Personal Guarantor Insolvency Pleas Governed By 3-Year Limitation Under Limitation Act: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has reiterated that in the absence of a specific limitation period under the Insolvency and Bankruptcy Code, applications filed under Section 94 by personal guarantors are governed by Article 137 of the Limitation Act, 1963, which prescribes a three-year limitation period, and dismissed a personal insolvency petition as time-barred and procedurally defective.

The bench comprising Judicial Member Mohan Prasad Tiwari and Technical Member Charanjeet Singh Gulati observed that Section 238A of the IBC makes the Limitation Act applicable to proceedings before the Adjudicating Authority, and therefore Article 137 would apply to an application under Section 94.

“Section 238A of the Insolvency and Bankruptcy Code, 2016 makes the provisions of the Limitation Act, 1963 applicable to proceedings before the Adjudicating Authority. In the absence of a specific provision in the IBC prescribing the limitation period for an application under Section 94, Article 137 of the Limitation Act, 1963 applies, which provides for a limitation period of three years from the date when the right to apply accrues. In the present case, the right to apply accrued when the default occurred, that is, upon expiry of 60 days from the date of invocation of guarantee on 18.07.2016, The three-year limitation period therefore expired on or about 16.09.201 ”

The observation came while dismissing a petition filed by Kiran Ratilal Sheth, personal guarantor to Max Flex & Imaging Systems Limited, seeking initiation of insolvency resolution under Section 94 of the Code.

The tribunal held that in the case of a personal guarantor, default occurs upon invocation of the guarantee and failure to pay within the stipulated period. Since the guarantee was invoked on 18 July 2016 and payment was not made within 60 days, the right to apply arose in September 2016 and the limitation period expired in September 2019, whereas the petition was filed only in May 2023.

Reliance was placed on the NCLAT decision in Suyog Jain v. Arvind Kumar, holding that Article 137 of the Limitation Act applies to applications under Section 94.

The tribunal also found that the petition was defective for non-compliance with Rule 6(2) of the 2019 Rules, as no proof was filed to show service of the application upon the corporate debtor, though service on financial creditors was shown.

Holding that the petition was both barred by limitation and deficient, the Tribunal dismissed the application as not maintainable.