National Company Law Appellate Tribunal (NCLAT), New Delhi in its recent ruling has covered the nature of personal guarantees. In the case of Subhash Aggarwal v. State Bank of India (judgment dated 29 October 2025), NCLAT has held that resignation as a director does not absolve an individual of obligations under a personal guarantee executed in favour of a lender. The matter was heard by a Bench Comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member).
The appellant, Mr. Subhash Aggarwal, had served as Executive Director of J V Strips Ltd., during his tenure as Executive Director, he executed a personal guarantee for a loan of ₹3.84 crore extended by the State Bank of India (SBI) and in 2012, he resigned from the company’s board. Subsequently, the company’s credit facilities were renewed and enhanced multiple times. When the company’s account later turned non-performing in 2018, SBI invoked the personal guarantee and initiated insolvency proceedings against Mr. Aggarwal under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC). Mr. Aggarwal contended that his resignation and the subsequent renewal of credit facilities without his consent amounted to a novation of contract, thereby releasing him from his guarantee obligations.
The NCLAT, while rejecting this argument, held that the personal guarantee was a continuing guarantee, valid for the credit facilities even after his resignation. The Tribunal observed that resignation from directorship, by itself, does not revoke or terminate the contractual obligations of a guarantor unless the guarantee deed expressly provides otherwise. It further clarified that any variation or enhancement of credit limits by the bank does not automatically extinguish the guarantor’s liability unless there is an express novation of contract with mutual consent of all parties. Nevertheless, the NCLAT restricted the appellant’s liability strictly to the guaranteed sum of ₹3.84 crore, the amount specified in the original deed.
This decision confirms the legal position that a personal guarantee survives the cessation of a director’s office if the guarantee is continuing in nature. It serves as an important reminder to directors and corporate officers that resigning from the company does not, in itself, discharge them from personal liabilities arising from previously executed guarantees.
To effectively discharge oneself from liability under a personal guarantee, a guarantor must take proactive steps before or immediately upon resignation. The most reliable method is to formally revoke the guarantee by issuing a written notice of revocation to the lender, in accordance with the terms of the guarantee deed. This revocation will apply only to future transactions, and the guarantor remains liable for obligations already incurred. Where a company’s credit facilities are renewed or enhanced, a former guarantor may seek to have his name formally deleted from the sanction letter and guarantee documents, and obtain written acknowledgment from the bank. In cases involving novation or substitution, the guarantor’s discharge must be expressly documented, ideally through a deed of release or a fresh guarantee agreement excluding the former guarantor. Merely resigning or ceasing to hold office, without such written revocation or release, does not eliminate liability under a continuing guarantee.
Date: 31 October 2025
Source: NCLAT Judgment in Subhash Aggarwal v. State Bank of India, decided on 29 October 2025
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