Case Overview

This appeal, Company Appeal (AT) (CH) (Ins) No. 518 / 2026, was filed by R. Radha, a suspended director and promoter of Hotel Radha Prasad Pvt Ltd (the corporate debtor). The appellant challenges the order of the Adjudicating Authority (NCLT) that admitted the corporate debtor into the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code (IBC), initiated by the first respondent, S. Sephulohniam.

The dispute originates from a financial agreement. The first respondent advanced a loan of ₹12 crores to a partnership firm named 'Hotel Radha Prasad'. The loan was disbursed between 16 July 2018 and 02 August 2018. The partnership firm consisted of several partners, including the corporate debtor (Hotel Radha Prasad Pvt Ltd) and individuals Mr. Radha and Mr. Prakash. The appellant, R. Radha, is both a partner in this firm and a director of the corporate debtor. On 16 July 2018, a deed of guarantee was executed by three guarantors, who were also the partners constituting the firm, thereby making the corporate debtor a guarantor for the loan it was a part of as a borrower.

According to the respondent, monthly interest was paid until March 2020, after which defaults began. Towards principal repayment, several cheques were issued by one of the partners between 31 May 2023 and 07 June 2024, all of which were dishonoured. Consequently, the respondent issued a demand notice on 20 July 2024 to the partners in their capacity as both partners and guarantors, recalling the loan. The subsequent petition under Section 7 IBC was admitted by the NCLT.

The appellant's counsel, Mr. V. Raghavachari, raised three primary legal objections to the CIRP admission:

1. Legal Identity of Partnership: A partnership firm lacks a distinct legal character and is merely a compendium of its partners. Therefore, a partner (the corporate debtor) cannot act as a guarantor for itself, making the very initiation of proceedings under Section 7 IBC flawed.

2. Uncertain Repayment Date: Clause 3 of the deed of guarantee stated repayment was to be made "on or before or within such date as may be agreed upon." The appellant argued this date was never formally fixed. The respondent's claim of an oral agreement was contested, citing the parol evidence rule (Section 95 BSA, corresponding to Section 92 of the Evidence Act), which prohibits oral evidence to alter written contract terms. Thus, the obligation to repay had not even crystallized.

3. Section 10A Moratorium: The respondent identified the default as commencing in March 2020 (cessation of interest payments). The appellant argued this falls squarely within the COVID-19 related moratorium period specified under Section 10A of the IBC, which prohibits the initiation of CIRP for any default occurring during the stipulated period (25 March 2020 to 25 March 2021, as per the Code).

The respondent's counsel, Mr. TK. Bhaskar, countered these arguments:

1. Liability of Corporate Partner: A partnership creates joint and several liability among partners. If one partner is a corporate entity, it becomes liable for the firm's debts, exposing it to action under Section 7 IBC in case of default.

2. Default Post-Moratorium: The acts constituting the default—the issuance and subsequent dishonour of cheques in 2023-2024 and the formal recall of the loan via notice on 20 July 2024—all occurred well after the Section 10A moratorium period, thus making the application valid.

3. Acknowledgment of Debt: The act of one partner issuing cheques to discharge the liability constituted an acknowledgment of the debt, which would bind all other partners, including the corporate debtor.

Final Outcome

The Appellate Tribunal reserved its order on the stay application (IA No. 1473/2026). The final judgment on the appeal is pending. The practical consequence is that the CIRP against Hotel Radha Prasad Pvt Ltd continues for now, subject to the outcome of this appeal.

Topics: Insolvency Law, Corporate Guarantee, IBC Section 10A