The National Company Law Appellate Tribunal (NCLAT), New Delhi bench of Justice Ashok Bhushan and Mr. Arun Baroka (Technical Member), has given an important decision – if a Bank gives Home Loan, then can it be treated as a Financial Creditor or not?
The Court held that a bank giving loans to homebuyers cannot be treated as a financial creditor in the Corporate Insolvency Resolution Process (CIRP) of a builder. This is because the loan was given to the homebuyers, not to the corporate debtor (builder). The Tribunal also noted that the builder had never agreed to repay the bank if the homebuyer failed to pay. Therefore, the bank’s claim does not qualify as a “claim” under Section 3(6) of the Insolvency and Bankruptcy Code (IBC).
The appeals were filed against two orders of the National Company Law Tribunal (NCLT), New Delhi. The first order, dated 08.01.2024, rejected UCO Bank’s request to be treated as a financial creditor in the CIRP of M/s Bulland Buildtech Pvt. Ltd. The second order, dated 09.07.2024, approved the resolution plan submitted by Saviour Builders Pvt. Ltd.
The builder had allotted flats to several homebuyers in its project “Bulland Elevates.” UCO Bank had given loans to 45 homebuyers since 2013. These loans were backed by a Tripartite Agreement signed between the bank, the homebuyer, and the builder. Under this agreement, the bank directly sent the loan amount to the builder as per the homebuyer’s instructions. Later, Canara Bank filed an insolvency application against the builder, which the NCLT admitted.
After this, UCO Bank filed its claims in Form C, saying that the money given to the builder should be treated as a financial debt under Section 5(8) of the IBC. The Resolution Professional rejected the claim, stating that the loan was given to homebuyers, not to the builder, and that the builder had never agreed to repay it. The NCLT supported this view. UCO Bank then appealed before the NCLAT.
UCO Bank argued that it should be treated as a financial creditor because the money was used by the builder and that the builder was jointly responsible to repay the loan under the tripartite agreement. The bank also argued that it had registered its charge with CERSAI and that DRT had issued decrees in its favour before the start of CIRP.
On the other side, the Respondent argued that the loan was given to homebuyers, not the builder, and that no part of the tripartite agreement required the builder to repay the bank. They relied on the Axis Bank judgment, where the bank giving loans to buyers was not treated as a financial creditor of the builder. They also said the Canara Bank case was different because, in that case, the builder had clearly agreed to repay the bank in case of default—something missing in the present case.
The NCLAT examined the tripartite agreement and found that the builder had no responsibility to repay the loan. Its role was only to facilitate the transaction. The Tribunal said, “None of the clauses of the Tripartite Agreement cast any obligation on the corporate debtor to make repayment of the loan to the bank.”
Regarding the indemnity clause, the Tribunal clarified that “Clause 41 does not create any indemnity in favour of the bank. It only records the builder’s acceptance of the agreement terms.”
The Tribunal held that a financial debt must involve disbursal of money against consideration for the time value of money. In this case, the builder neither received the loan as a borrower nor took any financial responsibility. Therefore, the amount could not be treated as a financial debt.
Relying on the Axis Bank judgment, the Tribunal stated that banks giving home loans cannot be considered financial creditors of the builder. It observed that a tripartite agreement alone does not change the nature of the loan, which remains a loan between the bank and the homebuyer, not the builder.
The Tribunal also explained that the Canara Bank case was different because the builder had expressly agreed to repay the bank in that matter. Since no such clause existed here, the case did not apply. The Tribunal further stated that registering a charge with CERSAI only matters if the bank is a financial creditor, which it was not. It also found the DRT decrees irrelevant because the bank did not file its Form C claim based on those decrees.
Finally, the Tribunal dismissed UCO Bank’s appeals. It held that the loans given by the bank to homebuyers do not amount to a “claim” under Section 3(6) of the IBC and that the builder had not agreed under the Tripartite Agreement to repay the loan if the homebuyer defaulted.
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