Unconditional personal guarantee and valid debt assignment upheld; separate put option did not limit enforcement rights.
An unconditional personal guarantee remained enforceable despite the guarantors' reliance on a separate Put Option Agreement, because the guarantee was an independent contract making liability unconditional, irrevocable and enforceable on demand, with coextensive surety liability under section 128 of the Indian Contract Act, 1872. The guarantors also had no locus to object to assignment of the debt, as the original loan documents and guarantee contemplated assignment and, under section 5 of the SARFAESI Act, 2002, the assignee stepped into the shoes of the lender with full enforcement rights. No denial of natural justice was found in the insolvency proceedings under sections 99 and 100 of the IBC.
Issues: (i) Whether the adjudication of the personal guarantors' insolvency petitions was vitiated by denial of natural justice; (ii) whether invocation of the personal guarantee was circumscribed by the Put Option Agreement; and (iii) whether the personal guarantors could object to the assignment of debt in favour of the assignee financial creditor.
Issue (i): Whether the adjudication of the personal guarantors' insolvency petitions was vitiated by denial of natural justice.
Analysis: The proceedings under the Insolvency and Bankruptcy Code are intended to be conducted within strict timelines. The record showed that the authorised representative of the appellants appeared virtually but could not effectively argue because of audio-video difficulty, after which written submissions were directed to be filed and were taken on record. In the statutory setting of sections 99 and 100 of the Insolvency and Bankruptcy Code, 2016, the adjudicating authority was justified in proceeding to reserve the matter rather than prolonging the process, especially when no recall application was later pursued before it. The appellate forum also afforded an additional opportunity to place all contentions on record.
Conclusion: There was no denial of natural justice.
Issue (ii): Whether invocation of the personal guarantee was circumscribed by the Put Option Agreement.
Analysis: The deed of guarantee was an independent contract containing clear clauses making the liability of the guarantors unconditional, irrevocable and enforceable on demand. It also permitted the lender to call upon the guarantors without first enforcing other securities. The Put Option Agreement operated in a separate sphere and did not form a condition precedent to enforcement of the guarantee. Since the principal borrower had defaulted, the guarantors' liability stood triggered in terms of the guarantee itself. Section 128 of the Indian Contract Act, 1872 supported the coextensive liability of the surety, subject to the contract.
Conclusion: The personal guarantee was not circumscribed by the Put Option Agreement.
Issue (iii): Whether the personal guarantors could object to the assignment of debt in favour of the assignee financial creditor.
Analysis: The original loan documents and the deed of guarantee both contemplated assignment by the lender. The assignment was made in accordance with section 5 of the SARFAESI Act, 2002, under which an asset reconstruction company acquiring financial assets is deemed to be the lender and all rights of the original lender vest in it. Once the assignment was executed, the assignee stepped into the shoes of the original lender and became entitled to enforce the debt and the guarantee. In the absence of proof that the debt stood discharged or the guarantee had been cancelled, the guarantors had no locus to challenge the assignment.
Conclusion: The personal guarantors had no locus to object to the assignment.
Final Conclusion: The guarantee liability remained enforceable against the personal guarantors, the assignee was entitled to proceed as lender, and the admission of the section 95 proceedings was sustained.
Ratio Decidendi: Where a guarantee is unconditional and expressly permits assignment, the assignee of the financial debt is entitled to enforce the guarantee as deemed lender, and the guarantor cannot insist on prior invocation of an unrelated contractual arrangement as a condition precedent to liability.
TaxTMI 
AI Drafter ✕
TaxTMI 
