Personal Guarantor's liability does not get discharged merely due to resignation from the corporate debtor

NCLAT Upholds Personal Guarantor's Liability Despite Resignation from Corporate Debtor. Tribunal affirms continuing guarantee obligations, restricting liability to Rs 3.84 Cr under original deed

In a recent judgment by the National Company Law Appellate Tribunal (NCLAT), the Principal Bench in New Delhi has upheld the liability of Subhash Aggarwal, a personal guarantor for J.V. Strips Ltd., under an irrevocable guarantee deed despite his resignation from the corporate debtor. The tribunal ruled that his liability remains restricted to the amount specified in the original guarantee deed signed on August 25, 2009, amounting to Rs 3.84 Cr.

The case arose when State Bank of India initiated insolvency proceedings against Aggarwal under Section 95 of the Insolvency and Bankruptcy Code, 2016, following defaults in debt repayments by J.V. Strips Ltd. Despite Aggarwal's resignation from the company's directorship in February 2012, the tribunal found that his obligations under the continuing guarantee deed did not automatically get discharged.

The bench, comprising Justice Ashok Bhushan and Barun Mitra, examined the terms of the guarantee deed, which clearly stipulated its nature as continuing and irrevocable, extending to a series of transactions. The tribunal noted that the guarantee was unaffected by subsequent variations in credit facilities extended by SBI and did not require the consent of Aggarwal for such changes.

Aggarwal contested the invocation of the guarantee, alleging forgery of signatures on documents post-resignation. He sought relief citing substantial alteration in contract terms without consent, which should discharge his obligations under the Indian Contract Act, 1872. However, the tribunal concluded that the alterations did not affect liabilities under the original deed as no revocation had been communicated to the bank.

Further, the tribunal dismissed arguments regarding the time-barred nature of the insolvency application, noting that the default date did not strictly commence from the NPA declaration but rather from the debt due date. The tribunal highlighted that the insolvency process was initiated within the limitation period.

In delivering the judgment, NCLAT reinforced the principles of continuing guarantees, emphasizing that resignation from a corporate position does not absolve a guarantor from his obligations unless explicitly revoked. The tribunal's decision serves as a significant precedent in matters of personal guarantee obligations, confirming that personal guarantors can remain liable for debts even after severing ties with the corporate debtor.

Bottom Line:

Personal Guarantor's liability under a continuing and irrevocable guarantee deed does not get discharged merely due to resignation from the corporate debtor and subsequent transactions or alleged forgery of documents. Liability is restricted to the amount specified in the original guarantee deed signed before the resignation.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 95, 99, 100; Contract Act, 1872 Sections 129, 130, 133

Subhash Aggarwal v. State Bank of India, (NCLAT)(Principal Bench, New Delhi) : Law Finder Doc Id # 2800532