The National Company Law Tribunal (NCLT) has admitted a petition filed by Cosmos Co-operative Bank Ltd (the Financial Creditor) to initiate a personal insolvency resolution process against Kiran Kumar Jain, personal guarantor (respondent) to M/s. Dilip Chhabria Design Pvt. Ltd. (the Corporate Debtor). The petition was filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking to recover a total outstanding debt of Rs 42.02 crore as of November 30, 2020.
In its order, the NCLT noted: “The fact of disbursal prior to the issuance of the Bank Guarantee is confirmed from the bank statement of the loan account and the cash credit account , which show a debit balance. Since there is an existing debt disbursed prior to the execution of the guarantee by the Respondent, and the Respondent made himself liable for the credit facilities already granted, the deed of guarantee binds him in relation to obligations arising from credit facilities disbursed before the execution of the guarantee.”
Cosmos Co-operative Bank had extended various credit facilities to M/s. Dilip Chhabria Design Pvt. Ltd., including cash credit and term loans, starting October 15, 1993. These facilities were secured through personal guarantees by Kiran Kumar Jain and others, as evidenced by deeds of guarantee dated July 28, 2014, September 29, 2015, and November 26, 2015. An additional guarantee for a credit limit of ₹44 crore was executed on March 2, 2016.
Following the Corporate Debtor’s failure to operate its accounts, a recall notice was issued on August 31, 2018, demanding ₹36.23 crore. The accounts were subsequently classified as Non-Performing Assets (NPAs), prompting the issuance of a notice under Section 13(2) of the SARFAESI Act, 2002, on October 5, 2018, for Rs 37.20 crore. In January 2019, the Financial Creditor filed an original application before the Debt Recovery Tribunal (DRT), Mumbai, for a recovery certificate.
Jain’s had claimed that he is solvent with sufficient net worth and became a guarantor in his capacity as a shareholder-director. He asserted that the Corporate Debtor owes him Rs 95.24 crore—a claim admitted under the “related party” category in the Corporate Insolvency Resolution Process (CIRP) of the principal borrower.
Jain also contested the validity of the Rs 44 crore guarantee executed in March 2016, arguing that the loan was never disbursed. He claimed the non-disbursal led to substantial financial loss for the Corporate Debtor and himself. He further contended that there was no formal sanction letter for the Rs 44 crore loan, rendering the deed of guarantee void and unenforceable.
On December 15, 2023, the NCLT appointed Nagalingam Muthiah as the Resolution Professional (RP) to examine the matter and file a report. The RP submitted his report under Section 99 of the Code on February 20, 2024. The report confirmed that no payments had been received from Jain following the invocation of the guarantee, and the outstanding debt of Rs 42.02 crore remained unpaid. The RP also noted that the personal guarantor had not denied or disputed the guarantee documents in his communications dated October 16 and November 9, 2020.
The RP further clarified that while the Rs 44 crore loan was never disbursed, the personal guarantee executed on March 2, 2016, was linked to previously disbursed loans. Supporting documents included a promissory note, letter of continuing security, and a letter of lien and set-off—all dated March 2, 2016. A loan agreement also outlined that the guarantee was intended to cover earlier advances.
The RP concluded that Jain’s personal guarantee was valid and binding, as his claim that it was solely for a fresh loan of Rs 44 crore was unsupported by evidence. He recommended that the petition be accepted and the insolvency process initiated.
After hearing all arguments, the NCLT ruled that the petition was complete and fit for admission, thereby initiating the personal insolvency resolution process against Kirankumar Moolchand Jain.
