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

The Supreme Court on 27 October 2026 dismissed appeals by ECL Finance Ltd and IDBI Trusteeship Services Ltd, upholding findings that both were "related parties" of Palm Developers Private Limited, a company in insolvency, and so cannot sit or vote on its committee of creditors. The case began with an objection by a homebuyer, and the court held that an individual homebuyer could raise it.

What Happened

Palm Developers had guaranteed debentures of Rs 110 crore and a Rs 90 crore credit facility taken by Saha Infratech Private Limited for its projects, including 'Project Encore' in Greater Noida, according to the judgment. ECL Finance held all the debentures and was also the lender; IDBI Trusteeship was the debenture trustee. After Palm Developers entered the corporate insolvency resolution process on 27 January 2020, the two claimed about Rs 131.17 crore and Rs 139.03 crore.

The National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) found them to be related parties. The Supreme Court held that a guarantee can be a financial debt even if not invoked before insolvency began, but agreed they were related parties. It held that the loan and debenture documents gave ECL Finance "all-pervasive control" over the projects, including rights to appoint a nominee director, approve construction budgets and control project revenue, including payments by allottees.

Under the first proviso to Section 21(2) of the Insolvency and Bankruptcy Code, a related-party financial creditor cannot be represented, participate or vote in the committee of creditors. The court held this also barred the debenture trustee. It further held that ECL Finance's later assignment of its loan rights to another entity was not a bona fide assignment, noting a forensic audit report cited by the tribunal, so the assignee also cannot participate.

What It Means

The committee of creditors decides the fate of a company in insolvency. This ruling means a lender with such control over a borrower's projects can be kept off that committee, leaving the decision to other creditors, including homebuyers. The court also held that one homebuyer may object individually, not only through the homebuyers' authorised representative. Contempt petitions in the matter were closed.

Source: Supreme Court judgment