Corporate Guarantor Is No “Get Out of CIRP” Card,  NCLT Kochi in Phoenix ARC Private Limited v. M/s. Cherupushpam Films Private Limited

When the principal borrower is already undergoing insolvency proceedings, can the financial creditor initiate a CIRP against the corporate guarantor for the same underlying debt? The NCLT, Kochi Bench answered this question in the case Phoenix ARC Private Limited (Trustee of Phoenix Trust FY17-8) v. M/s. Cherupushpam Films Private Limited.¹ The case concerned a dispute over a loan availed by the Kerala Chamber of Commerce and Industry (“KCCI”), for which Cherupushpam Films Private Limited (“Corporate Debtor”) had stood as guarantor and had mortgaged its property.

South Indian Bank sanctioned credit facilities of ₹8.60 crore to KCCI for the construction of the “Kerala Trade Centre” on land owned by the Corporate Debtor, Cherupushpam Films Pvt. Ltd. Cherupushpam Films executed Guarantee Agreements and created an equitable mortgage over 43.95 cents of land, along with the building constructed on it, as security. KCCI defaulted on its repayment obligations, and its accounts were classified as non-performing assets (NPAs) on September 30, 2013. South Indian Bank subsequently assigned the debt and the related securities to Phoenix ARC Private Limited under an Assignment Deed dated March 17, 2017. CIRP was later initiated against KCCI on February 22, 2022. As of October 5, 2022, Phoenix ARC claimed ₹14,50,78,158, including interest and charges, as due under the credit facilities, with Cherupushpam Films as the guarantor.

Submissions Before the NCLT 

Phoenix ARC contended that the petition was within limitation, relying on KCCI’s acknowledgements of the debt in its FY 2014-15, 2016-17 and 2017-18 financial statements under Section 18 of the Limitation Act,² the Corporate Debtor’s contingent-liability disclosure, and the exclusion of March 15, 2020, to February 28, 2022, under the Supreme Court’s COVID-19 Orders. It also relied on the mortgage over 43.95 cents of land and the Kerala Trade Centre, valued at about ₹64.55 crore as of July 30, 2019, along with the title-deed confirmations and ROC-registered charges.

Cherupushpam Films argued that its liability was limited to a 2005 loan that had already been closed. It alleged that the subsequent ₹1.10 crore, ₹5 crore and ₹2.50 crore facilities were obtained using forged signatures and that the funds were diverted to India Middle East Broadcasting Network Pvt. Ltd. Relying on the 2018 arbitral award, the ED’s PMLA proceedings and the October 3, 2022 Provisional Attachment Order, it argued that the petition was time-barred and premature and could prejudice the PMLA proceedings.

Phoenix ARC argued that the forgery allegation had been raised only at a later stage and should not be entertained, also pointing to the Corporate Debtor’s earlier acknowledgement of the loan, guarantee and mortgage before DRT-I, Ernakulam, and the rejection of the forgery claim in I.A. No. 1287/2019 by order dated September 20, 2021. It further argued that the arbitration proceedings could not affect its independent rights under the guarantee and mortgage, as it was not a party to the arbitration, and that the PMLA proceedings did not bar CIRP.

At the hearing on December 21, 2022, Cherupushpam Films challenged the Assignment Agreement on the grounds of inadequate stamp duty, missing schedules and non-production of the Trust Deed. Phoenix ARC argued that these objections were raised for the first time at the hearing and that it had no opportunity to respond. The NCLT nevertheless dismissed the Section 7³ petition on February 15, 2023.

Assignment Validity and the Double-Recovery Objection 

The NCLAT, Chennai, remanded the matter on July 3, 2026. On remand, Phoenix ARC produced the registered and stamped Assignment Agreement, the Kerala High Court judgment dated December 7, 2023, and the Trust Deed as Annexures A46-A48. It explained that the missing schedules related to 36 unrelated loan accounts and relied on the Corporate Debtor’s financial statements and its failure to dispute the liability after the December 16, 2013, 13(2) SARFAESI notice,⁴ arguing that the earlier defects had been cured. Cherupushpam Films argued that these defects affected Phoenix ARC’s locus standi and that the assignment remained sub judice. 

The Corporate Debtor also argued that KCCI was already undergoing CIRP in CP(IB)/33/KOB/2021, in which a resolution plan had been approved, and that Phoenix ARC had been allocated recovery. It referred to I.A. No. 142/2026 concerning registration of the same mortgaged land. Since both proceedings involved the same debt and secured asset, Cherupushpam Films contended that permitting recovery under KCCI’s resolution plan as well as through the present Section 7 proceedings could result in double recovery.

The Corporate Debtor further argued that KCCI was undergoing CIRP and that Phoenix ARC had been allocated recovery under the approved resolution plan. Referring to Sections 128, 140 and 141 of the Indian Contract Act, 1872,⁵ and S2 Tech.com India Pvt. Ltd. v. Birendra Kumar Agarwal (RP) & Anr.,⁶ it contended that allowing proceedings against both KCCI and the Corporate Debtor could result in double recovery of the same debt. 

Analysis and Findings

The NCLT held that Phoenix ARC had established the financial debt and default, and Cherupushpam Films’ liability as guarantor for KCCI’s ₹1.10 crore, ₹5 crore, and ₹2.50 crore facilities, secured by 43.95 cents of land and the Kerala Trade Centre. Following the NCLAT’s remand on July 3 2026, Phoenix ARC produced the registered Assignment Agreement, Trust Deed, Kerala High Court judgment and Section 13(2) SARFAESI notice, allowing the Tribunal to reconsider the petition on merits.

On limitation, the NCLT held that KCCI’s financial statements for 2015, 2017 and 2018 constituted acknowledgements under Section 18 of the Limitation Act. The Section 13(2) SARFAESI notice, which demanded payment from Cherupushpam Films as guarantor, was also treated as an invocation of the guarantee, relying on Ujwal Gupta v. Union Bank of India (2026).⁷ Also, Clause 6 of the Guarantee Agreements makes the Borrower’s written acknowledgement binding on the Guarantor, treating the Borrower as an authorised Guarantor under Sections 18 and 19⁸ of the Limitation Act, 1963. Accordingly, the acknowledgement dated March 31, 2018, gave rise to a fresh period of limitation. The NCLT then excluded the COVID-19 period in accordance with the applicable Supreme Court directions and, relying on Babasaheb Raosaheb Kobarne v. Pyrotek India Pvt. Ltd.,⁹ held that the Section 7 application was within limitation.

The Tribunal also held that proceedings against the borrower and guarantor could continue simultaneously, provided recoveries were accounted for to prevent double recovery. The NCLT also held that the settlement among the CoC members in the Principal Borrower’s CIRP did not bar proceedings against Cherupushpam Films, as it had not been expressly released from its guarantee obligations. The Tribunal also upheld Phoenix ARC’s right to pursue the claim under the registered Assignment Deed. 

Finally, NCLT applied the Section 7 test and relied on Catalyst Trusteeship Ltd. v. Ecstasy Realty Pvt. Ltd.,¹⁰ which reiterates that the Adjudicating Authority is required to examine the existence of financial debt and the occurrence of default. The NCLT found the financial debt and default established and admitted CP(IBC)/51/KOB/2022, commencing CIRP against Cherupushpam Films with a moratorium under Section 14¹¹ and appointed an Interim Resolution Professional to commence CIRP against Cherupushpam Films.

Conclusion 

The decision clarifies that CIRP against a principal borrower, or approval of its resolution plan, does not by itself prevent insolvency proceedings against a corporate guarantor. Unless the guarantee is expressly discharged, the creditor may proceed against the guarantor, subject to accounting for any recoveries from the principal borrower to avoid double recovery. By admitting the Section 7 application, the NCLT recognised that the corporate guarantee remained enforceable despite the proceedings against the principal borrower.

Citations

1. Phoenix ARC Private Ltd. (Trustee of Phoenix Trust FY17-8) v. M/s. Cherupushpam Films Private Ltd., CP(IBC)/51/KOB/2022, ↩︎
2. The Limitation Act, 1963 (Act 36 of 1963), s. 18. ↩︎
3. The Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016), s. 7. ↩︎
4. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act 54 of 2002), s. 13(2). ↩︎
5. The Indian Contract Act, 1872 (Act 9 of 1872), ss. 128, 140 and 141. ↩︎
6. S2 Tech.com India Private Limited v. Birendra Kumar Agarwal, Resolution Professional & Ors., Company Appeal (AT) (CH) (Ins.) No. 456 of 2024, ↩︎
7. Ujwal Gupta v. Union Bank of India & Anr., 2026 SCC OnLine NCLAT 8. ↩︎
8. The Limitation Act, 1963 (Act 36 of 1963), s. 19. ↩︎
9. Babasaheb Raosaheb Kobarne & Anr. v. Pyrotek India Private Limited & Ors., 2022 LiveLaw (SC) 520 ↩︎
10. Catalyst Trusteeship Ltd. v. Ecstasy Realty Pvt. Ltd., 2026 INSC 186. ↩︎
11. The Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016), s. 14. ↩︎

Expositor(s): Adv. Stephin Sinu Oommen