NCLAT: Bank Advancing Loans To Homebuyers Not A Financial Creditor Of Builder Absent Repayment Undertaking
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member) has held that a bank advancing home loans to individual homebuyers cannot claim to be a financial creditor in the Corporate Insolvency Resolution Process (CIRP) of the builder, when the loan is sanctioned to homebuyers and not to the corporate debtor. The Bench clarified that in the absence of any clause in the tripartite agreement imposing liability on the builder to repay the amount to the bank in the event of the borrower’s default, the claim of the bank cannot constitute a “claim” under Section 3(6) of the Insolvency and Bankruptcy Code, 2016 (IBC).
Background
The appeals were filed by UCO Bank challenging two orders of the National Company Law Tribunal (NCLT), New Delhi — one dated 08.01.2024, rejecting the bank’s plea to treat it as a financial creditor in the CIRP of M/s Bulland Buildtech Pvt. Ltd., and another dated 09.07.2024, approving the resolution plan submitted by Saviour Builders Pvt. Ltd. The corporate debtor, engaged in a residential project named “Bulland Elevates” at Greater Noida, had allotted flats to several homebuyers. UCO Bank sanctioned home loans to 45 individual unit holders from 2013 onwards, under tripartite agreements executed between the bank, the borrower, and the developer. Acting on the borrowers’ instructions, the loan amounts were disbursed directly to the corporate debtor.
Following initiation of CIRP on a petition filed by Canara Bank, UCO Bank filed its claim in Form C for ₹18.82 crore, contending that the disbursed amount qualified as a financial debt under Section 5(8) of the IBC. The Resolution Professional rejected the claim, observing that the loans were granted to the homebuyers and that the builder had not undertaken any obligation to repay the amount. The NCLT upheld this view, leading UCO Bank to approach the Appellate Tribunal.
Submissions
Counsel for the appellant-bank contended that since the amounts were directly paid to the builder and utilized for its project, the bank was entitled to be treated as a financial creditor. It was further argued that under the tripartite agreement, the builder bore a joint responsibility to repay the amount in case of the borrower’s default, and that the bank’s charge was registered with CERSAI. Reference was also made to decrees passed by the Debt Recovery Tribunal (DRT) in favour of the bank against borrowers and the builder prior to initiation of CIRP.
In response, the Resolution Professional submitted that the amounts were advanced to the homebuyers and not to the corporate debtor, and that no provision of the tripartite agreement created any repayment obligation on the builder. Reliance was placed on Axis Bank v. Value Infracon India Pvt. Ltd., where it was held that banks advancing home loans to buyers cannot be treated as financial creditors of the builder.
Findings
After examining the tripartite agreement, the Tribunal noted that the home loan was sanctioned solely to the borrowers and that the agreement did not cast any obligation upon the builder to repay the amount to the bank. It held: “None of the clauses of the Tripartite Agreement cast any obligation on the corporate debtor to make repayment of the loan to the bank.” The Bench rejected the bank’s argument based on the indemnity clause (Clause 41) of the agreement, observing that it could not be construed as a contract of indemnity within the meaning of Section 124 of the Contract Act, 1872. It merely indicated that the builder accepted the terms of the agreement but did not promise to save the bank from any loss.
Emphasizing the test of “consideration for time value of money,” the Tribunal concluded that the transaction lacked the essential ingredients of a financial debt since the funds were neither disbursed to nor repayable by the corporate debtor. While relying on Axis Bank (supra), the Tribunal reiterated that: “Presence of a mere tripartite agreement does not change the character of the amount borrowed by the homebuyer vis-à-vis the bank and vis-à-vis the corporate debtor.” The Bench also distinguished its earlier decision in Canara Bank v. Vivek Kumar, RP of M/s AVJ Developers (India) Ltd., noting that in that case, the builder had specifically undertaken to refund the loan amount to the bank upon the borrower’s default — a clause absent in the present matter.
Regarding the registered charge under CERSAI, the Tribunal observed that such registration would be relevant only if the bank were recognized as a financial creditor, which was not the case here. It also dismissed reliance on the DRT decrees, stating that UCO Bank’s claim before the Resolution Professional was not based on them.
Holding that the loan amounts disbursed by UCO Bank to homebuyers did not create any financial debt or claim against the builder under the IBC, the NCLAT dismissed both appeals. The Tribunal concluded that in the absence of any undertaking by the builder to repay the bank, UCO Bank could not be treated as a financial creditor in the CIRP of M/s Bulland Buildtech Pvt. Ltd. “The bank having not filed Form C on the basis of the DRT decree, it is not open for the bank to claim acceptance of its claim on that basis. The claim submitted by the bank is not covered under Section 3(6) of the Code.” Accordingly, the Appellate Tribunal upheld the NCLT’s orders dated 08.01.2024 and 09.07.2024, and dismissed UCO Bank’s appeals.
Appearance
For Appellant: Mr. Brijesh Kumar Tamber and Mr. Prateek Kushwaha, Advocates.
For Respondent: Mr. Sumant Batra, Mr. Sarthak Bhandari and Ms. Riya Kaur Arora, Advocates for R-1/RP.
Cause Title: UCO Bank v. Debashish Nanda, Resolution Professional, Bulland Buildtech Pvt. Ltd.
Case No: Company Appeal (AT) (Insolvency) Nos. 465 & 1911 of 2024
Coram: Justice Ashok Bhushan (Chairperson), Mr. Arun Baroka (Technical Member)
