Quick answer: In ECL Finance Ltd. v. Abhinav Mukherjee (2026 INSC 1159), the Supreme Court held that a corporate guarantee need not be invoked before insolvency begins for the guaranteed liability to qualify as financial debt. Yet ECL’s participation in the corporate debtor’s policy decisions made it a related party. Its debenture-holder position, and the trustee acting for it, were excluded from the Committee of Creditors (CoC).
The ruling separates two questions often treated as one: is there a financial debt, and may its holder participate in the CoC? It also explains when a lender’s contractual rights cross from protecting repayment into participation in company policy.
Case: ECL Finance Ltd. & Anr. v. Abhinav Mukherjee & Ors., Civil Appeal Nos. 6268 and 6273 of 2022, Supreme Court of India, 27 October 2026, 2026 INSC 1159. Bench: J.B. Pardiwala and K. Vinod Chandran JJ. Read the judgment on the Supreme Court’s official website.
What was the dispute?
Palm Developers Pvt. Ltd. was the corporate debtor and a guarantor for obligations of Saha Infratech Pvt. Ltd. (SIPL). ECL Finance held SIPL’s subscribed debentures and separately lent to SIPL under a term-loan facility. IDBI Trusteeship Services Ltd. (ITSL) acted as debenture trustee. The corporate debtor guaranteed the relevant obligations.
After Palm Developers entered the corporate insolvency resolution process (CIRP) in January 2020, ECL and ITSL lodged claims and were included in the CoC. A homebuyer challenged their participation. The NCLT and NCLAT found them to be related parties, while also rejecting their financial-creditor claim on grounds the Supreme Court ultimately found erroneous. The appeals required the Court to examine both financial debt and CoC eligibility.
Does an uninvoked corporate guarantee create financial debt?
Yes, a guarantee relating to a financial debt can support financial-creditor status even if it was not invoked before CIRP. Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC) includes liability in respect of a guarantee for the financial debts covered by its clauses. The corporate debtor need not have received the underlying loan directly.
The Supreme Court rejected the view that a pre-CIRP invocation or default is necessary merely to recognise the creditor and receive its claim. A default has a different role when a financial creditor seeks to initiate CIRP under Section 7. The Court thus corrected this aspect of the tribunals’ reasoning, without granting ECL a CoC seat.
| Question | Supreme Court’s answer in this case |
|---|---|
| Is the guarantee-based liability capable of being financial debt? | Yes; lack of prior invocation did not defeat the claim under Section 5(8). |
| Does financial-creditor status automatically confer CoC participation? | No; the related-party restriction and ECL’s particular statutory position still had to be examined. |
Why was ECL a related party?
Section 5(24)(m)(i) covers a person associated with the corporate debtor through participation in its policy-making processes. The Court examined the actual contractual arrangement, including the articles of association, debenture trust deed, sanction terms and facility agreement.
The rights extended across important business decisions: a final say on board or shareholder deadlocks; approval and revision of construction budgets; a role concerning key managerial personnel; powers relating to project construction, sale of units, and revenue flowing through escrow accounts. Together these were more than ordinary safeguards for repayment. They enabled ECL to participate in the corporate debtor’s policy and business direction.
The Court distinguished the related-party inquiry from the more demanding positive-control test used for resolution-applicant ineligibility under Section 29A(c) and (g). Participation in policy making under Section 5(24)(m)(i) does not require proof that the creditor was in the company’s “driving seat.” The breadth and effect of the documented rights matter.
Why did the CoC restriction apply to both lender and trustee?
The first proviso to Section 21(2) restricts the representation, participation and voting rights of a related-party financial creditor or authorised representative covered by its specified provisions. Section 21(6A)(a) addresses securities or deposits whose terms appoint a trustee or agent to act for creditors.
ECL was the sole holder of the subscribed debentures as well as a term-loan lender. ITSL acted as trustee for the debenture interest. The Court held that ECL’s related-party status barred its CoC role as debenture holder and, in these circumstances, also as lender; ITSL could not secure a separate seat to protect that same debenture holder’s interest.
Important distinction: The Court expressly considered ECL’s dual position. It observed that a person who was only an ordinary financial creditor outside the categories specified in the first proviso to Section 21(2) would not have been disqualified under that proviso on these facts. The result should therefore not be flattened into a claim that every related-party financial creditor is identically situated under every clause of Section 21.
Could an individual homebuyer object?
Yes. The homebuyers’ authorised representative attends and votes in CoC meetings on behalf of that creditor class. That limited representative role did not remove an individual homebuyer’s ability to approach the NCLT to challenge the inclusion of allegedly related-party creditors. The Supreme Court upheld the homebuyer’s standing.
Did the later assignment change the result?
ECL assigned its facility-agreement rights after CIRP had already begun. The Court considered the timing and the tribunal’s findings, including the forensic-audit material, and held that this assignment failed the test of a bona fide transfer capable of avoiding the related-party restriction. The assignee could not participate in the CoC through that route. The Supreme Court dismissed the appeals and closed the connected contempt petitions.
Key takeaways
- A guarantee-based financial debt does not require invocation before CIRP merely to make its holder a financial creditor.
- Financial-creditor status and entitlement to participate or vote in the CoC are separate inquiries.
- Contractual rights that shape budgets, management, sales and business policy can establish related-party association under Section 5(24)(m)(i).
- The first proviso to Section 21(2) must be applied to the creditor’s precise role, including any trustee or authorised representative arrangement.
- A homebuyer may challenge CoC composition individually; a later assignment must be assessed for its bona fides.
Frequently asked questions
Must a corporate guarantee be invoked before the guarantor’s CIRP for a claim to be financial debt?
No. The Court held that prior invocation is not a condition under Section 5(8) for the guarantee-based claim to qualify as financial debt.
Is a lender always a related party because it has consent rights?
No. This decision turned on the combined rights and their real connection to policy making, including budgets, management, project sales and revenue. The agreement must be examined as a whole.
Is the Section 29A control test the same as Section 5(24)(m)(i)?
No. The Court said participation in policy making for related-party status does not demand the same degree of proactive control considered under Section 29A(c) and (g).
Can a trustee vote if the sole debenture holder is excluded?
Not in the circumstances here. ITSL represented the interest of ECL, the sole debenture holder found to be a related party, and was also excluded from CoC participation.
May one homebuyer challenge the CoC’s composition without the authorised representative?
Yes. The authorised representative’s CoC meeting and voting role did not bar this individual challenge before the NCLT.
Can assignment after CIRP remove related-party ineligibility?
A genuine assignment must be assessed on its facts. The Court found the assignment in this case, made after CIRP commenced, was not bona fide for this purpose.
This article explains the 27 October 2026 judgment for legal education. The linked Supreme Court judgment is the primary source.
