Dismissal Of DRT Recovery Case For Default Does Not Bar Insolvency Proceedings Against Personal Guarantor: NCLAT

The appeal was filed by Arvinder Kaur, a personal guarantor, challenging the admission of insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the order of the Delhi bench of the National Company Law Tribunal (NCLT), dated 19 November 2024.

The Bank of Maharashtra had extended loan facilities to the corporate debtor, including Rs 1 crore for plant and machinery, Rs 1.5 crore as cash credit, and additional loans for vehicles. The appellant executed deeds of guarantee in 2010 to secure these facilities.

The corporate debtor defaulted, and its account was classified as a Non‑Performing Asset (NPA) on 24 April 2012. The bank initiated recovery proceedings before the Debt Recovery Tribunal (DRT) in 2013 and recalled the facilities in 2015.

Despite repeated settlement proposals in 2016 and 2020, no resolution was achieved. A partial payment was made on 3 February 2021, but the outstanding dues persisted. On 1 September 2023, the bank issued a statutory notice under Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, followed by a petition under Section 95 seeking initiation of the Personal Insolvency Resolution Process (PIRP) against Arvinder Kaur.

The Resolution Professional (RP) appointed under Section 99 recommended commencement of proceedings, and the NCLT admitted the petition. Arvinder Kaur challenged the admission primarily on the ground of limitation.

It was pointed out that the account was classified as NPA in 2012, and facilities were recalled in 2015. It was further argued that even if settlement proposals in 2016 are treated as acknowledgements, the limitation would extend only until 2019. Thus, the petition filed in September 2023 was therefore time‑barred.

The appellant argued that the 2020 settlement proposal and the 2021 part payment did not constitute valid acknowledgements capable of extending limitation. She also pointed to the dismissal of the DRT proceedings in 2018.

The Bank of Maharashtra countered that the part‑payment made on 3 February 2021 constituted a valid acknowledgement under law, extending limitation. The Bank pointed out that under the terms of the deed of guarantee, any acknowledgement or part‑payment by the borrower binds the guarantor. Accordingly, the Section 95 petition filed in September 2023 was within limitation. It was also contended that The dismissal of the DRT proceedings was for default, not on merits

The NCLAT held that the appellant's challenge rested entirely on limitation and noted that the part‑payment of debt on 03 February 2021 was undisputed and that the deed of guarantee expressly provided that acknowledgements or payments by the borrower bind the guarantor.

Thus, it was held that, given the co‑extensive liability of guarantors, the appellant could not avoid responsibility.

Further, it was held that the dismissal of the DRT proceedings did not extinguish the debt, as it was dismissed for default and not on the merits.

The bench refused to interfere with the impugned order and accordingly, dismissed the appeal.

For Appellants: Advocate Aman Raj Singh

For Respondents: Advocates Gautam Singhal, Rajat Chaudhary, Anjali Maurya and Suraksha Mandhyan for R1; Advocates Nishant Awana and Suraj Kundu for R2