The National Company Law Tribunal (NCLT), New Delhi Bench, has clarified that a document titled ‘Deed of Hypothecation’ that contains a covenant whereby the hypothecator undertakes to cause the borrower to pay or repay the borrower’s dues, constitutes a contract of guarantee, rendering the executing party a Corporate Guarantor under Section 5(5A) of the Insolvency and Bankruptcy Code, 2016, irrespective of the nomenclature of the document.
The Tribunal explained that under Section 60(2) and 60(3) of the Insolvency and Bankruptcy Code, 2016, an application relating to the insolvency resolution of a Corporate Guarantor must be filed before the same National Company Law Tribunal Bench where the Corporate Insolvency Resolution Process of the Principal Debtor is pending, overriding the general territorial jurisdiction rules based on the registered office of the Corporate Guarantor.
The pendency of a petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an Arbitral Award does not bar the initiation of proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016, as the Code has an overriding effect under Section 238, and the Arbitral Award gives rise to a fresh cause of action and a fresh period of limitation for the Financial Creditor, added the Tribunal.
The Tribunal therefore held that consistent with the principles of the Indian Contract Act, 1872, the liability of the principal borrower and the surety is co-extensive, permitting separate or simultaneous insolvency proceedings to be initiated under Section 7 of the Insolvency and Bankruptcy Code, 2016 against both the Corporate Debtor and the Corporate Guarantor.
The Division Bench comprising Ashok Kumar Bhardwaj (Judicial Member) and Reena Sinha Puri (Technical Member) observed that the execution of the Deed of Hypothecation by the Corporate Debtors made them liable as Corporate Guarantors. Clause 1 of the Deed explicitly contained a covenant that the Hypothecators ‘shall cause the Borrower(s) to pay/repay the Borrower’s Dues’. Relying on the Supreme Court judgment in China Development Bank vs. Doha Bank Q.P.S.C. [(2025) 7 Supreme Court Cases 729], the Tribunal noted that the nomenclature of a document is not decisive; a contract becomes a guarantee when it is an undertaking to perform the promise or discharge the liability of a third person in case of default. Therefore, the Corporate Debtors stood as sureties for the repayment of the debt procured by the Principal Debtor.
Regarding the territorial jurisdiction of the New Delhi Bench, the Tribunal observed that Section 60(2) of the IBC creates an exception to the general prescription of Section 60(1). Since the Corporate Insolvency Resolution Process (CIRP) against the Principal Debtor, Bliss House Pvt Ltd., had already commenced and was pending before the New Delhi Bench, the applications against the Corporate Guarantors were amenable to the jurisdiction of the same Bench, irrespective of the location of their registered offices.
Addressing the contention that no default had occurred and that the Arbitral Award was under challenge, the Tribunal observed that the default was crystallized in terms of Clauses 12.1 and 12.2 of the Loan Agreement, which allowed the lender to recall the loan upon a ‘Material Adverse Effect’. The Tribunal further observed that under Section 238 of the IBC, the provisions of the Code have an overriding effect notwithstanding anything inconsistent contained in any other law. It reiterated that a decree or final adjudication, such as an Arbitral Award, gives rise to a fresh period of limitation, and the pendency of a Section 34 challenge does not bar proceedings under Section 7 of the IBC.
The Tribunal also observed that simultaneous proceedings against the Principal Borrower and the Corporate Guarantor are permissible. Relying on ICICI Bank Ltd. vs. Era Infrastructure (India) Ltd. and Laxmi Pat Surana vs. Union Bank of India, the Tribunal reiterated that the liability of the principal borrower and the surety is co-extensive, and the moment the principal borrower commits a default, the liability of the corporate guarantor instantly triggers, allowing the financial creditor to proceed against the corporate guarantor.
Briefly, the Petitioner, J.C. Flowers Asset Reconstruction Pvt Ltd., is an asset reconstruction company and the assignee of Samman Capital Limited (SCL), previously known as Indiabulls Housing Finance Limited, pursuant to an Assignment Agreement. The Respondents, Imagine Habitat Pvt Ltd., Imagine Residence Pvt Ltd., Imagine Home Pvt Ltd., and Imagine Estate Pvt Ltd., are wholly owned subsidiaries of RAB Enterprises (India) Private Limited, promoted by Rana Kapoor and Bindu Kapoor.
The SCL sanctioned and disbursed loan facilities of Rs. 70 Crores and Rs. 105 Crores to the Principal Debtor, Bliss House Private Limited, and to secure the loan, the Respondents executed a Deed of Hypothecation, hypothecating receivables arising from specified properties in favour of SCL. Personal Guarantees were also executed by Rana Kapoor and Bindu Kapoor.
During the tenure of the loan, the repayment ability of the Personal Guarantors was materially affected due to criminal investigations initiated by the Directorate of Enforcement (DoE) and the Central Bureau of Investigation (CBI). Consequently, SCL formed a reasonable apprehension that the repayment ability of the Principal Debtor and its obligors was materially affected, constituting an ‘Event of Default’ under Clause 12.1.8 of the Loan Agreements.
SCL therefore issued a loan recall notice, calling upon the Principal Debtor and the obligors to repay the outstanding amount within 5 days. Following non-payment, SCL invoked arbitration, culminating in an Arbitral Award directing the Principal Debtor and its obligors to pay Rs. 196.87 crores along with interest. The Principal Debtor challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, which remains pending before the High Court of Delhi. Thereafter, the Petitioner issued a Demand Notice to the Corporate Debtors invoking their status as Obligors, demanding Rs. 260.32 crores, which was not paid, leading to the filing of the present petitions under Section 7 of the IBC.
Appearances:
Advocates Sidhant Kumar Marwah, Ritesh Kumar, Naanya Chandok, Naman Gowda, Ekssha Kashyap, and Siddhant Ahirwal, for the Applicant
Senior Advocate Sunil Fernandes, along with Advocates Udipto Koushik Sharma, Kumar Shubham, Srishti Agarwal, and Kailash Ram, for the Respondent
