Limitation Period For Both Corporate Debtor And Personal Guarantor Will Commence From Same Date: NCLT Hyderabad

The NCLT Hyderabad bench of Sri Rajeev Bhardwaj (Judicial Member) and Sri Sanjay Puri (Technical Member) has held that the Personal Guarantor should be treated on an equal legal footing with the Corporate Debtor, as it is clearly established by the law that the liability of Corporate Debtor and Personal Guarantor are co-extensive in nature. Therefore, the provisions of the Limitation Act must be applied consistently to both the Corporate Debtor and the Personal Guarantor. The limitation period for both the parties will commence from the same date. Brief Facts This petition has been filed by M/s. Jammu And Kashmir Bank Limited (Financial Creditor/FC/Petitioner) under Section 95 of the IBC seeking an order for initiation of Personal Insolvency Resolution Process against Personal Guarantor (Personal Guarantor/PG/Respondent) of M/s. IndBarath Energy (Utkal) Limited (CD/ Principal Borrower). The CD had availed credit facilities of Rs.429.22 Crores from the PNB led Consortium which includes Jammu & Kashmir Bank Ltd., Bank of Baroda, Corporation Bank, Union Bank of India and Karur Vysya Bank under a Working Capital Consortium Agreement dated 03.03.2015.A guarantee was provided for this amount by personal guarantor. When the corporate debtor defaulted in repaying the debt, a demand notice was also issued to the personal guarantor to the CD requesting to pay the unpaid debt of the CD, amounting to Rs.26,43,82,869/- within 14 days from the date of receipt of the notice. A reply was sent to the notice by the personal guarantor in which it pleaded that the claim was barred by limitation therefore the notice should be withdrawn. The Personal Guarantor failed to repay the debt amount to the Financial Creditor within the time specified. Given this default, the Financial Creditor has preferred the instant petition under Section 95(1) of the IBC. Contentions: The respondent submitted that since the demand notice of the creditor was sent to the personal guarantor after the expiry of the Limitation period (calculated from the date of default of the CD), this petition is barred by limitation and thus not maintainable. It was further submitted that the Resolution Plan of the Corporate Debtor under Section 31 of IBC, 2016 is approved. Then the Guarantee is void on the account of impairment of assets and personal guarantor deserve to be discharged. The petitioner submitted that the Guarantee Agreement is a guarantee "on demand", and the limitation period in respect thereof commences from the date of demand by the Petitioner and that the present Petition satisfies all the ingredients of Section 95 of IBC Decision of The Tribunal: In State Bank of India v. Ghanshyam Surajbali Kurmi, 2022 this tribunal has held that “the Financial Creditor is also at liberty to initiate Insolvency Resolution Process against the Personal Guarantor; the resolution plan approved by the Adjudicating Authority is not for recovery but for revival. Further as per Section 134 of the Indian Contract Act, 1872, a guarantor is discharged of its liability towards the creditor only if the creditor on its own instance discharges the principal debtor through voluntary act of the creditor and not due to operation of law.” Further, the Supreme court in Lalit Kumar Jain v. Union of India & others, 2021 has held that It is therefore clear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor's liability. As far as the liability of the Personal Guarantor is concerned, relying on the Indian Contract Act, 1872, the Contract of Guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. The person who gives the guarantee is called the surety, the person in respect of whose default, the guarantee is given is called the “Principal Debtor” and the person to whom the guarantee is given is called the Creditor. It is to be noted that the Contract of Guarantee is an independent contract and the liability of the Personal Guarantor is different from that of the Principal Borrower. In terms of provisions of Section 134 of Indian Contract Act, 1872, a surety is discharged by any contract between the creditor and the Principal Debtor by which the Principal Debtor is released or by any act or omission of the Creditor, the legal consequence of which is the discharge of the Principal Debtor. In the instant case, the tribunal observed that the liability of the personal guarantor did not extinguish even after the approval of the Resolution Plan, provided that the debt owed to the FC has not been fully paid according to Clause 3 of the Guarantee Deed dated 03.03.2024. Upon the approval of Resolution Plan of the Corporate Debtor, all liabilities, claims, dues, and any waivers, reliefs, or exemptions pertaining to period prior to the...

Limitation Period For Both Corporate Debtor And Personal Guarantor Will Commence From Same Date: NCLT Hyderabad

Mohd Malik Chauhan

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