Guarantor’s Liability Co‑Extensive with Borrower: NCLT Admits Section 7 IBC Petition and Initiates CIRP [Read Order]
The Tribunal initiated CIRP, appointed Pankaj Bhattad as IRP, and imposed a moratorium under Section 14 restraining all recovery actions
![Guarantor’s Liability Co‑Extensive with Borrower: NCLT Admits Section 7 IBC Petition and Initiates CIRP [Read Order]](https://images.taxscan.in/h-upload/2026/06/24/2141295-nclt-decision-on-guarantor-liability-and-commencement-of-cirp-by-taxscan.webp "Guarantor’s Liability Co‑Extensive with Borrower: NCLT Admits Section 7 IBC Petition and Initiates CIRP [Read Order]")
In a recent ruling, the National Company Law Tribunal (NCLT), Ahmedabad Bench, held that a corporate guarantor’s liability remains co‑extensive with that of the principal borrower under Section 128 of the Indian Contract Act, 1872, and cannot be deferred until realization of the borrower’s assets. The case arose from a loan of ₹4 crore sanctioned by...
In a recent ruling, the National Company Law Tribunal (NCLT), Ahmedabad Bench, held that a corporate guarantor’s liability remains co‑extensive with that of the principal borrower under Section 128 of the Indian Contract Act, 1872, and cannot be deferred until realization of the borrower’s assets.
The case arose from a loan of ₹4 crore sanctioned by Krishkan Investment Pvt. Ltd. to Cubatics Processors India Pvt. Ltd. in September 2024. To secure repayment, Utkal Steels Ltd., along with other guarantors, executed a deed of guarantee. The borrower initially serviced the loan but soon defaulted, and despite recall notices, neither the borrower nor the guarantors repaid. By April 2025, the outstanding dues had risen to ₹4.16 crore, including fixed and penal interest, with the default date recorded as 4 March 2025.
Krishkan Investment, as financial creditor, argued that Utkal Steels was liable under the corporate guarantee and that the liability of a guarantor is co‑extensive with that of the borrower. They emphasized that the debt exceeded the statutory threshold and that insolvency proceedings under Section 7 of the IBC were justified.
Utkal Steels, on the other hand, contended that it was not a party to the sanction letter and that the creditor should first recover dues from the borrower’s windmill project, valued at ₹7 crore. It also pointed out that another guarantor was equally liable. The company explained its financial distress, citing defaults by clients and a slump sale of assets, and sought more time to repay, stressing that it remained a going concern.
The tribunal rejected these defences, noting that the guarantee deed was validly executed and that Utkal Steels had admitted its inability to pay, which amounted to acknowledgment of liability. It held that realization of the borrower’s assets could not be a precondition for initiating insolvency against the guarantor.
Applying Section 128 of the Contract Act, the Bench, comprising judicial member Chitra Hankare and technical member V. G. Venkata Chalapathy, confirmed that the guarantor’s liability was co‑extensive with the borrower’s.
Accordingly, the NCLT admitted the Section 7 petition, initiated the Corporate InsolvencyResolution Process against Utkal Steels Ltd., and appointed Pankaj Bhattad as Interim Resolution Professional. A moratorium under Section 14 of the IBC was imposed, restraining all recovery actions and asset transfers during the resolution period, while the IRP was directed to take charge of management and invite claims from creditors.
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