Acknowledgement Of Debt By Corporate Debtor Extends Limitation Period For Personal Guarantor As Well: NCLT Chandigarh

The National Company Law Tribunal (NCLT), Chandigarh bench of Shri Harnam Singh Thakur (Judicial Member) and Shri Shishir Agarwal (Technical Member), has held that acknowledgement of debt by the principal borrower would extend the limitation period under section 18 of the Limitation Act, 1963 (Limitation Act) for the personal Guarantor as well for initiation of Personal Insolvency Resolution Process (PIRP) under Section 94 of Insolvency & Bankruptcy Code, 2016 (Code) Brief Facts: The Applicant, Manveen Kaur (Personal Guarantor) filed this application under section 94 of the code seeking order for initiation of Personal Insolvency Resolution Process against herself as the Personal Guarantor of M/s Bimabh Knit Fab Pvt. Ltd. (Corporate Debtor). The corporate debtor had taken credit facilities from Punjab & Sind Bank (Financial Creditor). The Personal Guarantor had given personal guarantee to the said credit facilities provided. The loan account of the Corporate Debtor was declared a Non-performing Asset ( NPA) by the Financial Creditor on 30.09.2018. After which, the Financial Creditor served the Corporate Debtor and the Personal Guarantor with a demand notice Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act) on 03.12.2018. Thereafter, the Financial Creditor had successfully got an order dated 24.06.2024 from the Magistrate for taking physical possession of the secured assets of the Corporate Debtor. The Personal Guarantor on 15.07.2024 filed the Application under Section 94 of the code seeking initiation of the PIRP. Issues before NCLT: 1. Whether the Application is within the period of limitation or not and if an acknowledgment of debt by the Corporate Debtor would extend the limitation period for the Personal Guarantor as well? 2. Whether the application is filed with bona fide intent ? NCLT's Analysis: The tribunal while deciding the first issue of Limitation, noted that the demand notice was issued by the Financial Creditor on 03.12.2018 to the Corporate debtor along with the Personal Guarantor. The Limitation Period for initiation of Insolvency proceedings under the Code is three years from the date of default, which starts after 60 days from the issuance of demand notice i.e, 01.02.2019 in this case. However, the Supreme Court in Miscellaneous Application No. 21 of 2022 in Suo Motu Writ Petition (C) No. 3 of 2020, held that the period from 15.03.2020 to 28.02.2022 is required to be excluded while calculating limitation, due to the Covid-19 pandemic. To understand the Limitation period, initially the days from 01.02.2019 till 14.03.2020 will be calculated which means a total of 407 days have expired. The remaining 688 days of the limitation period will be calculated from 01.03.2022, excluding the period from 15.03.2020 to 28.02.2022. As per the above calculation, the limitation would expire on 18.01.2024. But, an One Time Settlement (OTS) proposal was given by the Corporate Debtor on 20.04.2023 and 20.09.2023 to the Financial Creditor, which would amount to acknowledgement of debt. The National Company Law Appellate Tribunal (NCLAT) in the case of Tejas Khandhar v. Bank of Baroda held that an OTS proposal would amount to acknowledgment of debt in terms of section 18 of the Limitation Act, 1963. Now answering the question that whether acknowledgment of debt by the Corporate Debtor would extend the limitation period for the personal guarantor as well? Addressing the same, the tribunal noted that as per the Guarantee Agreement, the Liability of the Guarantor and the Corporate Debtor is Joint and Several. So it can be concluded, “that since the Liability of the Personal Guarantor is co-extensive with that of the Corporate Debtor, an acknowledgment of the liability by the Corporate Debtor would amount to acknowledgment by the Personal Guarantor as well and would extend the limitation period for him as well”. Now, a fresh limitation period would start from 30.09.2023 and would expire on 30.09.2026. This means that Application filed by Personal Guarantor for initiation of PIRP was within the period of Limitation, as it was filed on 25.07.2024. The second issue for consideration is Whether the application is filed with bona fide intent ? Noting the Chronology of events, in the first issue, the Tribunal observed that the Application for initiation of PIRP was filed on 15.07.2024 by the Personal Guarantor i.e, immediately after the possession order by the Magistrate. The tribunal concluded that “the application is a moon-shine defense taken by the Personal Guarantor to prevent the recovery proceedings initiated by the Financial Creditor under the SARFAESI Act, 2002.” The tribunal further added that the Personal Guarantor had made no attempt for repayment of...

Acknowledgement Of Debt By Corporate Debtor Extends Limitation Period For Personal Guarantor As Well: NCLT Chandigarh

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