Any Defect In Title Of Security Does Not Vitiate Duly Executed Personal Guarantee: NCLT Mumbai

The application under rule 11 of the NCLT Rules, 2016, was filed by the personal guarantor, Rinki Prakash Kumar, praying for dismissal of the section 95 petition filed by the financial creditor on the grounds of maintainability, fraud, and non-disclosure. The applicant also prayed for the stay of ex-parte admission of the section 95 petition.

It was the case of the applicant that the financial creditor advanced a certain loan facility to the company upon mortgage of 3 flats as collateral. Later on, it was discovered that the property was sold to multiple third-party purchasers prior to the mortgage. In a letter, the financial creditor has admitted these facts; hence, the admission vitiates the basis of the guarantee itself.

It is the contention of the applicant that he was induced to sign the guarantee documents. The guarantees were obtained without disclosure of defects; hence, it violates sections 17 to 19 of the Indian Contract Act, making the guarantee voidable.

The applicant also highlighted that it didn't receive any demand notice from the financial creditor u/s 95(4) of the IBC. The applicant also alleged that the copy of the repayment plan was not given to him.

Highlighting the prolonged adverse impact of COVID-19, the applicant submitted that the business suffered losses that were not wilful.

Observations of the Adjudicating Authority

The adjudicating authority observed that the submissions made by the applicant make it clear that the company availed the loan facility and the personal guarantee was executed by him. The applicant has not denied the existence of the loan and personal guarantee.

The bench observed that any defect in the title of the security does not vitiate the personal guarantee, duly executed, specifically when the person admits the execution.

Also, when the applicant admitted the issuance of the guarantee, SARFAESI proceedings were initiated, and repayment failed; hence, it cannot be concluded that the transaction is vitiated by the fraud.

Lastly, since no appeal was filed against the admission of the section 95 petition, the order attains finality. Hence, the present petition is non-maintainable and is hereby dismissed.

Case Name: Rinki Prakash Kumar vs. The Bank of Maharashtra Limited

Case No.: IA (I.B.C)/3594(MB)/2025 in CP(IB)/1138(MB)/2023

Bench: Justice Nimesh Sharma (Member-Judicial) and Sameer Kakar (Member-Technical)

Order Date: 25.08.2025