Mortgage of Property Does Not Constitute Financial Debt Under IBC

The Principal Bench of the National Company Law Appellate Tribunal partly allowed an appeal filed by the Resolution Professional of Setubandhan Infrastructure Limited and held that mere mortgaging of property by a third party to secure loans availed by the corporate debtor does not constitute a “financial debt” under Section 5(8) of the Insolvency and Bankruptcy Code, 2016 in the absence of actual disbursal of money. 

While the Tribunal rejected the claim of Amisha In Sky Creation Pvt. Ltd. as a secured financial creditor, it simultaneously held that the claimant could not be entirely excluded from the CIRP process since it had mortgaged its property for the benefit of the corporate debtor and was contractually entitled to interest and compensation. 

Accordingly, the NCLAT directed the Resolution Professional to consider its claim in the category of “other creditors.”