NCLAT New Delhi: Resignation From Directorship Does Not Extinguish Liability Under Continuing Personal Guarantee; Liability Limited To ₹3.84 Crore
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that resignation from a company’s directorship does not absolve a person from obligations under a personal guarantee agreement, observing that once a guarantee is executed as a continuing obligation, it remains binding even after the guarantor steps down from the company’s board.
A Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) delivered the ruling while dismissing an appeal filed by Subhash Aggarwal, former Executive Director of J.V. Strips Ltd., who challenged his liability under a personal guarantee deed executed in 2009 in favour of the State Bank of India (SBI).While upholding the findings of the Adjudicating Authority (NCLT, New Delhi), the Tribunal restricted Aggarwal’s liability to ₹3.84 crore, the amount specified in the original guarantee deed.
Background
The case originated from credit facilities extended by State Bank of India to J.V. Strips Ltd., in which Subhash Aggarwal served as Executive Director. In 2009, Aggarwal executed a Deed of Personal Guarantee securing the company’s borrowings to the extent of ₹3.84 crore. Over the years, the company’s loan accounts were renewed and enhanced, even after Aggarwal’s resignation in 2012. The company defaulted on repayment, and in 2018, SBI declared its account a Non-Performing Asset (NPA).
SBI thereafter initiated proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC), against Aggarwal in his capacity as a personal guarantor to the corporate debtor. Aggarwal contended that he had resigned as Director in 2012 and was therefore no longer liable under the personal guarantee, arguing that subsequent loan renewals and credit variations were made without his consent.
Appellant’s Contentions
Aggarwal submitted that the guarantee deed executed in 2009 was limited to that year’s credit facility and could not extend to renewals or subsequent loans granted after his resignation. He alleged that the subsequent deeds and documents were forged and fabricated, and produced a private handwriting expert’s report to support this claim. Relying on Section 133 of the Indian Contract Act, 1872, the appellant argued that a surety stands discharged if the creditor makes alterations to the contract without the surety’s consent.He also argued that the insolvency application against him was barred by limitation, since the alleged default occurred years before the filing. According to him, any guarantee liability had ceased upon resignation and the passage of time.
Respondent’s Submissions
The State Bank of India, represented by counsel, opposed the appeal and asserted that the 2009 personal guarantee was a continuing and irrevocable guarantee, binding the appellant until full repayment of the secured dues. SBI submitted that the enhanced and renewed credit facilities were part of the same ongoing financial relationship, and hence, the original guarantee continued to operate.The Bank further maintained that the plea of novation was misconceived, as no consent of parties existed to extinguish or replace the original contract. It was argued that resignation from the board does not terminate the obligations undertaken through an independent personal guarantee.
Tribunal’s Observations
The NCLAT held that resignation from directorship has no bearing on personal guarantee obligations, which are independent contracts governed by the terms of the deed. “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,” the Bench observed.
The Tribunal emphasized that the 2009 deed was expressly worded as a continuing guarantee, covering all liabilities arising from the original and renewed credit facilities. “The appellant cannot reason that he was not bound by transactions emanating from the Guarantee Deed of 2009, as this deed was of a continuing nature and would remain operational even for subsequent transactions. All guarantees after the 2009 deed were supplemental in nature and would not extinguish his liability as a personal guarantor,” the Bench held. On the issue of novation, the Tribunal stated that novation of a contract can occur only with the consent of all parties, which was absent in the present case. Thus, the appellant’s plea that the later credit arrangements created a new contract was rejected. The Bench also clarified that subsequent variations or enhancements in the company’s loan limits do not discharge a guarantor unless there is express revocation of the guarantee or a contrary clause in the agreement.
Findings on Liability
The NCLAT observed that the liability of the personal guarantor must be determined in accordance with the specific terms of the original guarantee deed. Since the 2009 deed capped Aggarwal’s liability at ₹3.84 crore, the Tribunal restricted his liability to that amount. “The Adjudicating Authority has rightly restricted the liability of the appellant to ₹3.84 crore as per the Deed of Guarantee of 2009,” the Bench noted.
On Additional Report by Resolution Professional
The appellant had objected to the Resolution Professional’s additional report, which was filed after he produced a private expert’s handwriting analysis alleging forgery. The NCLAT held that there was no procedural irregularity in the NCLT allowing the Resolution Professional to file the report in response. “The Adjudicating Authority committed no error in permitting the Resolution Professional to file an additional report to rebut the private expert’s findings. The report was filed to aid adjudication, and there is no infirmity in the process,” the Bench stated.
Upholding the order of the NCLT, New Delhi, the Appellate Tribunal concluded that resignation from directorship does not terminate personal guarantee liability, particularly when the guarantee is continuing and irrevocable in nature. “We find no merit in the appeal. The appellant’s liability as a personal guarantor remains to the extent of ₹3.84 crore as stipulated in the Guarantee Deed of 2009. The appeal is accordingly dismissed,” the Bench concluded.
Appearance
For Appellant: Senior Advocate Abhijeet Sinha with Advocate Arindam Ghose, Upinder Singh and Shavanya Bhatnagar
For Respondent: Advocate Bheem Sain Jain
Cause Title: Subhash Aggarwal vs State Bank of India
Case No: Company Appeal (AT) (Insolvency) No. 512 of 2024
Coram: Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member)
