NCLAT Sets Aside Insolvency Proceedings Against Equinox India, Holds Equity Infusion Guarantee Is Not ‘Financial Debt’

May 4, 2026 : The National Company Law Appellate Tribunal (NCLAT) has set aside the insolvency proceedings initiated against Equinox India Developments Ltd., formerly known as Indiabulls Real Estate Ltd., holding that the corporate guarantee relied upon by Canara Bank did not constitute a “financial debt” under the Insolvency and Bankruptcy Code, 2016.

A Bench comprising Justice Ashok Bhushan and Barun Mitra allowed the appeal filed by suspended director Rajesh Kaimal and quashed the order of the National Company Law Tribunal (NCLT), New Delhi, which had admitted the company into Corporate Insolvency Resolution Process (CIRP).

The dispute arose from financial facilities extended by Canara Bank to Indiabulls Realtech Ltd., later renamed Sinnar Thermal Power Ltd., for development of a thermal power project in Maharashtra. The bank had sanctioned a rupee term loan of Rs.100 crore in 2010, followed by additional cost overrun facilities, taking the total exposure to Rs.144.4 crore.

To secure the facilities, a corporate guarantee dated June 30, 2010 was executed by Indiabulls Real Estate Ltd. and another guarantor. However, before the appellate tribunal, the appellant argued that the guarantee was not intended to secure repayment of the borrower’s debt. Instead, it only required the guarantors to infuse equity and meet project cost overruns in accordance with the facility agreement.

The NCLAT closely examined the terms of the 2010 guarantee deed and found that the obligation undertaken by the guarantors was limited to ensuring timely infusion of “Equity Share Capital” into the project. The tribunal observed that the guarantee never contemplated repayment of the principal borrower’s outstanding loan liability.

The appellate tribunal noted that no material had been placed on record to show that the corporate debtor had defaulted in infusing equity after any notice demanding such infusion. It held that the guarantee deed could not be treated as a guarantee for repayment of financial debt and therefore could not form the basis of a Section 7 insolvency application under the IBC.

The Bench also examined a subsequent guarantee deed executed on January 11, 2012 following a scheme of arrangement approved by the Delhi High Court. Under the restructuring, the power business of the corporate debtor was demerged and transferred to other group entities. The tribunal found that the 2012 deed expressly released the corporate debtor from obligations under the earlier guarantee, except in limited fallback circumstances if the substituted guarantors failed to fulfil their obligations.

Criticising the NCLT’s approach, the NCLAT said the adjudicating authority admitted the insolvency application without properly examining the contractual clauses or the nature of the guarantee. The appellate tribunal observed that the finding regarding existence of “financial debt” was reached without even analysing the guarantee deed relied upon by the bank.

The tribunal further held that the loan recall notice dated September 30, 2020 invoking the guarantee was itself misconceived because the corporate debtor had never undertaken liability to repay the borrower’s loan dues. According to the NCLAT, the entire Section 7 proceedings initiated on the basis of the recall notice were “wholly misconceived and without any basis.”

On the issue of limitation and Section 10A of the IBC, the tribunal reiterated that default by a corporate guarantor arises only upon invocation of the guarantee. Since the guarantee was invoked on September 30, 2020 and payment was demanded within three days, the alleged default arose during the Covid-era suspension period covered under Section 10A, which barred initiation of insolvency proceedings for such defaults.

Rejecting the NCLT’s reliance on the principal borrower’s NPA date of September 28, 2017, the appellate tribunal clarified that the borrower’s default could not automatically be treated as default by the corporate guarantor. It held that the Section 7 application filed by Canara Bank was clearly barred under Section 10A.

The NCLAT also analysed various undertakings relied upon by the bank, including cost overrun undertakings, promoter undertakings and share retention obligations. It concluded that none of these documents created any obligation upon the corporate debtor to repay the financial debt of the principal borrower. Instead, they only related to equity infusion, maintenance of shareholding and project cost overrun commitments.

Accordingly, the appellate tribunal allowed the appeal and set aside the NCLT order dated December 9, 2025 admitting Equinox India Developments Ltd. into CIRP.

Case Title: Rajesh Kaimal v. Prabhat Ranjan Singh & Anr.
Case No.: Company Appeal (AT) (Insolvency) No. 1964 of 2025
Coram: Justice Ashok Bhushan and Barun Mitra