NCLAT ruled that a personal guarantor’s liability remains enforceable unless expressly discharged by the creditor.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Technical Members Naresh Salecha and Indevar Pandey, reviewed two appeals and held that a personal guarantor’s liability remains enforceable unless expressly discharged by the creditor. It further ruled that the limitation period for enforcing such liability is extended if the corporate debtor acknowledges the debt under Sections 18 and 19 of the Limitation Act, 1963. Additionally, adverse remarks against the Resolution Professional were expunged as they were made without affording her an opportunity to be heard, violating the principles of natural justice.
The National Company Law Appellate Tribunal (NCLAT) adjudicated upon two appeals arising from a common order of the National Company Law Tribunal (NCLT), Ahmedabad Bench, dated February 23, 2024, in CP (IB) No. 80 (AHM) 2021. The first appeal, Company Appeal (AT) (Ins.) No. 689 of 2024 was filed by the State Bank of India (SBI) challenging the NCLT’s dismissal of its petition under Section 95 of the Insolvency and Bankruptcy Code, 2016, against Gourishankar Poddar, who had furnished personal guarantees for Raj Rayon Industries Limited. The second appeal, Company Appeal (AT) (Ins.) No. 663 of 2024 was filed by Vineeta Maheshwari, the Resolution Professional (RP), seeking expungement of adverse remarks made against her in the NCLT’s order and the quashing of an inquiry directed by the NCLT to the Insolvency and Bankruptcy Board of India (IBBI).
The dispute primarily revolved around the enforceability of personal guarantees and the limitations governing their invocation. The NCLT had dismissed SBI’s application, holding that the personal guarantees were either unenforceable or time-barred. SBI contended that the guarantees, executed in 2013 and 2014, were irrevocable and continued despite Poddar’s resignation as director in 2014. SBI further argued that any attempt by Poddar to revoke the guarantees was legally ineffective and that the limitation should be reckoned from the demand notice issued in March 2021. On the other hand, Poddar argued that his resignation and subsequent attempts to withdraw from the guarantees absolved him of liability, further contending that the revival letter dated February 6, 2016, which was central to the NCLT’s findings, had never been signed by him.
Upon review, the NCLAT held that the Deeds of Guarantee were unconditional, irrevocable, and continuous, thereby binding the personal guarantor even after his resignation. Relying on the principles laid down in Allahabad Bank v. Hemantkumar (2016) and Syndicate Bank v. Channaveerappa Beleri and Others, REEDLAW 2006 SC 04002, the Tribunal reiterated that a personal guarantor’s liability persists unless explicitly discharged by the creditor. The Tribunal also referred to the Hon’ble Supreme Court’s decision in BRS Ventures Investments Limited v. SREI Infrastructure Finance Limited and Another, REEDLAW 2024 SC 07589, which reaffirmed that a guarantor’s liability is co-extensive with that of the principal debtor under Section 128 of the Indian Contract Act, 1872. Further, it held that the restructuring of the corporate debtor’s loans did not discharge Poddar’s obligations, as the guarantee agreements contained express waivers under Section 133 of the Contract Act.
On the issue of limitation, the Tribunal ruled that the acknowledgment of debt by the corporate debtor extended to the guarantor under Section 18 of the Limitation Act, 1963. It was observed that proceedings before the Debts Recovery Tribunal (DRT), initiated in 2018, were pending, and thus, the period spent in bona fide proceedings before the DRT was to be excluded under Section 14 of the Limitation Act. Further, the Tribunal applied the Supreme Court’s Suo Moto Writ Petition (C) No. 3 of 2020, which extended limitation periods affected by the COVID-19 pandemic, and held that SBI’s application under Section 95 of the IBC was filed within the prescribed limitation period.
Regarding the RP’s appeal, the NCLAT found that the adverse remarks against her were based on an erroneous entry in the table extracted from her report. The Tribunal noted that the RP had provided a disclaimer regarding the source of the table and that the NCLT had not sought her clarification before making adverse observations. It ruled that the principles of natural justice had been violated and that the remarks against the RP, which could have adversely impacted her professional career, were unwarranted. Consequently, the NCLAT expunged the remarks and directed the IBBI not to proceed with any inquiry against her.
In conclusion, the NCLAT allowed both appeals. It set aside the NCLT’s order, restored CP (IB) No. 80 (AHM) 2021, and directed the parties to appear before the Tribunal for further proceedings. Additionally, all adverse remarks against the RP were expunged, and the IBBI was instructed not to take any action against her. All pending interlocutory applications were disposed of with no order as to costs.
Mr. Asav Rajan and Ms. Charu Trivedi, Advocates, represented the Appellant.
Mr. Deep Roy and Mr. Amay, Advocates, appeared for Respondent No. 1.
Mr. Karan Valecha, Advocate, appeared for Respondent No. 2.
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