Continuing corporate guarantees under preserved securities can survive later sanction letters and support valid insolvency invocation.

Later sanction letters and a subsequent guarantee deed did not extinguish earlier corporate guarantees because the revised facilities expressly preserved existing securities and extended them to additional liabilities. The novation plea under Section 62 of the Contract Act therefore failed, leaving the earlier guarantees binding on the corporate debtor. The tribunal also treated the 06.03.2023 invocation of those continuing guarantees as valid, since the covered debt remained within the security package and default was not genuinely disputed. On that basis, the insolvency admission founded on the guarantee invocation was sustained.

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Issues: (i) Whether the subsequent sanction letters and the later guarantee deed extinguished the earlier corporate guarantees by novation of contract under Section 62 of the Contract Act. (ii) Whether the invocation of the earlier corporate guarantees on 06.03.2023 was valid so as to sustain admission of the Section 7 application.

Issue (i): Whether the subsequent sanction letters and the later guarantee deed extinguished the earlier corporate guarantees by novation of contract under Section 62 of the Contract Act.

Analysis: The later sanction letters expressly preserved the existing securities and extended them to the additional facilities. The fresh FITL and ad hoc limits were sanctioned on terms that the pre-existing securities would continue to secure the revised and additional liabilities. The later guarantee deed did not displace the earlier guarantees, and the consortium arrangement also did not indicate that the earlier security package stood wiped out. On the facts, the parties did not enter into a new arrangement that substituted and extinguished the prior contractual security structure.

Conclusion: The plea of novation failed, and the earlier corporate guarantees continued to bind the corporate debtor.

Issue (ii): Whether the invocation of the earlier corporate guarantees on 06.03.2023 was valid so as to sustain admission of the Section 7 application.

Analysis: The demand notice invoked the earlier guarantees and quantified the outstanding debt. The facilities covered by the Section 7 claim, including cash credit, term loan, FITL and ad hoc credit, remained within the continuing security coverage of the earlier guarantees. Since the debt and default were not genuinely disputed and the invocation was directed to continuing securities, the financial creditor was entitled to rely on those guarantees for the insolvency application.

Conclusion: The invocation was valid, and admission of the Section 7 application called for no interference.

Final Conclusion: The appeal was found to be without merit, and the insolvency admission order was sustained.

Ratio Decidendi: Where later sanction letters and a subsequent security document expressly preserve existing securities, earlier corporate guarantees continue unless they are clearly substituted, and a valid invocation of such continuing guarantees can support admission under Section 7 of the Insolvency and Bankruptcy Code, 2016.

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