Pranav B Prem

The National Company Law Tribunal (NCLT), Mumbai Bench – Court VI, comprising Justice Nilesh Sharma (Member-Judicial) and Mr. Sameer Kakar (Member-Technical), has held that any defect in the title of the security does not vitiate a personal guarantee that has been duly executed, particularly when the guarantor admits execution of the guarantee.

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The application, filed under Rule 11 of the NCLT Rules, 2016, was moved by Rinki Prakash Kumar, seeking dismissal of a petition filed by the Bank of Maharashtra under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016. The applicant, a personal guarantor to the borrower company M/s RPJ Overseas & Exim Pvt. Ltd., sought to quash the insolvency proceedings against her, alleging fraud, non-disclosure, and violation of statutory provisions.

The applicant contended that the loan was sanctioned against the mortgage of three flats that were already fraudulently sold to multiple third parties prior to the mortgage, a fact allegedly admitted by the bank in a letter dated December 28, 2022. It was argued that the bank had obtained the personal guarantee without disclosing this defect in the title of the mortgaged properties, rendering the guarantee voidable under Sections 17 to 19 of the Indian Contract Act, 1872. The applicant also alleged that no demand notice under Section 95(4)(b) of the IBC had been received and that she was not served a copy of the repayment plan. Further, it was contended that the invocation of the personal guarantee was an abuse of process since the borrower company’s financial distress stemmed from the adverse impact of the COVID-19 pandemic and not from any willful default.

Per contra, the Bank of Maharashtra submitted that the personal guarantee was duly executed, and the borrower had defaulted on repayment obligations. It was further submitted that all procedural requirements under the IBC and SARFAESI Act, 2002 had been complied with and that the initiation of proceedings was legally sound.

Upon examining the record, the Tribunal noted that the applicant had unequivocally admitted the execution of the personal guarantee and the existence of the loan facility extended to the borrower company. The Bench observed that the defect in the title of the mortgaged property does not affect the validity of the personal guarantee once the guarantor has executed it voluntarily.

The Bench further observed that the applicant had herself admitted the initiation of SARFAESI proceedings by the financial creditor and had acknowledged the borrower’s inability to meet repayment obligations. Hence, the plea of fraud was found to be unsustainable. Rejecting the argument regarding non-service of the insolvency petition and related documents, the Tribunal relied on the Affidavit of Service (AOS) filed by the Resolution Professional, which included acknowledgment receipts showing proper service on the personal guarantor.

It was also noted that despite being granted a final opportunity to file a reply in the related application filed by the Resolution Professional for closure of the process, the applicant had failed to do so. Furthermore, no appeal had been filed against the NCLT’s earlier order dated January 7, 2025, which had admitted the Section 95 petition, thereby rendering that order final. The Tribunal held that: “Any defect in the title of the security does not vitiate the personal guarantee, duly executed, specifically when the person admits the execution. When the applicant admits issuance of the guarantee and initiation of SARFAESI proceedings, and the borrower defaults in repayment, the transaction cannot be said to be vitiated by fraud.”

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Concluding that the application was devoid of merit, the Tribunal dismissed it as non-maintainable and imposed a cost of ₹25,000 on the applicant for wasting the Tribunal’s time, directing that it be deposited in the Prime Minister’s National Relief Fund within seven days.

Appearance

For Applicant: Adv. Agam H Maloo a/w Adv. Arif Bhati

For Financial Creditor: Adv. Subir Kumar a/w Adv. Vaishnavi Pawar, Adv. Darshil Desai i/b SDS

For RP: Adv. Kartikee Korgaonkar a/w Adv. Nikita Mishra

Cause Title: Rinki Prakash Kumar vs. The Bank of Maharashtra Limited

Case No: IA (I.B.C)/3594(MB)/2025 in CP(IB)/1138(MB)/2023

Coram: Justice Nilesh Sharma (Member-Judicial), Mr. Sameer Kakar (Member-Technical)