The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that a personal guarantor continues to be liable under a continuing guarantee even if the principal borrower enters into a mediated settlement with a financial creditor, unless the creditor has clearly released the guarantor from liability. The Tribunal also ruled that part-payments made by the principal debtor extend the limitation period for initiating proceedings against the guarantor.
The judgment came while dismissing an appeal filed by Upkar Kaur, personal guarantor to Jagtar Singh & Sons Hydraulics Pvt. Ltd., who challenged the initiation of the personal insolvency resolution process against her. The bench comprising Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey concluded that the guarantee remained valid and enforceable, observing that the 2019 mediated settlement did not replace the original loan contract or cancel the guarantee.
The bench noted that the guarantee had never been extinguished or substituted and that breach of the settlement terms revived the full liability of the debtor. It added that acknowledgment or part-payment made by the borrower automatically extends limitation against the guarantor unless explicitly revoked. Part-payments on 11 September 2020 and 29 April 2021 were treated as acknowledgments, defeating the plea that limitation should run from the 2017 recall notice.
The dispute related to two loans granted by Intec Capital Limited: ₹3.18 crore sanctioned in March 2013, and ₹41.32 lakh in May 2016. After arbitration and CIRP proceedings in 2019, the promoters and creditor entered into a mediated settlement before Justice (Retd.) A.K. Sikri, restructuring dues and issuing post-dated cheques. Several installments were paid until April 2021, after which default occurred, reviving CIRP as per the settlement terms.
Kaur argued that she guaranteed only the 2013 loan, that the settlement constituted a substituted contract discharging her obligations, and that personal undertakings by promoters replaced her guarantee. The Tribunal rejected these arguments, stating that her guarantee was unconditional and continuing, and could be discharged only through a formal release by the creditor, which was never issued. It added that additional personal undertakings do not imply release of an earlier guarantor.
Holding that the underlying debt subsisted and that the guarantor’s liability remains co-extensive with the debtor, the NCLAT upheld the NCLT’s order initiating personal insolvency proceedings and dismissed the appeal.
Cause Title: Upkar Kaur v. Gagan Gulati & Anr.
Case No: Company Appeal (AT) (Ins.) No. 2238 of 2024
Appearance:
For Appellant: Rakesh Bajaj and Hitesh Chopra
For Respondent: Jasmeet Singh and Nitin Kumar for Resolution Professional; Manish Kumar for Financial Creditor
