NCLT Held That A Petition Under Section 7 Is Not Maintainable Against A Corporate Guarantor In The Absence Of A Valid Invocation Of The Guarantee

The National Company Law Tribunal, Kochi Bench (“NCLT”) through its judgement dated 21.11.2025 in Arthan Finance Private Limited vs Inditrade Capital Limited¹, held that a financial creditor cannot initiate proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) against a corporate guarantor without invoking the guarantee in accordance with law and in terms of the contract.

NCLT Kochi held that reliance on an earlier demand notice issued prior to the execution of a restructured guarantee cannot be considered for the purposes of invocation of bank guarantee and that invocation of the guarantee is sine qua non for enforcing obligations thereunder. Further, it was noted that that since no valid invocation was made after the restructuring, no crystallized liability or default existed against the guarantor, and therefore the petition under Section 7 was not maintainable and liable to be dismissed.

NCLT further held that while Section 128 of the Indian Contract Act, 1872 makes the guarantor's liability co extensive, the guarantee deed itself required a written demand by the lender, and therefore any liability would crystalize only upon such demand.

Footnote

1. CP (IB)/27/KOB/2025.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.