NCLT Rules Debt Securing Group Company Dues Not Financial Debt Under IBC

Case Details: Asset Reconstruction Company (India) Ltd. vs. Sanjay Vijay Jeswani - [2025] 178 taxmann.com 373 (NCLT - Mum.)

Judiciary and Counsel Details

• Sushil Mahadeorao Kochey, Judicial Member
• Prabhat Kumar, Technical Member
• Navroz Seervai for the Applicant
• Amir Arsiwala for the Respondent

Facts of the Case

In the instant case, the corporate debtor had mortgaged its properties to secure loans from the L&T Group, which were granted to other entities in the Xrbia Group to develop housing in the form of residential townships.
The applicant-Asset Reconstruction Company entered into an assignment agreement with L&T Group and acquired all rights pertaining to the extant financial facilities bestowed upon Xrbia Group. The CIRP was initiated against the corporate debtor.
The applicant submitted its claim to the Interim Resolution Professional (IRP) along with interest covered by a security interest created by the corporate debtor by way of mortgage, personal guarantees, and share pledge agreements furnished against various term loan facilities.
However, the IRP rejected the applicant’s claim as a financial debt on the ground that the loan agreements read with the mortgage documents only contemplated the creation of a mortgage over the assets of the corporate debtor in favour of the lender to secure the debt availed and disbursed to other Xrbia Group companies, and no contract of guarantee could be read in those documents.
It was noted that since there was no promise to pay debt on the part of the corporate debtor, and it was a case of simpliciter creation of mortgage in favour of the lender to further securitise their debt owed by other Xrbia Group companies, said debt could not fall within clause (h) of section 5(8) of the IBC.

NCLT Held

The NCLT held that, in such a case, disbursal of debt to a corporate debtor was a sine qua non to constitute debt as financial debt qua corporate debtor. Thus, the applicant’s claim did not fall within the definition of Section 5(8) of the IBC and therefore did not qualify as financial debt. However, in view of the security interest over the property of the Corporate Debtor held by the applicant in relation to these debts, such debts would fall under the category of other secured debt.

List of Cases Referred To

• China Development Bank v. Doha Bank Q.P.S.C. [2024] 169 taxmann.com 526/[2025] 187 SCL 788 (SC) (para 8)
• National Insurance Company Limited v. Pranay Sethi (2018) 16 SCC 680 (para 11)
• Anuj Jain v. Axis Bank Ltd. [2020] 114 taxmann.com 656 (SC) (para 11)
• Pradip Chandra Parija v. Pramod Chandra Patnaik [2002] 2001 taxmann.com 5664 (SC) (para 11)
• Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd. [2021] 124 taxmann.com 24/165 SCL 21 (SC) (para 15)
• Swiss Ribbons (P.) Ltd. v. Union of India [2019] 101 taxmann.com 389/152 SCL 365 (SC) (para 17)
• Phoenix Arc Private Limited v. Ketulbhai Ramubhai Patel [2021] 124 taxmann.com 90/164 SCL 468 (SC) (para 17)
• Pioneer Urban Land & Infrastructure Ltd. v. Union of India [2019] 108 taxmann.com 147/155 SCL 622 (SC) (para 17).