in the Committee of Creditors (CoC), in accordance with the applicable provisions of the Code.
The ruling was delivered on 27 October 2026 in ECL Finance Ltd. and Another v. Abhinav Mukherjee and Others, reported as 2026 INSC 1159. A Bench comprising Justice J.B. Pardiwala and Justice K. Vinod Chandran dismissed the appeals challenging the exclusion of ECL Finance Ltd. and IDBI Trusteeship Services Ltd. from the CoC of Palm Developers Private Limited.
Background of the Case
The dispute arose from financing arrangements involving Saha Infratech Private Limited, which had issued non-convertible debentures and obtained a revolving credit facility from ECL Finance Ltd. Palm Developers Private Limited acted as a corporate guarantor for the relevant obligations, while IDBI Trusteeship Services Ltd. served as the debenture trustee.
After the corporate insolvency resolution process (CIRP) against Palm Developers commenced in January 2020, ECL Finance and IDBI Trusteeship submitted claims and were included in the Committee of Creditors. A homebuyer challenged their inclusion, alleging that they were related parties of the corporate debtor and were therefore ineligible to participate in the CoC.
The National Company Law Tribunal (NCLT) accepted the objection, and the National Company Law Appellate Tribunal (NCLAT) upheld the exclusion. The lenders and trustee subsequently approached the Supreme Court.
Supreme Court’s Findings
The Supreme Court examined Section 5(24)(m)(i) of the IBC, which covers persons associated with a corporate debtor through participation in its policy-making processes. It read this provision alongside Section 21(2), which restricts related-party financial creditors from exercising representation, participation or voting rights in the CoC, subject to the applicable statutory provisions.
The Court distinguished the related-party test under Section 5(24) from the stricter control test applicable in certain contexts under Section 29A of the IBC. It explained that a lender need not exercise complete or proactive control over a company to be regarded as a related party. Participation in policy-making and a role in directing business interests may be sufficient.
In the present case, the financing documents and the company’s constitutional documents provided for powers relating to board decisions, deadlock resolution, budgets, management, project operations and sales. The Court considered these arrangements to be evidence of significant involvement in policy implementation and business activities, rather than merely protective rights ordinarily associated with lending.
Debenture Trustee and Assignment of Debt
The Court also upheld the exclusion of IDBI Trusteeship Services Ltd., which represented the interests of ECL Finance as debenture trustee. The trustee could not participate in the CoC in the capacity connected with the disqualified debenture holder.
The Court further considered a subsequent assignment of loan rights and rejected the argument that it removed the related-party disqualification in the circumstances of the case. The assignment was not accepted as a bona fide transaction capable of avoiding the statutory restriction.
Decision and Legal Significance
The Supreme Court dismissed the appeals, finding no question of law or perversity in the NCLAT’s conclusions warranting interference. The decision reinforces the principle that the substance of a lender’s contractual powers and actual relationship with the corporate debtor are relevant when determining related-party status under the IBC.
The ruling is significant for lenders, debenture holders, trustees, insolvency professionals and companies negotiating financing arrangements. It highlights that contractual rights extending into policy-making and business supervision may carry consequences for participation in the insolvency resolution process.
Case: ECL Finance Ltd. and Another v. Abhinav Mukherjee and Others
Citation: 2026 INSC 1159
Decision date: 27 October 2026
Relevant provisions: Sections 5(24)(m)(i) and 21(2) of the Insolvency and Bankruptcy Code, 2016.
Source: Supreme Court judgment and published legal reporting.