The National Company Law Appellate Tribunal has affirmed that a debenture trustee may initiate personal insolvency proceedings against a guarantor under Section 95 of the IBC if the guarantee deed expressly empowers it to act on behalf of creditors. This ruling clarifies the scope of creditor authority under the IBC and reinforces the enforceability of continuing guarantees despite minor documentation errors.
Background & Facts
The Dispute
The dispute arose from the default of Arcturus Developers Private Limited (ADPL) on its obligation to convert Optionally Convertible Debentures (OCDs) into Compulsorily Convertible Debentures (CCDs). To secure repayment of the Rs. 500 crore debt raised through OCDs, the promoters of ADPL, including Gaurav Bhalla, executed Deeds of Personal Guarantee (DPG) in favor of Beacon Trusteeship Limited, the Debenture Trustee. When ADPL failed to convert the OCDs by the extended deadline of 06.07.2025, Beacon exercised the Put Option on 07.01.2025, demanding payment of Rs. 1,258.73 crore. Upon ADPL’s non-payment, Beacon invoked the personal guarantee of Gaurav Bhalla on 26.03.2025 and issued a statutory demand notice under Rule 7(1) of the IBBI Rules on 10.04.2025. Bhalla contested the validity of the debt and the trustee’s locus to initiate proceedings, but failed to deny his status as guarantor. Beacon then filed an application under Section 95 of the IBC for initiation of Personal Insolvency Resolution Process (PIRP) against Bhalla.
Key Facts
- On 11.06.2019, ADPL executed a Debenture Trustee Agreement with Beacon Trusteeship Limited
- On 29.07.2019, the Debenture Trust Deed (DTD) was executed, governing the OCD issuance
- On 23.08.2019, Gaurav Bhalla and other promoters executed Deeds of Personal Guarantee (DPG) in favor of Beacon
- On 06.01.2021, the first Conversion Notice was issued, requiring conversion within 36 months
- On 05.01.2024, a second Conversion Notice extended the timeline to 54 months (by 06.07.2025)
- On 16.01.2024, the DTD was amended to extend the tenure to 108 months (until 12.07.2028)
- On 07.01.2025, Beacon issued a Put Option Notice demanding Rs. 1,258.73 crore
- On 10.01.2025, the Put Option Notice was delivered to ADPL
- On 26.03.2025, Beacon invoked the DPG against Gaurav Bhalla
- On 10.04.2025, Beacon issued a statutory demand notice under Rule 7(1) of the IBBI Rules, citing 07.01.2025 as due date and 17.01.2025 as default date
- On 15.04.2025, Bhalla replied disputing the existence of financial debt due to conversion, but did not deny being a guarantor
- On 06.05.2025, Beacon filed Section 95 application; the DPG annexed mistakenly named Anil Bhalla as guarantor
- On 29.08.2025, the NCLT appointed CA Nitin Om Kothari as Resolution Professional (RP)
- On 07.10.2025, RP filed I.A. No. 5111/ND/2025 recommending admission of PIRP
- On 29.01.2026, Bhalla filed detailed objections
- On 09.04.2026, NCLT admitted the PIRP application
- On 18.02.2026, NCLT allowed IA No. 746/2026 to rectify the defective DPG
- On 28.03.2026, Bhalla filed this appeal
Procedural History
- 11.06.2019: Debenture Trustee Agreement executed
- 29.07.2019: Debenture Trust Deed executed
- 23.08.2019: Deeds of Personal Guarantee executed by Gaurav Bhalla and others
- 06.01.2021: First Conversion Notice issued
- 05.01.2024: Second Conversion Notice issued
- 16.01.2024: Second amendment to DTD executed
- 07.01.2025: Put Option Notice issued
- 10.01.2025: Put Option Notice delivered to ADPL
- 26.03.2025: Guarantee invoked by Beacon
- 10.04.2025: Statutory demand notice issued under Rule 7(1) IBBI Rules
- 06.05.2025: Section 95 application filed by Beacon
- 29.08.2025: Resolution Professional appointed
- 07.10.2025: RP filed I.A. No. 5111/ND/2025 recommending PIRP
- 18.02.2026: NCLT allowed rectification of defective DPG via IA No. 746/2026
- 09.04.2026: NCLT admitted PIRP application
- 28.03.2026: Appeal filed before NCLAT
- 30.06.2026: NCLAT delivered judgment
The Parties' Positions
Appellant (Gaurav Bhalla): Contended that Beacon, as debenture trustee, lacked locus to file Section 95 application; the DPG was defective due to misnaming of guarantor as "Gautam Bhalla" and annexation of Anil Bhalla’s deed; the date of default was incorrectly stated; and no valid guarantee existed to trigger liability.
Respondents (Beacon & RP): Argued that the DPG explicitly authorized Beacon to act on behalf of debenture holders; the errors in the DPG were clerical and cured; the guarantee was irrevocable and continuing; and Bhalla never disputed his status as guarantor in any correspondence.
Relief Sought
The Appellant sought quashing of the NCLT’s order dated 09.04.2026, setting aside the admission of PIRP, and a declaration that Beacon lacked standing to initiate proceedings under Section 95 of the IBC.
The Legal Issue
Can a debenture trustee initiate a Personal Insolvency Resolution Process under Section 95 of the IBC against a personal guarantor when the Deed of Guarantee expressly authorizes it to act on behalf of debenture holders, despite minor clerical errors in the guarantee document?
Arguments Presented
For the Appellant
The Appellant contended that Section 95 of the IBC permits only the creditor or a resolution professional to file a PIRP application, and a debenture trustee is not a creditor under the statute. Reliance was placed on J. Jayalalithaa v. State of Karnataka to argue that statutory procedures must be strictly followed. The DPG annexed was defective - it named Anil Bhalla as guarantor and incorrectly listed the guarantor as "Gautam Bhalla" in Schedule I. The Appellant argued that such errors rendered the guarantee unenforceable under summary proceedings. Further, the date of default (17.01.2025) was incorrect; invocation under Clause 2.2 required a one-business-day window after demand, making the correct default date 27.03.2025. The Appellant also emphasized that the NCLT erred in sua sponte accepting the corrected date without formal pleading.
For the Respondent
The Respondents argued that the DTD and DPG explicitly empowered Beacon to enforce security, invoke guarantees, and initiate proceedings on behalf of debenture holders. The errors in the DPG - misnaming the guarantor and annexing Anil Bhalla’s deed - were bona fide clerical mistakes, promptly rectified by IA No. 746/2026, which the NCLT allowed. The Appellant never denied being a guarantor in any communication, including his reply to the demand notice and email to the RP. The Tribunal’s precedent in Krishan Kumar Jajoo v. Piramal Enterprises Ltd. established that a security trustee may initiate PIRP if the guarantee so permits. The date of default was a curable error under Saranga A. Aggarwal v. SBI, and the liability of the guarantor was co-extensive with the principal debtor, whose default was already affirmed by NCLT, NCLAT, and the Supreme Court.
The Court's Analysis
The NCLAT undertook a detailed textual and contextual analysis of Section 95 of the IBC, the Debenture Trust Deed (DTD), and the Deed of Personal Guarantee (DPG). The Court observed that Section 95(1) permits a creditor to file an application either personally, jointly, or through a resolution professional. The Appellant’s narrow interpretation that only the financial creditor may file was rejected. The Court emphasized that the legislature did not prohibit third parties acting under express authorization.
"The Debenture Trustee was empowered to take all actions necessary to protect and secure the interests of the debenture holder and take action on behalf of the debenture holder."
The DTD’s Clause 5.1 and 11.2 explicitly authorized Beacon to enforce security, exercise put options, and act on instructions of debenture holders. Clause 2.1 of the DPG further stated that the guarantee was given to the Debenture Trustee "acting on behalf, and for the benefit, of the Debenture Holder(s)." The Court held that this language conferred independent authority on Beacon to initiate proceedings.
The Court also relied on its own precedent in Krishan Kumar Jajoo v. Piramal Enterprises Ltd., which held that a security trustee may initiate PIRP if the guarantee explicitly permits it. The Appellant’s reliance on J. Jayalalithaa was distinguished as inapplicable - the statute did not prohibit the trustee’s action; it merely did not explicitly permit it, which is insufficient to bar it.
Regarding the defective DPG, the Court noted that the misnaming of the guarantor as "Gautam Bhalla" in Schedule I was a clerical error, as every other page of the DPG bore Gaurav Bhalla’s signature, and the stamp paper carried his name. The Appellant had signed subsequent amendments to the DTD as guarantor, confirming his ongoing liability. The annexation of Anil Bhalla’s deed was rectified by IA No. 746/2026, which the NCLT approved.
"The Appellant cannot be seen to wash away its personal guarantee liability merely on hyper-technical ground that the DPG of 23.08.2019 was defective."
The Court further held that the incorrect date of default (17.01.2025) was not fatal. Clause 2.2 of the DPG required payment within one business day of demand, making the correct default date 27.03.2025. The Tribunal had previously held in Saranga A. Aggarwal that such errors are curable, especially where limitation was not affected. The Appellant’s failure to dispute his liability in multiple communications - including his reply to the demand notice and email to the RP - was deemed conclusive evidence of his acceptance of the guarantee.
The RP’s report under Section 99(2) was found to be procedurally sound, as it independently evaluated the claim and found no evidence of repayment. The NCLT’s admission of the PIRP was thus legally tenable.
The Verdict
The appeal was dismissed. The NCLAT upheld the NCLT’s order dated 09.04.2026 admitting the Personal Insolvency Resolution Process against Gaurav Bhalla. The Court held that Beacon Trusteeship Limited, as Debenture Trustee, had lawful locus to initiate proceedings under Section 95 of the IBC due to explicit authorization in the DPG. The clerical errors in the guarantee deed were cured and did not invalidate the application. The Appellant’s liability as personal guarantor was established by his conduct, the terms of the DPG, and the admitted default of the principal debtor. No costs were awarded.
What This Means For Similar Cases
Debenture Trustees May Initiate PIRP if Authorized
- Practitioners must now review guarantee deeds for explicit authorization clauses permitting trustees to initiate insolvency proceedings
- A trustee’s authority under the guarantee deed supersedes the narrow definition of "creditor" under Section 95
- Financial institutions should ensure guarantee deeds contain clear language: "Trustee may initiate proceedings on behalf of debenture holders"
Clerical Errors in Guarantee Documents Are Curable
- Minor typographical errors (e.g., misspelled names, wrong annexures) do not vitiate PIRP if the true guarantor’s identity is evident from context
- Rectification applications under Section 60(5) of the IBC are permissible and should be filed promptly
- Courts will look at the totality of evidence - signatures, amendments, communications - to determine true intent
Silence on Guarantor Status Constitutes Admission
- A guarantor’s failure to deny liability in responses to demand notices or to the RP may be treated as acquiescence
- Practitioners must advise clients to explicitly contest guarantor status in writing at the earliest opportunity
- Post-default silence can be used as evidence of liability under Section 95(6) IBC
