The New Delhi Bench of the National Company Law Tribunal (NCLT) has admitted a Section 95 IBC application against personal guarantor to Boutique Spirit Brands Pvt Ltd, initiating the personal insolvency resolution process. The Tribunal clarified that under a continuing guarantee, limitation for a Section 95 IBC application runs from the date of invocation, not the date of default.
The Tribunal held that liability under the continuing guarantee subsisted until discharge of the outstanding debt, accepted the Resolution Professional’s unopposed recommendation for admission and admitted Ikshavaku Software Ventures India Private Limited’s Section 95 application against Rahul Gagerna, personal guarantor to Boutique Spirit Brands Private Limited. Accordingly, the NCLT imposed a 180-day moratorium from the order, staying debt-related proceedings and restricting disposal or encumbrance of the guarantor’s assets.
The Tribunal relied on Clause 16 of the Guarantee Agreement to hold that Gagerna’s liability continued until the outstanding debt was discharged. He had neither discharged the liability nor refused or repudiated his guarantee obligations. The Tribunal found that the Resolution Professional recorded an outstanding debt of Rs. 55.96 crores supported by the company’s balance confirmation and the creditor’s statement of accounts. No proof of repayment was furnished, and the guarantor raised no objection to the report.
Briefly, Ikshavaku Software Ventures India Private Limited, which operates the invoice-discounting platform “TradeCred”, filed an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 against Rahul Gagerna, the personal guarantor of Boutique Spirit Brands Private Limited. The company entered into trade-finance arrangements with the creditor, and Gagerna, its Managing Director and Promoter, executed a personal guarantee dated Sep 16, 2020. The company discounted invoices worth Rs. 40 crores, but the amounts could not be realised from customers, resulting in defaults in depositing money into the Seller Escrow Account.
Following the default, the Security Trustee issued a notice dated March 31, 2023. Gagerna acknowledged it and sought time to pay until April 30, 2023. The Security Trustee subsequently invoked the pledged shares, realising Rs. 17.32 crores. The company confirmed an outstanding balance of Rs. 55.96 crores as on July 06, 2023. A statutory demand notice dated Feb 22, 2024, was also served on the personal guarantor. The Resolution Professional recommended admission of the application, recording that the debt remained unpaid and that Gagerna had furnished no proof of repayment.
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The Division Bench comprising Manni Sankariah Shanmuga Sundaram (Judicial Member) and Reena Sinha Puri (Technical Member) noted that Clause 16 of the Guarantee Agreement made it a continuing guarantee. The guarantor’s liability would subsist until the outstanding debt was discharged. Gagerna had neither discharged that liability nor refused or repudiated his obligations. Further, the demand notice provided that the guarantee would stand invoked upon expiry of seven days from service.
The Tribunal accordingly treated the guarantee as invoked on April 07, 2023, and held that limitation against the guarantor commenced from that date. The application, filed on April 03, 2024, was therefore within limitation. It also noted that Gagerna had raised no objection to the Resolution Professional’s report.
