Corporate Debtor's Liability As Guarantor Remains Unaffected By Internal Adjustments Among Financial Creditors: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Rakesh Kumar Jain, Justice Mohammad Faiz Alam Khan and Mr. Naresh Salecha (Technical Member) has held that internal adjustments among the Financial Creditors in the form of merger, demerger, or amalgamation do not affect the liability of the Corporate Debtor as guarantor, especially when all terms and conditions of the Guarantee Deed remain intact even after such adjustments. The present appeal has been filed against an order passed by National Company Law Tribunal (NCLT) by which it admitted an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) filed by Jammu and Kashmir Bank. The Appellant submitted that once the liability of the Corporate Debtor (CD) was transferred, it cannot be pushed into Corporate Insolvency Resolution Process (CIRP) on account of debt and default. Schemes approved by the Hon'ble Bombay High Court on 04.04.2014 and 20.06.2014 were not challenged and had attained finality. Per contra, the Respondent submitted that it was only an asset which was demerged from the CD whereas clause 8 clearly provided that it shall not be affected by any amalgamation or absorption of the guarantor company. It was further contended that PIUDCL vide its letter dated 12.12.2017 addressed to Financial Creditor (FC) unequivocally 7 acknowledged the continued subsistence of the Corporate guarantee issued by CD despite intervening scheme of demerger/merger and requested for the release of guarantee given by the CD. It was also argued that the CD has failed to bring on record a single letter from the Bank by which it had discharged the guarantee given by the CD which cannot be accepted on inference and the corporate guarantee cannot be unilaterally revoked or assigned to another entity without the express consent of the FC. The Tribunal observed that internal adjustments within Essel Group in the form of merger, demerger and amalgamation do not affect the corporate debtor's liability as guarantor. It has also expressly been provided under clause 8 of the Guarantee Deed. The contention of the Appellant that its liability was discharged subsequent to revised sanction letter issued on 18.11.2017 was rejected as the revised sanction specifically preserved all existing terms and conditions including clause 8 of the Deed. It further observed that additionally, no evidence was produced by the Corporate Debtor to show that its liability was discharged by the financial creditor. On the contrary, a letter issued on 12.12.2017 by which the corporate debtor requested to release the guarantee indicates that the guarantee continued even after the sanction renewal on 18.11.2017. Accordingly, the present appeal was dismissed. Case Title:Pooja Ramesh Singh Versus Jammu and Kashmir Bank Ltd. & Anr. Case Number:Comp. App. (AT) (Ins) No. 1808 of 2024 & I.A. No. 6593 of 2024 Judgment Date: 11/09/2025 Click Here To Read/Download The Order

Corporate Debtor's Liability As Guarantor Remains Unaffected By Internal Adjustments Among Financial Creditors: NCLAT

Mohd Malik Chauhan

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Corporate Debtor's Liability As Guarantor Remains Unaffected By Internal Adjustments Among Financial Creditors: NCLAT

Mohd Malik Chauhan

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Mohd Malik Chauhan

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