NCLT clears Section 7 CIRP against corporate guarantor on ₹74 crore default
Background of the insolvency application
Punjab National Bank filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 seeking commencement of Corporate Insolvency Resolution Process against M/s Jay Ambey Rice Mills Private Limited, which had undertaken the role of corporate guarantor for credit facilities sanctioned to M/s Bhagwati Rice Mills Private Limited (the principal borrower).
The application was e-filed on 15.01.2025 before the NCLT, Allahabad Bench. The bank was represented through authorised advocates. The corporate debtor, incorporated on 23.07.2001 with CIN U15312UP2001PTCO26143, holds its registered office at Agra Bye Pass Road, Mainpuri – 205001.
The principal borrower was already under CIRP by virtue of an earlier order dated 03.12.2025 of the same Tribunal. Consequently, in terms of Section 60(2) of the Insolvency and Bankruptcy Code, jurisdiction over the corporate guarantor’s insolvency petition also vested in this very Bench.
The financial creditor proposed Ms. Babita Jain, IBBI/IPA-002/IP-N00321/2017-18/10926, as Interim Resolution Professional (IRP), who had already filed her consent in Form-2 and held a valid Authorisation for Assignment up to 31.12.2026.
Credit facilities and corporate guarantee structure
Sanctioned facilities to the principal borrower
Punjab National Bank had extended a bouquet of working capital facilities to M/s Bhagwati Rice Mills Private Limited. These included:
- Cash Credit (CC) limits, and
- Working Capital Term Loan (WCTL) facilities.
The aggregate sanctioned limits reached ₹66,00,00,000, pursuant to multiple sanction letters dated:
- 11.09.2019
- 24.12.2020
- 04.12.2021
- 22.11.2022
Key elements of the sanction history:
- CC facility enhanced to ₹45,00,00,000 via sanction letter dated 12.09.2019
- An ad-hoc CC enhancement of ₹7,50,00,000 granted on 22.11.2022
- WCTL of ₹9,00,00,000 sanctioned on 24.12.2020
- WCTL of ₹4,50,00,000 sanctioned on 04.12.2021
These facilities were secured by primary and collateral security interests, supported by standard loan and security documentation such as hypothecation deeds and terms of agreement executed by the principal borrower.
Corporate guarantee by Jay Ambey Rice Mills Private Limited
To further secure the bank’s exposure:
- M/s Jay Ambey Rice Mills Private Limited executed a Corporate Guarantee dated 23.11.2022.
- This guarantee followed a Board Resolution dated 20.12.2022.
- The corporate guarantor undertook to secure repayment up to ₹52,77,00,000 of the credit facilities granted to the principal borrower.
The guarantee was in the nature of a continuing guarantee, making the guarantor jointly and severally liable upon written demand from the bank.
Nature of default and amount claimed
The principal borrower became irregular in servicing the sanctioned facilities. Consequently, the bank:
- Classified the principal borrower’s loan accounts as Non-Performing Asset (NPA) on 08.06.2023.
Despite classification as NPA, neither the principal borrower nor the corporate guarantor made any payment towards clearing the outstanding facilities.
As of 30.11.2024, the cumulative outstanding under the facilities stood at:
₹74,35,42,374 (inclusive of dues under CC and both WCTLs), broken down as:
- Account No. 0348008700002109 (Cash Credit) – ₹62,56,56,724
- Account No. 034800EG0000010 (WCTL) – ₹5,30,42,146
- Account No. 0348001L00000260 (WCTL) – ₹6,48,43,504
The application specified these dues as the financial debt in default for the purpose of Section 7, with the date of default disclosed in Part IV as 08.06.2023.
Records of default and Information Utility confirmation
The financial creditor produced Records of Default in Form D issued by National E-Governance Services Ltd. (NeSL), the registered Information Utility. These records were marked as “Authenticated” as of 10.12.2024 and showed:
- Account 0348008700002109 – Default date: 08.06.2023, Default amount: ₹62,07,34,366
- Account 034800EG00000010 – Default date: 08.06.2023, Default amount: ₹1,70,16,293
- Account 0348001L00000260 – Default date: 08.06.2023, Default amount: ₹5,93,54,235
These IU records corroborated the bank’s assertion of financial debt and default under Sections 3(11), 3(12) and 5(8) of the Insolvency and Bankruptcy Code.
Invocation of corporate guarantee and demand notice
After the principal borrower’s continued failure to regularise the account:
- The bank issued a demand-cum-invocation notice addressed to the principal borrower as well as the guarantors, including M/s Jay Ambey Rice Mills Private Limited.
- The notice was dated 04.01.2024, but the accompanying postal receipts showed dispatch on 03.01.2024. The bank later clarified this discrepancy as a typographical error in the date printed on the notice.
The notice:
- Invoked the corporate guarantee; and
- Called upon the principal borrower and guarantors to repay the entire outstanding within 7 days from receipt.
No payments were made by either party within the stipulated period.
Subsequently, the bank also filed OA No. 296/2024 before the Debt Recovery Tribunal, Allahabad on 25.02.2024 under the Recovery of Debts & Bankruptcy Act, 1993, where the proceedings remain pending.
Corporate debtor’s objections and defence
The corporate debtor filed a detailed reply raising multiple grounds of challenge to the maintainability of the Section 7 application:
1. Alleged non-compliance with the Code and guarantee terms
The corporate debtor argued: