OTS Proposals By Corporate Debtor Extend Limitation Against Personal Guarantors: NCLT Ahmedabad

The National Company Law Tribunal (NCLT) Ahmedabad recently held that One Time Settlement proposals made by the borrower can amount to acknowledgment of liability and extend limitation in insolvency proceedings against personal guarantors.

A bench of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma observed, “The OTS proposals placed on record demonstrate acknowledgment of liability within the meaning of Section 18 of the Limitation Act, 1963. Even if such proposals were initiated by the Corporate Debtor, the liability of the Personal Guarantors being coextensive under Section 128 of the Indian Contract Act, 1872, such acknowledgment ensures to the benefit of the Financial Creditor against the guarantors as well, in the absence of any contractual exclusion. Further, the judgment and Recovery Certificate issued by the Debts Recovery Tribunal constitute a continuing cause of action. Accordingly, the application is held to be within limitation.”

The ruling came while the tribunal admitted six petitions filed by Canara Bank against personal guarantors of Vishal Exports Overseas Ltd., including Rushi Pradeep Mehta and his family members, over a default of about ₹38.42 crore. It found that the statutory threshold was met and proceeded to admit the pleas.

Canara Bank had extended credit facilities of Rs 300 crore to the company in 2003 under a consortium arrangement. To secure the facilities, the guarantors executed continuing guarantees in September 2006.

When the account turned irregular, recall notices were issued in July 2007. This was followed by demand notices under the SARFAESI Act in February 2008. In December 2015, the Debts Recovery Tribunal issued recovery certificates for the assets.

Enforcement steps continued thereafter, including an order in November 2024 attaching shares. Multiple One Time Settlement proposals were put forward between 2017 and 2024, including by the corporate debtor, though none were accepted.

In December 2024, the bank issued a demand notice pegging the total dues at about Rs 95.24 crore, with the default amount at Rs 38.42 crore.

The insolvency petitions followed in February 2025. An interim resolution professional was then appointed, who later recommended that the cases be admitted.

For the bank, the case rested on the guarantees and the trail of recovery action. It maintained that the guarantees had been validly executed and that the liability of the guarantors moved with that of the borrower. The recall notices, the recovery tribunal's 2015 judgment, and the steps taken thereafter were relied upon to show that the debt remained outstanding. The bank also drew attention to the settlement proposals over the years, treating them as acknowledgments of liability.

The guarantors took a very different line. They denied signing any valid guarantee documents and said nothing on record bore their signatures. Some pointed out that they were minors at the time of the transactions or were living abroad, distancing themselves from the company's affairs. They also questioned whether proceedings could be pursued against guarantors alone and insisted that the claims were time barred.

The tribunal was not persuaded. It found that the documents on record, read with the findings in the recovery proceedings, were sufficient to establish both the debt and the default. On limitation, it placed weight on the settlement proposals and the continuing recovery measures, treating them as keeping the claim alive

It noted that “the judgment and Recovery Certificate issued by the Debts Recovery Tribunal constitute a continuing cause of action,” holding that the claims were not time barred.

The tribunal then admitted the petitions, imposed a moratorium for 180 days, and confirmed the appointment of Sunil Kumar Kabra as the resolution professional.