Non-Obstante Clause Capping Liability Cannot Override Independent Interest Obligation of Guarantor: NCLAT Permits ₹67.98 Cr Claim Beyond ₹25 Cr Cap [Read Order]

The National Company Law Appellate Tribunal(NCLAT), New Delhi Bench, held that a non-obstante clause capping liability under a guarantee deed cannot override an independent contractual obligation to pay default interest and where the guarantee agreement separately provides for interest liability arising out of the guarantor’s own default, such liability cannot be restricted by the overall cap.

The appellant, ICICI Bank had extended credit facilities to the principal borrower, for which Ushdev Engitech Ltd, the respondent, executed a corporate guarantee. Upon default, the guarantee was invoked and the bank filed its claim during Corporate Insolvency Resolution Process (CIRP) . The principal amount claimed by the bank was ₹25 crore and also claimed default interest, making the total claim as ₹67,98,65,048.

Krishnendu Dutta, counsel for the appellant, contended that the Adjudicating Authority had erroneously interpreted the guarantee deed. It was argued that Clause 3 of the agreement independently provided for payment of default interest in case of delay by the guarantor in discharging its obligations.

The appellant counsel also submitted that Clause 33, which capped liability at ₹25 crore, applied only to the principal guarantee obligation and not to default interest arising from the guarantor’s own failure. It was further contended that both clauses operated in distinct spheres and must be read harmoniously.

Ramji Srinivasan, counsel for the respondent, contended that the guarantee deed clearly imposed an overall cap of ₹25 crore through a non-obstante clause. It was argued that the guarantor cannot be made liable beyond the terms of the contract, and any interpretation permitting recovery beyond ₹25 crore would defeat the express contractual limitation.

Barun Mitra, Technical Member noted that the guarantee deed created two distinct obligations, one was to discharge the principal borrower’s liability, and the other relating to payment of default interest upon delay by the guarantor.

The Tribunal observed that the liability cap under Clause 33 applied only to the principal guarantee amount and not to default interest which is an independent obligation. The Tribunal emphasised that in absence of any conflict, both clauses must be harmoniously read and a non-obstante clause cannot override independent provisions.

Accordingly, the Tribunal held that the liability of the guarantor is not limited to ₹25 crore where default interest is contractually payable.

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