NCLT Orders CIRP Against Essel Infraprojects Over ₹87.43-Crore Default, Upholds Corporate Guarantee To J&K Bank

Mumbai, August 28, 2026: The National Company Law Tribunal (NCLT) has ordered the initiation of a Corporate Insolvency Resolution Process (CIRP) against Essel Infraprojects Limited (ESL), holding that the company remained liable under a corporate guarantee furnished to Jammu and Kashmir Bank for a loan facility extended to another group company.

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In its 20-page order, the NCLT observed, “As regards Section 133 of the Contract Act, the Respondent (ESL) has failed to establish any subsequent transaction which discharges the guarantor. More importantly, no document has been placed on record evidencing any release or discharge of existing liabilities of the Respondent by the Petitioner (the bank). The stipulation of a guarantee by Pan India Infraprojects Private Limited (PIIPL) under the sanction letter dated 18.11.2017, therefore, cannot by itself operate as a discharge of the Respondent, particularly when Clause 8 of the Corporate Guarantee executed by the Respondent expressly provides that the guarantee shall continue notwithstanding any absorption or amalgamation of the Guarantor Company.”

“Accordingly, the Corporate Guarantee dated 27.12.2013 would continue to bind the Respondent until the underlying loan liability is fully discharged,” the Bench held.

Bank Claims Rs 87.43 Crore Default

The order was passed by the NCLT Mumbai Bench on August 24, 2026, in a petition filed by Jammu and Kashmir Bank Limited under Section 7 of the Insolvency and Bankruptcy Code (IBC). The bank had claimed a default of Rs 87.43 crore, including interest and legal charges, with the underlying default dating back to October 2019.

The dispute centred on a Rs 200-crore line of credit facility sanctioned by the bank to Pan India Utilities Distribution Company Limited (PIUDCL) in December 2013. Essel Infraprojects had furnished a corporate guarantee for the facility and had also mortgaged 196.16 acres of land at Gorai, Borivali, as security.

According to the bank, Rs 125 crore was disbursed on December 28, 2013, and the remaining Rs 75 crore on December 30, 2013. The outstanding principal was stated to be Rs 69.96 crore, while interest and other charges took the total claim to Rs 87,43,17,925.37.

Guarantee Dispute Before Tribunal

The bank issued a demand notice to PIUDCL in January 2019. PIUDCL subsequently admitted the debt and sought additional time, citing liquidity problems. It was later admitted into CIRP in September 2019. The bank then invoked the corporate guarantee furnished by Essel Infraprojects and demanded payment from the company.

Essel Infraprojects opposed the insolvency petition, contending that it had ceased to own the Gorai property following a demerger scheme sanctioned by the Bombay High Court in April 2014. The property was subsequently transferred to another group entity, Pan India Infraprojects Private Limited (PIIPL), following a merger scheme sanctioned in June 2014.

The company argued that the bank had subsequently required PIIPL to re-execute the mortgage and provide a fresh guarantee, demonstrating that PIIPL had replaced Essel Infraprojects as the guarantor and mortgagor. It also argued that the bank had already proceeded against PIUDCL and PIIPL and, therefore, could not simultaneously proceed against Essel Infraprojects.

The NCLT, however, rejected these arguments.

Tribunal Upholds Continuing Liability

The Bench noted that the corporate guarantee executed in December 2013 expressly stated that it was “irrevocable and unconditional” and would continue until the loan and other dues were fully paid. The guarantee also specifically provided that it would not be prejudiced by any absorption or amalgamation of the guarantor company and would operate in addition to other securities furnished to the bank.

Applying Section 128 of the Contract Act, the Tribunal held that the liability of a surety is co-extensive with that of the principal debtor unless the contract provides otherwise. In this case, the guarantee itself made the obligation continuing and independent. “The terms of the Corporate Guarantee expressly provide for a continuing liability of the Respondent until the loan is fully liquidated or adjusted,” the Bench observed.

Multiple Guarantors Can Be Proceeded Against

Rejecting the company’s objection that the bank could not proceed against it after initiating proceedings against PIUDCL and PIIPL, the Tribunal observed that a creditor may proceed simultaneously against the principal borrower and multiple guarantors. Recovery from one does not extinguish the liability of the others, except to the extent of actual realisation.

The Bench further observed that a borrower, guarantor and mortgagor may have separate roles and liabilities in the same loan transaction. In the present case, Essel Infraprojects had furnished a guarantee and had also mortgaged its property for the loan taken by PIUDCL. Subsequently, due to the merger/demerger, the mortgaged property was transferred to another entity.

Therefore, when an additional sanction was issued, the bank obtained a fresh mortgage from the entity in which the property had vested. The Tribunal held that the subsequent sanction was a continuation of the earlier loan arrangement and not a fresh or substituted transaction, particularly since the sanction letter specifically provided that the other terms and conditions would remain unchanged.

The Tribunal held that merely because the bank obtained a mortgage from the new owner of the property, Essel Infraprojects was not discharged from its separate liability as guarantor. It noted that there was no document showing that the bank had released or discharged the company from its guarantee. Rather, the guarantee agreement itself provided that the guarantor’s liability would continue even if the bank accepted additional or substituted security.

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NCLT Finds Debt And Default Established

The Tribunal also rejected objections concerning the authority of the bank’s officer to institute the proceedings and the alleged absence of a valid date of default or proof of service of the demand notice. It found that the bank had established the existence of debt and default and that the petition was within the limitation period.

Consequently, the NCLT allowed the restored petition and ordered the initiation of CIRP against Essel Infraprojects Limited. Hemant J. Mehta was appointed as the Interim Resolution Professional.

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