Debenture Trustee Can Initiate Insolvency Against Personal Guarantor Under IBC Section 95: NCLAT Delhi

The New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) on 30 June held that a debenture trustee, acting under a debenture trust deed and personal guarantee, can initiate insolvency proceedings against a personal guarantor under Section 95 of the Insolvency and Bankruptcy Code, 2016, and that clerical defects in guarantee documents do not defeat such proceedings where liability is otherwise established.

Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra dismissed the appeal filed by the personal guarantor of Arcturus Developers Pvt. Ltd. (ADPL) and upheld the Delhi NCLT's order admitting personal insolvency proceedings. The Bench held:

“Having seen the terms of the DTD and the DPG, we have no hesitation on our mind that the Respondent No.1 in its capacity of debenture trustee was empowered to do all such acts on behalf of the debenture holders that were necessary to secure the interest of the debenture holders.

We are inclined to agree with Respondent No. 1 that the Appellant has wrongly attached a narrow interpretation to the word “creditor" appearing in Section 95 to contend that a debenture trustee has no locus to initiate proceedings under Section 95. The Adjudicating Authority by admitting the Section 95 application was not rewriting or reframing the legislative fiat of the IBC in any manner.”

ADPL raised Rs 500 crore in 2019 through the issuance of Optionally Convertible Debentures (OCDs) and appointed Beacon Trusteeship Ltd. as debenture trustee under a Debenture Trust Deed (DTD). Gaurav Bhalla and other promoters executed Deeds of Personal Guarantee (DPG) to secure the repayment obligations.

The parties later amended the repayment structure and extended the redemption timelines. In January 2025, the debenture holders exercised a put option and demanded Rs 1,258.73 crore. When ADPL defaulted, Beacon Trusteeship Ltd. invoked Bhalla's personal guarantee and issued statutory demand notices.

Beacon filed a petition under Section 95 of the IBC against Bhalla. The Resolution Professional submitted a report under Section 99 recommending admission of the petition. The NCLT accepted the recommendation and admitted the personal insolvency proceedings in April 2026. Bhalla then challenged the order before the NCLAT.

He argued that the Section 95 application remained non est because the Deed of Personal Guarantee contained defects, including an incorrect naming of the guarantor. He also argued that the Resolution Professional failed to discharge duties under Section 99 by ignoring these defects. He further contended that the NCLT wrongly treated the defects as typographical errors without proper pleadings.

Bhalla also argued that Beacon did not validly invoke the guarantee before the alleged date of default, and therefore no liability arose. He additionally submitted that a debenture trustee lacked locus to initiate proceedings under Section 95, as the provision allowed only a creditor or a resolution professional.

Beacon Trusteeship Ltd. submitted that the Debenture Trust Deed and the Deed of Personal Guarantee clearly authorised the trustee to act on behalf of debenture holders, including initiating insolvency proceedings. It further argued that the alleged defects in the guarantee deed and discrepancies in the date of default remained clerical and did not affect enforceability. It also pointed out that Bhalla never disputed his status as guarantor in response to demand notices or communications with the Resolution Professional.

The NCLAT examined the Debenture Trust Deed and held that it empowered the debenture trustee to exercise all rights and remedies to enforce security interests, including acting on instructions of debenture holders. It also found that the Deed of Personal Guarantee imposed co-extensive liability on the guarantor upon default by the corporate debtor. The Bench noted:

“It also provided for debenture trustee to issue demand notice which was to bind the Guarantor as if it was the principal debtor of the secured parties and it was therefore implicit that debenture trustee could file the PIRP application under Section 95 of the IBC on the directions of the debenture holder.”

The Bench further held that Bhalla executed a valid personal guarantee supported by the Debenture Trust Deed, subsequent amendments, NeSL records, and his own communications. It treated the discrepancies in the guarantee deed as clerical errors since the documents consistently identified Bhalla as guarantor and bore his signature.

Accordingly, the NCLAT dismissed the appeal.