NCLT Indore Rejects Personal Guarantor's Claim That Debt Owed To NBFC Is 'Imaginary' After Arbitral Award

The National Company Law Tribunal (NCLT), Indore, has rejected a personal guarantor's contention that a lender's claim was “imaginary” and did not constitute a debt, holding that her liability had already been adjudicated by an arbitral award.

A Bench of Judicial Member Brajendra Mani Tripathi and Technical Member Man Mohan Gupta observed:

“The Respondent's bare denial, and her general pleas that the claim is 'imaginary', 'not a debt' or that the IBC is a recovery forum, are without substance: The Applicant is an NBFC that disbursed a facility, the repayment of which was guaranteed by the Respondent and has since been adjudicated by an arbitral award; such a claim is plainly a 'debt', and the Applicant a creditor entitled to maintain the petition.”

The application was filed by Tata Capital Limited, formerly known as Tata Capital Financial Services Limited, against Manju Saurabh Garg, the personal guarantor of Excel Vehicles Private Limited, over outstanding dues claimed at ₹6.28 crore.

Tata Capital had renewed the company's channel finance facility in 2016, reducing it to ₹4 crore. Garg and the other personal guarantors executed a guarantee dated September 14, 2016. After defaults, the lender invoked the guarantee and initiated arbitration proceedings.

An arbitral award dated February 18, 2022, held the company and its guarantors, including Garg, jointly and severally liable for ₹3.048 crore in principal, along with interest and costs.

The NBFC later demanded ₹6.28 crore, including interest. When the dues remained unpaid, it approached the NCLT to initiate insolvency proceedings against Garg.

Garg argued that the claim was time-barred, the demand notice was not properly served and the tribunal lacked jurisdiction. She also contended that the guarantee was insufficiently stamped and the IBC could not be used as a recovery mechanism.

The tribunal rejected her objections, holding that the application was within limitation and that the guarantee's Mumbai jurisdiction clause could not override the IBC. Citing Section 128 of the Indian Contract Act, 1872, it observed that a guarantor's liability is co-extensive with that of the borrower.

The Bench held that the arbitral award and other records established the debt and default. It also ruled that any deficiency in stamping the guarantee was curable.

The tribunal admitted the application under Section 100 of the IBC and initiated insolvency resolution proceedings against Garg.