![Continuing Guarantee Survives Loan Renewal and Novation Absent Express Revocation by the Personal Guarantor. Sri Vibu Venkatsubramanian v. State Bank of India & Anr. [Company Appeal (AT) (Insolvency) No. 1228 of 2024]. NCLAT. LawLens](/stories/thumbnails/continuing-guarantee-survives-loan-renewal-and-novation-absent-express-revocation-by-the-p-c2512ed919c54c96a4e3bbb23c8cdf8a.webp)
01Facts
The Appellant is the 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) under a Guarantee Deed dated 25.09.2012.
p. 3SBI renewed facilities in 2016 and 2018; however, the CD defaulted, leading to CIRP initiation by another creditor in 2020.
p. 3SBI invoked the personal guarantee via a SARFAESI notice on 09.11.2018.
p. 3Subsequently, SBI filed an application under Section 95 of the IBC on 11.08.2021.
p. 6The NCLT, New Delhi, passed the impugned order on 22.03.2024, taking the Resolution Professional's (RP) report on record and initiating the insolvency process against the Appellant.
pp. 3-4The Appellant challenged this on grounds of limitation, novation of contract, and exceeding of jurisdiction by the RP.
pp. 4-502Issues
i.1. Whether the subsequent renewal of credit facilities and fresh sanction letters amounted to a novation of the contract, thereby discharging the Personal Guarantor from liability.
p. 8 / para. 6.1ii.2. Whether the application filed under Section 95 of the IBC was barred by limitation.
p. 6 / para. 4(vii)iii.3. Whether the Resolution Professional exceeded his brief by recommending the initiation of the insolvency resolution process.
p. 5 / para. 3(vi)03Law Applied
The court primarily applied Section 95 and Section 99 of the IBC, 2016, regarding the initiation of insolvency cycles for personal guarantors.
pp. 2-3It relied on Section 129 of the Indian Contract Act, 1872, defining 'continuing guarantee' and Section 62 regarding 'novation'.
pp. 9-10The court cited *State Bank of India v. Indexport* [1992(3) SCC 159] on the co-extensive liability of sureties.
p. 5It further applied *H.R. Basavaraj v. Canara Bank* [2010 (12) SCC 458] to establish that a guarantor remains liable despite variations in terms if the guarantee is 'continuing' and not expressly revoked.
pp. 9-10It further applied the "Suo-Motu Writ Petition (Civil) No. 3/2020" regarding the extension of limitation during COVID-19.
p. 604Reasoning
The Tribunal found that Clause 8 of the 2012 Guarantee Deed explicitly stated the guarantee was "continuing" and applied to all future transactions and fresh facilities.
p. 8Under Clause 14, the Appellant had waived the right to be discharged due to variations in loan terms or extensions of time, thus negating the plea of 'novation' under Section 62 of the Contract Act.
pp. 8-9Regarding limitation, the Tribunal determined that the 'default' was triggered by the invocation notice dated 09.11.2018; since the Section 95 petition was filed on 11.08.2021, it fell within the three-year window, further supported by the Supreme Court’s COVID-19 limitation tolling orders.
pp. 6-7, 11Finally, the Tribunal rejected the challenge to the RP’s role, noting that the RP is mandated under Section 99 to examine the application and recommend approval or rejection.
p. 1205Holding
The Appellate Tribunal dismissed the appeal and upheld the NCLT’s order initiating the insolvency resolution process against the Appellant.
p. 12The court held that (i) the guarantee was continuing and not discharged by subsequent renewals.
p. 12(ii) the application was filed within the limitation period from the date of invocation.
p. 11and (iii) the subsistence of SARFAESI or DRT proceedings is no bar to IBC proceedings due to the overriding effect of Section 238.
p. 12No order as to costs was made.
p. 12Original Court PDF
Sri Vibu Venkatsubramanian v. State Bank of India & Anr. [Company Appeal (AT) (Insolvency) No. 1228 of 2024]
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