The DRT examined the procedural fairness and enforceability of a personal guarantee document in light of pending insolvency proceedings and allegations of personal liability.
The Debts Recovery Tribunal-1 (DRT), Chennai Bench, headed by Mr. A.S. Jayachandra (Presiding Officer), addressed multiple IAs and observed that the personal guarantee document relied upon by the Applicant Banks was not initially filed with the Original Application. This raised concerns about procedural fairness and enforceability while considering the Defendants' arguments regarding the absence of personal liability and the effect of pending insolvency proceedings before the NCLT and NCLAT.
In the present matter, I.A. No. 6/2024 and I.A. No. 7/2024 were filed by Defendants 2 and 3, respectively, seeking dismissal of the claim against them and their deletion from the array of parties. Both Defendants contended that no personal guarantee was executed by them, and the documents relied upon by the Applicant Banks do not impose any personal liability. The 2nd Defendant, being the Managing Director of the 1st Defendant Company, argued that all documents were signed in his official capacity on behalf of the Company and that no personal guarantee deed existed. Similarly, the 3rd Defendant emphasized that the alleged guarantee document dated 03.10.2017 was void and unenforceable since it was linked to a rejected credit proposal by Canara Bank, and no sanction letters mandated a personal guarantee.
The Defendants submitted that the Applicant Banks failed to substantiate their claims, and the legal notices issued earlier also made no reference to any personal liability. Both Defendants alleged that the purported document was an afterthought, introduced solely to harass them, and contended that Canara Bank, being a part of the lending consortium, could not independently obtain a personal guarantee. Further, the document allegedly signed by them was claimed to be executed in their capacity as authorized signatories of the 1st Defendant Company. In response, the Applicant Banks filed I.A. No. 38/2024, seeking permission to produce the guarantee deed dated 03.10.2017. The Banks argued that Defendants 2 and 3 had indeed executed personal guarantees as part of the credit facility extended, but the document had been inadvertently omitted at the time of filing the Original Application.
The Tribunal noted that during the hearing, the original documents were produced by Canara Bank for inspection. Defendants 2 and 3 reiterated that the guarantee deed could not be treated as an independent personal guarantee, as it was executed alongside the loan documents for the 1st Defendant Company. They argued that the document lacked validity as an enforceable guarantee and alleged that its introduction at this stage was an attempt to cure a lacuna in the Applicant Banks’ case.
The Tribunal, after hearing both parties, acknowledged that the guarantee document executed by Defendant No. 2 was not initially filed with the OA. While the Bank contended that the omission was inadvertent, the Defendants argued that no personal liability could be attributed to them. Defendants 2 and 3 further highlighted discrepancies in the execution of the document and questioned its enforceability, particularly given the pending insolvency proceedings concerning the 1st Defendant Company before the NCLT and NCLAT.
The Tribunal ultimately deliberated on whether Defendants 2 and 3 could be deleted from the array of parties and whether Canara Bank’s request to produce the additional document could be allowed. The matter involved considerations of procedural fairness, the enforceability of the purported personal guarantees, and the pending insolvency proceedings. The final determination on these points remained subject to further adjudication.
Mr. J. Parimalam Advocate represented the Petitioner.
Mr. M.L. Ganesh and Mr. S. Arun Kumar Advocates appeared for Respondent No. 1 & 2.
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