Liability of personal guarantor stays even on acquiring foreign citizenship: NCLAT

Liability of personal guarantor stays even on acquiring foreign citizenship: NCLAT

The tribunal held the statutory scheme did not provide an escape route

The New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) has held that the liability of a personal guarantor does not get extinguished upon subsequent acquisition of citizenship in a foreign country.

The bench comprising Justice Ashok Bhushan (Chairperson), Justice M. Satyanarayana Murthy (Judicial Member) and Shri Barun Mitra (Technical Member), while adjudicating an appeal in the Sudip Dutta vs State Bank of India case, further held that provisions of the Insolvency and Bankruptcy Code (IBC), 2016 would not apply if the assets of the guarantor were situated within India.

The State Bank of India (SBI) had filed a petition under IBC against Sudip Dutta (appellant), the personal guarantor in the credit facilities extended to Ess Dee Aluminum Ltd. (corporate debtor). In October 2015, the appellant had also signed a Deed of Guarantee.

The Kolkata Bench of the National Company Law Tribunal (NCLT) in its August 2021 order admitted the petition and appointed Prashant Jain as Resolution Professional (RP). He was directed to make recommendations for acceptance or rejection of the petition.

The RP filed the application under IBC recommending that the insolvency process should be initiated against the appellant. Accordingly, in its June 2022 order, NCLT initiated an insolvency resolution process against the appellant.

Aggrieved by the order, the appellant approached the NCLAT.

The appellant argued that he had acquired citizenship of Singapore w.e.f. 18 June 2018, i.e. subsequent to the signing of the Deed of Guarantee. Hence, the provisions of IBC were not applicable to him, as foreign citizens do not come within the ambit of the personal guarantor.

He maintained the intent of the legislature had been clarified under Sections of IBC, which provides for enforcement of IBC outside India only when the Central government enters into an agreement with the government of any country outside India. Since there was no such agreement between the Central Government and the Government of Singapore, the insolvency resolution process could not be initiated against the appellant.

The respondent argued that the appellant was fully bound by the Deed of Guarantee given by him and subsequent acquiring of citizenship of Singapore was inconsequential. He submitted that the properties/assets of the appellant were within India, hence, IBC rules did not apply.

A person residing outside India is covered by the definition of 'person' within the meaning of Section 3(23) of IBC. Further, the appellant in the capacity of a personal guarantor of the corporate debtor had agreed to pay the principal amount, not exceeding Rs.50 crores together with interest, cost and expenses under the guarantee.

The bench, thus, observed that the appellant in his response admitted the guarantee of liability of Rs.50 crores. It stated, "The personal guarantor, whether residing in India or outside, when an application is filed against it, the jurisdiction shall be before the adjudicating authority in whose territorial jurisdiction the registered office of the corporate person is located. The mere fact that the appellant now claims to be a citizen of Singapore and has given an address of Singapore, is wholly irrelevant for initiating proceedings against him."

It was further observed that the person is a personal guarantor irrespective of whether he is an Indian citizen or a foreign national. Therefore, the moment a personal guarantee is accepted, he shall be bound by a personal guarantee.

The bench held that the statutory scheme did not provide an escape route to the personal guarantor from his liability just because he has obtained citizenship in a foreign country. Dismissing the appeal, it held that the Deed of Guarantee was binding upon the appellant and upheld the order of the adjudicating authority.