The NCLT ruled that the demerger of a mortgaged asset does not discharge a continuing corporate guarantee, allowing J&K Bank's ₹87.43 crore insolvency plea to proceed.
NCLT Affirms Corporate Guarantee's Validity Amid Asset Demerger
The National Company Law Tribunal (NCLT) has ruled that the demerger of a mortgaged asset does not release the corporate guarantee associated with that asset. This ruling allows Jammu and Kashmir Bank's ₹87.43 crore insolvency plea to move forward, affirming the continuity of the corporate guarantee despite the asset's transfer.
The tribunal found that there was no novation or express release of the corporate guarantee, reinforcing that guarantees remain valid and enforceable through asset restructuring processes such as demergers. This ruling underlines the principles of corporate guarantees and their implications in insolvency proceedings.
Legal practitioners should take heed of this decision when advising clients on potential asset demergers and the related guarantees. It emphasizes the need for clarity regarding the status of corporate guarantees during corporate reorganizations to prevent misunderstandings and legal exposure.
Citations
- Corporate Guarantee Case (2026) NCLT
