NCLAT Dismisses Dhoot Brothers' Plea, Upholds Insolvency Proceedings As Videocon Guarantors

The National Company Law Appellate Tribunal (NCLAT) has dismissed appeals filed by Rajkumar Nandlal Dhoot and Pradeep Nandlal Dhoot, brothers of Videocon founder Venugopal Dhoot, clearing the way for insolvency proceedings against them in their capacity as personal guarantors to debt-ridden Videocon Industries Ltd.

A bench of Justice Ashok Bhushan and Technical Member Barun Mitra held that the applications moved by the State Bank of India under Section 95 of the Insolvency and Bankruptcy Code were filed within limitation. The tribunal noted that the guarantees had been invoked in 2018 and the insolvency proceedings were initiated within three years of that invocation.

Videocon Industries Ltd had availed rupee term loan and working capital facilities from SBI, for which the Dhoot brothers executed personal guarantees in 2012. After Videocon defaulted on its repayment obligations, SBI issued demand notices to the company in January 2018. The bank then moved against the guarantors, invoking the personal guarantees through demand certificates dated 2 February 2018 and 20 February 2018.

SBI initiated personal insolvency proceedings under Section 95 in August 2020.

Before the appellate tribunal, the brothers argued that limitation should be counted from the date when Videocon first defaulted. Relying on the Supreme Court's ruling in Laxmi Pat Surana v. Union Bank of India, they contended that since a guarantor's liability is co-extensive with that of the principal borrower, the insolvency applications were filed beyond the permissible time and were therefore barred by limitation.

Rejecting the contention, the tribunal held that while the lender's right to proceed arises when the principal borrower commits default, the commencement of limitation against a guarantor depends on the terms of the deed of guarantee.

“There can be no doubt that the moment Principal Borrower committed default, right of lender to take proceeding commences. The limitation for taking action against the Personal Guarantor shall be as per the Deed of Guarantee and in case where Deed of Guarantee contemplates issuance of demand notice by the Lender, after giving such demand notice, lender can initiate proceeding within three years from the date of default by the Guarantor,” the Tribunal held.

Examining the guarantee deeds, which required payment “on demand”, the bench held that in such cases the cause of action against the guarantor commences when a valid demand notice is issued invoking the guarantee and the amount remains unpaid.

"The Personal Guarantor who has executed the Deed of Guarantee, as noted above, was fully bound by the terms and conditions. When the clauses of the Deed of Guarantee, as noticed above, provided for payment by Guarantor on demand, the cause of action against the Guarantor shall commence when the notice of demand is issued i.e. guarantee is invoked against the Guarantor. ,” the tribunal observed.

Since the guarantees were invoked in February 2018 and the Section 95 applications were filed in August 2020, the Tribunal held that the proceedings were within limitation and dismissed both appeals.

The tribunal also clarified that the Supreme Court's ruling in Laxmi Pat Surana, which concerned Section 7 proceedings against a corporate guarantor, did not alter the settled principles governing limitation in cases of on-demand guarantees.