Resignation From Directorship Doesn’t Extinguish Liability Under Continuing Guarantee: NCLAT
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that resignation from the directorship of a company does not absolve a personal guarantor of liability under a continuing guarantee, unless such guarantee has been expressly revoked in accordance with law. A bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) observed that a personal guarantee, once executed, continues to bind the guarantor until validly revoked, and that resignation from directorship cannot be relied upon as a ground for discharge of surety obligations.
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“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 Tribunal held.
Background
The appeal arose from an order of the National Company Law Tribunal (NCLT), New Delhi Bench, which had admitted a petition under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC), filed by the State Bank of India (SBI) against Mr. Subhash Aggarwal, the personal guarantor of M/s J.V. Strips Ltd., the corporate debtor. Mr. Aggarwal had executed a deed of personal guarantee in 2009 for ₹3.84 crore out of a total sanctioned limit of ₹41.25 crore. The guarantee was later revised and enhanced through supplemental agreements executed between 2010 and 2018. The account of the corporate debtor was classified as a Non-Performing Asset (NPA) in 2018.
The appellant contended that he had resigned from the company in 2012 and that subsequent guarantee deeds executed in 2014 and thereafter were forged and fabricated. He argued that since the 2009 guarantee was not invoked and was not continuing, his resignation automatically extinguished his liability. He also claimed that the insolvency petition was barred by limitation, as it was filed in 2022, four years after the NPA classification, and that the Resolution Professional (RP) had violated the ten-day time limit under Section 99 of the IBC by filing multiple reports.
Submissions
The State Bank of India, through its counsel, submitted that the 2009 Deed of Guarantee was continuing and irrevocable within the meaning of Section 129 of the Indian Contract Act, 1872. It further argued that resignation from directorship does not terminate a guarantee unless expressly revoked under Section 130 of the Contract Act. SBI also pointed out that Clause 14 of the 2009 deed permitted variations in the loan or credit facilities without affecting the guarantor’s liability. The application, it argued, was within limitation as it was filed within three years from the date of default, following the loan recall notice.
Findings Of The Tribunal
The NCLAT held that the Deed of Guarantee executed in 2009 was a continuing and irrevocable guarantee, and its effect extended to subsequent variations in the credit limits. The bench noted that Clauses 8, 11, and 14 of the 2009 deed made it clear that the guarantee covered all subsequent transactions and renewals. Rejecting the appellant’s selective reading of the clauses, the Tribunal observed: “We are therefore not inclined to agree with the skewed and selective reading of the clauses by the Appellant that Clause 8 of the 2009 Guarantee Deed limited the continuance of the guarantee only to the amount mentioned in Clause 1.”
The bench relied on the Supreme Court’s decision in Sitaram Gupta v. Punjab National Bank (1999 SCC Online SC 1316), where it was held that once a guarantee is executed, it cannot be revoked merely because the guarantor resigns or ceases to hold a particular office. Quoting from Sitaram Gupta, the NCLAT observed:“Having entered into the agreement in the manner indicated above, it was, therefore, not open to the appellant to turn around and say that in view of Section 130 of the Act, since the guarantee was revoked before the loan was advanced, he was not liable to pay the decretal amount as a guarantor.” Applying this principle, the Tribunal held that all subsequent guarantee deeds executed after 2009 were supplemental in nature and did not extinguish the guarantor’s continuing liability.
Other Findings
The Tribunal further noted that no communication or notice was ever issued by the appellant revoking the 2009 guarantee, nor had the bank acknowledged any such revocation. Hence, his resignation in 2012 could not be construed as termination of the guarantee.
On the issue of limitation, the Tribunal held that the date of default and not the date of NPA classification is relevant for limitation under the IBC, and that the application filed by SBI was within the prescribed period. The Tribunal also dismissed the appellant’s challenge regarding multiple reports filed by the Resolution Professional, terming it a frivolous technical plea, as adequate opportunity was given to the appellant to respond to all reports.“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. The contention that the RP could not have filed an additional report is a frivolous technical plea which lacks basis,” the bench observed.
Order
Upholding the NCLT’s decision, the NCLAT found that the debt and default were clearly established. However, in the interest of justice, the Tribunal restricted the liability of the appellant to ₹3.84 crore, the amount originally guaranteed under the 2009 deed. “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 bench concluded.
By dismissing the appeal, the NCLAT New Delhi reaffirmed that a continuing personal guarantee remains enforceable despite resignation from directorship, unless it is expressly revoked under law. The ruling underscores that personal guarantees are independent contracts, and resignation or cessation of managerial role does not terminate the guarantor’s liability.
Appearance
For Appellant: Mr. Abhijeet Sinha, Sr. Advocate with Mr. Arindam Ghose, Mr. Upinder Singh and Ms. Shavanya Bhatnagar, Advocates.
For Respondent: Mr. Bheem Sain Jain, Advocate for R-1
Cause Title: Subhash Aggarwal v. State Bank of India & Anr.
Case No: Company Appeal (AT) (Insolvency) No. 512 of 2024
Coram: Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member)
