NCLAT Bars Lender’s Ownership Claim on Loan Amount Once Disbursed Under CIRP
- REEDLAW
- 2 days ago
- 4 min read
REEDLAW Legal News Network reports: In a notable ruling, the National Company Law Appellate Tribunal (NCLAT) clarified that once a loan amount is disbursed to a corporate debtor, the lender cannot assert ownership over those funds. The Tribunal emphasised that the disbursed amount becomes part of the corporate debtor’s assets and is subject to the provisions of the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC).
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Barun Mitra, while adjudicating a Company Appeal along with a connected Interlocutory Application, held that once a loan amount has been disbursed to the corporate debtor, the lender cannot claim ownership of those funds. The ruling reaffirmed that such funds form part of the corporate debtor’s assets under CIRP, ensuring adherence to the IBC framework and the principle of equitable distribution among creditors.
The National Company Law Appellate Tribunal (NCLAT) heard an appeal filed against the order dated 31.01.2025 of the National Company Law Tribunal (NCLT), Mumbai Bench, Court-V, in I.A. No. 590 of 2025. The impugned order had directed HDFC Bank to reissue a demand draft to the extent of Rs. 2.18 crore, being the balance amount available with the bank, in favour of the Resolution Professional (RP) of the corporate debtor, K & K Foundry Private Limited. The application before the NCLT had been filed by a member of the Committee of Creditors (CoC) seeking revalidation of the expired demand draft.
The background of the matter revealed that in the Corporate Insolvency Resolution Process (CIRP) of the corporate debtor, a resolution plan was approved in favour of the successful resolution applicant (SRA), Samir Kale. To implement the plan, the SRA approached the appellant, a Non-Banking Financial Company (NBFC), for financial assistance. The appellant sanctioned a loan of Rs. 5 crore, out of which Rs. 2.94 crore was disbursed on the instructions of the SRA by way of a demand draft initially drawn in favour of a trust and later reissued in favour of the corporate debtor on 27.08.2024. This demand draft expired on 27.11.2024. Subsequently, the SRA failed to fulfil its obligations under the resolution plan within the stipulated timeline, and the appellant recalled the loan on 07.12.2024. Meanwhile, on 10.12.2024, the NCLT granted the SRA an extension to make the payment under the approved resolution plan.
When the demand draft expired, a CoC member moved an application before the NCLT seeking a direction for revalidation of the draft. The appellant appeared in those proceedings and objected, asserting that the funds used for the demand draft belonged to the appellant and that it was a necessary party to the matter. However, the NCLT rejected the objection, holding that the appellant had no locus to intervene in the CIRP process since the amount was already disbursed to the SRA under the loan agreement and was utilised for CIRP purposes. The NCLT directed HDFC Bank to reissue the demand draft for the available amount of Rs. 2.18 crore and hand it over to the RP.
In appeal, the appellant reiterated its contention that it retained ownership of the disbursed amount and challenged the NCLT’s direction to reissue the demand draft. The respondent argued that once the amount was disbursed under the loan agreement, it became the SRA’s money, and the appellant had no right to claim locus in the CIRP process. The NCLAT agreed with the NCLT’s reasoning, observing that the appellant, having sanctioned and disbursed funds to the SRA, could not claim ownership of the amount after disbursement. The tribunal clarified that the appellant was free to pursue remedies against the SRA for recovery of the amount as per the loan agreement and applicable law.
The NCLAT concluded that the direction issued by the NCLT to HDFC Bank to reissue the demand draft was within its jurisdiction and that no error was committed. Consequently, the appeal was dismissed. The tribunal also declined the appellant’s request for a stay of the impugned order for seven days.
Mr. Gaurav Mitra, Sr. Advocate, with Mr. Chirag J. Shah, Mr. Utsav Trivedi, Ms. Ekta Dalvi, Ms. Shivani Bhushan, Mr. Piyush Tiwari, Mr. Ashish Kumar Yadav and Ms. Lavanya Pathak, Advocates, represented the Appellant.
Mr. Dinkar Singh and Mr. Rohit Singh, Advocates, appeared for the Respondent No. 1.
This is premium content available to our subscribers.
To access the full content related to this article — including the complete judgment, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications — we invite you to subscribe to REEDLAW’s premium research platform.
Click here to Subscribe and unlock exclusive access to structured legal analysis, judicial summaries, and a comprehensive legal research database.
Already a subscriber? Click the link below to access the full document and linked case laws.
REEDLAW Legal Research & Analysis is India’s most trusted legal publishing and research platform, empowering legal professionals with structured judicial insights and authoritative legal intelligence since 1985.
Our comprehensive legal intelligence platform covers Corporate Insolvency, Bankruptcy, SARFAESI, Company Law, Contract, MSMEs, Arbitration, Debt Recovery, and Commercial Laws. Through curated journals — IBC Reporter and Bank CLR — and an advanced digital database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.
Comments