Limitation Period For Filing Application U/S 95 Of IBC Against Personal Guarantor Stands Extended By Acknowledgement Of Debt: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member) and Mr. Indevar Pandey (Technical Member) has held that the limitation period for filing an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) by a creditor against a personal guarantor, stands extended upon a valid acknowledgment of debt made by the principal borrower. The Tribunal held that acknowledgement of debt through a One-Time Settlement (OTS) proposal is deemed to be an acknowledgement by the guarantor. Brief Facts Indian Bank (“Respondent”) had sanctioned a credit facility of ₹58.35 crores to M/s Aravali Infrapower Ltd. (“Corporate Debtor”) on 31.10.2012 as part of a Corporate Debt Restructuring (CDR) scheme. In furtherance of the same, Shri Rakesh Jolly (“the Appellant”) executed a Deed of Guarantee dated 13.02.2013 in favour of State Bank of India, the lead bank of the consortium. The Respondent Bank classified the account of the Principal Borrower as a Non-Performing Asset (NPA) on 29.10.2012 due to default in repayment. On 13.06.2016, the Respondent Bank issued a demand notice under Section 13(2) of the SARFAESI Act, invoking the personal guarantee and demanding repayment of ₹109.43 crores from the Appellant-Personal Guarantor. On 19.03.2018, the Principal Borrower proposed a One-Time Settlement (OTS) to the lead bank. The Consortium rejected the OTS. The Respondent Bank issued a fresh demand notice on 10.05.2022 for payment of ₹200.90 crores from the Appellant-Personal Guarantor. The Appellant denied this liability and stated that the claim was barred by limitation. Thereafter, on 03.08.2022, the Respondent Bank filed an application under Section 95(1) of the Code before the NCLT, New Delhi to initiate insolvency proceedings against the Appellant. The NCLT passed the impugned order on 24.07.2023, admitting the application. Aggrieved, the Appellant preferred the appeal under Section 61 of the Code, challenging the impugned order on the ground that the claim was time-barred. Submissions Mr. Sunil Fernandes, Senior Counsel for the Appellant, submitted that the application was barred by limitation. He contended that the account of the Principal Borrower became an NPA on 29.10.2012, and therefore, the limitation period expired well before the filing of the application on 19.07.2022. He submitted that the NCLT erred in accepting 10.05.2022 i.e. the date of issuance of the demand notice as the starting point of limitation. Counsel further argued that the OTS proposal submitted by the Appellant in his capacity as Director of the Principal Borrower was not placed before the NCLT and hence, cannot be relied upon for the first time at the appellate stage. Since the OTS was not accepted by the Bank and did not result in any agreement, it could not be treated as a valid acknowledgment of debt under Section 18 of the Limitation Act to extend the limitation period. Counsel for the Respondent No. 1 (Indian Bank) relied upon a series of acknowledgments of debt, including the OTS proposal submitted by the Appellant on 19.03.2018. He argued that any acknowledgment of debt by the Principal Borrower is deemed to be acknowledgment by the Guarantor as well. He submitted that the acknowledgment dated 19.03.2018 reset the limitation period, which would have expired on 18.03.2021. He submitted that due to the Covid-19-induced exclusion of the limitation period from 15.03.2020 to 31.05.2022, the Demand Notice dated 10.05.2022 was served within time. Thus, the application under Section 95 filed on 19.07.2022 was within the prescribed limitation period. Observations The Tribunal observed that the OTS proposal has a material bearing on the issue of limitation. Such documents cannot be ignored even if first introduced at the appellate stage. The Tribunal held that acknowledgement of debt through the OTS Proposal by the Principal Borrower is deemed to be made by the Guarantor as well, thus extending the limitation period. The Tribunal noted that the period from 15.03.2020 to 28.02.2022 would be excluded for limitation purposes as per the orders of the Supreme Court in Suo Motu Writ Petition (C) No. 3 of 2020. It observed that the three-year limitation period from the last acknowledgement of debt on 19.03.2018 would have expired on 18.03.2021, which fell within the exclusion period prescribed by the Supreme Court. Therefore, the demand notice issued on 10.05.2022 was within limitation. The Tribunal thus held that the Section 95 application was filed well within the prescribed limitation period and accordingly, dismissed the appeal. Case Title: Shri Rakesh Jolly vs. Indian Bank & Anr. Case Number: Company Appeal (AT) (Ins.) No. 1267 of 2023 For Appellant: Mr. Sunil Fernandes, Sr. Advocate, Mr. Amit Dhall, Ms. Diksha...

Limitation Period For Filing Application U/S 95 Of IBC Against Personal Guarantor Stands Extended By Acknowledgement Of Debt: NCLAT

Tazeen Ahmed

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