2026 Supreme(Online)(NCLAT) 600

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Ashok Bhushan, J
Rajesh Kaimal – Appellant
Versus
Prabhat Ranjan Singh – Respondent
C.P. (IB) No.317/ND/2025

A corporate guarantor's default for Section 7 IBC purposes arises on guarantee invocation, not the principal borrower's NPA date, and only a guarantee to repay debt (not infuse equity) constitutes a financial debt.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 5(8), 7, 10A - Indian Contract Act, 1872 - Sections 126, 128 - Corporate Guarantee - Financial Debt - Initiation of Corporate Insolvency Resolution Process (CIRP) against a corporate guarantor - The default of a corporate guarantor arises only upon invocation of the guarantee, not on the date of the principal borrower's default - An application under Section 7 for a default occurring during the Section 10A period (25.03.2020 to 24.03.2021) is barred - A corporate guarantee that only obligates a guarantor to infuse equity into a project, and not to repay the principal debt of the borrower, does not constitute a 'financial debt' under Section 5(8) - A subsequent guarantee that substitutes the original guarantor can discharge the original guarantor, subject to specific contingent obligations.

(B) Insolvency and Bankruptcy Code, 2016 - Section 10A - Limitation - The bar under Section 10A applies to defaults that occur during the specified period - For a guarantor, the default occurs when the guarantee is invoked, not on the date the principal borrower's account was declared a Non-Performing Asset (NPA) - A demand notice requiring payment within 3 days, issued on 30.09.2020, creates a default on 04.10.2020, which falls within the Section 10A period. (Para 32)

Facts of the case:
A financial creditor (a bank) provided a term loan of Rs. 144.4 crore to a principal borrower. The corporate debtor executed a corporate guarantee deed dated 30.06.2010, which required the guarantors to infuse equity into the project, not to repay the loan. A subsequent guarantee deed dated 11.01.2012 was executed to release the corporate debtor from its obligations under the 2010 guarantee and substitute new guarantors, with the corporate debtor retaining a contingent obligation only if the new guarantors failed to perform. The principal borrower's account was declared NPA on 28.09.2017. On 30.09.2020, the creditor issued a recall notice demanding payment from the guarantors. The creditor filed a Section 7 application against the corporate debtor in January 2025, which was admitted by the Adjudicating Authority. The suspended director of the corporate debtor appealed the admission order, arguing, among other things, that the application was barred by Section 10A and that the guarantee did not constitute a financial debt.

Findings of Court:
The court found that the 2010 guarantee deed did not obligate the corporate debtor to repay the principal debt, but only to infuse equity. This did not constitute a 'financial debt' under the Code. The court further held that the default of the guarantor arose only upon the invocation of the guarantee on 30.09.2020, which fell within the Section 10A period, making the Section 7 application barred. The court also noted that the Adjudicating Authority had passed contradictory orders on the same day regarding the same debt, and that the financial creditor had suppressed the subsequent guarantee deed of 11.01.2012. The appeal was allowed.

Issues: The main issues were whether the corporate guarantee dated 30.06.2010 constituted a financial debt; whether the subsequent deeds of guarantee and undertaking created an obligation to repay the principal debt; whether the Section 7 application was barred by Section 10A; and whether the Adjudicating Authority's order was vitiated by non-application of mind in view of a contradictory order passed on the same day.

Ratio Decidendi: The court held that a corporate guarantee that only obligates the guarantor to infuse equity, and not to repay the debt of the principal borrower, does not create a 'financial debt' under Section 5(8) of the IBC. The default of a guarantor for the purpose of Section 7 arises upon the invocation of the guarantee, not on the date of the principal borrower's NPA, and therefore, a Section 7 application for a default occurring during the Section 10A period is barred. A judgment that is contradictory to another judgment on the same day by the same bench, based on the same facts, is vitiated by non-application of mind. (Paras 19, 31, 32, 34)

Result: The appeal was allowed. The impugned order dated 09.12.2025 was set aside, and the Section 7 petition (C.P. (IB) No. 317 of 2025) was dismissed. (Para 36)

Result: Appeal allowed. (Para 36)”,