Facts
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.
Source reference: p. 3SBI issued fresh sanction letters for renewal/enhancement in 2016 and 2018.
Source reference: p. 4Following default and the initiation of CIRP against the CD by another creditor, SBI issued a demand notice to the PG on 24.06.2021.
Source reference: p. 3Subsequently, SBI filed an application under Section 95 of the IBC.
Source reference: no citationThe Adjudicating Authority (NCLT) appointed a Resolution Professional (RP) who recommended the initiation of the Insolvency Resolution Process.
Source reference: p. 2-3The 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.
Source reference: p. 4Issues
Whether the renewal of credit facilities and variation in loan terms constitutes a "novation" of the contract, thereby discharging the Personal Guarantor from liability.
Source reference: p. 8-10Whether the insolvency application filed under Section 95 of the IBC was barred by limitation.
Source reference: p. 11Law Applied
The court applied Section 129 of the Indian Contract Act, 1872, defining a "continuing guarantee," and Section 130 regarding its revocation.
Source reference: p. 9It 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.
Source reference: p. 10Furthermore, 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.
Source reference: p. 11Regarding 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).
Source reference: p. 6Reasoning
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.
Source reference: p. 8-9The 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.
Source reference: p. 10On 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.
Source reference: p. 6, 11Holding
The NCLAT dismissed the appeal, holding that the guarantee was continuing and effectively covered the renewed facilities.
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.
Source reference: p. 9, 11The application was within the limitation period as it was filed within three years of the guarantee's invocation.
Source reference: p. 11The NCLT's order initiating the insolvency resolution process against the Personal Guarantor was upheld.
Source reference: p. 12Original Court PDF
Sri Vibu Venkatsubramanian v. State Bank of India & Anr. Company Appeal (AT) (Insolvency) No. 1228 of 2024.
Click to open original judgment
Original judgment, available to read, download and summarize on LawLens.in