Related-Party Nature Of Original Transaction Does Not Invalidate Independent Personal Guarantee: NCLT Indore
The Indore Bench of the National Company Law Tribunal (NCLT) has held that the related-party nature of an underlying transaction does not affect the validity of an independently executed personal guarantee.
A bench of Judicial Member Brajendra Mani Tripathi and Technical Member Man Mohan Gupta observed, “The related-party character of the original arrangement does not affect the validity of the Deed of Guarantee independently executed by the Respondent, nor has any plea of collusion, fraud, or coercion been raised by the Respondent, who has neither appeared nor controverted the debt at any stage.”
The tribunal made the observation while admitting a petition filed by Sukhkarta Medicose under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking initiation of a Personal Insolvency Resolution Process (PIRP) against Dr Anil Kumar Bandi. Bandi was a director of Greater Kailash Hospitals Private Limited and had personally guaranteed the hospital's debt.
The dispute originated from an agreement executed in December 2017 under which the applicant creditor, Sukhkarta Medicose, was permitted to operate a pharmacy within the hospital premises of the Corporate Debtor. Pursuant to the arrangement, the applicant deposited Rs 2.10 crore as an interest-free security deposit.
After learning of the financial difficulties faced by the Corporate Debtor, the applicant terminated the arrangement and sought a refund of the deposit. In response, the corporate debtor proposed restructuring the refundable amount into an unsecured loan carrying interest at 12% per annum. A Modification Agreement dated 2 April 2023 converted the security deposit into an unsecured loan repayable in three instalments of Rs 70 lakh each.
To secure repayment, Dr Anil Kumar Bandi and another guarantor executed a Deed of Guarantee in May 2023. The guarantee specifically provided that upon issuance of a demand notice by the creditor, the guaranteed amount would become payable by the guarantors jointly and severally within two days and that such demand would be conclusive as to both the amount claimed and the default committed.
When the corporate debtor failed to honour its repayment obligations, the creditor initiated CIRP proceedings against the company, which were admitted in July 2024. Thereafter, the creditor invoked the personal guarantee and called upon the guarantors to discharge the outstanding liability.
It was submitted that the guarantor did not dispute the debt; instead, he sought additional time to arrange funds. Even after issuing subsequent statutory demand notices, they failed to make the payment.
The Resolution Professional examined the application and recommended its admission. However, the RP pointed out certain issues, including the related-party nature of the original transaction, as the applicant was a partner in, and had held a 50% share in, the arrangement with the Corporate Debtor. The applicant was also named as a related party in the Corporate Debtor's financial statement.
The RP also pointed out discrepancies concerning board records, absence of proof of service of notices, and certain procedural irregularities.
The Bench noted that the guarantor had repeatedly acknowledged non-payment, including before the Resolution Professional, and had failed to furnish any evidence of repayment despite being granted opportunities under the Code. The bench observed,
“Where a guarantor repeatedly confirms non-repayment of the debt claimed, and no such proof is furnished despite an opportunity under Section 99(2) of the Code, no residual factual dispute survives on the existence or continuance of the default.”
The Tribunal further found that issues raised by the RP did not undermine the maintainability of the petition. It observed that the related-party character of the underlying arrangement did not affect the validity of the independently executed deed of guarantee. Further, no allegation of fraud, collusion or coercion had been raised by the guarantor, who did not contest the proceedings at any stage.
Accordingly, the Bench admitted the petition, commenced the PIRP against the guarantor, and declared a moratorium under Section 101 of the Code. Harsh Firoda was confirmed as the RP for conducting the PIRP.
For Applicants: Advocates Prashant Gawali, Gaurav Devdhekar, Madhav Khandelwal; Advocate Rohit Dubey for RP