Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member), and Mr. Indevar Pandey (Technical Member), has held that the limitation period for filing an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) against a personal guarantor stands extended upon a valid acknowledgment of debt made by the principal borrower. The Tribunal emphasized that such acknowledgment, even in the form of a One-Time Settlement (OTS) proposal, will be deemed to have been made by the guarantor, thereby extending the limitation period.

Also Read: NCLAT Rules, Registration Of Security Interest With CERSAI Is Sufficient To Claim Status Of Secured Financial Creditor

The dispute arose from an application filed by Indian Bank under Section 95 of the IBC, seeking initiation of insolvency resolution proceedings against Shri Rakesh Jolly, the personal guarantor of M/s Aravali Infrapower Ltd., the principal borrower. The application was admitted by the NCLT, New Delhi on 24.07.2023, following the recommendation of the Resolution Professional under Section 99 of the Code. Aggrieved, the Appellant challenged the NCLT's order on the ground that the application was barred by limitation.

Indian Bank had originally sanctioned a credit facility of ₹58.35 crores on 31.10.2012 as part of a Corporate Debt Restructuring (CDR) scheme. Shri Rakesh Jolly executed a Deed of Guarantee on 13.02.2013 in favour of the lead bank of the consortium. The account of the principal borrower was classified as a Non-Performing Asset (NPA) on 29.10.2012. A demand notice was issued to the Appellant under Section 13(2) of the SARFAESI Act on 13.06.2016, invoking the personal guarantee and seeking repayment of ₹109.43 crores.

Following a failed CDR mechanism, the principal borrower submitted an OTS proposal to the lead bank on 19.03.2018. Though the consortium rejected the OTS, the Respondent later issued another demand notice under Rule 7 of the IBC (Personal Guarantor Rules) on 10.05.2022, demanding ₹200.90 crores. The Appellant denied liability, claiming the debt was time-barred, and challenged the maintainability of the Section 95 application filed on 03.08.2022.

The Appellant contended that the limitation period began on 29.10.2012, when the account was declared NPA, or at best on 13.08.2016, upon the expiry of the 60-day notice period following the SARFAESI notice dated 13.06.2016. He argued that the application filed in July 2022 was beyond the three-year limitation period under Article 137 of the Limitation Act. The Appellant also opposed the consideration of the 2018 OTS proposal, asserting that it was introduced for the first time in the appellate stage and had neither been accepted nor resulted in a concluded agreement.

Indian Bank, on the other hand, relied on several acknowledgments of debt, including the OTS proposal signed by the Appellant in his capacity as Director of the principal borrower. The Bank submitted that the OTS constituted a valid acknowledgment under Sections 18 and 19 of the Limitation Act, and as per Clauses 12 and 19 of the Guarantee Deed, such acknowledgments by the borrower were binding on the guarantor. The Bank further pointed to the Supreme Court's suo motu order in Writ Petition (C) No. 3 of 2020, which excluded the period from 15.03.2020 to 28.02.2022 from limitation calculations, thereby bringing the demand notice dated 10.05.2022 and the Section 95 application within limitation.

The Tribunal considered the arguments and carefully examined the OTS proposal dated 19.03.2018. It held that the document had a material bearing on the question of limitation and could not be discarded simply because it was brought in at the appellate stage. The Tribunal clarified that the proposal acknowledged the debt and the failure of the CDR mechanism, and thus, constituted a valid acknowledgment of liability by the principal borrower. By virtue of the Guarantee Deed, such acknowledgment extended the limitation against the guarantor as well.

Also Read: NCLAT Declares Transactions Fraudulent U/S 66 Of IBC Due To Corporate Debtor's Failure To Diligently Negotiate One-Sided Clause In MOU

The Bench observed that the three-year limitation period from the date of acknowledgment on 19.03.2018 would ordinarily expire on 18.03.2021. However, as this date fell within the Covid-induced exclusion period declared by the Supreme Court, the limitation period stood extended. Since the demand notice was issued on 10.05.2022 and the Section 95 application was filed on 19.07.2022, both actions were held to be within the extended limitation period. Ultimately, the Tribunal found no merit in the appeal and affirmed the NCLT’s admission of the application under Section 95 of the IBC. Accordingly, the appeal was dismissed.

Appearance

For Appellant: Mr. Sunil Fernandes, Sr. Advocate, Mr. Amit Dhall, Ms. Diksha Dadu, Mr. Rajat Srivastava, Advocates. 

For Respondents: Mr. Brijesh Kumar Tamber and Mr. Prateek Kushwaha, Advocates.

Cause Title: Shri Rakesh Jolly vs. Indian Bank & Anr.

Case No: Company Appeal (AT) (Ins.) No. 1267 of 2023

Coram: Justice Rakesh Kumar Jain [Judicial Member], Mr. Naresh Salecha [Technical Member], Mr. Indevar Pandey [Technical Member]