NCLAT Delhi Rules Consent Arbitral Awards Do Not Extinguish Personal Guarantor Liabilities Under IBC
In a significant judicial determination regarding the intersection of arbitration outcomes and insolvency proceedings, the National Company Law Appellate Tribunal (NCLAT), New Delhi, delivered its judgment in the matter of Ravindra Gopalkrishan Agarwal Vs Jankalyan Sahakari Bank Ltd. on 17/09/2026. The appellate tribunal dismissed the appeal challenging an earlier order passed by the NCLT Mumbai on 04.02.2025, which had admitted a petition filed by the financial creditor under Section 95 of the Insolvency and Bankruptcy Code, 2016.
This ruling provides crucial clarity on whether a consent arbitral award alters the fundamental legal status of a personal guarantor to that of a co-borrower, and whether partial assignments of debt within a banking consortium absolve the guarantor of their continuing obligations to unassigned creditors.
Genesis of the Dispute
The factual matrix of the case dates back to 2010 when Oasis Alcohol Limited (the Corporate Debtor) secured credit facilities from a consortium of eleven cooperative banks. Janata Sahakari Bank Ltd. acted as the lead bank of this consortium, which also included Janakalyan Sahakari Bank Ltd. (the Respondent). Specifically, the Corporate Debtor obtained a credit facility of Rs. 6.5 Crores from the Respondent.
To secure these borrowings, the Appellant executed Personal Guarantee Deeds on 20.03.2010 (capped at Rs. 5 crores) and 08.08.2011 (capped at Rs. 2.50 crores). However, the borrower failed to maintain financial discipline, leading to the account being classified as a Non-Performing Asset (NPA) on 30.09.2013. Subsequently, a demand notice under Section 13(2) of the SARFAESI Act was issued on 13.06.2016.
Seeking resolution, the consortium invoked Section 84 of the Multi-State Co-Operative Societies Act, 2002, routing the dispute to arbitration. This culminated in a consent arbitral award on 23.03.2017. Later, on 16.12.2017, a Memorandum of Understanding (MOU) was signed wherein Rajlakshmi Petrochem Pvt. Ltd. stepped in as a Corporate Guarantor, undertaking to clear the liabilities. This arrangement was acknowledged by the lead bank on 05.06.2018.
Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor on 06.03.2019 but was later withdrawn on 01.12.2022 due to procedural lapses by the Resolution Professional. Meanwhile, on 21.08.2020, six member banks of the consortium assigned their debt shares to CFM Asset Reconstruction Pvt. Ltd. (ARC). The ARC subsequently liquidated the Appellant’s mortgaged property for Rs. 1,25,00,000 on 04.08.2021.
Following a fresh demand notice under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 on 01.09.2021, the Respondent filed a petition under Section 95 of the Insolvency and Bankruptcy Code, 2016 on 09.05.2023. The petition cited a default amount of Rs. 22,42,01,475.68 as of 25.03.2023. The NCLT admitted this petition via its order dated 04.02.2025, prompting the current appeal. Following admission, the Resolution Professional issued a public announcement under Section 102 of the Code, setting 01.03.2025 as the deadline for claim submissions.