Banks Lending to Homebuyers Not Financial Creditors of Builder—Tripartite Agreement Doesn’t Impose Repayment Liability
Banks Lending to Homebuyers Not Financial Creditors of Builder—Tripartite Agreement Doesn’t Impose Repayment Liability
Introduction
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member), held that a bank disbursing housing loans to homebuyers cannot be treated as a financial creditor in the Corporate Insolvency Resolution Process (CIRP) of a builder. The Tribunal clarified that where the loan was sanctioned to homebuyers and not to the corporate debtor, and where the builder had not undertaken to repay such loan, no “claim” exists under Section 3(6) nor any “financial debt” under Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC).
Factual Background
The case arose from the insolvency proceedings of M/s Bulland Buildtech Pvt. Ltd., a real estate developer that launched a residential project named “Bulland Elevates.” To finance home purchases in this project, UCO Bank sanctioned loans to 45 individual homebuyers between 2013 and 2016. These transactions were governed by Tripartite Agreements executed among the bank, the homebuyer (borrower), and the builder (corporate debtor). Pursuant to the borrowers’ instructions, the loan amounts were disbursed directly to the corporate debtor. Subsequently, Canara Bank initiated CIRP proceedings against the builder under Section 7 of the IBC, which were admitted by the NCLT, New Delhi. UCO Bank thereafter filed Form C before the Resolution Professional (RP), claiming status as a financial creditor, contending that the funds ultimately benefited the corporate debtor.
Procedural Background
The Resolution Professional rejected the claim, holding that the bank’s relationship was with the borrowers, not the corporate debtor, and that the builder had undertaken no repayment obligation. The NCLT, New Delhi Bench, by its order dated 08.01.2024, upheld the RP’s view, rejecting UCO Bank’s plea for recognition as a financial creditor. The Tribunal later, on 09.07.2024, approved the Resolution Plan submitted by Saviour Builders Pvt. Ltd.
Issues
1. Whether a bank that disburses home loans to individual buyers can be treated as a financial creditor of the builder in the CIRP.
2. Whether a tripartite agreement between the bank, borrower, and builder imposes any repayment obligation upon the builder.
3. Whether the bank’s charge registration and DRT decrees can establish a valid claim under Section 3(6) of the IBC.
Contentions of the Parties
Appellant (UCO Bank): Argued that the loan amounts were utilized by the builder, thereby constituting a financial debt under Section 5(8) IBC. Submitted that the Tripartite Agreement made the builder jointly responsible for repayment in case of borrower default. Pointed to CERSAI registration of charge and DRT decrees as evidence of the builder’s liability. Claimed that the funds were disbursed against consideration for time value of money, thus qualifying as a financial debt.
Respondent (Resolution Professional): Contended that the loans were advanced to homebuyers, not to the corporate debtor. Submitted that the Tripartite Agreement merely facilitated transaction logistics and did not impose any repayment obligation on the builder.
Relied on Axis Bank v. Value Infracon India Pvt. Ltd., where banks lending to homebuyers were held not to be financial creditors of the builder. Distinguished Canara Bank v. Amrapali Silicon City, noting that in that case, the builder had expressly undertaken to repay in the event of borrower default, unlike here.
Reasoning and Analysis
The Tribunal examined the Tripartite Agreement and found no clause creating an obligation on the builder to repay the loan to the bank. It observed that the builder’s role was limited to confirming buyer allotments and facilitating mortgage creation in favor of the bank.
The bench observed that “None of the clauses of the Tripartite Agreement cast any obligation on the corporate debtor to make repayment of the loan to the bank”. On the bank’s reliance on an indemnity clause, the NCLAT clarified 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 and conditions.” The Tribunal reiterated that for a transaction to qualify as financial debt, it must involve disbursement against consideration for the time value of money — a requirement absent here, since the corporate debtor neither received the loan as a borrower nor undertook any financial liability. Consequently, the Tribunal found no error in the NCLT’s decision and dismissed both appeals.
Implications
This judgment reinforces the principle that banks lending to homebuyers do not automatically become financial creditors of builders in insolvency proceedings. The decision provides clarity for financial institutions, resolution professionals, and real estate stakeholders by emphasizing that financial debt requires a direct disbursement and repayment relationship between the creditor and the corporate debtor. It also underscores the limited scope of tripartite agreements, ensuring that builders are not burdened with obligations beyond the contract’s express terms. The decision aligns with prior decisions such as Axis Bank v. Value Infracon, ensuring consistency in insolvency jurisprudence concerning homebuyer loan structures.
In this case the appellant was represented by Mr. Brijesh Kumar Tamber and Mr. Prateek Kushwaha, Advocates. Meanwhile Mr. Sumant Batra, Mr. Sarthak Bhandari and Ms. Riya Kaur Arora, Advocates for R-1/RP.
