NCLAT held that a consent arbitral award does not discharge a continuing guarantee. Personal guarantor insolvency proceeding upheld; recovery credits required.
Consent Arbitral Award Does Not Extinguish Continuing Guarantee: NCLAT
The NCLAT upheld the admission of a personal guarantor’s insolvency proceeding, ruling that a consent arbitral award between a corporate debtor and a bank does not extinguish a continuing guarantee given by the promoter.
The tribunal rejected arguments that the guarantee was discharged by novation or assignment of debt, holding that no legal mechanism had released the guarantor’s liability. It also dismissed a limitation defense, noting that the cause of action arose upon invocation of the guarantee.
"A consent award does not, by itself, discharge a continuing guarantee unless there is express novation or release,"the bench stated.
This decision clarifies that guarantor liabilities persist post-arbitral settlement unless explicitly discharged. Banks and resolution professionals must credit recoveries against guaranteed debts appropriately, and guarantors remain exposed to proceedings under the IBC’s Part III.
Citations
- Insolvency and Bankruptcy Code, 2016, Part III
