Structured lending often comes with muscular covenants: nominee directors, veto rights, business-plan approvals, escrow control. In ECL Finance Ltd. v. Abhinav Mukherjee, Civil Appeal Nos. 6268 and 6273 of 2022 (2026 INSC 1159), decided on 27 October 2026, a Bench of Justices J.B. Pardiwala and K. Vinod Chandran held that when those rights add up to participation in the corporate debtor's policy-making, the lender becomes a related party under the Insolvency and Bankruptcy Code — and loses its seat, voice and vote in the Committee of Creditors. This article examines the judgment and its lessons for lenders documenting control-heavy facilities.
The dispute in outline
Saha Infratech Pvt. Ltd., a real estate developer, raised money through non-convertible debentures held entirely by ECL Finance Ltd., which separately extended a term loan. Palm Developers Pvt. Ltd. stood as corporate guarantor, and IDBI Trusteeship Services Ltd. acted as debenture trustee. When insolvency proceedings commenced against the guarantor in January 2020, the trustee and ECL together claimed admission to the Committee of Creditors for debts aggregating some ₹270 crore, and were initially admitted.
A homebuyer objected: the lender's contractual grip over the debtor group, he argued, made it a related party, disqualified from the CoC. The NCLT agreed, the NCLAT affirmed, and on 27 October 2026 the Supreme Court dismissed the appeals.
Participation in policy, not control
The heart of the judgment is the construction of Section 5(24)(m)(i) IBC, which treats as a related party a person who participates in the policy-making process of the corporate debtor. The appellants pressed for a demanding reading aligned with "control" as understood under Section 29A(c) and (g) and explained in ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta. The Court refused the assimilation. The related-party definition, it held, requires only an association with the corporate debtor by way of participation in its policy-making; a creditor need not command the enterprise. In the Court's words, a role of navigation — determining policy and channelising business interests — suffices.
The documents did the rest. Reading the articles of association, debenture trust deed, facility agreement and sanction letter together, the Court found rights over approval of business plans, nominee directors with deadlock-breaking authority, managerial appointments, inspection and observer rights, control of project construction and sales through a power of attorney, and revenues routed through escrow. Taken cumulatively, this was overall supervision of the debtor's affairs, not the ordinary negative covenants of a secured lender.
The exclusion and its reach
Guarantees as financial debt
One strand of the judgment favours lenders. The tribunals below had doubted whether a corporate guarantee not invoked before insolvency commencement could found a financial debt. The Supreme Court disagreed: financial debt under Section 5(8) does not presuppose default or invocation, a position consistent with its earlier jurisprudence on guarantees. The appellants lost not because their claim was bad in character, but because their relationship with the debtor group was too close for the CoC.
What transactional and insolvency lawyers should take away
The judgment forces a trade-off into the open. Covenant-heavy documentation protects a lender during the life of the loan, but the same clauses can be read back, cumulatively, as participation in policy once insolvency supervenes — with loss of the CoC seat as the price. Facilities should be documented, and nominee rights exercised, with Section 5(24)(m)(i) in view; protective covenants confined to genuine lender protection stand a better chance than rights that reach into business planning, sales and management. On the contest side, resolution professionals, creditors and homebuyers examining a CoC's composition now have a clear instruction: assess the documents as a whole for a navigation role, and treat post-commencement assignments of disqualified debt with suspicion.
For a Delhi practice appearing before the NCLT and NCLAT, the decision will be the starting point of every related-party objection argued hereafter.
Frequently Asked Questions
What makes a financial creditor a "related party" under the IBC?
Section 5(24) IBC lists the relationships, and clause (m)(i) covers a person who participates in the corporate debtor's policy-making process. In ECL Finance the Supreme Court held that this test is less rigorous than the positive "control" standard in Section 29A: an association by way of participation in policy — a role of navigation, steering business direction — suffices, even if the creditor is not in the driving seat.
What is the consequence of being a related-party financial creditor?
Under the first proviso to Section 21(2) IBC, a related-party financial creditor has no right of representation, participation or voting in the Committee of Creditors. In this case both the debenture holder and the debenture trustee that acted to protect its interests were kept out of the CoC of the corporate guarantor.
Can the bar be avoided by assigning the debt to another entity?
Not by an assignment the court finds colourable. The Supreme Court held that an assignment of facility-agreement rights made after commencement of the insolvency process, apparently to sidestep the proviso to Section 21(2), was not bona fide, and the assignee remained excluded. A genuine, arm's-length assignment made long before insolvency stands on different footing.
Does a corporate guarantee count as financial debt if it was never invoked?
Yes. Disagreeing with the reasoning of the tribunals below on this point, the Court held that financial debt under Section 5(8) does not require a default or prior invocation of the guarantee, consistent with its earlier rulings. The appeals nonetheless failed because the related-party finding independently barred CoC participation.