Pranav B Prem

The New Delhi Bench of the National Company Law Tribunal (NCLT), comprising Shri Manni Sankariah Shanmuga Sundaram (Judicial Member) and Shri Atul Chaturvedi (Technical Member), has held that a financial creditor is entitled to initiate proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), against a corporate guarantor even after the approval of a resolution plan, if actionable rights under the guarantee have been preserved in the plan as “Excluded Rights.”

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The petition was filed by IFCI Limited under Section 7 of the IBC seeking initiation of Corporate Insolvency Resolution Process (CIRP) against ACCIL Hospitality Private Limited, which had extended a corporate guarantee on behalf of the principal borrower, Asian Colour Coated Ispat Limited (ACCIL).

The petitioner submitted that the limitation period for filing the petition began on 24.11.2020, when a legal bar to initiating CIRP against the corporate guarantor was removed. Since the petition was filed on 09.09.2021, it was claimed to be within the three-year limitation period. The petitioner further relied on the approved resolution plan of ACCIL, wherein the rights of the financial creditor under the corporate guarantee were preserved under the category of “Excluded Rights,” entitling the creditor to initiate independent proceedings against the guarantor.

The respondent contended that the petition was barred by limitation under Article 137 of the Limitation Act. It was argued that no acknowledgment or revival of liability was made by the respondent and that the earlier Section 7 petition filed in 2019 had already been dismissed and upheld by the NCLAT. The respondent further submitted that no fresh notice or acknowledgment had been issued thereafter, and that the assignment of debt does not alter the date of default for computing limitation.

The Tribunal noted that the earlier Section 7 application filed by IFCI in 2019 was dismissed by the Adjudicating Authority on 21.10.2019 and the appeal was dismissed by the NCLAT on 17.02.2020. It was observed that the Resolution Plan of ACCIL had clearly excluded certain rights, including guarantees, from being assigned to the resolution applicant’s SPV.

The Tribunal referred to the decision of the NCLAT in Mr. Vikas Aggarwal v. Asian Colour Coated Ispat Limited & Ors [Comp. App. (AT) (Ins) No.1104 of 2020], where it was held that actionable rights preserved in an approved resolution plan continue to vest with the financial creditor, and such rights may be exercised independently even after approval of the plan, unless expressly assigned or extinguished. Applying this ratio, the NCLT held:“The retention of actionable rights by the Financial Creditor under the Guarantee executed by the Corporate Debtor entitles it to proceed against the Guarantor under section 7 of the IBC.”

However, while accepting the legal entitlement of the financial creditor to proceed under Section 7 due to retention of actionable rights, the Tribunal ultimately dismissed the present petition on the ground of limitation. It held that the invocation of guarantee dated back to 2017 and no valid acknowledgment or revival of debt was produced. As such, the petition, filed beyond three years from the date of default, was barred under Article 137 of the Limitation Act.

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The Tribunal also clarified that pending writ petitions before High Courts do not operate as a legal bar to proceedings under the IBC unless a specific stay or injunction is granted. In conclusion, while affirming the legal right of financial creditors to proceed under Section 7 based on preserved rights under a resolution plan, the Tribunal dismissed the present petition as non-maintainable on the ground that it was filed beyond the limitation period.

Appearance

For Applicant: Mr. S.S. Ahluwalia, Ms. Saniya Zehra, Advs.

For Respondent: Mr. P. Nagesh, Sr. Adv., Mr. Tanuj Sud, Mr. Ajay Kumar, Ms. Stuti Vatsa, Mr. Akshya Sharma, Mr. Vijayant Goel, Advs.

Cause Title: M/s IFCI Limited V. M/s ACCIL Hospitality Private Limited

Case No: CP No.: IB 492(PB)/2021

Coram: Shri Manni Sankariah Shanmuga Sundaram [Judicial Member], Shri Atul Chaturvedi [Technical Member]