From time to time in UK real estate finance transactions, a high-net-worth or ultra-high-net-worth sponsor will be called upon to provide a personal guarantee. A lender’s reasoning in requiring a personal guarantee is that it may have some value if the lender is not able to recover the amount it is owed from the real estate, which is the primary value that it relies on, though, of course, it is not obliged to seek recovery from the real estate first. Alternatively, the lender may have identified a particular risk, often late in the day, which requires the sponsor to undertake a certain action, such as discharging a liability relating to the real estate within a defined time period. The personal guarantee aims to provide the lender with comfort that the sponsor would not wish the personal guarantee to be called, and so has an incentive to undertake the required action within the stipulated time period.
On 23 June 2026, Simon Tinkler, sitting as a Deputy Judge of the High Court, handed down judgment in Bank of India v Firestone International Private Limited and others, so far unreported. The case provides a reminder that a sponsor providing a personal guarantee may raise a variety of defences, under English or possibly non-English laws, to prevent the lender obtaining payment. While these may or may not be meritorious, they might involve the lender in a time consuming and expensive dispute that would act as a disincentive to enforce the personal guarantee.
The Facts
The case itself had nothing to do with real estate or real estate finance. Its interest lies in the extent of the arguments that the personal guarantor raises to contest liability under the guarantee. It concerns Nirav Modi, an Indian businessman who was engaged in the diamond industry. Following allegations of fraud against a different Indian bank, Mr. Modi relocated to London, where he is, according to the judgment, being detained in custody at HMP Thameside as he fights extradition to India. He is considered a flight risk, though it should be stressed, as Deputy High Court Judge Tinkler did, that he has been convicted of no offence.
In 2013, the claimant, an Indian bank with a branch in London, entered into a facility agreement with the first defendant, Firestone International Private Limited. The first defendant was a company, incorporated in Dubai, which Mr. Modi controlled. The facility agreement was governed under English law. As part of the security package, the claimant required Mr. Modi, the third defendant in the claim, to provide a personal guarantee in respect of the obligations of the first defendant under the facility agreement. Mr. Modi did so. There is no suggestion from the judgment that he did anything other than willingly or without a full understanding of his obligations. The personal guarantee was governed under Indian law.
In early 2018, news of the alleged fraud involving Mr. Modi began to circulate in the press. The first defendant failed to pay the amounts it was required to under the facility agreement, and the claimant obtained summary judgment against it for the principal sum of USD $4,105,189.34. It had also made demands, at various times, against Mr. Modi under the personal guarantee. None of these demands had given rise to payment by Mr. Modi. Hence the claim, in which he denied his liability.
Mr. Modi’s Defences
Mr. Modi made a number of contentions in support of his position.
The first was that the demand under the personal guarantee made in October 2025 had not been properly served. The personal guarantee referred to the notice provision in the facility agreement that required personal service or service by letter or electronic communication, confirmed forthwith by letter. While it was true that Mr. Modi was not in India when the demand was served on him, the demand had been served to the address set out as the address for service in the personal guarantee, or his “contractual address,” as the judge termed it. The judge found that notwithstanding Mr. Modi’s physical absence the demand had been validly served. The judge was also satisfied that, as a matter of fact, the demand had been received by Mr. Modi following delivery to HMP Thameside and demonstrates the court’s willingness to take into account both the contractual notice mechanism in the guarantee and the practical reality that the demand had actually been received by Mr. Modi. Accordingly, this contention did not assist Mr. Modi.
The second contention made by Mr. Modi was that, though the claimant had obtained a summary judgment against the first defendant, there was no liability imposed by that judgment against him and that the summary judgment did not constitute a “Financial Indebtedness” or “Guaranteed Indebtedness” as these terms were used in the personal guarantee. The judge held that the Financial Indebtedness that was guaranteed by Mr. Modi was not the summary judgment debt, but the debt owed under the facility agreement. The wording of the personal guarantee allowed the claimant to proceed against Mr. Modi directly, without making demand against the first defendant, though it had, in fact, done so. This contention was also regarded as unmeritorious.
The third and most interesting contention raised by Mr. Modi, and one that lenders should consider carefully, was that the personal guarantee was invalid and unenforceable because of the provisions of the Indian Foreign Exchange Management Act (or FEMA), which required that the Reserve Bank of India, the Indian Central Bank, to give prior permission to Mr. Modi to provide the personal guarantee. This was a matter of non-English law and so the court had to make its determination on the basis that it was a question of fact that had to be established by expert evidence. The wording of the relevant section of FEMA is not entirely clear, but the expert witnesses produced by the claimant and Mr. Modi both agreed that it applied to the personal guarantee.
The claimant’s expert relied on a series of Indian cases that established that the failure to obtain the prior permission of the Reserve Bank of India did not render Mr. Modi’s personal guarantee invalid or unenforceable. Indeed, the obligation to obtain the permission was incumbent upon Mr. Modi, rather than the claimant. Further, the judge accepted that the Reserve Bank of India could, at any point, grant consent retrospectively to the guarantee, thus preventing the guarantor from relying on failure to comply with regulatory procedures as a defence. The jurisprudence of the Indian courts established that if the personal guarantee was held to be invalid and unenforceable because of the want of the guarantee, Mr. Modi would be able to take advantage of his own failing, in this case, to obtain approval, in order to prevent enforcement of the promises he had signed up to. This evidence was accepted by the court. Indeed, similar evidence was accepted by the English court, with a similar result, in the judgment of Teare J in Ultrabank v Jagatramka [2017] EWHC 2792 (Comm) at [8-9]. Thus, while this final argument required a greater level of analysis by the judge, it too failed.
Key Takeaways
Mr. Modi’s attempts to avoid liability under the personal guarantee he had entered into as part of a commercial transaction were not successful. However, from the perspective of a lender, the case suggests that care should be taken to ensure that the mechanics of a demand under the personal guarantee are clear and unambiguous and that they are strictly adhered to when making a claim. Where the guarantor is resident outside England, consideration should be given to whether such demand is subject to any local law requirements, the failure to comply with which may undermine its validity. More fundamentally, lenders are justified in seeking legal opinions confirming that no local law requirements exist which might adversely impact on the validity or enforceability of a personal guarantee. Alternatively, if the guarantor is a person of means, it may be preferable to obtain a letter of credit or similar instrument from one of the guarantor’s relationship banks.