Resignation From Directorship Does Not Discharge Personal Guarantor From Liability Under Continuing Guarantee: NCLAT

A bench of Justice Ashok Bhushan and Mr. Barun Mitra (Technical Member) held that “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.”

Background:

The appeal arose out of an order passed by National Company Law Tribunal (NCLT) New Delhi by which it had admitted a petition under section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) filed by State Bank of India against Subhash Aggarwal, personal guarantor to M/s J.V. Strips Ltd.

Aggarwal had executed a personal guarantee of ₹3.84 crore out of a total sanctioned limit of ₹41.25 crore. The guarantee was subsequently enhanced and revised multiple times until 2018. The account of the corporate debtor was classified as Non-Performing Assets (NPAs) in 2018. The Appellant argued that he had resigned from the company in 2012 and that subsequent renewals and deeds of guarantee executed in 2014 and thereafter were forged and fabricated.

Despite these allegations, the petition under section 95 of the IBC was admitted by the NCLT. Aggrieved, the Aggarwal had filed an appeal before the NCLAT.

The Appellant submitted that the deed of guarantee executed in 2009 was not continuing and was never invoked, therefore no liability existed. It was further contended that the guarantee ceased to have effect after resignation and therefore any variation or alteration thereafter discharged from the liability under sections 62 and 133 of the Indian Contract Act.

It was further argued that the 2014 guarantee was a forged document as it had been executed without his consent. It was also argued that the petition was time barred as it was filed in 2022 whereas the account was classified as NPA in 2018. Lastly, it was submitted that the RP illegally filed multiple reports thereby violating the ten day limit prescribed under section 99 of the IBC.

Per contra, SBI submitted that the 2009 deed of guarantee was a continuing and irrevocable under section 129 of the Contract Act. It was further submitted that resignation of director from his position does not terminate a personal guarantee unless expressly revoked under section 130 of the Contract Act. It was also argued that clause 14 of the 2009 deed permitted variations in the credit limits without affecting the surety's liability. Lastly, it was submitted that the application was within limitation as it had been filed within 3 years from the date of default following the loan recall notice.

Findings:

The Tribunal observed that the 2009 guarantee was a continuing and irrevocable in nature and expressly extended to any variations in the loan account. It observed that “that the Deed of Guarantee of 2009 was a 'continuing' guarantee which was 'irrevocable' in nature is evident from a plain reading of Clauses 8 and 11 of the Guarantee Deed. Further, Clause 14 amply makes it clear that the terms of the Guarantee Deed of 2009 provided scope for subsequent variations.”

The Tribunal rejected the selective reading of the guarantee's clauses holding that “We are therefore not inclined to agree with the skewed and selective reading of the clauses by the Appellant that Clause 8 of the 2009 Guarantee Deed limited the continuance of the guarantee only to the amount mentioned in Clause 1.”

Relying on Sitamran Gupta, the Tribunal held that once a guarantee is executed, it cannot subsequently be revoked by resignation or cessation of role.

Quoting from Sitaram Gupta, it observed that “Having entered into the agreement in the manner indicated above, it was, therefore, not open to the appellant to turn around and say that in view of Section 130 of the Act, since the guarantee was revoked before the loan was advanced, he was not liable to pay the decretal amount as a guarantor.”

Applying the ratio of the above judgment to the present case, the Tribunal held that all guarantees executed after the 2009 guarantee were supplemental in nature and would not change the legal status of a personal guarantor nor extinguish his liability.

It held that “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 Tribunal further held that mere resignation from the position of directorship does not lead to the revocation of a personal guarantee or discharges the guarantor from liability arising out of a personal guarantee executed in 2009. It further observed that no communication was sent by the Appellant seeking release from the guarantee obligations before the purported resignation.

The Tribunal further held that the date of NPA's classification cannot be treated as the date of default for the purpose of filing a petition under the IBC.

On multiple reports filed by RP, the Tribunal held that “When sufficient opportunity had also been given to the Appellant to deal with the Additional Report, the Appellant cannot claim to have suffered any prejudice… The contention that the RP could not have filed an additional report is a frivolous technical plea which lacks basis.”

Accordingly, the Tribunal upheld the decision of the NCLT holding that debt and default were clearly established in the present case. However, in the interest of justice, it restricted the liability of the Appellant to ₹3.84 crore, the amount originally guaranteed in 2009.

Case Title: Subhash Aggarwal v. State Bank of India & Anr.

Case Number: Company Appeal (AT) (Insolvency) No. 512 of 2024

Judgment Date: 29/10/2025

For Appellant: Mr. Abhijeet Sinha, Sr. Advocate with Mr. Arindam Ghose, Mr. Upinder Singh and Ms. Shavanya Bhatnagar, Advocates.

For Respondent : Mr. Bheem Sain Jain, Advocate for R-1.

Click Here To Read/Download The Order