NCLAT holds mortgaging property for company loans does not create financial debt under IBC.

May 12, 2026 : The National Company Law Appellate Tribunal has ruled that merely mortgaging property to help a company secure bank finance does not amount to a “financial debt” under the Insolvency and Bankruptcy Code, 2016 (IBC), even if the party providing the mortgage receives interest payments in return. In a significant ruling dealing with the classification of creditors under insolvency law, the appellate tribunal held that a guarantor or mortgagor cannot automatically claim the status of a secured financial creditor unless there is an actual disbursal of money to the corporate debtor.

The judgment was delivered in cross appeals arising out of the corporate insolvency resolution process (CIRP) of Setubandhan Infrastructure Limited, formerly known as Prakash Constrowell Ltd. The appeals were filed by Amisha In Sky Creation Pvt. Ltd. and the Resolution Professional against an order passed by the National Company Law Tribunal on March 4, 2025.

According to the case records, Setubandhan Infrastructure had obtained financial assistance from the State Bank of India after Amisha mortgaged its land and properties as collateral security for the company’s borrowing. A notarised agreement dated August 9, 2016 provided that the corporate debtor would repay the bank loan within three years and pay Amisha interest at the rate of 1.5 percent per month for allowing its properties to be mortgaged.

When the corporate debtor entered CIRP in November 2022, Amisha filed a claim before the Resolution Professional claiming more than Rs. 81 crore as a financial creditor. The Resolution Professional rejected the claim, stating that there had been no monetary disbursement by Amisha to the corporate debtor and therefore the transaction did not satisfy the requirements of “financial debt” under Section 5(8) of the IBC.

Amisha challenged the rejection before the NCLT Mumbai Bench, arguing that the mortgage arrangement had the “commercial effect of borrowing” and involved consideration for time value of money because the agreement provided for payment of monthly interest. The company relied on the Supreme Court’s decision in Pioneer Urban Land & Infrastructure Ltd. v. Union of India to contend that direct disbursal of funds is not always necessary for recognising a financial debt under the IBC.

The Resolution Professional opposed the plea and maintained that Amisha had merely provided collateral security to the bank and had not advanced any money to the corporate debtor. It was further argued that post-dated cheques issued to Amisha did not create any security interest over the assets of the corporate debtor and therefore the transaction could not be categorised as a secured financial debt.

The appellate tribunal examined Sections 5(7) and 5(8) of the IBC dealing with “financial creditor” and “financial debt,” along with the Supreme Court ruling in Anuj Jain v. Axis Bank Ltd.. The tribunal reiterated that the “essential element” of a financial debt is disbursal of money against consideration for time value of money. The bench observed that this requirement cannot be diluted merely because a transaction has some commercial flavour.

Explaining the legal position, the tribunal observed that “the root requirements of ‘disbursement’ against ‘the consideration for the time value of money’ cannot be forsaken.” It further held that Amisha had not disbursed any funds to Setubandhan Infrastructure and had only allowed its property to be used as collateral security for loans advanced by SBI.

The NCLAT also referred to the Supreme Court ruling in New Okhla Industrial Development Authority v. Anand Sonbhadra, which clarified that disbursement from creditor to debtor is an indispensable condition for constituting financial debt under the IBC. Applying the same reasoning, the tribunal concluded that mortgaging property cannot be equated with disbursal of money.

At the same time, the tribunal found fault with the NCLT’s conclusion that Amisha’s claim deserved rejection on the ground of delay. The appellate bench noted that claims had been invited on November 30, 2022 and Amisha had filed its claim on January 9, 2023, well within the 90-day period contemplated under the insolvency framework. The tribunal held that there was no unjustifiable delay in filing the claim and that substantive rights could not be defeated on technical procedural grounds.

The bench also rejected the corporate debtor’s attempt to deny the validity of the mortgage arrangement after having benefited from it. The tribunal observed that the company could not “approbate and reprobate” by first using Amisha’s property to secure bank finance and later disputing the agreement itself.

In its final directions, the NCLAT dismissed Amisha’s appeal seeking recognition as a secured financial creditor but partly allowed the Resolution Professional’s appeal by setting aside the NCLT’s finding that Amisha was a secured financial creditor. However, the tribunal held that Amisha was still entitled to lodge its claim in the category of “other creditors” because it had mortgaged its property and was contractually entitled to interest payments under the agreement.

The ruling is likely to have wider implications for insolvency proceedings involving guarantors, collateral providers, and third parties who secure loans on behalf of corporate debtors. The judgment clarifies that the status of financial creditor under the IBC depends fundamentally on actual financial disbursal and not merely on creation of collateral security or contractual entitlement to interest. Legal experts say the decision reinforces the narrow and structured interpretation of “financial debt” under the insolvency framework while still protecting equitable treatment for stakeholders who may otherwise fall outside traditional creditor categories.

Case Reference : National Company Law Appellate Tribunal: Amisha In Sky Creation Pvt. Ltd. v. Sandeep D. Maheshwari & Anr., Company Appeal (AT) (Insolvency) Nos. 578 & 640 of 2025, judgment dated May 12, 2026.