Personal guarantee enforcement by individual lender upheld where finance documents allow separate lender rights and authorised filing
A consortium finance structure may permit an individual lender acting as lenders' agent to invoke an unconditional, continuing personal guarantee and maintain insolvency proceedings against personal guarantors where the loan and guarantee documents, read together, confer separate and independent enforcement rights on each lender. Coextensive liability of the guarantor supports enforcement once default, NPA classification and CIRP of the corporate debtor have occurred. A challenge to the filing authority was also rejected where the application was supported by an authority letter and the signatory was within the bank's statutorily authorised officer framework; a merely technical objection does not invalidate the filing.
Issues: (i) Whether an individual lender, acting as lenders' agent, could invoke the personal guarantee and maintain an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 against the personal guarantors; (ii) Whether the Section 95 application was invalid for want of proper authority in the person who signed and filed it.
Issue (i): Whether an individual lender, acting as lenders' agent, could invoke the personal guarantee and maintain an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 against the personal guarantors.
Analysis: The guarantee and the common loan documents were executed together and had to be read as a connected contractual framework. The personal guarantee was an unconditional, irrevocable and continuing guarantee in favour of the security trustee for the benefit of all consortium lenders. The loan documentation defined the borrowers' guarantors, recognised each lender's separate and independent rights, and permitted each lender to separately enforce its rights under the finance documents and security documents. The guarantee terms also contemplated demand by the security trustee or the lenders, and the lender invoking the guarantee had acted in the capacity of lenders' agent. In the factual setting of default, NPA classification and CIRP of the corporate debtor, the guarantor's liability stood triggered. The principle of coextensive liability under the Contract Act supported enforcement against the personal guarantors.
Conclusion: The individual lender was entitled to invoke the personal guarantee and the Section 95 proceedings were maintainable on that basis.
Issue (ii): Whether the Section 95 application was invalid for want of proper authority in the person who signed and filed it.
Analysis: The challenge to authority was rejected in light of the bank's statutory framework and the existing notification/regulatory position governing signing powers of officers of the bank. The filing was supported by an authority letter, and the applicable statutory and regulatory provisions authorised officers of the relevant grade to sign documents connected with the bank's business. The objection was treated as technical and unsupported by any material showing lack of competence in the signatory.
Conclusion: The Section 95 application was validly filed by an authorised person.
Final Conclusion: The appeals did not disclose any infirmity in the order admitting the insolvency proceedings against the personal guarantors, and the admission order was sustained.
Ratio Decidendi: Where the contractual documents governing a consortium finance transaction expressly permit separate enforcement by each lender and the guarantor's liability is coextensive with that of the principal debtor, an individual lender acting within the contractual and statutory framework may invoke the personal guarantee and pursue personal guarantor insolvency proceedings; a filing made by a statutorily authorised bank officer is not invalid merely because the objection is technical in nature.
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