Bank Advancing Loans To Homebuyers Can't Claim Status Of Financial Creditor Against Builder In Absence Of Undertaking To Repay: NCLAT

Background:

The appeals arose out of two orders passed by the National Company Law Tribunal (NCLT) New Delhi. One dated 08.01.2024 rejecting UCO bank's plea to treat it as a financial creditor in the Corporate Insolvency Resolution Process (CIRP) of M/s Bulland Buildtech Pvt. Ltd (Corporate Debtor) and another dated 9.07.2024, by which the NCLT approved the resolution plan submitted by Saviour Builders Pvt. Ltd.

The corporate debtor had allotted flats to several homebuyers in its“Bulland Elevates” project. UCO Bank had sanctioned loans to 45 individual unit holders from 2013 onwards which were backed by a Tripartite Agreement between the bank, the borrower and the developer. Under these agreements, the bank had directly disbursed amounts to the corporate debtor following borrower's instructions. Canara Bank filed an insolvency application under section 7 of the IBC against the corporate debtor which was admitted by the NCLT.

Thereafter, the UCO Bank filed its claims in form C stating that the amount disbursed to the builder constituted a financial debt under section 5(8) of the IBC.The Resolution Professional rejected the claims stating that the loan was disbursed to the homebuyers, not to the corporate debtor and the builder had not taken any repayment obligation. The NCLT also agreed with the RP. Aggrieved, the UCO Bank had filed an appeal before the NCLAT.

The Appellant submitted that UCO Bank was entitled to be treated as a financial creditor since the amount disbursed was used by the corporate debtor. It was further submitted that the builder was jointly responsible to repay the amount under the tripartite agreement in case the borrower failed to discharge the liability. It was also argued that the bank's charge was duly registered with CERSAI evidencing a security interest in the property. It was further submitted that decrees issued by DRT in favor of the bank against the borrowers and the company were issued before the CIRP confirmed its claim.

Per contra, the Respondent submitted that since the amount was advanced to the homebuyers and not to the corporate debtor, no financial debt was owed by the builder. It was further submitted that the tripartite agreement did not impose any liability on the builder to repay the amount disbursed to the homebuyers. Reliance was placed on Axis Bank where the bank which advanced loan to the homebuyers was held not to be a financial creditor. Lastly, while distinguishing Canara Bank, it was contended that in that the builder explicitly undertook to repay the amount upon borrower's default which was not the case in the present matter.

Findings:

The Tribunal after examining the tripartite agreement observed that the builder did not sign any undertaking to repay the amount disbursed to the homebuyers. Its role was limited to facilitating the transaction. It held that “the said clause is an obligation of the borrower. None of the clauses of the Tripartite Agreement cast any obligation on the corporate debtor to make repayment of the loan to the bank.”

Rejecting the bank's plea regarding indemnity clause under the agreement, the Tribunal held that “Clause 41… cannot be read as any indemnity given by the builder in favour of the bank. It merely reiterates the builder's acceptance of terms but contains no promise to save the bank from loss.”

Based on the above, the tribunal held that for a transaction to be qualified as a financial debt, it must be disbursed against consideration for the time value of money which was absent here. It further held that in the present case, the builder neither received the amount nor undertook any financial liability.

Relying on Axis Bank, the Tribunal held that banks advancing home loans to buyers cannot be treated as financial creditors of the builder. It held that “Presence of a mere tripartite agreement does not change the character of the amount borrowed by the home buyer vis-à-vis the bank and vis-à-vis the corporate debtor."

The Tribunal distinguished its judgment in Canara Bank on the ground that in that case, the builder had undertaken to repay the amount disbursed to the homebuyers upon default, a clause was absent in the present case. On registered charge, it held that charge registration was relevant only if the bank were a financial creditor which it was not. The Tribunal found the DRT decrees irrelevant since the bank had not based its claim on these decrees and they were issued before the CIRP. “Bank having not filed Form-C on the basis of DRT decree… it is not open for the Bank to claim acceptance of its claim on that basis,” the Tribunal held.

Accordingly, the Tribunal dismissed the appeals filed by UCO Bank, holding that the loans sanctioned by the bank to the homebuyers did not amount to a “claim” under Section 3(6) of the IBC. It further held that the builder had not undertaken, under the Tripartite Agreement, to repay the amount to the bank in the event of default by the borrower.

Case Title: UCO Bank v. Debashish Nanda, Resolution Professional, Bulland Buildtech Pvt. Ltd.

Case Number: Company Appeal (AT) (Insolvency) Nos. 465 & 1911 of 2024

Judgment Date: 29/10/2025

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.

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