Acknowledgment Of Debt By Principal Borrower Binds Corporate Guarantor: NCLT Delhi Admits NARCL's Insolvency Application Against Era Infra

A bench of Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Atul Chaturvedi observed that the financial debt of Rs. 385.38 crore owed to NARCL, which was assigned from Bank of India, constituted financial debt under the Insolvency & Bankruptcy Code, 2016 (IBC).

“Once the Adjudicating Authority is satisfied that a default has occurred, there is hardly any discretion left with it to refuse admission of the application under Section 7”, the Bench held.

“The mentioning of the date of default in the application is only for the reckoning of default in the application is only for the reckoning of limitation. The financial creditor has provided clear acknowledgement and evidence of continuing debt, hence the petition is well within limitation”, the Tribunal observed while admitting the insolvency application against EIL.

The dispute arose from an insolvency application, seeking initiation of insolvency proceedings against EIL, the corporate guarantor of Haridwar Highways Project Ltd. (HHPL), the principal borrower, which had defaulted on term loans originally sanctioned by Bank of India and other lenders. NARCL, acting as the trustee of NARCL Trust-0010, filed the insolvency application through its power of attorney holder, India Debt Resolution Company Ltd. (IDRCL). The corporate debtor had executed a corporate guarantee on 29.06.2016 for Rs. 149.48 crores in favour of Bank of India, securing the loan sanctioned to HHPL under three term loan facilities. Upon default and classification of the account as Non-Performing Asset (NPA) on 24.02.2017, Bank of India issued recall notices and invoked the corporate guarantee on 03.04.2019. Later, loan amount and debt were assigned to NARCL under an Assignment Agreement.

The respondent EIL argued that the application was barred by law of limitation and that NARCL, having stepped into the shoes of the original lender, cannot file the application when the limitation period was clearly over. It also argued that the date of default was not clearly mentioned and NARCL had waived its right to recover the amount from the corporate guarantor.

In rejecting these arguments, the Tribunal held: “The date of default has been clearly stated as 03.04.2019, being the date of invocation of the corporate guarantee. The borrower's acknowledgments of debt in its balance sheets for 2019-2022 and its letter dated 23.09.2021 extended the limitation period under Section 18 of the Limitation Act.”

Relying on the judgments of the Supreme Court in Laxmi Pat Surana v. Union Bank of India (Civil Appeal No. 2743 of 2020) and Dena Bank v. C. Shivakumar Reddy (2021) 10 SCC 330, the Bench reaffirmed that acknowledgment by the principal borrower equally binds the corporate guarantor and renews the cause of action and limitation period. It said:

“The acknowledgment given by the principal borrower also binds the corporate guarantor. The limitation period stood extended by virtue of such acknowledgment,”.

In finding that the financial debt and default was duly established, the NCLT initiated the insolvency proceedings and appointed Alok Kumar Agarwal as the Interim Resolution Professional (IRP).

The Bench affirmed that the corporate guarantee was a continuous guarantee in nature, which remained in force till full repayment by the borrower, and that the financial creditor had satisfied all the statutory requirements for initiation of the insolvency proceedings against the corporate debtor.

Case Title: National Asset Reconstruction Company Ltd. (as Trustee of NARCL Trust – 0010) v. Era Infrastructure (India) Ltd.

Case Number: C.P. NO. (IB) 172/2025

For Financial Creditor: Mr. P. Nagesh, Sr. Adv., Mr. Abhishek Anand, Ms. Kaveri Ravat, Mr. Shouryaditya, Ms. Aditi Sinha, Ms. Palak Kalra, Advocates.

For Corporate Debtor: Mr. Sunil Fernandes, Sr. Adv, Ms. Muskan Surana, Ms. Divya Verma, Ms. Manvi Jain, Advocates.

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