Liabilities Incurred Before Execution Of Guarantee Agreement Can't Be Included In It Unless Explicitly Stated: NCLT Kochi

The National Company Law Tribunal (NCLT) Kochi bench of Madhu Sinha (Member Technical) and Vinay Goel (Member Judicial) has held that past liabilities incurred before the execution of the Agreement of Guarantee cannot be included in it unless an explicit clause covering such liabilities are explicitly incorporated in the Agreement. The present petitions have been filed under section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) to initiate Personal Insolvency Resolution Process (PIRP) against the personal guarantors of the Corporate Debtor. The Petitioner submitted that the invoices pertain to supplies made before 04.01.2022, and although not fully paid, payments were made after execution of the Credit and Guarantee Agreements on several dates, confirming the ongoing business relationship. The Credit Agreement was signed jointly by the Corporate Debtor and sister concerns, who continued making purchases. The Respondent submitted that all the invoices relied upon by the Petitioner predate the execution of the agreements. Accordingly, no liability can arise under the said agreements for transactions that took place prior to their execution, and the same cannot form the basis of the present claim. It was further submitted that it is clear from the petitioner's ledger that the invoices were raised before the execution of the Cash Credit and Guarantee Agreement. Therefore, the guarantee cannot be invoked for the liabilities incurred before the execution of the Agreement. The Tribunal observed that although the Guarantee Agreement provided for the maximum liability of Rs. 4 crores, it does not mention any past dues or invoices raised before the execution of the Agreement. No intention can be gathered from the terms of the Guarantee to cover past dues nor any evidence or acknowledgement was presented to demonstrate that such intent was there. Both the Cash Credit and the Guarantee were executed in 2022 but both of them do not reference any prior liabilities. It held that “while it is not disputed that a liability existed at the time of execution, the absence of any express stipulation or supporting evidence linking the Guarantee to such past liability precludes this Tribunal from presuming that the agreement was intended to operate and meant for past liability.” The Tribunal also observed that while the law permits to cover past liabilities in the Agreement of Guarantee, a clause to this effect must be explicitly incorporated in the Agreement. Accordingly, the present petitions were dismissed. Case Title: RL Marketing & Distributors -Vs- Mrs. M.H. Hinshra Case Number: IA(IBC)/65/KOB/2025 IN CP(IBC)/57/KOB/2024 & IA(IBC)/66/KOB/2025 IN CP(IBC)/58/KOB/2024 & IA(IBC)/64/KOB/2024 IN CP(IBC)/59/KOB/2024 Order Date: 24/06/2025Click Here To Read/Download The Order

Liabilities Incurred Before Execution Of Guarantee Agreement Can't Be Included In It Unless Explicitly Stated: NCLT Kochi

Mohd Malik Chauhan

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