Personal Guarantor Cannot Escape Liability Due To Creditor's Withdrawal from CIRP: NCLT Jaipur

The Jaipur Bench of the National Company Law Tribunal (NCLT) has held that withdrawal of a creditor's claim in the corporate insolvency resolution process (CIRP) of a corporate debtor does not, by itself, extinguish the liability of a personal guarantor under an independent contract of guarantee.

Judicial Member Reeta Kohli and Technical Member Kavita Bhatnagar dismissed the application filed by Hemant Kumar Bohra, personal guarantor of Bohra Industries Limited (BIL), challenging the admission of STCI Finance Limited's claim of over Rs. 47 crore in his personal guarantor insolvency proceedings. The Bench held:

“The decisive point here is that withdrawal in one insolvency process is an election in that process and is not, by itself, a complete waiver of all remedies against all obligors unless the creditor expressly waives such rights.”

BIL had availed a term loan of Rs. 24 crore from STCI Finance Limited in 2017. To secure the loan, Hemant Kumar Bohra and Beena Bohra, erstwhile promoters of BIL, executed personal guarantees in favour of the lender.

On BIL's default, CIRP was initiated against the company on STCI's application. STCI filed a claim of Rs. 24 crore during the CIRP but later withdrew it, stating it would pursue recovery against the corporate guarantor, Bohra Pratishthan Private Limited, and the personal guarantor, Hemant Bohra.

A resolution plan submitted by a consortium led by Krishna Aggarwal was subsequently approved by the Committee of Creditors and later by the NCLT.

Meanwhile, State Bank of India initiated insolvency proceedings against Hemant Bohra in his capacity as personal guarantor to BIL. The Tribunal admitted the petition, declared an interim moratorium, and appointed a Resolution Professional. In these proceedings, the RP admitted STCI's claim at Rs. 47.37 crore.

Challenging this, Bohra contended that STCI, having withdrawn its claim from BIL's CIRP and been excluded from the approved resolution plan, could not reassert the same debt against the personal guarantor. He further argued that interest post-withdrawal could not be claimed, relying on Section 128 of the Indian Contract Act, 1872, to contend that the guarantor's liability cannot exceed what remains recoverable from the principal debtor.

Rejecting the plea, the Tribunal held that withdrawal of a claim in CIRP does not amount to extinguishment of rights under an independent guarantee contract. It observed:

“...to treat such withdrawal, by itself, as a complete extinction of the creditor's underlying contractual rights under an independent contract of guarantee against third parties would require clear legal basis, such as an express waiver, discharge, novation, settlement, or any other legally operative instrument releasing the guarantor.”

The Tribunal further noted that Bohra failed to point to any clause in the approved resolution plan discharging the guarantee obligation or extinguishing third-party guarantees merely because STCI withdrew its claim from CIRP. It stated:

“This Tribunal cannot infer such release of guarantee by implication from the mere fact of exclusion of a creditor from plan's list of financial creditors in corporate debtor's CIRP.”

It also clarified that a guarantor's liability, though co-extensive with that of the principal debtor, is not frozen at the CIRP-admitted figure. The Tribunal held that the claim against the personal guarantor must be computed as on the insolvency commencement date of the guarantor proceedings, and Bohra failed to demonstrate any legal cessation of accrual thereafter.

Judicial Member Reeta Kohli delivered a separate concurring opinion, assigning independent reasons while agreeing with the dismissal.

Accordingly, the NCLT dismissed the application and rejected the request for stay of the insolvency resolution process.

For Applicant: Advocate Akshay Petkar

For Respondent: Advocates Bhrigu Sharma, Nausher Kohli, Abhinav Mukhi, Shantanu Tomar, Manisha, Samridhi Sharma, Divya and Ritik Yadav

For RP: Advocates Abhishek Devgan and Vishal Hirawat