Personal Guarantor Not Discharged Where Original Guarantee Expressly Covered Restructuring: NCLT Delhi

The National Company Law Tribunal (NCLT) at Delhi has held that a personal guarantor is not discharged from liability merely because she did not sign subsequent renewal or restructuring documents, where the original guarantee expressly provides that such variations will not release her from the guarantee.

The court found that the guarantee executed by Raj Kumari Garg was continuing and irrevocable and expressly contemplated variations in the facilities without discharging the guarantor. It also noted that there was no specific agreement showing that the guarantee had been released, discharged or revoked.

A bench of President Justice Anupinder Singh Grewal and Technical Member Ravindra Chaturvedi observed, “the Respondent's non-signing of the subsequent renewal, consortium or restructuring documents, and the absence of execution of any fresh guarantee after restructuring, cannot, in the face of the express terms of the Guarantee Agreement, by themselves constitute a discharge of the liability already undertaken by her.”

The petition was filed by IDBI Bank under Section 95(1) of the Insolvency and Bankruptcy Code against Garg, personal guarantor of SMS Paryavaran Ltd.

The guarantee was executed on June 6, 2013, after IDBI Bank enhanced the working capital facilities of SMS Paryavaran from ₹20 crore to ₹33 crore. Garg later contended that she had not signed the subsequent renewal, consortium and restructuring documents and that these changes amounted to a material variation or novation of the original arrangement.

The subsequent documents included a consortium agreement dated May 8, 2014, renewal of the working capital facilities on June 26, 2014, restructuring of the financial facilities to ₹35.25 crore on June 29, 2015, and fresh facility documents executed on July 3, 2015. A Master Restructuring Agreement and related documents were subsequently executed on April 5, 2016.

Garg relied on Sections 62 and 133 of the Indian Contract Act, arguing that the restructuring discharged her liability. The tribunal rejected this, noting that the guarantee allowed variations without releasing the guarantors.

It also held that release of the mortgaged property after ₹2.70 crore was received did not discharge her liability, though the amount had to be credited. The resolution plan approved on February 21, 2023, likewise did not extinguish the guarantee.

The tribunal rejected her objection to the default date and noted that the guarantee was invoked on June 15, 2018. It admitted IDBI Bank's Section 95(1) petition and initiated insolvency proceedings against Garg.