Bare Production Of Guarantee Deed Without Commercial Nexus Cannot Establish Debt: NCLT Mumbai

The Mumbai Bench of the National Company Law Tribunal on 16 June held that a Section 95 insolvency petition under the Insolvency and Bankruptcy Code cannot be sustained on the basis of a mere guarantee deed without supporting evidence of commercial context, consideration, financial capacity and nexus establishing a legally enforceable debt.

Judicial Member Ashish Kalia and Technical Member Sanjiv Dutt dismissed an insolvency petition filed by Naman Syntex against Mansi Lalitkumar Manjrekar, the alleged personal guarantor of Guruanand Silk Mills Pvt Ltd. The Bench observed:

“In the absence of supporting documentation, surrounding circumstances, or independent corroboration, the Deed of Guarantee appears to be a bare and unsupported instrument. Mere production of a document styled as a guarantee, without demonstrating commercial context, consideration, capacity, and nexus, is insufficient to establish a legally enforceable debt under the Code.”

The applicant claimed to have supplied textile goods to Guruanand Silk Mills and relied on a Deed of Guarantee dated 7 July 2021, under which the respondent allegedly guaranteed liabilities up to Rs. 1 crore. It stated that dues of Rs. 2.12 crore remained outstanding as on 23 December 2024.

The corporate debtor was admitted into CIRP on 14 November 2024. The guarantee was invoked through a notice dated 23 December 2024, followed by a demand notice dated 1 February 2025.

The Tribunal noted inconsistencies in the guarantee arrangement, particularly that the petition failed to explain the nature of the relationship between the parties or the commercial rationale for the guarantor assuming substantial liability. It held:

“A perusal of the Deed of Guarantee itself raises serious doubts. The document indicates that the Personal Guarantor was known to both parties; yet the petition fails to explain the nature of such acquaintance, the background of the transaction, or the commercial rationale for assuming substantial financial liability. If the Personal Guarantor was known to both parties, he cannot be treated as a complete stranger; conversely, if he had no real nexus with the transaction between the petitioner and the Corporate Debtor, the execution of such a guarantee becomes inherently questionable. This internal inconsistency remains unexplained.”

The Bench also took note of recovery proceedings initiated by State Bank of India under SARFAESI, including a demand notice dated 26 June 2024, symbolic possession on 5 September 2024, and an order dated 21 January 2025 for physical possession through a Court Commissioner.

Further, it held that the insolvency petition was filed on 28 July 2025, just three days before the scheduled possession on 31 July 2025, indicating that the timing aligned with imminent recovery action. The Tribunal observed:

“The unexplained deficiencies in the Applicant's case, coupled with the timing of the petition immediately prior to the proposed possession proceedings and the subsequent reliance on the interim moratorium to restrain recovery action, clearly indicate that the provisions of the Code have been invoked as a device to obstruct and delay lawful enforcement proceedings under the SARFAESI Act. The present petition, therefore, constitutes an abuse of the process of law and is liable to be rejected.”

Accordingly, the NCLT dismissed the petition.