Case Note & Summary
The case involved three appeals filed by personal guarantors against an order of the National Company Law Tribunal (NCLT) regarding their liability under a Deed of Guarantee. The appellants contended that their liability was limited to the market value of properties mortgaged as collateral. The NCLT had previously ruled that their liability was not limited, leading to the appeals. The appellants argued that the Deed of Guarantee and related documents indicated a limited liability, while the respondents maintained that the guarantors were jointly and severally liable for the entire debt. The court noted that the issue of limited liability had been previously adjudicated by the Debt Recovery Tribunal (DRT), which had upheld the full liability of the guarantors. The court found that the appellants had participated in the DRT proceedings and could not claim they were unrepresented. The repayment plan proposed by the guarantors was rejected due to insufficient voting support from creditors. The court emphasized that the statutory majority required for approval of the repayment plan was not achieved, and thus the NCLT's decision to reject the plan was valid. Ultimately, the appeals were dismissed, affirming the NCLT's order and the liability of the guarantors as previously determined.
Headnote
A) Insolvency Law - Personal Guarantee - Extent of Liability - Insolvency and Bankruptcy Code, 2016, Section 114 - The court examined whether the liability of personal guarantors was limited to the market value of mortgaged properties as per the Deed of Guarantee. It held that the Deed's clauses imposed joint and several liability for the full principal sum, and the plea of limited liability was not tenable at this stage (Paras 15-18).
Issue of Consideration
Whether the liability of personal guarantors is limited as per the Deed of Guarantee and whether the repayment plan was validly rejected.
Final Decision
The appeals were dismissed, and the impugned order of the NCLT was upheld, confirming the personal guarantors' liability for the entire debt as previously adjudicated by the DRT.
Law Points
- Insolvency proceedings
- personal guarantee
- limited liability
- Deed of Guarantee
- statutory majority
- repayment plan
