Tribunal Rules Loan Agreement and Guarantee Letter Sufficient for Insolvency Proceedings
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) in Chennai has upheld the liability of a personal guarantor in the absence of a separate deed of guarantee, provided that the loan agreement and letter of guarantee establish such status. The case involved Mr. Raiz Bashirudeen, who contested the initiation of insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016, by Tata Capital Financial Services Limited.
The tribunal, presided over by Justice Sharad Kumar Sharma and Mr. Jatindranath Swain, dismissed the appeal by Mr. Bashirudeen, who argued that the absence of a recorded deed of guarantee vitiated the proceedings against him. He contended that the liability as a guarantor could not be established without this document, despite his admission to having signed the loan agreement and guarantee letter.
In its judgment, the NCLAT emphasized that the non-production of a separate guarantee deed does not nullify the proceedings if the personal guarantor has acknowledged the execution of the loan agreement and letter of guarantee. The tribunal clarified that the loan agreement and related documents, once signed by the guarantor, sufficiently establish the guarantor's liability under the Insolvency and Bankruptcy Code.
The tribunal's decision aligns with the principles laid out in the Kerala High Court's judgment in PJ Rajappan v. Associated Industries Private Limited, which affirmed that the guarantor's liability could be determined from the overall circumstances and documents, even if the guarantee agreement was not explicitly signed.
This ruling underscores the importance of the loan agreement and related documents in determining the status and liability of personal guarantors, potentially impacting future insolvency proceedings involving similar disputes over documentation.
Bottom line:-
Insolvency and Bankruptcy Code - Personal Guarantor's liability is not vitiated due to non-production of a separate deed of guarantee if the loan agreement itself establishes the guarantor's status and liability.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016, Sections 5(22), 95
