Supreme Court bars ECL Finance from Palm Developers' creditors' panel as related party

The Supreme Court has held that ECL Finance Ltd and its debenture trustee, IDBI Trusteeship Services Limited, are related parties of Palm Developers Private Limited and cannot take part in the company's committee of creditors. In a judgment delivered on 27 October 2026, the court dismissed their appeals against an order of the National Company Law Appellate Tribunal, on an objection first raised by a homebuyer.

What Happened

Palm Developers had guaranteed debentures of Rs 110 crore issued by Saha Infratech Private Limited, all of them held by ECL, and a Rs 90 crore credit facility from ECL to Saha Infratech, meant for developing projects including Project Encore in Greater Noida. Palm Developers entered the corporate insolvency resolution process on 27 January 2020. IDBI Trusteeship claimed Rs 131.17 crore and ECL claimed Rs 139.03 crore.

The court held that a corporate guarantee is a financial debt even if it was not invoked before insolvency began, correcting the appellate tribunal on that point. But it found that the loan and debenture documents gave ECL the right to appoint a nominee director, approve construction budgets, appoint sales agents and act under a power of attorney on construction and sales, and that project revenues, including allottees' payments, were in ECL's direct control. The court called this an "all-pervasive control" that made ECL a related party. Because ECL holds all the debentures, the trustee was excluded too.

The court also held that ECL's assignment of its loan rights to another entity, made long after insolvency began, failed the test of a bona fide assignment, so the assignee cannot join the committee either. It referred to a forensic audit report, noticed by the tribunal, which stated that the guarantor company was used as a vehicle to transfer funds to other entities.

The court upheld a single homebuyer's right to object, holding that the homebuyers' authorised representative acts only for attending meetings and voting.

What It Means

ECL and its trustee cannot represent, take part or vote in the committee of creditors that decides how Palm Developers' insolvency is resolved, which leaves that decision to the other financial creditors, including homebuyers. The ruling also confirms that an individual homebuyer can challenge a lender's place on the committee.

Source: NCLAT order