Corporate Guarantor Cannot Escape CIRP Despite Parallel Proceedings against Principal Borrower: NCLT Admits ₹17.54 Cr Default [Read Order]

The National Company Law Tribunal (NCLT) Kolkata Bench has admitted a Insolvency application filed by Bank of India against Bahubali Realbuild Private Limited holding that simultaneous insolvency proceedings can continue against both the principal borrower and the corporate guarantor under the Insolvency and Bankruptcy Code 2016 (IBC).

The petition was filed by Bank of India in relation to credit facilities extended to Sunbeam Dealers Private Limited the principal borrower. The bank had initially sanctioned a cash credit facility of ₹2.5 crore in September 2014 which was subsequently enhanced to ₹10 crore in September 2016.

The Bahubali Realbuild Private Limited had executed a deed of guarantee in favour of the bank and undertook unconditional liability for repayment of dues in the event of default by the borrower.

According to the bank, the borrower failed to maintain financial discipline and committed persistent defaults in repayment obligations. Consequently, the loan account was classified as a Non-Performing Asset (NPA) on April 30 2018. The bank invoked the corporate guarantee through a demand notice dated July 11, 2025, seeking repayment of over ₹17.21 crore. Since the notice returned undelivered, substituted service was effected through newspaper publication in December 2025.

The Financial Creditor stated that the corporate guarantor’s liability was co-extensive with that of the principal borrower under Section 128 of the Indian Contract Act, 1872. It was further argued that the limitation period against the guarantor commenced only upon invocation of the guarantee and subsequent non-payment.

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The Tribunal observed that the right to initiate insolvency proceedings against a corporate guarantor gets triggered immediately upon default by the principal borrower.

The division bench comprising Bidisha Banerjee (Judicial Member) and Cmde. Siddharth Mishra (Technical Member) initiated the Corporate Insolvency Resolution Process (CIRP) against the corporate guarantor over a default amount of ₹17.54 crore.

The Tribunal further held that in guarantees payable on demand, limitation begins from the date of invocation of the guarantee and not from the date of NPA classification. Since the Section 7 petition was filed shortly after invocation of the guarantee through substituted service the application was held to be within limitation.

Accordingly, the Bench admitted the insolvency petition and declared moratorium under Section 14 of the IBC as well as appointed Kanchan Dutta as the Interim Resolution Professional (IRP).

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