Non-Obstante Clause in Corporate Guarantee Does Not Bar Liability for Default Interest Beyond Capped Amount
- REEDLAW
- 36 minutes ago
- 3 min read
REEDLAW Legal News Network reports: In a judgment delivered today, 3 September 2025, the National Company Law Appellate Tribunal (NCLAT), New Delhi, held that the non-obstante clause in a corporate guarantee limiting liability to a capped amount does not override the guarantor’s obligation to pay default interest, which remains recoverable beyond the capped amount as per the terms of the guarantee.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a Company Appeal, held today, 3 September 2025, that the non-obstante clause in a corporate guarantee limiting liability to a capped amount does not override the guarantor’s obligation to pay default interest, which remains recoverable beyond the capped amount as per the guarantee terms.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, delivered its judgment on an appeal filed by ICICI Bank under Section 61 of the Insolvency and Bankruptcy Code, 2016. The appeal arose from an order dated 29 April 2025 passed by the Adjudicating Authority (NCLT, Mumbai Bench-V) in I.A. No. 4194 of 2024 in C.P. (IB) No. 119/MB/2021, whereby the liability of Ushdev Engitech Ltd. (UEL), as a corporate guarantor, was capped at ₹25 crore under a guarantee deed executed on 10 August 2016.
ICICI Bank had extended a credit facility to Ushdev International Ltd. (UIL) in December 2014, secured by a corporate guarantee from UEL. When UIL defaulted, ICICI Bank invoked the guarantee in October 2017. Subsequently, UEL was admitted into the Corporate Insolvency Resolution Process (CIRP) on 26 April 2023, a decision later upheld by NCLAT and the Delhi High Court. ICICI Bank initially filed a claim for ₹25 crore as the guaranteed amount but later revised its claim to ₹67.98 crore, including ₹42.98 crore as default interest for delay in fulfilling the guarantee obligation. The Resolution Professional (RP) admitted the revised claim, but a former director of UEL challenged it, leading to the NCLT order restricting liability to ₹25 crore.
The core dispute centred on whether the liability cap of ₹25 crore under Clause 33 of the guarantee deed applied only to the principal guarantee amount or also to default interest stipulated under Clause 3 for delayed discharge of guarantee obligations. ICICI Bank argued that Clause 3 created an independent obligation to pay default interest beyond the ₹25 crore cap, whereas Respondent No. 1 contended that Clause 33, being a non-obstante provision, imposed an absolute ceiling on all liabilities, including default interest.
After examining the contractual terms, NCLAT held that the guarantee deed created two distinct obligations—one to pay ₹25 crore as guaranteed liability and another to pay default interest if the guarantor delayed payment beyond the cure period. It emphasised that both clauses must be read harmoniously, as the non-obstante clause in Clause 33 did not conflict with the obligation under Clause 3. The Tribunal clarified that the cap in Clause 33 applied to the principal guarantee liability linked to the borrower’s default, whereas the obligation to pay default interest arose independently from the guarantor’s own default. Accordingly, NCLAT concluded that ICICI Bank was entitled to claim default interest in addition to the ₹25 crore guarantee amount, and therefore, the NCLT’s order capping the liability at ₹25 crore was unsustainable.
Mr. Krishnendu Dutta, Sr. Advocate, with Mr. Prakshal Jain, Mr. Arnav Doshi, Mr. Siddharth Ranade and Mr. Shankh Sengupta, Advocates, represented the Appellant.
Mr. Ramji Srinivasan, Sr. Advocate with Mr. Kumar Anurag Singh, Mr. Zain A. Khan, Mr. Vijay Mathur, Mohd. Abran Khan, Ms. Shefali Munde and Mr. Arjun Bhatia, Advocates, appeared for the Respondent No. 1.
Ms. Pooja Mahajan, Mr. Savar Mahajan and Mr. Srivastava Beerapalli, Advocates, appeared for the Resolution Professional (RP)
.
Mr. Tirth Nayak and Mr. Palash S. Singhai, Advocates, appeared for the SRA.
This is premium content available to our subscribers.
To access the full content related to this article — including the complete judgment, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications — we invite you to subscribe to REEDLAW’s premium research platform.
Click here to Subscribe and unlock exclusive access to structured legal analysis, judicial summaries, and a comprehensive legal research database.
Already a subscriber? Click the link below to access the full document and linked case laws.
REEDLAW Legal Research & Analysis is India’s most trusted legal publishing and research platform, empowering legal professionals with structured judicial insights and authoritative legal intelligence since 1985.
Our comprehensive legal intelligence platform covers Corporate Insolvency, Bankruptcy, SARFAESI, Company Law, Contract, MSMEs, Arbitration, Debt Recovery, and Commercial Laws. Through curated journals — IBC Reporter and Bank CLR — and an advanced digital database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.
Comments