Borrower's Debt Acknowledgment Can Extend Limitation Against Personal Guarantor If Guarantee Provides So: NCLAT

The appeal was filed by Manoj Kumar Agarwal against the order of the Guwahati Bench of the National Company Law Tribunal (NCLT) upholding the admission of insolvency proceedings initiated against him under Section 95 of the Insolvency and Bankruptcy Code (IBC) as a personal guarantor to Adhunik Meghalaya Steels Pvt Ltd on an application filed by IL&FS Financial Services Limited, the Respondent No.1.

The dispute arose from a term loan facility of up to ₹30 crore extended by IL&FS Financial Services Ltd. to Adhunik Meghalaya Steels Pvt. Ltd. in February 2015, against which approximately ₹24.44 crore was disbursed.

To secure the facility, Manoj Kumar Agarwal executed a personal guarantee in favour of the lender. Following defaults in repayment, the borrower's account was classified as a non-performing asset (NPA) on 1 March 2018. Thereafter, the lender issued an event of default notice and a recall notice in July and August 2018, respectively, demanding repayment of the outstanding dues.

Subsequently, in 2024, the NCLT dismissed a Section 7 petition filed by Respondent No.1 against the Corporate Debtor on the ground of limitation. The same was then remitted to the NCLT after the appeal rose to the Supreme Court. The Supreme Court treated the petition as filed within limitation.

Later, on 8 May 2024, the Respondent No.1 instituted the present proceedings under Section 95 of the Code against the appellant. The NCLT appointed RP and directed him to submit his report under Section 99 of the Code, which recommended initiation of the insolvency resolution process against the appellant, and subsequently, the impugned order was passed.

The appellant contended that the Section 95 application filed on 8 May 2024 was barred by limitation. According to him, limitation against him commenced independently upon invocation of the guarantee through the recall notice dated 10 August 2018 and expired long before the initiation of insolvency proceedings.

It was submitted that Respondent No. 1 has relied upon clause 5 (f) of the guarantee deed to show that any acknowledgement or part payment made by the corporate debtor is binding upon the appellant and extends the period of limitation against him.

He argued that a subsequent acknowledgement of debt by the corporate debtor in its balance sheet dated 12 August 2020 could not revive or extend limitation against the guarantor, particularly when the guarantee had already been invoked. It was also argued that the limitation against the personal guarantor was required to be determined independently of the principal borrower.

On the other hand, IL&FS argued that the application was not barred by limitation. It was also pointed out that the issue of limitation stood settled by the Supreme Court in earlier proceedings relating to the same debt.

It was pointed out that the Supreme Court had already held that the Section 7 petition was within limitation after considering the acknowledgment of debt and excluding the COVID-19 period.

It was further submitted that the Deed of Personal Guarantee was a valid, unconditional and continuing guarantee, binding upon the appellant until the dues of the Corporate Debtor are discharged in full. It was also argued that the appellant's liability was joint, several and co-extensive with that of the borrower.

Examining the guarantee deed, the NCLAT found that the guarantee was unconditional, irrevocable and a continuing guarantee. It was also noted that the financial creditor was not obliged to first proceed against the principal borrower.

It noted that Clause 5(f) specifically stipulated that any admission or acknowledgement in writing by the borrower would bind the guarantor and be treated as having been made on the guarantor's behalf. The Tribunal noted that in view of the express language of the guarantee deed, the acknowledgement made by the corporate debtor in its balance sheet dated 12 August 2020 was deemed to be an acknowledgement by the personal guarantor as well.

The Bench also noted that the NCLT did not deliberate on the issue of limitation on the ground that the dispute was already decided by the Supreme Court in a Section 7 application moved by the respondent against the principal debtor.

It was also noted that, after excluding the period of COVID-19 in view of the acknowledgement, the limitation will only commence on 1 March 2022 and will continue till February 2025, thus making the present application within the limitation framework.

The Tribunal noted that the guarantee deed had expressly provided that acknowledgements by the borrower can bind the guarantor. Accordingly, the NCLT order was upheld, and the appeal was dismissed.

For Appellants: Senior Advocates Arun Kathpalia and D. N. Sharma, with Advocates Pranav Sachdeva, Sanyam Jain, Mishra Divya Santosh, P. Rohit Ram, Khushboo Singhal, Nilay Sengupta

For Respondent: Advocates Raunak Dhillon, Aishwarya Gupta, Jeezan Riyaz for R1