NCLAT Upholds Insolvency Proceedings Against Personal Guarantor, Says Absence of Separate Guarantee Deed Not Fatal

June 2, 2026 : In a significant ruling on the liability of personal guarantors under the Insolvency and Bankruptcy Code, 2016 (IBC), the National Company Law Appellate Tribunal (NCLAT), Chennai Bench, has dismissed an appeal filed by Raiz Bashirudeen and upheld the initiation of insolvency resolution proceedings against him as a personal guarantor to the corporate debtor, M/s Furnace Fabrica (India) Limited. The appellate tribunal held that the non-production of a separate deed of guarantee would not invalidate proceedings under Section 95 of the IBC when other documents clearly establish the guarantor’s liability and status.

The appeal challenged an order dated August 1, 2024, passed by the National Company Law Tribunal (NCLT), Kochi Bench, which had admitted an application under Section 95 of the IBC for initiating insolvency proceedings against the appellant in his capacity as a personal guarantor. The matter arose from financial assistance extended by Tata Capital Financial Services Limited to Furnace Fabrica (India) Limited in 2019. According to the record, the lender had sanctioned term loan and working capital facilities aggregating approximately ₹39.60 crore to the company.

The dispute before NCLAT centered on the appellant’s contention that the insolvency proceedings were legally unsustainable because the lender had failed to place the original deed of guarantee dated May 30, 2019, on record. The appellant argued that without the guarantee deed, neither the extent of his liability nor his status as a personal guarantor could be legally established. He maintained that the proceedings were based only on a letter of guarantee, which, according to him, could not substitute a formal guarantee agreement.

Tata Capital Financial Services Limited opposed the appeal and submitted that the appellant had never disputed either the loan transaction or his role as a guarantor. The financial creditor pointed out that the appellant had signed the loan agreement in the capacity of a personal guarantor and had also acknowledged the execution of the guarantee-related documents. Therefore, the absence of a separately produced guarantee deed could not defeat the insolvency proceedings.

The tribunal examined the factual background and noted that the corporate debtor’s account had already been classified as a Non-Performing Asset (NPA). Demand notices and recall notices had been issued before the initiation of insolvency proceedings. Separately, the corporate debtor itself had already been admitted into the Corporate Insolvency Resolution Process (CIRP) in November 2023, after which proceedings under Section 95 were initiated against the personal guarantor.

While acknowledging the settled principle that a guarantor’s liability is ordinarily determined through a contract of guarantee, the appellate tribunal emphasized that insolvency proceedings cannot be invalidated merely on technical grounds when the essential facts are otherwise established. The bench observed that the appellant had never denied signing the loan agreement, nor had he disputed his designation as a guarantor within that document. The tribunal found that the loan agreement itself contained detailed clauses showing the guarantor’s undertaking to secure repayment and discharge the borrower’s liabilities.

Referring to Section 5(22) of the Insolvency and Bankruptcy Code, which defines a “personal guarantor” as an individual who acts as a surety in a contract of guarantee to a corporate debtor, the tribunal held that the statutory requirement stood satisfied through the documents already on record. It noted that the appellant had admitted the execution of the guarantee-related documents and had never alleged fraud or forgery concerning his signatures.

The NCLAT also relied on the Kerala High Court’s decision in PJ Rajappan v. Associated Industries Private Limited (1989), which held that courts should not adopt a hyper-technical approach merely because a guarantor has not signed a specific agreement if other evidence clearly establishes his involvement in guaranteeing the transaction. Quoting the principle laid down by the High Court, the tribunal observed that the entire circumstances surrounding a transaction must be considered while determining whether a person acted as a guarantor.

Explaining its reasoning, the appellate tribunal stated that “the purpose of the deed of guarantee is to establish a liability,” but where the loan agreement itself records the guarantor’s obligations and bears his admitted signatures, the underlying objective of the guarantee arrangement stands fulfilled. The bench further observed that “the very purpose stands achieved” when the guarantor’s acceptance of liability can be clearly inferred from correlated documents such as the loan agreement and letter of guarantee.

The ruling is important for lenders and insolvency professionals because it clarifies that proceedings against personal guarantors under Sections 95 to 100 of the IBC cannot automatically fail due to the absence of a separately filed guarantee deed, provided sufficient documentary evidence exists to establish the guarantor’s role and obligations. The judgment reinforces the principle that insolvency adjudication should focus on the substance of commercial transactions rather than technical deficiencies in documentation.

For personal guarantors, the decision serves as a reminder that signatures on loan agreements and related financing documents can carry significant legal consequences. Courts and tribunals may examine the overall transaction structure and conduct of parties to determine liability, even where certain supporting documents are not formally produced.

Concluding that the appellant’s objections lacked merit, the NCLAT held that the initiation of insolvency resolution proceedings against the personal guarantor was legally valid and dismissed the appeal. The tribunal affirmed that the impugned order admitting the Section 95 application suffered from no legal infirmity.

Case Title: Raiz Bashirudeen v. Tata Capital Financial Services Limited