NCLAT Sets Aside CIRP Against Equinox India, Says Equity Infusion Guarantee Is Not “Financial Debt”

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

A Bench comprising Justice Ashok Bhushan and Barun Mitra allowed the appeal filed by Rajesh Kaimal, suspended director of the corporate debtor, and set aside the order passed by the National Company Law Tribunal (NCLT), New Delhi admitting 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 a power project in Maharashtra. The bank had sanctioned a rupee term loan of Rs.100 crore in 2010 along with 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.

Before the appellate tribunal, the appellant argued that the 2010 guarantee was not a guarantee for repayment of the borrower’s debt, but was restricted to ensuring infusion of equity and meeting project cost overruns. It was also contended that a subsequent guarantee deed executed on January 11, 2012 discharged the corporate debtor from its obligations and substituted new guarantors pursuant to a scheme of arrangement approved by the Delhi High Court.

The appellant further submitted that the loan recall notice invoking the guarantee was issued on September 30, 2020, during the suspension period covered under Section 10A of the IBC, which barred initiation of insolvency proceedings for defaults occurring during the Covid-19 moratorium period.

Canara Bank, however, argued that the corporate debtor continued to remain liable under the guarantee deed and several subsequent undertakings, including cost overrun undertakings and promoter undertakings, which according to the bank created obligations amounting to financial debt.

Examining the corporate guarantee dated June 30, 2010, the NCLAT found that the guarantee merely obligated the guarantors to “infuse and bring Equity Share Capital” in accordance with the facility agreement and related documents. The tribunal observed that the guarantee did not contemplate repayment of the principal borrower’s loan liability.

The Bench held:

“No case has been made out by the Financial Creditor that Corporate Debtor defaulted in infusing the equity, after any notice of demand for infusion of equity is made. In any manner the Corporate Guarantee never contemplated discharge of debt by the Corporate Guarantor.”

The tribunal further noted that the subsequent guarantee deed dated January 11, 2012 expressly recorded that the original corporate debtor was being released from its obligations under the earlier guarantee, except in limited fallback circumstances where substituted guarantors failed to perform.

Criticising the NCLT’s approach, the appellate tribunal observed that the adjudicating authority had admitted the Section 7 application without properly examining the guarantee deed and relevant contractual clauses. The Bench stated:

“The order passed by the Adjudicating Authority shows complete non-application of mind and the conclusion that financial debt is proved has been arrived without even looking into the guarantee deed and nature of guarantee undertaken by the corporate guarantor.”

The NCLAT also held that the recall notice dated September 30, 2020 was misconceived because the corporate debtor had never undertaken liability to repay the principal borrower’s debt. It observed that the entire proceedings initiated by the bank on the basis of the recall notice and subsequent Section 7 application were “wholly misconceived and without any basis.”

On the issue of Section 10A, 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 Section 10A suspension period. The NCLAT held that the NCLT erred in treating the principal borrower’s NPA date of September 28, 2017 as the date of default for the corporate guarantor.

Accordingly, the appellate tribunal held that the Section 7 application was barred under Section 10A of the IBC. It further ruled that the various undertakings relied upon by the bank related only to equity infusion, shareholding retention and cost overrun obligations, and did not create any obligation upon the corporate debtor to repay the financial debt of the principal borrower. The appeal was therefore allowed and the NCLT order dated December 9, 2025 admitting Equinox India Developments Ltd. into CIRP was set aside.

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