Enforceability Of Personal Guarantees In Insolvency Proceedings - An Analysis Of SBI Vs Gourishankar Poddar

Author: LawSphereX

Category: Corporate & Insolvency

Published: 2026-08-23T19:39:32.852Z

Updated: 2026-08-30T07:05:37.404Z

ENFORCEABILITY OF PERSONAL GUARANTEES IN

INSOLVENCY PROCEEDINGS: AN

ANALYSIS

OF SBI VS GOURISHANKAR PODDAR Suyash Singh Gaharwar, BBA LLB, University of Mumbai Law Academy, Mumbai

ABSTRACT

The National Company Law Appellate Tribunal (NCLAT) in this case addressed three key issues concerning the initiation of the Corporate Insolvency Resolution Process (CIRP) and the liability of the personal guarantor. First, the Tribunal reaffirmed that the guarantee provided by the personal guarantor was a continuing guarantee, binding until the debt was fully repaid, relying on Section 129 of the Indian Contract Act, 1872 and Second, on the issue of limitation, the Tribunal found the CIRP petition was timely filed, noting that the revival letter and balance confirmation letter reset the limitation period under Section 18 of the Limitation Act, 1963 Keywords: Insolvency and Bankruptcy Code, Indian Contract Act, Indian Limitation Act, Resolution Professional, Financial Creditor, Corporate Debtor.

Introduction

The Present Appeals arises from the impugned order passed by the NCLT Ahmadabad on 23rd February 2024. The First Appeal has been filed under section 61(1) of Insolvency and Bankruptcy code, 20161 by the State Bank of India SBI, the Financial Creditors against Mr. Gourishankar Poddar the guarantor and Ms. Vineeta Maheshwari the RP. The case pertains to Respondents no 1’s liability as a personal guarantor for Raj Rayon Industries Limited. The Appeals challenging the dismissal of the Appellants petition under section 95 of the Insolvency and Bankruptcy Code, 20162 which sought to initiate insolvency proceedings against Respondents No 1. Subsequently the Second appeal was filed under section 61(1) of the IBC3 and challenges the same order, this appeal has been filed by Ms Vineeta Maheshwari the RP against SBI.

The facts of the case for both the appeals are same and both appeals arise from the same impugned order. Facts of the Case

1. In 1999, Raj Rayon Industries Limited- the Corporate Debtor, availed financial assistance from

the State Bank of India in the form of term loans and working capital loans. These loans were secured through an agreement executed on 06.12.2005. A Working Capital Consortium Agreement was signed between the Corporate Debtor and the SBI, detailing the terms and conditions for these facilities. Additionally, a Joint Deed of Hypothecation was executed to secure the financial facilities.

2. On 10.07.2013, Mr. Gourishankar Poddar, in his capacity as a director of the Corporate Debtor,

executed a Deed of Guarantee (“2013 Guarantee”) in favor of the SBI. This guarantee secured an increased loan amount of ₹292 crores, as agreed under the Sixth Supplemental Working Capital Consortium Agreement.

3 The guarantee explicitly stated that it was

1 Section 61 (1) of Insolvency and Bankruptcy Code, 2016

2 section 95 of the Insolvency and Bankruptcy Code, 2016

3 ibid

Irrevocable: It could not be withdrawn or revoked by Respondent No. 1. • Unconditional: The guarantee was not contingent upon any specific conditions or disputes. • Continuous: It covered all present and future financial obligations of the Corporate Debtor.

4. The Corporate Debtor began defaulting on its repayment obligations in 2013. As a result, its

account was classified as a Non-Performing Asset (NPA) on 30.11.2013 and triggering the SBI’s right to enforce its security against guarantor.

5. Mr. Gourishankar Poddar submitted his resignation as a director of the Corporate Debtor on

06.03.2014. This resignation was formally accepted by the Corporate Debtor’s board of

directors on 18.03.2014.

6. Even after submitting his resignation, Mr. Gourishankar Poddar executed another Deed of

Guarantee on 29.03.2014 (“2014 Guarantee”) this guarantee reaffirmed his liability as a personal guarantor and provided for: • Continuous Coverage: It applied to all past and future liabilities of the Corporate Debtor. • Waiver of Rights: Mr. Gourishankar Poddar explicitly waived his protections under Section 133 of the Indian Contract Act, 18724, against material variations in the loan terms.

7. Mr. Gourishankar Poddar vide letters dated 24.03.2024 and 01.04.2014 informed SBI regarding

the resignation and requested to revoke his guarantee. Subsequently the SBI through its response letter had clearly stated that the guarantee is irrevocable and Mr. Gourishankar Poddar continues to be liable for payment.

8. The Seventh Supplemental Working Capital Consortium Agreement was executed, increasing

the financial facilities from ₹292 crores to ₹398.64 crores on 25.07.2014

9. The SBI issued a Recall Notice for payment of 998.52 Cr to the Corporate Debtor and its

guarantors, including Mr. Gourishankar Poddar. Subsequently On 08.03.2021, the SBI issued a

4 Section 133 of the Indian Contract Act, 1872

Demand Notice to Mr. Gourishankar Poddar under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors) Rules, 2019.5

10. Not receiving a satisfactory response to the Demand Notice, the SBI filed a petition under

Section 956 of the Code on 23.04.2021, seeking to initiate insolvency proceedings against Mr. Gourishankar Poddar as a personal guarantor. The Adjudicating Authority dismissed the SBI’s Section 957 petition on citing alleged revocation of the guarantees by Mr. Gourishankar Poddar and further invocation of the guarantees being time-barred. The SBI has therefore filed the first Company Appeal seeking quashing of impugned order.

11. The Adjudicating Authority in the para 13 (k) of the impugned order observed the following:

“k. On perusing the revival letter, it appears that it was signed by Ms. Rajkumari Kanodia and Mr. Sushil Kumar Kanodia. When the RP is appointed regarding insolvency proceedings of guarantor Mr. Gourishankar Poddar it is his duty to specifically mention whether this guarantor has signed revival letter or not. This guarantor has not at all signed revival letter but an absolutely false statement is made by the RP that the guarantor has signed. Being an officer of the Court, it is very serious on the part of the RP to make such vague statement in the report, which is to be taken into consideration while deciding the application. This act of RP needs to be inquired into by IBBI.”8

12. Ms. Vineeta Maheshwari, Resolution Professional has filed the second Company Appeal

seeking quashing/expunging of the adverse observations made by the Tribunal in Para 13 (k) of the impugned order. I.

First Company Appeal by SBI Submissions of the Appellant

13. The Ld. Counsel for the appellant stated that the present appeal raises critical questions

regarding the enforceability of a personal guarantee under the Code, especially in a situation 5 Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors) Rules, 2019.

6 Section 95 of Insolvency and Bankruptcy Code, 2016

7 ibid

8 State Bank of India vs. Gourishankar Poddar MANU/NC/0661/2024

where a resolution plan has been approved for the Corporate Debtor. The appellant further submits that the guarantee executed by Respondent No. 1 is an independent contract, unaffected by the resolution of the principal debt. Furthermore, the appellant contends that Respondent No. 1’s purported revocation of the guarantee in 2014 is legally unsustainable.

14. The Counsel for appellant submitted that Respondent No. 1’s attempts to revoke the guarantee

through letters dated 24.03.2014 and 01.04.2014 are legally unsustainable. Under Section 130 of the Indian Contract Act, 1872,9 revocation of a guarantee is permissible only for future transactions. Since the guarantees in the present case were irrevocable and unconditional, they cannot be unilaterally revoked by the guarantor, without the consent of the appellant.

15. The appellant contended that the proceedings initiated against Respondent No. 1 are well within

the limitation period. The demand notice issued on 08.03.2021 constitutes the starting point for the limitation period. 16. The appellant submitted that any variations in the terms of the financial facilities granted to the Corporate Debtor do not discharge the liability of Respondent No. 1. Both the 2013 Guarantee and the 2014 Guarantee contain clauses wherein Respondent No. 1 explicitly waived his rights under Section 133 of the Indian Contract Act, 187210, which provides for the discharge of a guarantor in cases of material alteration of the principal contract. 17. Finally, the appellant submits that the guarantees executed by Respondent No. 1 are in the nature of continuing guarantees, as defined under Clause 26 of the 2014 Deed of Guarantee. A continuing guarantee, by its very nature, remains in force until the obligations guaranteed are fully discharged.

18. Prayer of the Appellant.

Set aside the impugned order dated 23.02.2024 passed by the Hon'ble NCLT, Ahmedabad • Allow the application under Section 95 of the Code against Respondent No. 1

9 Supra note 4

10 ibid

Submissions of the Respondents

19. Counsel for the Personal Guarantor /Respondent No. 1 stated that he is the only contesting

respondent in this case. The Respondent Gourishankar Poddar served as a director of Raj Rayon Industries Limited/ Corporate Debtor for six years, from 2009 to his resignation on 06.03.2014. At the time of resignation, he sold his entire shareholding and formally disassociated himself from all management, operations, and decision-making activities of the Company. He informed the Financial Creditor and other relevant parties of his resignation. Despite these notifications, the Financial Creditor continued to treat the Guarantor as a director and promoter, even presenting him as such to the Corporate Debt Restructuring (“CDR”) Cell.

20. The respondent submitted that the Financial Creditor coerced the Guarantor into signing the

Deed of Guarantee dated 29.03.2014 (“2014 Guarantee”) under duress, despite his disassociation from the Company. The 2014 Guarantee document is incomplete, contains unfilled sections, and is unstamped, which raises serious concerns regarding its enforceability. Additionally, the Financial Creditor misrepresented the Guarantor’s resignation to obtain the guarantee. This invalidates the 2014 Guarantee under Section 142 of the Indian Contract Act, 1872, 11which states that guarantees procured through misrepresentation are void.

21. The Respondents further submitted that the Guarantor formally revoked his guarantees through

letters dated 24.03.2014, 01.04.2014, 02.04.2014, and 21.04.2014. These communications explicitly informed the Financial Creditor of the Guarantor’s intention to terminate his liability for future transactions. The law under Section 130 of the Indian Contract Act, 1872 12allows for the revocation of continuing guarantees.

22. The counsel for the Respondent submitted that the Financial Creditor’s claims are barred by

limitation. As per Article 55 of the Limitation Act, 196313, the limitation period for enforcing a guarantee is three years from the date of breach or revocation. Here, the guarantees were revoked on 24.03.2014, starting the limitation period. The limitation period commenced on

24.03.2014 and expired on 24.03.2017. The Financial Creditor initiated proceedings on

09.04.2021, well beyond the prescribed period, making their claims legally untenable.

11 Section 142 of the Indian Contract Act, 1872,

12 Supra note 4

13 Article 55 of the Limitation Act, 1963

23. Prayer of the Respondent.

Dismiss the appeal filed by the Financial Creditor on the grounds that the claims are barred by limitation and invalid under applicable law. • Declare the 2014 guarantee as unenforceable due to misrepresentation, coercion, and procedural irregularities. Issues Framed:

1. Whether revocation of guarantee by the personal guarantor is valid?

2. Whether the CIRP proceedings against the guarantor are maintainable on the grounds of

limitation?

3. Whether changes in terms and conditions of the guarantee if any, would lead to novation?

NCLAT Held:

24. In the case at hand, the National Company Law Appellate Tribunal (NCLAT) addressed

multiple legal and factual issues related to the liability of a personal guarantor in the context of the Insolvency and Bankruptcy Code (IBC). These issues revolved around the nature of the guarantee, the limitation period for filing a petition for the Corporate Insolvency Resolution Process (CIRP), and whether the personal guarantor's liability was discharged. The appeal was filed by the appellant (the financial creditor) seeking to challenge the decision of the Adjudicating Authority which had dismissed the application to initiate CIRP proceedings against the personal guarantor of the corporate debtor. The appellant contended that the personal guarantor was liable under the guarantee agreement, and the petition for CIRP was filed within the prescribed time frame.

The NCLAT reviewed the relevant facts, legal precedents, and the specific clauses in the guarantee agreements to come to its decision. The Court addressed these issues in detail, drawing from established precedents and statutory provisions under the Indian Contract Act, 1872, the Limitation Act, 1963, and the Insolvency and Bankruptcy Code, 2016. Issue 1: Nature of the Guarantee and the Continuing Guarantee Concept:

25. The first major issue before the NCLAT was the nature of the guarantee executed by the

respondent, specifically whether it was a continuing guarantee that would hold the respondent liable even after the approval of the resolution plan of the corporate debtor (Raj Rayon Ltd). A continuing guarantee, as per Section 129 of the Indian Contract Act, 187214, is one that remains in force for a series of transactions between the debtor and creditor. The NCLAT examined the terms of the 2013 and 2014 Guarantee Agreements to ascertain whether they provided for an unconditional and continuing obligation on the part of the respondent (the personal guarantor) even after the restructuring of the corporate debtor’s liabilities.

26. The court relied on the judgment in Syndicate Bank v. Channaveerappa Beleri (2006),15 where

the Supreme Court had distinguished between a continuing guarantee and an ordinary guarantee. In a continuing guarantee, the liability of the guarantor remains in place until the debt is fully discharged, even if the terms of the loan or debt change over time. The NCLAT noted that the 2014 Guarantee Agreement explicitly stated in Clause 26 that the guarantee was a continuing one and would remain in force until the borrower (the corporate debtor) repaid the entire debt. Furthermore, the guarantee agreement was irrevocable, meaning the personal guarantor could not unilaterally revoke it or be discharged from liability simply because the corporate debtor's financial situation or circumstances changed.

27. The court also referenced the decision in Maharashtra State Electricity Board v. Official

Liquidator, Ernakulam (1982)16, where the Supreme Court held that a guarantor’s liability is co-extensive with that of the principal debtor unless specifically agreed otherwise. The NCLAT concluded that the respondent, by executing the 2014 Guarantee, had expressly agreed to continue to be bound by its terms despite any changes in the corporate debtor’s circumstances. The fact that the corporate debtor underwent restructuring or entered insolvency proceedings did not discharge the personal guarantor from liability. The revocation argument raised by the respondent was thus rejected by the court. Issue 2: Limitation Period for Filing CIRP Petition:

28. The second issue dealt with the limitation period for initiating the CIRP against the personal

guarantor. The respondent argued that the petition for the initiation of CIRP was time-barred, as the corporate debtor’s default occurred on 25.01.2018, and the CIRP petition was filed on

14 Section 129 of the Indian Contract Act, 1872

15 Syndicate Bank vs. Channaveerappa Beleri and Ors. (10.04.2006 - SC)

MANU/SC/2032/

16 Maharashtra State Electricity Board, Bombay vs. Official Liquidator, High Court, Ernakulam and Ors.

(13.10.1982 - SC) : MANU/SC/0024/

20.05.2019 against the corporate debtor. The Adjudicating Authority had noted that the

corporate debtor’s last transaction was on 03.02.2017, which was more than three years before the filing of the CIRP petition, and as such, the application was time-barred.

29. However, the NCLAT clarified that the liability of the personal guarantor and the corporate

debtor are co-extensive, meaning that any acknowledgment of liability by the corporate debtor would also be considered an acknowledgment by the personal guarantor. The court cited the judgment in E. M. Najeeb Ellias Mohammed v. Union Bank of India (2024)17, which confirmed that an acknowledgment of debt by the principal borrower also extends to the personal guarantor. This is in line with Section 18 of the Limitation Act, 196318, which allows the limitation period to be reset if the debtor acknowledges the liability in writing. In this case, the NCLAT considered the revival letter sent by the corporate debtor in December 2016, as well as the balance confirmation letters. These documents were treated as acknowledgments of the debt by the corporate debtor, and the NCLAT concluded that they restarted the limitation period for initiating CIRP against the personal guarantor.

Additionally, the COVID-19 exemption period, as per the Supreme Court's order in Suo Moto Writ Petition (C) No. 3 of 2020, was considered, which extended the limitation period for proceedings falling within the period from 15. 03. 2020 to 28. 02. 2022. This period of exemption further ensured that the CIRP petition filed by the appellant in 2021 was within the prescribed time limits. Issue 3: Personal Guarantor’s Liability and the Variation of Contract: 30. The final issue pertained to the liability of the personal guarantor in light of variations made in the terms of the original agreement between the corporate debtor and the financial creditor. The respondent argued that the terms of the original agreement had been varied, and therefore, under Section 133 of the Indian Contract Act, 187219, he should be discharged from liability. Section

13320 provides that a surety is discharged if the terms of the contract between the principal

debtor and creditor are varied without the surety’s consent.

17 E.M. Najeeb Ellias Mohammed vs. Union Bank of India (26.02.2024 - NCLAT)

MANU/NL/0139/

18 Section 18 of the Limitation Act, 1963

19 Supra note 4

20 ibid

31. However, the NCLAT noted that the 2013 and 2014 Guarantee Agreements contained explicit

clauses that waived the guarantor’s right under Section 133 of the Contract Act21, and stipulated that the guarantor would not be discharged even if the terms of the contract or security documents were varied. The NCLAT further referred to the judgment in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd. (2021)22, where the Supreme Court held that a guarantor cannot be discharged due to changes in the underlying agreement unless the variation is detrimental to the guarantor’s position. In this case, the variations to the corporate debtor’s financial arrangements were not found to be detrimental to the guarantor, and thus the court held that the guarantor remained liable for the debt.

32. The NCLAT concluded that the respondent was not discharged from his liability, even if there

were subsequent amendments to the corporate debtor’s agreements. The terms of the 2014 Guarantee were clear and binding, and the variations made to the corporate debtor’s debts and obligations, including the reduction in the amount of facilities from Rs. 292 crore to Rs. 106 crore, benefitted both the corporate debtor and the personal guarantor. II.

Second Company Appeal Submission of the Appellant

33. The counsel for appellant submits that the instant Appeal is preferred against the Impugned

Order dated 23.02.2024 passed by the Hon’ble National Company Law Tribunal, Ahmedabad Bench, Ahmedabad in CP (IB) No. 80/AHM/2021, whereby the Hon’ble Adjudicating Authority while rejecting the petition filed by Respondent No.1 has made adverse observations, against the Appellant and held that the conduct of the Appellant as Resolution Professional needs to be inquired by IBBI [Para 13(k)]23, as being bad in law. The Appellant therefore challenges the impugned order only to the extent of making adverse observations against the Appellant and holding that the conduct of Appellant as Resolution Professional needs to be inquired. The counsel further submitted that in furtherance of the observations made by the Hon’ble Adjudicating Authority, the Appellant has not received any notice from IBBI.

21 ibid

22 BRS Ventures Investments Ltd. vs. SREI Infrastructure Finance Ltd. and Ors. (23.07.2024 - SC) :

MANU/SC/0736/2024

23 Supra note 8

34. It is the submission of the Appellant that Hon'ble Adjudicating Authority has erred in making

adverse observations against the Appellant by holding that the conduct of Appellant as Resolution Professional needs to be inquired, without hearing the Resolution Professional and without calling for the explanation from the Resolution Professional. The impugned order to that extent therefore is liable to be quashed and set aside on this ground alone.

35. The Ld. Counsel for the appellant vehemently argued that the adverse observations made by

the Adjudicating Authority in the Impugned Order would cause serious prejudice and hardships to the Appellant. Therefore, the Appellant submits a compassionate view be taken on the remarks and it would be in the interest of justice to expunge the remarks/ observations made against the Appellant in the impugned order. Submission of Respondent

36. The counsel for Respondent No.1 submitted at the outset, that he is not contesting the appeal to

the extent of the observations made against the Appellant and issuance of directions to the IBBI as the captioned appeal is not adversarial and is between the Hon’ble Tribunal and the Appellant. NCLAT Held:

37. In the present case, the National Company Law Appellate Tribunal (NCLAT) dealt with several

key legal issues concerning the liability of a personal guarantor and procedural fairness during the Corporate Insolvency Resolution Process (CIRP). Firstly, regarding the nature of the guarantee provided by the respondent (personal guarantor), the NCLAT held that the guarantee was a continuing one under Section 129 of the Indian Contract Act, 187224, which means that the personal guarantor remains liable for the corporate debtor’s debt until it is fully repaid. The Tribunal emphasized that a continuing guarantee remains in effect despite variations in the underlying agreement between the creditor and the corporate debtor, citing Syndicate Bank v. Channaveerappa Beleri (2006).25

38. On the issue of limitation, the appellant argued that the CIRP application was filed within the

24 Section 129 of the Indian Contract Act, 1872

25 Supra Note 15

prescribed limitation period, relying on Section 18 of the Limitation Act, 196326, which allows for the reset of the limitation period if there is an acknowledgment of liability. The NCLAT concluded that documents like the revival letter and balance confirmation by the corporate debtor served as such acknowledgments, thus restarting the limitation period. The court further considered the COVID-19 exemption period for filing proceedings, as established by the Supreme Court in Suo Moto Writ Petition (C) No. 3 of 2020, which extended the limitation period from March 2020 to February 2022, ensuring the appellant's petition was within time. Finally, the NCLAT addressed procedural fairness and natural justice concerns.

39. The Adjudicating Authority had criticized the Resolution Professional (RP) for an error in the

event list, specifically regarding the revival letter dated 06.02.2016, which was mistakenly recorded as signed by the personal guarantor, when it was not. The NCLAT noted that the appellant had included a disclaimer regarding the event list and that the Adjudicating Authority had not provided an opportunity to the appellant to clarify the mistake. This led the NCLAT to conclude that the comments made against the RP were unfair and violated natural justice principles, as the Adjudicating Authority had not given the appellant a chance to explain the discrepancy.

40. The NCLAT ruled that the appellant's actions were not malicious and that the Adjudicating

Authority’s decision lacked due process, warranting the setting aside of the adverse remarks and the approval of the CIRP petition. Thus, the NCLAT concluded that the application was filed within the appropriate time, and the personal guarantor’s liability under the continuing guarantee remained intact. The decision of the Adjudicating Authority was overturned, and the appellant’s contentions were upheld, further stressing the importance of adhering to natural justice principles and the correct application of the Limitation Act and guarantee laws in insolvency proceedings. Conclusion: The National Company Law Appellate Tribunal (NCLAT) in this case addressed three key issues concerning the initiation of the Corporate Insolvency Resolution Process (CIRP) and the liability of the personal guarantor.

First, the Tribunal reaffirmed that the guarantee provided by the personal guarantor was a continuing guarantee, binding until the debt was fully repaid,

26 Supra note 18

relying on Section 129 of the Indian Contract Act, 1872 and Second, on the issue of limitation, the Tribunal found the CIRP petition was timely filed, noting that the revival letter and balance confirmation letter reset the limitation period under Section 18 of the Limitation Act, 196327. Furthermore, the COVID-19 exemption period, as per the Supreme Court’s order, also extended the limitation period, making the petition timely. Finally, regarding procedural fairness, the NCLAT criticized the Adjudicating Authority for making adverse remarks about the Resolution Professional (RP) based on an error in the event list, particularly concerning the non-signing of the revival letter. The NCLAT emphasized the principle of natural justice, stating that the RP should have been given a chance to clarify the error before any adverse conclusions were drawn.

In conclusion, the NCLAT upheld the maintainability of the CIRP petition, set aside the unjust remarks against the RP, and emphasized correct application of the Limitation Act and guarantee law.

27 Supra note 18

References:

1. SBI Versus Gaurishankar Poddar NCLAT Order Dated 6th January 2025.

2. IBC laws.

3. Insolvency and Bankruptcy code, 2016.

4. The Indian Contract Act, 1872.

5. the Limitation Act, 1963