Continuing guarantee remains enforceable despite loan renewal or novation unless expressly revoked by the guarantor.

The Appellant is a Personal Guarantor (PG) for loans totaling ₹42 crores availed by the Corporate Debtor (CD), M/s Global Infonet Distribution Pvt. Ltd., from the State Bank of India (SBI) via a Guarantee Deed dated 25.09.2012.

SBI issued fresh sanction letters for renewal/enhancement in 2016 and 2018.

Following default and the initiation of CIRP against the CD by another creditor, SBI issued a demand notice to the PG on 24.06.2021.

Subsequently, SBI filed an application under Section 95 of the IBC.

The Adjudicating Authority (NCLT) appointed a Resolution Professional (RP) who recommended the initiation of the Insolvency Resolution Process.

The Appellant challenged the NCLT’s order dated 22.03.2024, contending that the debt was novated by subsequent sanctions and that the claim was time-barred.

The court applied Section 129 of the Indian Contract Act, 1872, defining a "continuing guarantee," and Section 130 regarding its revocation.

It relied on the principle from Sita Ram Gupta v. Punjab National Bank, holding that a party cannot revoke a guarantee when they have agreed to it being a "continuing" one.

Furthermore, it applied Section 62 of the Contract Act regarding "novation," citing Lata Construction v. Dr. Rameshchandra Ramniklal Shah, which stipulates that if rights under the old contract are kept alive, there is no substitution/novation.

Regarding limitation, the court followed the principle that the cause of action for a guarantor triggers upon the invocation of the guarantee (under Section 13(2) of the SARFAESI Act in this case).

The Tribunal analyzed Clause 8 and Clause 14 of the 2012 Guarantee Deed, which explicitly stated the guarantee was "continuing" and that variations in loan terms or extensions of time would not discharge the guarantor.

The court reasoned that since the Appellant never expressly revoked the guarantee in writing, the subsequent sanction letters were mere renewals of existing facilities and not a "novation" under Section 62 of the Contract Act.

On the issue of limitation, the Tribunal found that the guarantee was invoked on 09.11.2018 via a SARFAESI notice; since the Section 95 application was filed on 11.08.2021, it fell within the three-year window, especially considering the Supreme Court’s suo motu extension of limitation due to COVID-19.

The court answered both issues in the negative: there was no novation of the contract as the Appellant had waived the right to discharge upon variation.

The application was within the limitation period as it was filed within three years of the guarantee's invocation.

The NCLT's order initiating the insolvency resolution process against the Personal Guarantor was upheld.