I was director & share holder of private limited company up to May-2014. I was singed personal guarantee for company bank secured loan with other shareholder/ directors for application.
In year 2014, I was resigned & sold my shares to existing share holder & directors in May -2014 with all compliance of ROC.
In FY 2015-16, company bank loan was NPA & bank is sending notice to me for repayment of outstanding company bank loan. I’m no more director nor share holder since May-2014 but only accepted personal guarantee for company bank loan in my tenor cause me this legal issue.
Pls. assist to advise is it my liability to pay outstanding loans of company after resignation.
Thank you.
Limited liability of the directors of the company is
provided in the Companies Act, 1956.
However, The court over a catena of judgements such as Industrial Investment Bank of India Ltd. Vs.
Biswanath Jhunjhunwala, (2009)9SCC478, Industrial Finance Corporation of India
Ltd. Vs. The Cannanore Spinning & Weaving Mills Ltd.
and Ors., (2002)5SCC54, etc has made it sufficiently clear that the contract of personal guarantee against the director of the company are valid and can be enforced in the court of law. The liability of the debtor and the surety would be co-extensive. Since the contract of guarantee is an independent contract and a fair one, hence the contractual obligations emanating from the said contract need to be honoured between creditor and surety.
Signing a directors’ personal guarantee for a loan is referred to as ‘piercing the corporate veil’ and it means that, in the case of insolvency, the guarantor has the right to come after your personal assets even though the liability of the director is limited. In the given case, even if the director changes, it is the original director with whom the contract of guarantee is entered upon is required to pay the debts.
