NCLAT Dismisses Suraksha Realty Appeal, Holds 2021 Mortgage on Radius Estate Project a Preferential Transaction Under IBC

NCLAT upholds NCLT Mumbai's finding that a mortgage executed two months before CIRP commencement, securing a 2014 debenture debt, was preferential under Section 43 of the IBC.

The National Company Law Appellate Tribunal's Principal Bench at New Delhi has dismissed an appeal by Suraksha Realty Limited challenging the avoidance of a registered Deed of Mortgage it held over units in a Mumbai real estate project developed by the corporate debtor, Radius Estate Projects Private Limited. The Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Indevar Pandey (Member, Technical), found that the mortgage executed on 29 July 2021—barely two months before the commencement of the Corporate Insolvency Resolution Process—satisfied every ingredient of a preferential transaction under Section 43 of the Insolvency and Bankruptcy Code, 2016. The Tribunal held that the mortgage did not fall within the ordinary course of business exception under Section 43(3), and that general equitable principles could not override the Code's avoidance provisions.

The Dispute Before the Tribunal

Radius Estate Projects Private Limited had entered into a Memorandum of Understanding in or about December 2014 with Sumer Buildcorp Private Limited for joint development of a real estate project called “Avenue 54” at Willingdon Catholic Colony, Bandra, Mumbai, envisaging approximately 10,00,000 square feet of saleable area.

To fund the project, the corporate debtor executed a Debenture Subscription Agreement (DSA) with Suraksha Realty on 18 December 2014. Under the DSA, Suraksha Realty subscribed to 225 secured redeemable non-convertible debentures of face value Rs. 50,00,000 each, investing a total of Rs. 1,12,50,00,000 in the corporate debtor. The DSA provided for creation of a first charge over approximately 50,000 square feet of saleable area in the project, with the corporate debtor undertaking to execute mortgage deeds to perfect that security.

The corporate debtor did not perfect the security. Instead, it availed financial assistance from Yes Bank in or about December 2014 without obtaining any prior consent or No Objection Certificate from Suraksha Realty. Registered mortgage deeds in favour of Yes Bank were executed in December 2015 and May 2016, creating a first charge over the project. Further funding was obtained through a joint venture entity, Sumer Radius Realty Private Limited, from Yes Bank in January 2016. In July 2018, the corporate debtor and its joint venture entity approached DHFL for additional funding, and a mortgage deed dated 30 July 2018 was executed in favour of DHFL creating a first charge, though that charge was subsequently converted to a second charge after the conditional NOC from Yes Bank stood revoked.

It was only on 29 July 2021 that a registered Deed of Mortgage was executed between the corporate debtor and Suraksha Realty, creating a second charge over 29 identified units aggregating to 61,803 square feet carpet area, with a stipulation that the charge would be upgraded to a first charge upon repayment of Yes Bank's facilities.

The CIRP of Radius Estate Projects was initiated by order dated 6 September 2021. Mr. Vithal M. Dahake was appointed as Interim Resolution Professional and subsequently confirmed as Resolution Professional. Suraksha Realty submitted its claim in Form C on 28 October 2021 for Rs. 4,30,08,00,000, asserting secured financial creditor status. The RP provisionally admitted Rs. 98,35,38,914 as secured and inducted Suraksha Realty into the Committee of Creditors with a 3.74% voting share.

Following a transaction audit by M/s Bagchi & Gupta initiated in April 2023, the RP reclassified Suraksha Realty's claim, admitting Rs. 1,02,05,26,027 as unsecured debt and rejecting Rs. 3,28,02,73,973. The RP then filed an avoidance application, I.A. No. 4504 of 2024, before the NCLT Mumbai Bench seeking a declaration that the mortgage was void. The NCLT allowed the application by order dated 10 October 2025, holding the mortgage to be a preferential transaction and directing release and discharge of the security interest. Suraksha Realty appealed to the NCLAT under Section 61 of the Code.

Suraksha Realty's Case: Perfection of Pre-Existing Security

Senior Counsel Mr. Arun Kathpalia, appearing for Suraksha Realty, argued that the NCLT had mechanically applied the Supreme Court's judgment in Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited & Ors. (2020) 8 SCC 401 without appreciating the factual differences. In Anuj Jain, the corporate debtor had created mortgages to secure obligations of a related party, Jaypee Associates Limited, to its own lenders. Here, Suraksha Realty had itself directly advanced Rs. 112.50 crores to the corporate debtor under the DSA. The mortgage was not for any third party; it merely perfected and formalised a security arrangement already contemplated in 2014.

He submitted that the obligation to execute and perfect the mortgage deed was cast upon the corporate debtor under the DSA, not upon Suraksha Realty. The corporate debtor could not now derive benefit from its own failure to perform that obligation. Reliance was placed on Mrutunjay Pani & Anr. v. Narmada Bala Sasmal & Anr., AIR 1961 SC 1353, for the principle that no person can derive advantage from his own wrong.

Counsel pointed to the DHFL Sanction Letter dated 27 July 2018, which specifically recorded that 61,803 sq. ft. comprising 29 units stood earmarked for securing Suraksha Realty's interest, and to 29 allotment letters dated 1 August 2018 issued in its favour. These documents, he argued, demonstrated that the security was identified and recognised by other lenders well before the look-back period, and that the 2021 mortgage merely formalised an existing arrangement.

Clause 13 of the DSA classified the mortgage deed as a “Critical Covenant” and Clause 16 provided that no waiver could be effected in respect of such covenants. The obligation to perfect the security therefore remained binding at all times. Counsel also argued that the mortgage created only a second charge, expressly subordinate to Yes Bank's first charge, so Suraksha Realty derived no immediate preferential benefit over other creditors.

On jurisdiction, counsel submitted that Section 60(5)(c) did not confer upon the NCLT the power to adjudicate the validity or enforceability of contractual instruments such as the mortgage deed, and that the NCLT had exceeded its statutory domain.

The Resolution Professional's Case: Classic Preferential Transfer

Mr. Amir Arsiwala, appearing for the RP, submitted that the mortgage satisfied each statutory requirement under Section 43. The mortgage constituted a transfer of an interest in property within the meaning of Section 43(2)(a). It was executed to secure an antecedent financial debt—the 2014 DSA—without any fresh disbursement at the time of execution. Prior to the mortgage, Suraksha Realty was an unsecured financial creditor; after it, Suraksha Realty became a second charge holder, materially improving its position in the Section 53 waterfall. The mortgage was executed within the look-back period under Section 43(4), being only two months before CIRP commencement.

Counsel argued that the ordinary course of business exception under Section 43(3) was unavailable. The DSA itself had provided a period of only 30 days for creation of security, yet no steps were taken for nearly seven years. The mortgage was executed only two months before CIRP, which demonstrated it was a belated attempt to secure Suraksha Realty's position rather than a routine commercial act. The mortgage also created a second charge without prior consent of the first charge holder, Yes Bank, and was allegedly executed in violation of Section 186(5) of the Companies Act, 2013 for want of requisite board approvals.

Counsel further submitted that the DSA had contemplated a first charge, whereas the mortgage created only a second charge, so the mortgage could not be characterised as mere perfection of what the DSA envisaged. Applying the framework from Anuj Jain, all conditions for a preferential transaction were satisfied and the NCLT order deserved to be upheld.

How the Tribunal Reasoned

The Tribunal framed a single issue: whether the registered Deed of Mortgage dated 29 July 2021 constituted a preferential transaction under Section 43 of the IBC.

Working through the Section 43 checklist, the Tribunal found each ingredient satisfied. The mortgage constituted a transfer of an interest in property of the corporate debtor in favour of a creditor. It was executed for an antecedent financial debt arising from the 2014 DSA, with no fresh disbursement at the time of execution. It materially improved Suraksha Realty's position under the Section 53 waterfall, elevating it from unsecured to secured status. It was executed within the one-year look-back period preceding the insolvency commencement date.

On the ordinary course of business exception, the Tribunal was unpersuaded by Suraksha Realty's arguments. The DSA itself had provided only 30 days for creation of security. The mortgage was executed seven years after that contractual deadline and only two months before CIRP commenced. The Tribunal held that such a transaction could not, by any stretch, be regarded as being conducted in the ordinary course of business.

The Tribunal distinguished the equitable principle from Mrutunjay Pani on the ground that the avoidance provisions of the IBC are concerned with the effect and timing of a transaction on the insolvency process and on other creditors, not merely with contractual obligations between the parties. Even accepting that the corporate debtor had originally agreed to create security, the admitted position was that no perfected mortgage or enforceable charge existed for nearly seven years. General equitable principles could not override the statutory provisions of Section 43.

The Tribunal similarly distinguished the Indore Development Authority judgments as rendered in the context of land acquisition and a different statutory framework, and held that once the ingredients of Section 43 were satisfied, those decisions did not assist Suraksha Realty.

On the argument based on interim directions in Vistra ITCL (India) Limited v. Vithal Madhukar Dahake, Company Appeal (AT) (Insolvency) No. 1110 of 2024, the Tribunal held that interim directions regarding voting rights or CoC participation did not amount to a final finding that Suraksha Realty was a secured creditor for all purposes under the IBC. Once the mortgage itself was found to be preferential and avoidable, Suraksha Realty could not claim continuation of secured status on the basis of CoC participation.

The Tribunal concluded that the mortgage was squarely covered by the ratio in Anuj Jain and that no infirmity existed in the NCLT's impugned order.

Order

The NCLAT dismissed Company Appeal (AT) (Ins.) No. 1754 of 2025 as devoid of merit. No order as to costs was made. Pending interlocutory applications, if any, were closed. The effect of the dismissal is that the Deed of Mortgage dated 29 July 2021 stands avoided as a preferential transaction, and the security interest created in favour of Suraksha Realty over the 29 units in the Avenue 54 project stands released and discharged. Suraksha Realty's claim remains admitted as unsecured debt of Rs. 1,02,05,26,027.