Misrepresentation of Jurisdictional Facts Vitiates Insolvency Initiation Under Section 95: NCLAT Sets Aside Order - 2026-05-29

Laws, Courts & Judgments.

Fractured Foundation: NCLAT Overturns Section 95 Insolvency Order Built on Misrepresentation

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has set aside a January 2026 order initiating insolvency proceedings against Mr. Pawan Gupta. The Principal Bench, led by Chairperson Justice Ashok Bhushan and Member (Technical) Mr. Indevar Pandey, found that the proceedings were fatally flawed, having been initiated based on misrepresentations regarding the existence of a personal guarantee.

The Borrowing Dispute

The genesis of the case lies in a 2011 credit facility sanctioned by the Union Bank of India to M/s. L.R. Builders Pvt. Ltd., where Mr. Pawan Gupta was identified in documentation solely as a co-borrower. Crucially, the bank’s internal records and subsequent assignment agreements explicitly stated "Guarantors: NIL."

Despite these records, M/s. Charm Investments Pvt. Ltd. – the successor-in-interest to the debt – initiated insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code (IBC, 2016), attempting to classify Mr. Gupta as a "personal guarantor." The NCLT initially accepted this characterization, appointing a Resolution Professional (RP) and triggering an interim moratorium.

Arguments from the Bar

The Appellant, Mr. Pawan Gupta, contended that the proceedings were a jurisdictional overreach. Represented by senior counsel, he argued that there was a complete absence of a Deed of Guarantee or any Letter of Invocation. He pointed to the original loan sanction and subsequent assignment deeds, all of which described him as a co-borrower, not a guarantor.

The Respondent, M/s. Charm Investments, defended the action by arguing the appeal was "premature." They maintained that under the Supreme Court's ruling in Dilip B. Jiwrajka v. Union of India , jurisdictional disputes should be agitated before the NCLT at the stage of Section 100 proceedings rather than challenged via a premature appeal. They further suggested that a holistic reading of the loan documents, including Promissory Notes, implied a guarantee obligation.

The Turning Point: Admissions of Error

The proceedings took a dramatic turn when the Respondent filed an interlocutory application (IA No. 958 of 2026) in which they admitted that no Deed of Guarantee or Letter of Invocation had actually been placed on record. This candid admission flatly contradicted the representations made to the NCLT during the initial hearing, where the Tribunal had incorrectly recorded the existence of these vital documents.

Key Observations

The NCLAT’s frustration with the conduct of the Financial Creditor was palpable in its analysis:

• "The record reflects that the impugned order dated 04.02.2026 appoints a Resolution Professional... More importantly, the Ld. Adjudicating Authority records that the Applicant... has placed Deed of Guarantee and Letter of Invocation on record."
• "The Respondent initially represented before the Adjudicating Authority that a deed of guarantee and invocation letter existed and later clarified that no such formal document was placed on record."
• "The 'Deed of Guarantee' and 'Letter of Invocation' of the Guarantee are the two most important documents in a Section 95 proceedings."
• "The findings of the Ld. Adjudicating Authority were vitiated by misrepresentation of facts before it."

The Verdict: A Reset, Not a Release

The NCLAT held that the original order was "void ab initio," effectively clearing the slate because the proceedings were based on a "misrepresentation of jurisdictional facts."

By setting aside the impugned order, the NCLAT has reinforced the necessity of accuracy in initial filings. While the decision provides immediate relief to the Appellant, it serves as a stern warning regarding the importance of transparency in the insolvency process. The Financial Creditor was granted liberty to file a fresh application, but only if they can substantiate their claims with proper, authentic documentation. The ruling underscores the principle that the summary nature of the IBC cannot be used as a shield to bypass foundational jurisdictional requirements.