Writ Plea Limiting Guarantor’s Liability in CIRP Disposed Of, HC Directs AA to Resolve Claims Impacting Entire CIRP Process

Case Details: Seeta Shah v. Reserve Bank of India - [2024] 166 taxmann.com 260 (HC-Delhi)

Judiciary and Counsel Details

• Dharmesh Sharma, J
• Arjun Kaushal, Adv. for the Petitioner.
• Rachit Bigghe, Adv. for the Respondent.

Facts of the Case

In the instant case, the borrower took a loan from a respondent bank, for which the petitioner/director of the corporate debtor executed a corporate guarantee deed with the respondent.

The respondent bank declared the corporate debtor’s account NPA, and thus, the respondent invoked a corporate guarantee. The NCLT initiated the CIRP against the corporate debtor.

The Respondent filed a petition to initiate the CIRP against the petitioner based on the petitioner’s failure to honour the guarantee deed, and the NCLT admitted the same.

On appeal, the NCLAT dismissed an appeal filed by the petitioner. The petitioner also filed an appeal before the Supreme Court, which was dismissed, observing that issues available to the petitioner would be examined by the NCLT.

The petitioner listed proceedings for hearing before the NCLT, which was pending. The petitioner filed an instant writ petition seeking direction from the bank to revise its demands and claims under corporate guarantee to be in strict conformity with terms of clause 33 of the corporate guarantee deed.

High Court Held

The High Court observed that Clause (33) of the said deed restricted the financial liability of the guarantor to the extent of the amount restricted therein, and there was no question of provision for interest while calculating aforesaid guarantee except to the extent of the amount provided.

The High Court held that the NCLT is only seized of the matter, and it is competent to decide upon the quantum of claims that would impact entire CIRP proceedings. Further, the instant writ petition was to be disposed of with a direction to the NCLT to decide the preliminary issue as regards the applicability of Clause (33) of the said deed for effective CIRP proceedings at its end.