Ex-Director Can’t Escape Liability — Personal Guarantee Survives Resignation from Company: NCLAT
Ex-Director Can’t Escape Liability — Personal Guarantee Survives Resignation from Company: NCLAT
Introduction
The National Company Law Appellate Tribunal (NCLAT), New Delhi, recently ruled that a resignation from a company’s directorship does not absolve an individual of liability under a continuing personal guarantee. The Tribunal clarified that such guarantees remain binding even after the guarantor exits the company unless specifically revoked in accordance with the terms of the guarantee deed.
The decision, delivered on October 29, 2025, by a bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), arose from an appeal filed by Subhash Aggarwal, former Executive Director of J V Strips Ltd., challenging an order passed by the Adjudicating Authority holding him liable as a personal guarantor under the Insolvency and Bankruptcy Code, 2016 (IBC).
Factual Background
The case stemmed from credit facilities extended by the State Bank of India (SBI) to J V Strips Ltd., a company where Aggarwal was serving as Executive Director. In 2009, Aggarwal executed a personal guarantee deed securing a limit of ₹3.84 crore for the company. The company’s credit facilities were subsequently renewed and enhanced multiple times. Aggarwal resigned from the company in 2012 but did not issue any revocation of the guarantee deed.
Following defaults by the company, its account was classified as a Non-Performing Asset (NPA) in 2018, prompting SBI to initiate insolvency proceedings against Aggarwal as a personal guarantor under Section 95 of the IBC. Aggarwal, however, challenged his liability, arguing that the personal guarantee stood extinguished upon his resignation and that subsequent enhancements of credit facilities without his consent constituted novation of contract.
Procedural Background
The Adjudicating Authority (NCLT) had earlier held that Aggarwal remained bound by the continuing guarantee executed in 2009 and rejected his claim that his resignation from the board terminated his obligations. It further held that the guarantee was validly invoked by SBI under the IBC. Aggarwal appealed to the NCLAT, contesting the findings on both legal and procedural grounds, particularly challenging the reliance on the additional report filed by the Resolution Professional after he submitted a private forensic opinion.
Issues
1. Whether resignation from the post of director absolves a personal guarantor of liability arising from a continuing guarantee deed.
2. Whether subsequent renewals or modifications in the company’s credit facilities amount to novation of the original contract, thereby releasing the guarantor.
3. Whether the proceedings under Section 95 of the IBC were time-barred or procedurally defective.
Contentions of the Parties
Appellant’s Submissions: The appellant argued that his liability ceased upon resignation in 2012, as the guarantee could not extend to credit facilities renewed thereafter. He invoked Section 133 of the Indian Contract Act, asserting that any alteration in the principal debtor’s contract without his consent discharged him from suretyship. He further contended that forgery had occurred in subsequent deeds executed after his resignation, supported by a private handwriting expert report.
Respondent’s Submissions (SBI): The bank maintained that the 2009 guarantee was continuing and irrevocable, covering all credit facilities until expressly revoked. It emphasized that the renewals were supplemental to the original facility and did not amount to novation.
The respondent also defended the procedural propriety of the Resolution Professional’s report, asserting that no violation of natural justice occurred.
Reasoning and Analysis
The Tribunal observed that resignation from directorship does not automatically revoke a personal guarantee unless explicitly revoked as per the terms of the guarantee deed.
The court stated 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.” It clarified that subsequent variations or renewals of credit facilities did not discharge the guarantor, as the guarantee was continuing and irrevocable in nature. The Tribunal rejected the argument of novation, holding that novation requires consent of all parties, which was absent here.
Addressing the appellant’s allegations of forgery, the Bench upheld the Adjudicating Authority’s decision to accept the Resolution Professional’s additional report, finding no procedural irregularity or prejudice.
Implications
The ruling reinforces the binding nature of personal guarantees under the IBC and clarifies that a director’s resignation does not dissolve suretyship obligations under a continuing guarantee. It underscores that guarantors must expressly revoke such guarantees in accordance with contractual terms to avoid ongoing liability.
This decision strengthens creditor rights by preventing guarantors from evading liability through resignation or subsequent changes in corporate structure and emphasizes the continuing and irrevocable nature of guarantee deeds in corporate lending transactions.
In this case the appellant was represented by Mr. Abhijeet Sinha, Sr. Advocate with Mr. Arindam Ghose, Mr. Upinder Singh and Ms. Shavanya Bhatnagar, Advocates. Mr. Bheem Sain Jain, Advocate for R-1.
