Forgery Allegations on Subsequent Guarantees Cannot Discharge an Earlier Continuing Guarantee: NCLAT Upholds SBI’s Section 95 Petition [Read Order]

The National Company Law Appellate Tribunal ( NCLAT ), Principal Bench, New Delhi, has upheld the initiation of insolvency resolution proceedings against a personal guarantor under Section 95 of the Insolvency and Bankruptcy Code, 2016, holding that the forgery allegations on subsequent guarantees post the resignation of the guarantor from the company cannot discharge a continuing guarantee.

The appeal arose from an order dated of the NCLT, which admitted State Bank of India’s application under Section 95 of the Insolvency and Bankruptcy Code (IBC) against Subhash Aggarwal, a personal guarantor to corporate debtor M/s J.V. Strips Ltd. Aggarwal had executed a personal guarantee on 25.08.2009 for ₹3.84 crore against a credit facility of ₹41.25 crore extended to the corporate debtor.

The facility was subsequently renewed and enhanced multiple times between 2010 and 2018, with the account eventually declared NPA on 25.07.2018.

Aggarwal resigned from the directorship of the corporate debtor on 13.02.2012, filing his resignation with the Registrar of Companies. He contended that he had not signed any loan documents post‑resignation and alleged that subsequent deeds of guarantee, particularly the 2014 supplementary agreement, bore forged signatures.

SBI, however, maintained that the 2009 guarantee was continuing and irrevocable, binding Aggarwal to subsequent transactions regardless of his resignation.

The appellant argued that his liability was limited to the 2009 deed, which was never invoked, and that subsequent guarantees were fabricated. He claimed that resignation discharged him from obligations and that material alteration of the contract without consent released the surety under Sections 62 and 133 of the Contract Act.

He further contended that the Section 95 petition was time‑barred, as the NPA was declared in July 2018, but the petition was filed in May 2022, exceeding the three‑year limitation under Article 137 of the Limitation Act. He also challenged the conduct of the Resolution Professional (RP), who filed multiple reports beyond statutory timelines, rendering the process defective.

SBI countered that the 2009 guarantee deed was expressly continuing and irrevocable, covering future transactions under Section 129 of the Contract Act. The bank argued that resignation from directorship did not revoke guarantee obligations, which apply prospectively under Sections 130 and 133.

Even if later documents were disputed, liability under the 2009 deed remained enforceable. The RP acted within powers under Section 99 IBC, and the additional report was permitted by NCLT with an opportunity for objections. SBI also noted that Section 95 petitions against other guarantors for the same loan had already been admitted, placing Aggarwal on an identical footing.

The Tribunal examined the 2009 guarantee deed, which explicitly stated that it was a continuing guarantee covering amounts advanced under credit facilities, irrevocable and enforceable notwithstanding disputes, and unaffected by variations in loan terms.

The two-member bench comprising Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) held that Aggarwal’s liability under the 2009 deed continued despite his resignation and alleged forgery of later documents.

The resignation did not amount to revocation of the guarantee, and the absence of express communication to the bank reinforced liability. Allegations of forgery were treated as collateral disputes, insufficient to negate the binding nature of the 2009 deed.

On limitation, the Tribunal noted that demand was made in July 2019 and default continued thereafter, keeping the claim within limitation. The RP’s additional report was held permissible, as NCLT had granted liberty to file, and the appellant had the opportunity to respond.

In conclusion, the NCLAT dismissed Aggarwal’s appeal, affirming that the 2009 personal guarantee was continuing and irrevocable, binding him to subsequent credit facilities despite resignation and forgery allegations. However, the liability of the Appellant was restricted to Rs 3.84 Cr. in terms of the Deed of Guarantee dated 25.08.2009, which had been entered into before his resignation.

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