If Bank gives Home Loan, Can it be treated as Financial Creditor? Is Builder Liable to Pay?

 The National Company Law Appellate Tribunal (NCLAT), New Delhi bench of Justice Ashok Bhushan and Mr. Arun Baroka (Technical Member), has given an important decision – if a Bank gives Home Loan, then can it be treated as a Financial Creditor or not?

The Court held that a bank giving loans to homebuyers cannot be treated as a financial creditor in the Corporate Insolvency Resolution Process (CIRP) of a builder. This is because the loan was given to the homebuyers, not to the corporate debtor (builder). The Tribunal also noted that the builder had never agreed to repay the bank if the homebuyer failed to pay. Therefore, the bank’s claim does not qualify as a “claim” under Section 3(6) of the Insolvency and Bankruptcy Code (IBC).

The NCLAT examined the tripartite agreement and found that the builder had no responsibility to repay the loan. Its role was only to facilitate the transaction. The Tribunal said, “None of the clauses of the Tripartite Agreement cast any obligation on the corporate debtor to make repayment of the loan to the bank.”

Regarding the indemnity clause, the Tribunal clarified that “Clause 41 does not create any indemnity in favour of the bank. It only records the builder’s acceptance of the agreement terms.”

The Tribunal held that a financial debt must involve disbursal of money against consideration for the time value of money. In this case, the builder neither received the loan as a borrower nor took any financial responsibility. Therefore, the amount could not be treated as a financial debt.

Relying on the Axis Bank judgment, the Tribunal stated that banks giving home loans cannot be considered financial creditors of the builder. It observed that a tripartite agreement alone does not change the nature of the loan, which remains a loan between the bank and the homebuyer, not the builder.