NCLT Ahmedabad Relies On DRT Judgment To Prove Execution Of Personal Guarantees Despite No Originals

The National Company Law Tribunal (NCLT) at Ahmedabad recently relied on a Debt Recovery Tribunal (DRT) judgment, along with prior admissions and affidavits, to hold that the execution of personal guarantees stood proved even in the absence of original documents, observing:

“It is further observed that even though the original documents are not produced, the existence and execution of the guarantee stand established from (i) the judgment of the Debts Recovery Tribunal, (ii) the admission of the Personal Guarantor in earlier proceedings, and (iii) the affidavit of the consortium leader bank. In proceedings under the Code, strict rules of evidence are not applicable and _ the Adjudicating Authority is empowered to rely upon secondary evidence where sufficient foundation is laid.”

The bench of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma passed the ruling in a common order on six petitions filed by Canara Bank under Section 95 of the Insolvency and Bankruptcy Code (IBC) against the personal guarantors of Vishal Exports Overseas Ltd, including Rushi Pradeep Mehta and his family members.

On the issue of invocation of guarantees, the tribunal rejected the guarantors' objections and held that the recall notices issued in July 2007 and SARFAESI demand notices issued in February 2008 to both the borrower and the guarantors were held to constitute valid invocation. The bench further noted that the DRT proceedings culminating in the 2015 judgment reflected enforcement of the guarantees.

Clarifying the legal position, the tribunal observed:

“Invocation of guarantee does not require any prescribed format and is satisfied where a clear demand is made upon the guarantor to discharge the liability in terms of the guarantee. In the present case, the Recall Notice dated 12.07.2007 and the demand notice issued under Section 13(2) of the SARFAESI Act, 2002, are addressed to the borrower as well as the Personal Guarantors and call upon them to repay the outstanding dues. Such demand constitutes valid invocation of the guarantee. ”

The petitions were filed for a default of Rs 38.42 crore arising from breach of obligations under deeds of guarantee dated September 28, 2006.

Canara Bank had extended credit facilities aggregating to Rs 300 crore to the corporate debtor in 2003 under a consortium arrangement. To secure these facilities, the corporate debtor executed security documents, and the personal guarantors executed deeds of continuing guarantee.

Defaults were followed by a recall notice dated July 12, 2007, and a demand notice under the SARFAESI Act issued on February 11, 2008, both calling upon the borrower as well as the guarantors to clear the dues.

The lenders then moved the Debts Recovery Tribunal, where proceedings culminated in a judgment on December 5, 2015. Recovery certificate proceedings ensued, with enforcement steps continuing over the years, including the attachment of shares of the defaulters in November 2024.

The bank also pointed to a series of one-time settlement (OTS) proposals put forward between 2017 and 2024, none of which were accepted. A statutory demand notice dated December 12, 2024 followed, pegging the total outstanding at ₹95.24 crore and the default at ₹38.42 crore.

After the petitions were filed on February 25, 2025, the tribunal appointed an Interim Resolution Professional on April 8, 2025. The IRP subsequently examined the material and recommended admission of the petitions under Section 99 of the Code.

The personal guarantors, however, disputed the very basis of the claim. They maintained that they had not executed any guarantees and that no document bearing their signatures had been produced. Some also claimed they were minors at the time of the transactions or had been residing outside India, with no role in the company's affairs.

The tribunal was not persuaded. It found that the DRT judgment, coupled with earlier admissions and supporting affidavits, was sufficient to establish execution of the guarantees and the resulting liability.