Direct disbursement to corporate debtor is not prerequisite for debt to qualify as secured financial debt.

The Appellant acted as a debenture trustee for holders of secured optionally convertible debentures worth ₹395 crores issued by Aaditri Constructions Private Limited (ACPL) under a Debenture Trust Deed (DTD) dated 03.08.2018.

While the Corporate Debtor (CD), Radius Estate Projects Pvt. Ltd., was not an original signatory to the DTD, it subsequently executed a First Supplemental Indenture of Mortgage (IOM) on 29.03.2019 and a Second Supplemental IOM on 16.04.2019 to secure ACPL’s debt.

These IOMs contained a "covenant to pay" the secured obligations.

Upon the CD entering Corporate Insolvency Resolution Process (CIRP), the Appellant filed a claim for ₹874 crores as a "secured financial creditor."

The Resolution Professional (RP) classified the Appellant as an "other secured creditor" rather than a "financial creditor," arguing no money was disbursed directly to the CD.

The NCLT Mumbai Bench upheld the RP’s decision on 07.05.2024, leading to this appeal.

The Court applied Section 5(8) of the IBC, which defines "financial debt" as a debt disbursed against the consideration for the time value of money, including guarantees (sub-clause i) and instruments like debentures (sub-clause c).

It relied on Section 126 of the Indian Contract Act, 1872, defining a "contract of guarantee" as a promise to discharge the liability of a third person in case of default.

Precedentially, the Court followed the Hon’ble Supreme Court’s ruling in *China Development Bank v. Doha Bank Q.P.S.C.* (2025), which held that a "covenant to pay" shortfall amounts in a security document constitutes a guarantee.

It distinguished *Anuj Jain v. Axis Bank* (2020), noting that a mortgage without a personal covenant to pay does not create a financial debt, whereas one with such a covenant does.

The Tribunal reasoned that Section 5(8) of the IBC does not expressly require disbursement to be made "to the corporate debtor"; rather, it requires disbursement against the time value of money.

Following *Rajeev Kumar Jain v. Uno Minda*, the Tribunal held that disbursement to a third party at the CD's behest satisfies the statute.

Analyzing the DTD and Supplemental IOMs, the Tribunal found that the CD, by signing the IOMs, stepped into the shoes of an "obligor."

Specifically, Clause 2.1 and 2.2 of the IOMs contained an unconditional "covenant to pay" and an undertaking not to allow "Secured Obligations" to fall into arrears.

This specific language transformed the mortgage from a mere security interest into a "contract of guarantee" under Section 126 of the Contract Act.

The Tribunal noted that reading Clause 2.2 in isolation to limit liability only to default interest would render the "Secured Obligations" definition in Clause 2.1 redundant; thus, the documents must be read holistically as a financial debt.

The court concluded that direct disbursement to the CD is not *sine qua non* for a financial debt.

The Impugned Order was set aside, the Appellant was declared a "Secured Financial Creditor," and the matter was remanded to the Adjudicating Authority for further proceedings.