Madras High Court holds guarantor still liable to Bank of India despite IBC case
The Madras High Court held that a guarantor's liability to Bank of India is not discharged because the principal borrower went through insolvency proceedings, and dismissed his plea for return of title deeds.
Key points
- The Madurai Bench of the Madras High Court dismissed a guarantor's plea asking Bank of India to return his title deeds on 13 October 2026.
- The court held that the borrower's insolvency proceedings under the IBC do not alter the guarantor's liability, which is independent.
- The guarantor may ask the Debts Recovery Tribunal for a refund of Rs 20 lakh he deposited, and the Tribunal will decide after hearing the bank.
The Madurai Bench of the Madras High Court on 13 October 2026 dismissed a writ petition by a guarantor of a loan who asked Bank of India to return his original title deeds and lift a freeze on his savings account. A two-judge bench held that the borrower's insolvency proceedings do not discharge the guarantor's own liability.
What Happened
The principal borrower had been taken to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 (IBC), and a liquidator had been appointed; the matter is still pending. Relying on Section 134 of the Indian Contract Act, 1872, the guarantor argued that his liability had been discharged and sought return of the mortgage documents for his property in Sivakasi.
The court said the request was not absurd, but held that the settled position of law was against it. Citing a 2021 Supreme Court ruling and later decisions following it, the court held that the release of a borrower by operation of law, or through liquidation or insolvency proceedings, does not free a guarantor, whose liability arises from an independent contract. "His liability remains unaltered by the outcome of the IBC proceedings," the court said.
The guarantor also argued that the property is agricultural land, which under Section 31 of the SARFAESI Act cannot be proceeded against. The court said there was "considerable force" in this, but no SARFAESI action was under challenge, so the point can be raised if and when such action is started.
What It Means
For anyone who has signed as a guarantor on a company's loan, the ruling restates that the borrower entering insolvency or liquidation does not by itself end the guarantor's obligation to the bank.
The guarantor had deposited Rs 20 lakh as a condition for an interim stay, and the bank later withdrew its sale notice. The court gave him liberty to file a miscellaneous petition before the Debts Recovery Tribunal for a refund; he said he would not claim interest. Whether the money is refunded is for the Tribunal to decide after hearing the bank.
Source: High Court judgment
Sources & Citations
- High Court judgment — Madras High Court