Adding New Guarantors Does Not Automatically Discharge Existing Personal Guarantor: NCLT Delhi

“The material placed on record also shows that the MRA introduced the new guarantors as part of the restructured arrangement; however, the mere inclusion of such persons as guarantors under the restructured facility cannot, in the absence of a specific and operative discharge of the existing guarantee, be construed as an automatic extinction of the Respondent's earlier contractual liability.”

The case arose from an application filed by Canara Bank seeking personal insolvency proceedings against Suraj Mal Dabas. He had furnished personal guarantees for credit facilities availed by Tirupati Infraprojects Private Limited.

The loans were later restructured under a Master Restructuring Agreement dated March 30, 2013. After the company failed to comply with the revised terms, the lenders decided to exit the restructuring. The bank claimed outstanding dues of approximately ₹303.45 crore as of December 30, 2024.

The guarantee was stated to have been invoked on 23 June 2015, and the outstanding dues were claimed at over Rs 303.44 crore as on 30 December 2024.

The bank contended that the guarantee executed by the respondent was unconditional, irrevocable and continuing in nature. It argued that the guarantee expressly provided that the guarantor's liability would survive restructuring, variation of credit facilities and other arrangements between the lenders and the borrower.

The bank further relied on Clause 25 of the guarantee deed, under which any acknowledgment of debt made by the borrower was agreed to be binding on the guarantor. On this basis, the bank argued that repeated acknowledgments of debt in the corporate debtor's audited balance sheets extended limitation under Section 18 of the Limitation Act, 1963.

The Resolution Professional (RP) recommended admission of the application after finding compliance with statutory requirements under Sections 95 of the Code.

The personal guarantor argued that he was neither a director nor promoter of the corporate debtor and had been excluded from its management under an undertaking executed in 2008. He further contended that the guarantee deeds relied upon by the financial creditor were forged, fabricated and never validly executed by him. According to him, the lenders had relied upon different guarantee deeds before the Debt Recovery Tribunal (DRT), thereby adopting inconsistent positions.

It was further pointed out that the CDR final reports recorded that his personal guarantee was proposed to be waived and substituted with guarantees furnished by newly inducted promoters. He argued that the restructuring enhanced credit limits, revised repayment terms, altered security arrangements and introduced fresh guarantors, thereby resulting in novation of the original arrangement. It was also submitted that the application was barred by limitation.

The Tribunal first addressed the issue of limitation. The bench noted that acknowledgements contained in duly signed balance sheets are capable of extending limitation as it constitutes an acknowledgment in writing for the purposes of Section 18 of the Limitation Act. The bench observed,

'The acknowledgment is not merely an internal accounting entry, but records the subsisting indebtedness of the Corporate Debtor towards the Financial Creditor. It is pertinent to mention that the Applicant has also relied on the Balance Sheet for the earlier financial period as well.”

It was also noted that Clause 25 of the deed of guarantee had expressly stipulated that acknowledgements made by the borrower regarding its debt would be binding upon the guarantor as if made by the guarantor himself. Accordingly, it was held that the application was not time barred.

The Tribunal further, rejected the contention that the guarantor stood discharged due to the CDR restructuring. It noted that the deed of guarantee constituted a continuing security and prescribed a specific mechanism for termination and that no evidence was produced to show that the guarantor had served a termination notice or that a discharge letter had been executed by the lender.

The bench further noted that Personal Guarantor cannot claim discharge from an existing guarantee merely because he was not a signatory to a subsequent restructuring arrangement.

The Bench also found that the MRA did not contain any explicit provision releasing the respondent from his existing guarantee obligations. Instead, the restructuring merely introduced additional guarantors. It was noted that this induction by itself, did not amount to a discharge of the respondent's existing obligations.

The Tribunal also noted that the guarantor had contractually waived rights available under Section 133 of the Contract Act through Clause 24 of the guarantee deed.The Bench observed that the continuance of the lending relationship, restructuring of the credit facilities, or modifications to the terms governing the borrower's obligations could not automatically discharge his liability.

Accordingly, the Tribunal admitted the Section 95 petition, initiated the insolvency resolution process against the personal guarantor and declared a moratorium under Section 101 of the Code.

For Applicants: Advocates Karan Gandhi, Riya Jain

For Respondents: Advocates Pallav Saxena, Priya Mishra; Advcoates Shipra, Himanshi Chandani for RP