NCLAT Delhi: Even after becoming a citizen of a foreign country, a personal guarantor is still liable.

By Fiona Mehta

In ruling on an appeal in Sudip Dutta v. State Bank of India, the National Company Law Appellate Tribunal (“NCLAT”), New Delhi Bench, concluded that the obligation of a Personal Guarantor does not disappear upon later obtaining citizenship of a foreign nation. Additionally, it was decided that if the Personal Guarantor’s assets are located in India, the provisions of Sections 234 and 235 of the IBC would not be applicable.

Facts of the case: Sudip Dutta, who served as the Personal Guarantor in the credit facilities provided to M/s Ess Dee Aluminum Ltd., was the subject of a petition by State Bank of India under Section 95 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) (“Corporate Debtor”). A Deed of Guarantee dated October 19, 2015 was also signed by the appellant.

By decision dated 3.08.2021, the NCLT Kolkata had accepted the petition and named Mr. Prashant Jain as the Resolution Professional, charging him with recommending whether or not to accept it. Following that, the Resolution Professional submitted its application under Section 95(1) of the IBC proposing that an insolvency process be started against the Appellant. As a result, the NCL T Kolkata launched an insolvency resolution process against the Appellant by decision dated 16.06.2022. The Appellant appealed the orders from the 3.08.2021 and 16.06.2022 before the NCLAT.

The Appellant claimed that because he became a citizen of Singapore after signing the Deed of Guarantee on June 18, 2018, or as of that date, he was exempt from the provisions of the IBC because foreign persons are not considered personal guarantors.

Sections 234 and 235 of the IBC, which only allow for IBC enforcement outside of India when the Central Government enters into an agreement with the Government of Any Country Outside of India, provide clarification of the legislative intent. The Appellant, a Singaporean citizen, could not have been subject to an insolvency resolution process because there was no such agreement between the Central Government and the Government of Singapore.

The Respondent contended that the Appellant’s later acquisition of Singaporean citizenship was of no consequence because he was completely bound by the Deed of Guarantee he provided on October 19, 2015.

According to the contention, since the Appellant’s properties and assets are located in India, Sections 234 and 235 of the IBC were not implicated. The definition of “person” as used in Section 3(23) of the IBC includes individuals who reside outside of India. Additionally, the Appellant had consented to fulfil the Guarantee by paying a Principal Amount not to exceed Rs. 50 crore together with interest, costs, and fees in her role as the Corporate Debtor’s Personal Guarantor.

Decision of NCLAT: It was noted that Section 60(1) of the IBC expressly states that the insolvency resolution process must be started before the adjudicating authority whose territorial jurisdiction includes the location of the registered office of the corporate person. When legal action is brought against a personal guarantee, the personal guarantor’s residency is not taken into account.

The “personal guarantors” indicated in Section 60(1) were further noted to be personal guarantors regardless of whether they were Indian citizens or foreign nationals. When a personal guarantee is accepted, a person is obligated by it regardless of who provided it—even if they are a foreigner or someone who lives outside of India.

The Bench ruled that the statutory structure does not give the Personal Guarantor a way out of his obligation to make a Personal Guarantee simply because he acquired citizenship in a foreign nation after the Guarantee Deed was executed.

Counsel For Appellant: Mr. Dhruba Mukherjee, Sr. Advocate with Mr. Raja Ratan Bhura and Mr. Shwetank Singh, Advocates.
Counsel For Respondents: Mr. Ashwini Kr. Singh, Mr. Joydeep Mukherjee, Advocates for State Bank of India.