Pranav B Prem

The Kolkata Bench of the National Company Law Tribunal (NCLT), comprising Smt. Bidisha Banerjee (Judicial Member) and Cmde Siddharth Mishra (Technical Member), has admitted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), filed against Vasupujya Enterprises Pvt. Ltd., a corporate guarantor of Ankit Metal & Power Ltd. (AMPL). The Tribunal held that invocation of a guarantee and pendency of recovery actions before the Debt Recovery Tribunal (DRT) do not preclude a financial creditor from initiating insolvency proceedings under the IBC, provided debt and default continue.

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Background

UCO Bank had extended multiple financial facilities to AMPL, secured by a corporate guarantee executed by Vasupujya Enterprises. Due to persistent defaults, the account of AMPL was classified as a Non-Performing Asset (NPA) in 2014. Although a Master Restructuring Agreement was executed in 2014, the borrower defaulted even thereafter. The bank invoked provisions of the SARFAESI Act and also initiated recovery proceedings before the DRT. Subsequently, UCO Bank filed a petition under Section 7 of the IBC seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Vasupujya Enterprises as guarantor.

Submissions

Applicant’s case:

• The bank argued that acknowledgments of debt and payments made by AMPL extended the limitation period, which equally bound the guarantor under Clause 29 of the Deed of Guarantee.

• Reliance was placed on the Supreme Court judgment in Laxmi Pat Surana v. Union Bank of India, where it was held that acknowledgment by a principal borrower extends limitation against guarantors.

• It was argued that simultaneous proceedings under Section 7 of IBC are permissible against both the borrower and guarantor.

Respondent’s case:

• The guarantor contended that the petition was barred by limitation, as no fresh cause of action arose after the guarantee was invoked in 2019.

• It argued that multiplicity of proceedings against both borrower and guarantor was impermissible, and acknowledgments made by AMPL could not extend limitation for the guarantor.

Tribunal’s Observations

The Tribunal rejected the guarantor’s objections and held:

• Payments made by AMPL till 23.08.2018, revival letters of 2017, audited balance sheets, and the Supreme Court’s suo motu limitation extension orders during COVID collectively extended the limitation period.

• Each payment constituted an acknowledgment under Section 18 of the Limitation Act, restarting limitation afresh from the date of such payment.

• The creditor is not obliged to exhaust remedies against the borrower before proceeding against the guarantor.

• The IBC contains no bar on filing simultaneous Section 7 petitions against borrower and guarantor; however, once one petition is admitted for the same claim, the other cannot be admitted.

• Invocation of a continuing guarantee and initiation of proceedings before the DRT do not restrict a financial creditor from moving under the IBC.

The bench observed: “Invocation of a guarantee and the filing of a recovery proceeding under a different statute does not preclude the Financial Creditor from initiating CIRP under the Code, provided the debt and default continue.”

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The Tribunal admitted the Section 7 petition against Vasupujya Enterprises Pvt. Ltd., holding that there existed a valid debt and default, and limitation had been duly extended.

Appearance

For the Financial Creditor: Mr. S.K. Ray, Adv. Ms. Zeba Khan, Adv. Ms. Muskan Saha, Adv. Ms. Ashmita Lohia, Adv.

For Corporate Debtor: Mr. Shaunak Mitra, Adv. Mr. Snehasish Sen, Adv. Ms. Mihika Roy, Adv.

Cause Title: UCO Bank V. Vasupujya Enterprise Private Limited

Case No: CP (IB) No.45/KB/2023

Coram: Smt. Bidisha Banerjee (Judicial Member), Cmde Siddharth Mishra (Technical Member)