CIRP Admitted as Corporate Guarantee Liability Recognised as Financial Debt: NCLT Chennai

R. K. Purushothaman Vs Carbyne Spartek Private Limited (NCLT Chennai)

The National Company Law Tribunal (NCLT), Chennai, considered a petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor. The applicant, a financial creditor, claimed an outstanding debt of ₹3,62,08,997 as on 31.10.2024, comprising ₹2,95,00,000 as principal and ₹67,08,997 as interest, with the date of default stated as 25.10.2024.

The financial creditor had disbursed a total loan of ₹2,95,00,000 to a principal borrower under a loan agreement dated 09.09.2020 at an interest rate of 8% per annum. The corporate debtor had executed a deed of guarantee, thereby acting as a corporate guarantor for the loan. The principal borrower, which operated a football club, defaulted on repayment of interest during 2023. A recall notice dated 19.09.2024 demanding repayment was issued but remained uncomplied, resulting in an event of default. The financial creditor subsequently invoked the corporate guarantee through a recall notice dated 15.10.2024.

Despite being given an opportunity, the corporate debtor failed to file any reply, and its right to respond was forfeited. The Tribunal examined documents including the loan agreement, guarantee deed, promissory note, recall notices, and financial statements.

The Tribunal identified the key issues as the existence of a “financial debt” and occurrence of default. It held that under Section 5(8)(i) of the Code, liability arising from a guarantee qualifies as financial debt. Based on the loan agreement and guarantee deed, the Tribunal concluded that the corporate debtor’s liability constituted a financial debt. It further found that default was established through recall notices, ledger statements, and financial records acknowledging the outstanding liability.

Accordingly, the Tribunal admitted the petition and initiated CIRP against the corporate debtor. An Interim Resolution Professional (IRP) was appointed to take charge of the debtor’s affairs, and the powers of the board of directors were suspended. The IRP was directed to perform statutory functions and submit reports within the prescribed time.

The Tribunal also declared a moratorium under Section 14 of the Code, prohibiting institution or continuation of legal proceedings, transfer or disposal of assets, enforcement of security interests, and recovery actions during the CIRP period. It further clarified that essential goods and services shall not be interrupted during the moratorium, subject to conditions under the Code.

In conclusion, the Tribunal held that the financial creditor had successfully established both the existence of financial debt and default, and admitted the application, triggering CIRP and associated statutory consequences.

FULL TEXT OF THE NCLT JUDGMENT/ORDER

Under consideration is a petition under Section 7 of IBC filed by Sri R K Purushothaman Petitioner/ Financial Creditor herein against, Respondent Carbyne Spartek Private Limited, / Corporate Debtor herein for initiating Corporate Insolvency Process (CIRP) against the Corporate Debtor.

2. SUBMISSIONS OF THE APPLICANT

2.1. Part I of the Application contains the particulars of the Applicant. Part II of the Application sets out the details of the Corporate Debtor. The corporate debtor was incorporated on 05.07.2020 with paid up share capital of Rs.2,88,20,896/- and address at within the jurisdiction of this Tribunal No 145, Manasa Apartment, Saint Mary’s Road Alwarpet, Chennai, Tamil Nadu, India, 600018

2.2 In Part III of the application, the Financial Creditor has proposed Mr SITARAMAN RAVI, as the IRP. In the Part IV of the application the details the detail of the debt is mentioned as Total outstanding amount of Rs.3,62,08,997/- (Rupees Three Crores Sixty-Two Lakhs Eight Thousand Nine Hundred Ninety-Seven Only) as on 31st October 2024. Rs.2,95,00,000/- (Rupees Two Crores Ninety-Five Lakhs Only as Principal) + Rs.67,08,997(Rupees Sixty-Seven Lakhs Eight Thousand Nine Hundred Ninety Seven Only as Interest) the date of default is mentioned as 25.10.2024.

2.3. The applicant has mentioned the details of the default as extracted below,

The applicant submits that the working calculation along with interest as follows,

Total amount disbursed: 2,95,00,000

Interest as per agreement: 8%

Here is the table converted exactly as shown:

2.4 It is submitted that The Corporate Debtor is primarily engaged in the business of promoting sports, particularly football and the Corporate Debtor was the Corporate Guarantor to the loan obtained by its subsidiary company, DE Grande Sports Private Limited (‘Principal Borrower’).

2.5 It is stated that The Principal Borrower is the owner and holds the right to use and operate “Hyderabad FC” a renowned and famous Indian Super League (‘ISL’) club team. For the purposes of developing, promoting and meeting the working capital needs of the said football club, the Principal Borrower was in need of funds Therefore, a sum of Rs.2,95,00,000/- (Rupees Two Crores Ninety-Five lakhs only) was disbursed by the Petitioner to Principal Borrower as per the Loan Agreement dated 09.09.2020.

2.6 It is stated that sum of Rs.2,95,00,000/- (Rupees Two Crores Ninety Five lakhs only) was disbursed by the Petitioner to Principal Borrower as per the Loan Agreement dated 09.09.2020 it is stated that loan lent by the Financial Creditor to the Principal Borrower carried an interest rate of 8% per annum, repayable on demand and the security for the loan was a Corporate Guarantee executed by the Respondent herein, dated 09.09.2020 and respondent is the Corporate Guarantor of the loan given to the Principal Borrower.

2.7 It is stated that The Principal Borrower failed to pay the agreed-upon interest throughout 2023. Consequently, the Petitioner invoked Clause 3 of the Loan Agreement by issuing a Recall Notice dated 19.09.2024 demanding repayment of the principal and interest within 15 days. The Principal Borrower failed to comply, resulting in an ‘Event of Default’.

2.8 It is submitted that the Petitioner made several oral requests to the Respondent to honour its guarantee in the capacity of a guarantor to the loan. Due to a lack of response, a formal notice was issued.

2.9 Respondent were given opportunity to file the reply, respondent failed to file the reply therefore on vide order dated 03.04.2025 right to file the reply was forfeited.

3. FINDINGS OF THE TRIBUNAL

3.1. Heard to the parties and perused the documents placed on record.

3.2. The applicant has placed on record the following documents, for consideration,

Copy of the loan agreement dated 09.09.2020.

Copy of the deed of guarantee dated 15.10.2024.

Copy of Demand Promissory Note dated 31.03.2022.

Copy of Recall Notice issued to Principal Borrower dated 19.09.2024.

Copy of the Recall Notice issued to Corporate Debtor dated 15.10.2024

Copy of audited Financials of the Corporate Debtor for FY ending 31st March 2023

3.3 The applicant has placed record the loan agreement dated 09.09.2020 the relevant portion is extracted below,

3.4 On reading of the loan agreement it is apparent that De Grande sports Private Limited has borrowed the loan of Rs 2,95,00,000/- along with the interest of Rs @8% Per annum applicable from date of disbursement.

3.5 The applicant has placed on record the deed of guarantee entered by the corporate debtor the relevant portion of the guarantee is extracted below,

3.6 The respondent corporate debtor has entered a corporate guarantee for loan granted to De Grande sports Private limited.

3.7 The applicant has filed a memo dated 18.08.2025 and placed on record the ledger statement of the account of the principal borrower for the financial creditor and the financial statement of year ending 31.03.2023.

3.8 The primary issues for consideration before this Tribunal is that whether a ‘Financial Debt’ exists and whether there has been a ‘Default’ in the repayment of the said debt by the Corporate Debtor, On the Existence of Financial Debt The record reflects that the Principal Borrower, De Grande Sports Private Limited, entered into a Loan Agreement dated 09.09.2020, for a term loan amounting to Rs. 2,95,00,000/- (Rupees Two Crore Ninety-Five Lakhs Only) at an interest rate of 8% per annum. It is further observed that the Corporate Debtor executed a Deed of Guarantee dated 15.10.2024, whereby it stood as a Guarantor for the credit facilities extended to the Principal Borrower. Under the Section 5(8)(i) of the Insolvency and Bankruptcy Code, 2016 a “Financial Debt” explicitly includes any amount of any liability in respect of any of the guarantees or indemnity for any of the items referred to in sub-clauses (a) to (h) of the said section. Consequently, the liability of the Corporate Debtor towards the Applicant constitutes a clear ‘Financial Debt’ under the Code.

3.9 It is seen that the Applicant has sufficiently demonstrated the occurrence of default A Recall Notice was issued to the Principal Borrower on 19.09.2024, which remained unsatisfied. Upon the failure of the Principal Borrower to discharge its obligation, the Applicant invoked the Corporate Guarantee against the Respondent via a Recall Notice dated 15.10.2024. The debt is further substantiated by the ledger statements and the audited financials for the period ending 31.03.2023, which serve as an unequivocal acknowledgement of the outstanding liability by the Corporate Debtor. On cumulative reading of the documents, this Tribunal is satisfied that the Applicant has proved the existence of a Financial Debt and the subsequent Default.

3.10 In view of the facts as stated supra and also in view of the ‘financial debt’ which is proved by the Financial Creditor and the ‘default’ being committed on the part of the Corporate Debtor, this Tribunal admits the present petition and initiates the Corporate Insolvency Resolution Process in relation to the Corporate Debtor and appoint the proposed Interim Resolution Professional to take charge of the affairs of the Corporate Debtor in accordance with law.

3.11 In the present case, the Financial Creditor has named Mr. Sabbani Maruthi as the Insolvency Resolution Professional. This Tribunal hence appoints Mr. SABBANI MARUTHI with Registration No: IBBI/IPA-001/IPP-02752/2022-2023/14202 with e mail maruthi.sabbani18@gmail.com who is having Authorization for Assignment till 31.12.2025 as the “Interim Resolution Professional” (IRP) in respect of the Corporate Debtor. The IRP appointed shall take in this regard such other and further steps as are required under the Code, more specifically in terms of Section 15,17,18 of the Code and file the report within 20 days before this Bench. The powers of the Board of Directors of the Corporate Debtor shall stand superseded as a consequence of the initiation of the CIRP in relation to the Corporate Debtor in terms of the provisions of IBC, 2016.

3.12 As a consequence of the Application being admitted in terms of Section 7 of the Code, the moratorium as envisaged under the provisions of Section 14(1) and as extracted hereunder shall follow in relation to the Corporate Debtor:

a. The institution of suits or continuation of pending suits or proceedings against the respondent including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

b. Transferring, encumbering, alienating or disposing of by the respondent any of its assets or any legal right or beneficial interest therein;

c. Any action to foreclose, recover or enforce any security interest created by the respondent in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

d. The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the respondent.

Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license or a similar grant or right during moratorium period;

However, during the pendency of the moratorium period in terms of Section 14(2) (2A) and 14(3) as extracted hereunder:

“(2) The supply of essential goods or services to the Corporate Debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the Corporate Debtor and mange the operations of such Corporate Debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such Corporate Debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.

(3) The provisions of sub-section (1) shall not apply to

a. such transactions, agreements or other arrangement as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;

b. a surety in a contract of guarantee to a corporate debtor.”

3.13. The duration of the period of moratorium shall be as provided in Section 14(4) of the Code and for ready reference reproduced as follows:

“(4) The order of moratorium shall have effect from the date of such order till the completion of the Corporate Insolvency Resolution Process:

Provided that where at any time during the Corporate Insolvency Resolution Process period, if the Adjudicating Authority approves the Resolution Plan under sub-Section (1) of Section 31 or passes an order for liquidation of Corporate Debtor under Section 33, the moratorium shall cease to have effect from the date of such approval or Liquidation Order, as the case may be.”

3.14. The Financial Creditor is directed to pay a sum of Rs.2,00,000/-(Rupees Two Lakhs only) to the Interim Resolution Professional upon the Interim Resolution Professional filing the necessary declaration form as required under the provisions of the Code to meet out the expenses to perform the functions assigned to her in accordance to Regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

3.15 Based on the above terms, the CP(IB)/164(CHE)/2024 stands admitted in terms of Section 7 (5) of IBC, 2016 and the moratorium shall come in to effect as of this date. A copy of the Order shall be communicated to the Financial Creditor as well as to the Corporate Debtor above named by the Registry. In addition, a copy of the Order shall also be forwarded to IBBI for its records. Further, the Interim Resolution Professional above named who is figuring in the list of Resolution Professionals forwarded by IBBI be also furnished with copy of this Order forthwith by the Registry, who will also communicate the initiation of the CIRP in relation to the Corporate Debtor to the Registrar of Companies concerned.