2025 (11) TMI 608 - AT - IBC

Continuing irrevocable guarantee binds guarantor for renewals despite director resignation; liability capped at Rs.3.84 crore, appeal dismissed

Subhash Aggarwal Versus State Bank Of India, Mr. Vijender Sharma, Delhi

NCLAT PB held the 2009 Deed of Guarantee to be a continuing, irrevocable guarantee that bound the guarantor for subsequent renewals and variations of ... CIRP - Deed of Guarantee was a continuing and an irrevocable guarantee - whether the deed of guarantee binds the guarantor for subsequent renewals/variations of facilities? - substantial material alteration of the Guarantee Deed or not - raising of the bogey of forged and fabricated documents and variation in the Deed of Guarantee of 2009 amounting to novation of the contract - HELD THAT:- That that the Deed of Guarantee of 2009 was a “continuing” guarantee which was “irrevocable” in nature is evident from a plain reading of Clauses 8 and 11 of the Guarantee Deed. Further when we look at Clause 14 it is amply clear that the terms of the Guarantee Deed of 2009 provided scope for subsequent variations. Thus, when the clauses of Guarantee Deed of 2009 by itself provided that it was to remain unaffected by subsequent variations, the guarantor was liable to honour the variations also on demand being made. Hence the future variations remained binding on the Appellant. It is not inclined to agree with the skewed and selective reading of the clauses by the Appellant that that Clause 8 of the 2009 Guarantee Deed limited the continuance of the guarantee only to the amount mentioned in Clause 1 of the guarantee and that it did not cover the subsequent facilities extended by the Respondent Bank and therefore the Guarantee Deed of 25.08.2009 was not in the nature of a continuing guarantee. Reliance has been placed by the Respondent bank on the judgements of the Hon’ble Supreme Court in Sitaram [2008 (3) TMI 743 - SUPREME COURT] and Basavraj [2009 (10) TMI 973 - SUPREME COURT] to contend that once a guarantee deed has been lawfully entered into, the terms of the deed of guarantee becomes binding and, therefore, once a party has subscribed to the principles of a continuing guarantee, it was not open for him run counter to the terms and conditions of the agreement executed at the time of entering the guarantee - The ratio of the above two judgements are squarely applicable to the facts of the present case which is premised on a Guarantee Deed hinged on the precepts of a continuing guarantee. Under Section 129 of the Contract Act, a continuing guarantee is defined as a guarantee which extends to a series of transactions and hence also embraces future transactions. The Appellant cannot be seen to reason out that he was not bound by the transactions emanating out of the Guarantee Deed of 2009 as this deed was of a continuing nature and would remain operational even for subsequent transactions. The Adjudicating Authority has thus not committed any error in observing that the Appellant had acknowledged and never disputed the fact that he stood as a Personal Guarantor to the credit facilities granted to the Corporate Debtor on 25.08.2009. Further the Adjudicating Authority has rightly concluded after perusing the loan documents available on the MCA portal that the respondent had signed the loan documents on several occasions before his resignation - the Adjudicating Authority has rightly concluded that simply because the Appellant had resigned from the Directorship of the Corporate Debtor, this cannot be sufficient ground leading to revocation of his personal guarantee or discharge from his surety obligations arising out of the Deed of Guarantee of 2009 which was a continuing guarantee. It does not appeal to reason for the Appellant to question the submission of the Additional Report. When sufficient opportunity had also been given to the Appellant to deal with the Additional Report, the Appellant cannot claim to have suffered any prejudice on this count. Even the contention that the Additional Report filed by the RP could not have been considered by the Adjudicating Authority as it was beyond the statutory period of 10 days provided under Section 99 of IBC is not tenable since there is no prohibition on the RP to file an Additional Report in continuation of his earlier report. Moreover, the Additional Report was placed with the prior approval of the Adjudicating Authority. Further under Section 100 of IBC, any aggrieved party can produce additional documents before the RP. In the present case, the Appellant had also filed additional documents. The Adjudicating Authority committed no error in holding that debt and default is established beyond doubt in respect of the guarantee given by the Appellant and in ordering the initiation of insolvency resolution of the Appellant. However, to meet the ends of justice, the liability of the Appellant is restricted to Rs. 3.84 Cr. in terms of the Deed of Guarantee dated 25.08.2009 which had been entered into prior to his resignation. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the Deed of Guarantee dated 25.08.2009 is a continuing and irrevocable guarantee and therefore binds the guarantor for subsequent renewals/variations of facilities. 2. Whether the guarantor's alleged resignation as director of the corporate borrower (13.02.2012) or non-communication of resignation to the bank operated to revoke/discharge the continuing guarantee. 3. Whether subsequent Supplementary Agreements/Deeds of Guarantee executed after the alleged resignation (including 2014 deed) which the guarantor contends are forged and fabricated, if proved or plausibly alleged, discharge the guarantor or otherwise preclude initiation of insolvency proceedings under Section 95 IBC. 4. Whether non-invocation of the original 2009 Guarantee or purported material alteration/novation of that guarantee renders the Section 95 petition time-barred or otherwise invalid. 5. Whether the requirements of Section 95 IBC and Rule 7(1) of the Personal Guarantors Rules (Form-B/Form-C notices; existence of debt and default) were complied with so as to admit insolvency resolution against the personal guarantor. 6. Whether the Resolution Professional (RP) could file an additional report beyond his initial Section 99 report and whether reliance on such additional report (filed by permission of the Adjudicating Authority) was permissible, and whether any procedural infirmity in that process vitiated the admission. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Continuing and irrevocable nature of the 2009 Guarantee Legal framework: Section 129 of the Indian Contract Act defines continuing guarantee as one extending to a series of transactions; contractual clauses may make a guarantee continuing and irrevocable; parties may contractually waive statutory protections (Section 130 contextual principles). Precedent Treatment: Followed Sitaram Gupta and H.R. Basavaraj (Supreme Court authorities) holding that where a party has contractually agreed to a continuing guarantee, it remains binding for subsequent transactions and section 130 protection cannot be invoked to negate such an agreement. Interpretation and reasoning: Clauses 8, 11 and 14 of the 2009 Deed expressly describe the guarantee as 'continuing', 'irrevocable' and providing that subsequent variations will not release the guarantor; plain reading shows scope for subsequent variations and indemnity for subsequent advances/monies. Ratio vs. Obiter: Ratio - contractual language making guarantee continuing and irrevocable binds the guarantor and extends to subsequent transactions; application of Sitaram/Basavaraj principles is treated as binding ratio for this fact pattern. Conclusions: The 2009 Deed is a continuing, irrevocable guarantee whose terms encompass subsequent renewals/variations; therefore the guarantor remains liable under the 2009 guarantee for relevant defaults unless validly revoked. Issue 2 - Effect of resignation as director on guarantee obligations Legal framework: Revocation or discharge of guarantee by guarantor requires express communication/notice/consent as governed by Contract Act principles; resignation as director does not ipso facto revoke a personal guarantee. Precedent Treatment: Relied on Sitaram/Basavaraj principles (continuing guarantee not susceptible to unilateral revocation where not expressly revoked in writing); Adjudicating Authority's approach that Section 133 discharges only future transactions was accepted. Interpretation and reasoning: The guarantor's communications after account stress (letter of 17.11.2018) did not seek discharge from existing guarantee obligations nor dispute pre-resignation documents; guarantor had not disclaimed or caused formal revocation of the 2009 guarantee to the bank before subsequent transactions. Ratio vs. Obiter: Ratio - mere resignation from directorship or filing of resignation with ROC, without express revocation/notice to the creditor, does not discharge obligations under a continuing guarantee. Conclusions: Resignation as director did not revoke the 2009 continuing guarantee; guarantor remained liable at least to the extent of obligations arising under the pre-resignation guarantee. Issue 3 - Allegation of forgery/fabrication of subsequent guarantees and effect on insolvency proceedings Legal framework: Allegation of forgery is a relevant defence to liability, but in IBC/Section 95 context admission requires establishment of debt and default on materials placed; standards of proof at admission are prima facie, not full trial adjudication. Precedent Treatment: Adjudicating Authority considered Section 133 (discharge for subsequent transactions) and found it does not erase liability for pre-variance transactions; Tribunal adhered to principle that mere private handwriting expert report and allegations do not automatically negate debt/default at admission stage. Interpretation and reasoning: The bank's documents and Form-B/Form-C referred to the 2009 continuing guarantee as foundational; absence of cogent proof of discharge or valid revocation meant allegations of forgery did not negate prima facie debt/default; private handwriting report alone insufficient to defeat Section 95 petition at admission. Ratio vs. Obiter: Ratio - allegations of forgery do not per se preclude admission of a Section 95 petition where debt and default are established prima facie and foundational continuing guarantee exists; such disputes can be adjudicated in appropriate fora but do not bar initiation of insolvency process. Conclusions: The claim of forged post-resignation documents did not, on the record, discharge the guarantor or prevent admission; the Adjudicating Authority reasonably held that debt/default under the 2009 guarantee was established prima facie. Issue 4 - Limitation/time-bar and non-invocation of the 2009 Guarantee Legal framework: Limitation principles (Article 137 Limitation Act) and the Prohibition on using IBC to revive time-barred debts (Babulal Vardharji); determination of date of default under Section 3(12) IBC is factual - date when debt became due and payable, not automatic NPA date. Precedent Treatment: Followed the principle that IBC cannot revive time-barred debts but applied factual finding that default date in Form-B was 29.07.2019 and date of default 05.08.2019; Section 95 application filed 26.05.2022 was within three years of default date. Interpretation and reasoning: Non-invocation of the 2009 deed is not fatal where continuing guarantee remains and debt fell due later; the relevant date for limitation is date of default as shown in demand notice / Form-B, not NPA date per se; here limitation defence fails on facts. Ratio vs. Obiter: Ratio - where continuing guarantee exists and date of default as shown in demand notice falls within limitation, Section 95 petition is not time-barred; non-invocation earlier does not automatically cause limitation if continuing obligation gives rise to later default. Conclusions: The petition was not time-barred on the facts; the 2009 guarantee's non-invocation did not automatically render the claim time-barred where the demand/default dates fell within limitation. Issue 5 - Compliance with Section 95 IBC and Rule 7(1) (Form-B/Form-C) and existence of debt/default Legal framework: Section 95 admits insolvency resolution of personal guarantor where debt and default are established and prescribed notices are served (Rule 7(1) Forms); demand notice must show debt due and default. Precedent Treatment: Adjudicating Authority's admission relied on documents in Form-B/Form-C and foundational continuing guarantee; Tribunal found requirements complied with and that non-mention of 2009 deed did not render forms defective because the supplemental deeds were in continuation of 2009 deed. Interpretation and reasoning: LRDN and Form-B identified debt and due date; supplemental documents referenced were derivative of the continuing 2009 guarantee; absence of express citation of the 2009 deed in forms did not vitiate compliance where documentary chain established prima facie liability. Ratio vs. Obiter: Ratio - Section 95/Rule 7(1) requirements are satisfied where Form-B/Form-C and LRDN demonstrate debt/default and documentary linkage to a continuing guarantee, even if certain earlier original documents were produced later. Conclusions: The statutory requirements for initiating insolvency resolution under Section 95 and Rule 7(1) were met on the available materials; admission was not vitiated for non-mention or delayed production of the original 2009 deed. Issue 6 - Permissibility and effect of RP's additional report under Section 99 Legal framework: Section 99 empowers the RP to submit a report; Section 100 allows parties to place additional documents before the RP; Adjudicating Authority has supervisory power to permit filings and manage procedure. Precedent Treatment: The Adjudicating Authority allowed RP to file an additional report by order dated 14.12.2022 and granted opportunity to parties to reply; Tribunal found no statutory embargo on additional reports and held that RP may seek further information and file additional material. Interpretation and reasoning: RP's initial inability to conclude due to signature dispute justified an additional report; Adjudicating Authority's express permission and opportunity to the guarantor to file additional reply cured any prejudice; timing beyond ten days did not ipso facto invalidate the report where permission was given and no prohibition exists against supplemental reports. Ratio vs. Obiter: Ratio - an RP may file additional reports with the leave/permission of the Adjudicating Authority and parties must be given opportunity to respond; procedural irregularity allegations are unsustainable where the Adjudicating Authority applied its discretion and no actual prejudice is shown. Conclusions: Consideration of the additional RP report (filed with leave and after opportunity to reply) did not vitiate the admission; the contention that RP was barred from multiple reports or that timing infirmity invalidated the process is not tenable. Overall disposition and remedial modification Conclusions aggregated: The Adjudicating Authority correctly found prima facie debt and default under the 2009 continuing and irrevocable guarantee and lawfully admitted the Section 95 petition; procedural challenges to the RP's additional report and limitation plea fail on the record. Remedial limitation applied by the Court: To meet ends of justice, the guarantor's liability as fixed by the Tribunal is restricted to the amount expressly guaranteed in the 2009 Deed (Rs. 3.84 Cr.), modifying the impugned order accordingly; admission of insolvency resolution process otherwise stands.