NCLAT Reiterates That A Home Loan Lender Is Not A Financial Creditor Of The Project Developer


The National Company Law Appellate Tribunal (“NCLAT“) once again in Axis Bank v. Value Infracon India Private Limited1 has clarified who a “Financial Creditor” is in terms of Section 5 of the Insolvency and Bankruptcy Code, 2016 (“Code“). The NCLAT decided on whether a bank or financial institution that has provided housing loans to home buyers of a project would be considered as a “secured financial creditor” of the developer of such project and could file claims with resolution professional of such developer.


Axis had advanced home loans to certain persons who had purchased flats (“Allottees“) in a project being developed by Value Infracon India Private Limited (“Corporate Debtor“). It also appears that Axis had obtained decree/recovery certificates in respect of some of these home loans against both the respective Allottees and the Corporate Debtor. An application was filed by Daimler Financial Services Private Limited under Section 7 of the Code against the Corporate Debtor which was admitted on 4th May 2018. Axis filed its claim against the Corporate Debtor which was not accepted by the IRP of the Corporate Debtor.

Axis then filed an application before the NCLT seeking a direction that Axis be considered a secured financial creditor. NCLT dismissed the application noting that “this bank cannot be called as a creditor to the corporate debtor because the loans are given to the home buyers of the corporate debtor.” Axis then filed an appeal before the NCLAT against the order of the NCLT dismissing its application.


It was contended before the NCLAT on behalf of Axis that:

  • Recovery certificates issued by the DRT are in favour of Axis and the certificates have been jointly issued against the Allottees and the Corporate Debtor. Thus, being holder of recovery certificate, Axis cannot be considered outside the purview of the definition of the Creditor under Section 3(10) of the Code. 
  • Axis has advanced loan to 42 home buyers and a claim has been made from the security interest to be created over the flats in favour of Axis. Then in the said situation, Axis will be left with nothing as against the amount invested by granting loans. Further, it is a possibility to be considered that the Allottees will receive a refund against the claims by them and they will not deposit the amount with Axis in settlement of their dues despite the fact that the flats over which security interest has been created are already acknowledged as mortgage in favour of Axis thereby transferring all rights related to the said flats to Appellant. There is standard tri-partite agreement, power of attorney of the Allottees in the favour of Axis thereby clarifying the said contention.

It was contended for the Resolution Professional of the Corporate Debtor as follows:

  • The liability to repay the loan under the Tripartite Agreement was on the Allottees and not on the Corporate Debtor
  • Since no charge was created under Section 77 of the Companies Act, 2013 (“Act“) in favour of Axis, it cannot be said that Axis has a security interest in the property, thus cannot be considered as a “secured creditor”. Further as per the explanation under Clause 5(8)(f) of the Code, a Home Buyers will be considered as a “Financial Creditors” but the banks advancing the loans to the Home Buyers does not fall under the purview of the said definition. Other than the tri-parte agreement, which clearly states that the liability to repay the loan is of the individual Home Buyer, there is no document which has been signed by all the three parties.
  • The Hon’ble Apex Court in ‘Pioneer Urban Land & Infrastructure Ltd. & Anr.’ (Supra) has observed that Home Buyers are to be considered as ‘Financial Creditors’ irrespective of the fact ‘whether he has borrowed money from the Banks or agreed to pay instalments under the Agreement for sale or whether he does it from his own finances‘.
  • The recovery certificates issued by DRT has been obtained by misleading DRT by pleading that the Flats are mortgaged with Axis, despite the fact that no mortgage of such Flats was ever created in favour of Axis and the certificates were issued ex-parte.


The Principal Bench of NCLAT observed that it is an undisputed fact that Axis had sanctioned loans to the Allottees who have purchased Flats in the Project developed by the Corporate Debtor. Home Buyers were specifically included in the definition of the ‘Financial Creditor’ vide amendment dated 6th June 2018. But the main issue which remained to be considered was whether Axis can be considered as a ‘Financial Creditor’ of the Corporate Debtor on account of granting housing loans to the Allottees. The NCLAT noted that the Hon’ble Supreme Court in ‘Pioneer Urban Land & Infrastructure Ltd. & Anr.‘ (Supra) had held that it is the Home Buyer who should be considered as ‘Financial Creditor’ of the ‘Corporate Debtor’ whether he has self-financed his flat or has exercised his choice of taking a loan from the Bank.

The NCLAT also held that as the security interest to be created as per Section 77 of the Act has to be mandatorily registered with the Registrar within 30 days of its creation and the same was not done in this case, no charge has been created against the property of the Corporate Debtor. The NCLAT also noted that a mere permission granted by the Corporate Debtor for creation of mortgage was irrelevant in view of a charge not having been registered under Section 77 of the Act.

The NCLAT further observed that the home loan agreements were signed only between Axis and the Allottees. The liability to repay the loan was of the individual Allottee. The tri-partite agreement was only by way of security that if in case any default has been made by allottee, the Corporate Debtor would withhold the allotment and cancel the agreement executed between Corporate Debtor and the Allottee, and Axis would instead have the right to pay the amount and get the property registered. But no such cancellation was recorded.


The Principal Bench at NCLAT while dismissing the appeal on the basis of the aforementioned reasons also explained that the objective of the Code is not to include Banks/Financial Institutions which have advanced loans to Home Buyers to be considered as ‘Financial Creditors’ and include them in the CoC, specifically in the light of the fact the liability to repay the home loan was on the individual Allottee. The presence of a mere tri-partite agreement does not change the character of the amount borrowed by the Allotee vis-à-vis the Bank and vis-à-vis the ‘Corporate Debtor and Axis cannot be considered a Secured Financial Creditor of the Corporate Debtor.

This judgment reiterates NCLAT’s position in Indiabulls Housing Finance Limited v. Rudra Buildwell Projects Private Limited2 wherein also it was held that a housing finance lender was not a financial creditor of the project developer.


1. Judgment dated 20th December 2021 in I.A. No. 1502 of 202 and I.A. 1503 of 2020 in Company Appeal (AT) (Insolvency) No. 582 of 2020

2. Company Appeal (AT) (Insolvency) No. 172 of 2019

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Media Coverage

About Dhaval Vussonji

Ask a question

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

Legal Disclaimer

User Acknowledgement

By proceeding further and clicking on the “AGREE” button herein below, I acknowledge that I of my own accord wish to know more about Dhaval Vussonji & Associates for my own information and use. I further acknowledge that there has been no solicitation, invitation or inducement of any sort whatsoever from Dhaval Vussonji & Associates or any of its members to create an Attorney-Client relationship through this knowledgesite. I further acknowledge having read and understood the Disclaimer below.


This knowledgesite ( is a resource for informational purposes only and is intended, but not promised or guaranteed, to be correct, complete, and up-to-date. Dhaval Vussonji & Associates (DVA) does not warrant that the information contained on this knowledgesite is accurate or complete, and hereby disclaims any and all liability to any person for any loss or damage caused by errors or omissions, whether such errors or omissions result from negligence, accident or any other cause.

DVA further assumes no liability for the interpretation and/or use of the information contained on this knowledgesite, nor does it offer a warranty of any kind, either expressed or implied. The owner of this knowledgesite does not intend links from this site to other internet knowledgesites to be referrals to, endorsements of, or affiliations with the linked entities. DVA is not responsible for, and makes no representations or warranties about, the contents of Web sites to which links may be provided from this Web site.

This knowledgesite is not intended to be a source of advertising or solicitation and the contents of the knowledgesite should not be construed as legal advice. The reader should not consider this information to be an invitation for a lawyer-client relationship and should not rely on information provided herein and should always seek the advice of competent counsel licensed to practice in the relevant country/state. Transmission, receipt or use of this knowledgesite does not constitute or create a lawyer-client relationship. No recipients of content from this knowledgesite should act, or refrain from acting, based upon any or all of the contents of this site.

Furthermore, the owner of this knowledgesite does not wish to represent anyone desiring representation based solely upon viewing this knowledgesite or in a country/state where this knowledgesite fails to comply with all laws and ethical rules of that state. Finally, the reader is warned that the use of Internet e-mail for confidential or sensitive information is susceptible to risks of lack of confidentiality associated with sending email over the Internet.