Resignation as Director Doesn't Relieve Guarantor of Personal Guarantee Obligations: NCLAT

The National Company Law Appellate Tribunal at Delhi recently observed that a resignation from directorship does not absolve a person from obligations arising under a personal guarantee agreement. The tribunal held that a personal guarantee, once executed as a continuing obligation, remains binding even after the guarantor steps down from the company's board. A bench comprising Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra passed the order on October 29, upholding the liability of former J V Strips Ltd. Executive Director Subhash Aggarwal as a personal guarantor under a 2009 guarantee deed. The tribunal, however, limited his liability to ₹3.84 crore, the amount specified in the original guarantee. "We are therefore of the considered view that the Adjudicating Authority has rightly concluded that simply because the Appellant had resigned from the Directorship of the Corporate Debtor, this cannot be sufficient ground leading to revocation of his personal guarantee or discharge from his surety obligations arising out of the Deed of Guarantee of 2009 which was a continuing guarantee." It further ruled that subsequent variations or renewals of the company's credit facilities did not release him from liability and that the continuing guarantees and irrevocable in nature. “The appellant cannot be seen to reason out that he was not bound by the transactions emanating out of the Guarantee Deed of 2009 as this deed was of a continuing nature and would remain operational even for subsequent transactions. All guarantees after the Guarantee Deed of 2009 were supplemental in nature and would not change the legal status of the Appellant as a Personal Guarantor nor would it extinguish his liability as a guarantor. The plea of novation of contract taken by the Appellant is misconceived as novation of contract can take effect only with the consent of all the parties,” the bench said. The case arose from loans extended by the State Bank of India (SBI) to J V Strips Ltd., where Aggarwal was serving as Executive Director. In 2009, he executed a personal guarantee for Rs 3.84 crore as part of a larger credit facility. The facility was renewed and enhanced several times, including after his resignation in 2012. Aggarwal alleged that the deeds executed after his resignation were forged and fabricated and lodged a police complaint.When the company's account was declared a non-performing asset in 2018, SBI initiated insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code (IBC) against him as a personal guarantor. Aggarwal argued that his liability was limited to the 2009 guarantee and that the plea seeking insolvency against him was time-barred. He relied on Section 133 of the Indian Contract Act, which states that a surety is discharged if the contract is altered without consent. SBI maintained that the 2009 guarantee was continuing and irrevocable and that the loans advanced before his resignation were sufficient to invoke it. Upholding the Adjudicating Authority's findings, the NCLAT restricted Aggarwal's liability to Rs 3.84 crore in line with the 2009 deed. The tribunal also found no procedural irregularity in allowing the Resolution Professional to file an additional report after Aggarwal submitted a private handwriting expert's opinion claiming forgery. Holding that the move was reasonable, the tribunal dismissed technical objections to the report and disposed of the appeal with no costs. Case Title: Subhash Aggarwal vs State Bank of IndiaCase Number: Company Appeal (AT) (Insolvency) No. 512 of 2024For Appellant: Senior Advocate Abhijeet Sinha with Advocate Arindam Ghose, Upinder Singh and Shavanya BhatnagarFor Respondent: Advocate Bheem Sain JainClick Here To Read/Download Judgment

Resignation as Director Doesn't Relieve Guarantor of Personal Guarantee Obligations: NCLAT

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