Limitation For Continuing Guarantee Runs From Enforceable-Demand Notice, Not Execution: NCLAT New Delhi

The National Company Law Appellate Tribunal at New Delhi on 25 March, held that in the case of a continuing guarantee enforceable on demand, the limitation under Section 95 of the Insolvency and Bankruptcy Code, 2016, runs from the date of the enforceable-demand notice and not from the date of execution of the guarantee document.

A Bench comprising Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey observed:

“It is far too fundamental a point that where a deed of guarantee provides for its invocation through a demand, then the liability under the same becomes enforceable only on demand. It is admitted that the notice under Sec.13(2) SARFAESI Act was issued on 27.02.2019 and the default commenced 27.04.2019. Necessarily the petition filed under Sec.95 IBC on 30.12.2021 is within time.”

Nandani Singh, a personal guarantor of Theme Exports, the corporate debtor, filed the appeal against the NCLT, New Delhi's order admitting a Section 95 petition by Bank of Baroda against her as a personal guarantor.

On 6 January 2017, Singh and others executed a stamped deed of continuing guarantee and acknowledgment in favor of the bank. The loan account of the corporate debtor was classified as non-performing on 7 January 2019. On 27 February 2019, the bank issued a notice under Section 13(2) of the SARFAESI Act to the principal borrower and the guarantors, requiring repayment within 60 days.

An operational creditor filed a Section 9 petition against the corporate debtor, which the NCLT admitted, but revival of the corporate debtor failed and a liquidation order followed.

The bank's liquidation claim of Rs. 36.93 crore was admitted. On 4 August 2020, the bank issued a personal demand-cum-recall notice to the appellant and later filed the Section 95 petition before the NCLT, which admitted the petition.

The appellant argued that limitation under Section 95 should be counted from 6 January 2017, making the petition filed on 30 December 2021 time-barred. The bank countered that the deed of guarantee was a continuing guarantee enforceable on demand, so limitation ran from the Section 13(2) notice dated 27 February 2019, with default crystallising on 27 April 2019. Therefore, the Section 95 petition filed on 30 December 2021 fell well within the limitation period.

The NCLT rejected the appellant's contention, holding that the guarantee could be invoked only by demand and the limitation period starts from the date of such demand.

The Tribunal noted that the Resolution Professional's report relied on the earlier demand notice of 27 February 2019 as the relevant date of invocation, and despite a slight mismatch between the petition and the report, treated 27 February 2019 as the operative date for limitation.

Accordingly, the NCLAT dismissed the appeal, confirming that limitation for filing a Section 95 petition under a continuing guarantee begins from the enforceable-demand notice, not the execution of the guarantee.