Unilateral Revocation Of Guarantee Does Not Discharge Guarantor From His Obligations When Such Revocation Was Not Accepted By Creditor: NCLAT

The NCLAT New Delhi bench of Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member ) and Mr. Indevar Pandey (Technical Member) has held that unilateral revocation of guarantee by the Respondent No.1 does not absolve him from his obligations under the guarantee agreement when the Financial Creditor has not agreed to such revocation. The terms of contract agreement also clearly show that the contract was irrevocable. Brief Facts In 1999, the corporate debtor availed financial assistance from the SBI through terms loans and working capital loans which was secured by an agreement executed on December 6, 2005. On july 10, 2013 one Mr. Gourishankar Poddar as a director of the CD executed a deed of guarantee by which an enhanced loan amount of Rs 292 crores was secured. Thereafter, the personal guarantor sent a letter by which the guarantee was revoked. The SBI replied to the letter that the guarantee was irrevocable and could not be revoked unilaterally therefore the guarantor would still be liable. Demand Notice was sent by the SBI seeking the loan amount. When no response was forthcoming from the guarantor, the SBI filed an application under section 95 of the code seeking initiation of the insolvency proceedings against the guarantor. The application was dismissed by the AA on the ground that the guarantee had been revoked and the claims were time barred. Contentions: In the first appeal, the appellant submitted that the guarantee executed by Respondent No. 1 and consequently reaffirmed is an irrevocable guarantee under which liability continues until entire debt of the CD is discharged. It was also argued that approval of Resolution Plan does not absolve guarantor from his obligations under the guarantee as held by the Supreme Court in State Bank of India v. V. Ramakrishnan (2018). Under section 130 of the Indian Contract Act, a guarantee can be revoked for future transactions but such revocation cannot be effected unilaterally and without the consent of the creditor. Lastly, it was submitted that the Supreme Court, in Anirudhan v. Thomco's Bank Ltd.(1963) held that a guarantor's liability persists as long as the underlying debt remains unpaid. In the present case, the Deeds of Guarantee explicitly states that they will remain binding, until the entire debt owed by the Corporate Debtor is repaid in full. Per contra, the respondent submitted that 2014 guarantee is invalid as it was procured through misrepresentation and coercion as the financial creditor had failed to disclose critical facts about the guarantor's resignation. Any guarantee obtained through misrepresentation is void under section 142 of the Contract Act. It was also argued that the guarantor explicitly communicated to the creditor about termination of his liability for future transactions which can be done as per section 130 of the Contract Act thereby relieving the guarantor of his obligations as held by the SC in Margaret Lalita v. Indo Commercial Bank Limited (1979). Lastly, it was argued that claims are time barred. Observations: The tribunal noted that the Respondent No.1 has already resigned and his resignation was accepted by the Board well before he signed the 2014 guarantee deed on 29.03.2014. The plea of coercion and duress in signing of guarantee document does not hold water as post resignation he was not bound to sign any such guarantee. It is also seen that parallelly, he was also writing to bank to revoke the existing guarantee. The respondent was free to take legal recourse for revocation of guarantees if the same was executed under duress. In Allahbad Bank, Nagpur v. Hemantkumar the Bombay High Court held that “their act of resignation being unilateral, so far as their liability towards the repayment of dues from the Company is concerned, as their guarantee was never released by the bank, they continue to be liable to the bank for repayment of the amount which was due to the bank. Hence, this contention about their resignation and hence release from bank guarantee cannot be accepted.” The tribunal further noted that in Maharashtra State Electricity Board, Bombay vs. Official Liquidator, High Court, Ernakulam and Ors. (1982) the Supreme Court held that “But a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability.” The tribunal observed that unilateral revocation of the guarantee did not discharge the liability of the guarantor as the revocation was not consented to by the creditor.It further noted that clauses in the 2013 Agreement and 2014 Guarantee explicitly stated that Respondent No. 1 remained liable despite any variations in the contract or security terms. The tribunal noted that both deeds of guarantee waived Section 133, meaning any variance would not discharge the ...

Unilateral Revocation Of Guarantee Does Not Discharge Guarantor From His Obligations When Such Revocation Was Not Accepted By Creditor: NCLAT

Mohd Malik Chauhan

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