NCLT Delhi: Hypothecation Deed with Repayment Covenant Constitutes Guarantee; Section 34 Challenge No Bar to IBC Proceedings

April 7, 2026 : The National Company Law Tribunal (NCLT), New Delhi Bench (Court-II), has held that a Deed of Hypothecation containing an obligation on the hypothecator to ensure repayment of the borrower’s dues amounts to a contract of guarantee, thereby bringing such entities within the ambit of “corporate guarantor” under Section 5(5A) of the Insolvency and Bankruptcy Code, 2016 (IBC).

The Bench comprising Ashok Kumar Bhardwaj (Judicial Member) and Reena Sinha Puri (Technical Member) passed a common order dated 07 April 2026 while admitting multiple Section 7 petitions filed by J.C. Flowers Asset Reconstruction Pvt. Ltd. against Imagine Habitat Pvt. Ltd., Imagine Residence Pvt. Ltd., Imagine Home Pvt. Ltd., and Imagine Estate Pvt. Ltd.

The petitions arose from financial facilities of ₹70 crore and ₹105 crore extended to Bliss House Private Limited by Samman Capital Limited (formerly Indiabulls Housing Finance Limited). To secure the loans, personal guarantees were furnished and a Deed of Hypothecation dated 22 March 2019 was executed by the respondent companies, hypothecating receivables from specified properties. The loan documentation treated all obligors, including hypothecators, as jointly and severally liable for repayment.

Upon deterioration in the financial standing of the personal guarantors due to enforcement actions, the lender invoked a “Material Adverse Effect” clause and issued a recall notice dated 09 March 2020. Arbitration proceedings were subsequently initiated, culminating in an award dated 28 February 2023 directing payment of approximately ₹196.87 crore with interest. Although the award was challenged under Section 34 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court, the financial creditor proceeded to initiate insolvency proceedings under Section 7 of the IBC.

Rejecting the objections raised by the respondents, the Tribunal undertook a substantive examination of the Deed of Hypothecation. It noted that the hypothecators had expressly undertaken to “cause the borrower to pay/repay the borrower’s dues,” which, in effect, amounted to an undertaking to discharge the liability of a third party upon default.

The Tribunal held that the nomenclature of the document is not determinative. Applying principles under the Indian Contract Act, 1872 and relying on the Supreme Court’s ruling in China Development Bank v. Doha Bank Q.P.S.C., it concluded that such a covenant constitutes a contract of guarantee. Accordingly, the respondent companies were held to be corporate guarantors.

On jurisdiction, the Tribunal clarified that under Sections 60(2) and 60(3) of the IBC, proceedings against a corporate guarantor must be filed before the same bench where CIRP of the principal debtor is pending. Since proceedings concerning Bliss House Private Limited were already before the New Delhi Bench, jurisdiction was properly invoked notwithstanding the respondents’ registered offices being located elsewhere.

Addressing the pendency of Section 34 proceedings, the Tribunal held that a challenge to an arbitral award does not bar initiation of insolvency proceedings. It observed that an arbitral award crystallizes the debt and provides a valid basis for triggering CIRP. Further, by virtue of Section 238 of the IBC, the Code overrides inconsistent provisions of other laws.

The Tribunal also reaffirmed that liability of the principal borrower and guarantor is co-extensive, permitting simultaneous proceedings against both. Once default is established, the financial creditor is entitled to proceed against the corporate guarantor independently or concurrently.

Finding that debt and default were established and that the respondents had undertaken guarantee obligations under the hypothecation deed, the Tribunal admitted the Section 7 applications and initiated CIRP against the corporate debtors.

Case Details:
Case Title: J.C. Flowers Asset Reconstruction Pvt. Ltd. v. Imagine Habitat Pvt. Ltd. & Ors.
Case Nos.: C.P.(IB)–30/ND/2026; 31/ND/2026; 32/ND/2026; 36/ND/2026
Decision Date: 07 April 2026
Coram: Ashok Kumar Bhardwaj (Judicial Member), Reena Sinha Puri (Technical Member)