Amendment Of Date Of Default Allowed Before Final Adjudication: NCLAT Reiterates

The National Company Law Appellate Tribunal at New Delhi has recently held that amendment of the date of default in insolvency proceedings against a personal guarantor is permissible before final adjudication. It ruled that limitation must be examined when the insolvency application is decided on merits.

A bench comprising Chairperson Justice Ashok Bhushan, Chairperson, and Technical Member Barun Mitra upheld an order of the NCLT, Mumbai allowing such amendment.

It observed, “It is well settled that in application under Section 7 and 95, amendment could be permitted to be made by the Applicant in the pleadings.”

It also took note of the apex court's ruling in Dena Bank vs. C. Shivakumar Reddy & Ors to hold that “at any stage of the proceeding amendments could be permitted.”

The case arose from loans extended by State Bank of India to A A Estates Pvt. Ltd . One Saranga Agarwal  stood as a personal guarantor under a guarantee agreement executed in February 2012. The borrower defaulted. The account was declared non performing in February 2015.

A notice under the SARFAESI Act was issued. A loan recall notice dated April 5, 2016 followed. Insolvency proceedings under Section 95 were filed in January 2022.

During the proceedings, proof of service of the earlier notice could not be traced. The bank then sought amendment of the date of default. The NCLT allowed it.

Agarwal challenged the order. She argued that the amendment introduced a time barred claim. She said it took away her defense on invocation of the guarantee. She also pointed to the delay in seeking amendment.

The appellate tribunal rejected the challenge. It held that allowing amendment does not decide the case.

It observed, “Whether the notice by which entire loan is claimed to be recalled is the notice which is barred by time is the question which need to be considered while hearing the application by the Adjudicating Authority.”

It added, “By allowing the amendment, the Adjudicating Authority could not be said to be expressing any opinion on merits of the pleadings and those are issues which need to be gone into at the time of hearing of the application on merits.”

The tribunal further held, “By introducing the date of default as 05.04.2016 no defence is being taken away nor any admission of the Bank is being withdrawn. It is open for the Appellant to raise all valid defences.”

Observing that there is no prejudice to the guarantor, the court dismissed the appeal.