Limitation Period For Both Corporate Debtor And Personal Guarantor Will Commence From Same Date: NCLT Hyderabad
Mohd Malik Chauhan
3 Dec 2024 1:10 PM IST
The NCLT Hyderabad bench of Sri Rajeev Bhardwaj (Judicial Member) and Sri Sanjay Puri (Technical Member) has held that the Personal Guarantor should be treated on an equal legal footing with the Corporate Debtor, as it is clearly established by the law that the liability of Corporate Debtor and Personal Guarantor are co-extensive in nature. Therefore, the provisions of the Limitation...
The NCLT Hyderabad bench of Sri Rajeev Bhardwaj (Judicial Member) and Sri Sanjay Puri (Technical Member) has held that the Personal Guarantor should be treated on an equal legal footing with the Corporate Debtor, as it is clearly established by the law that the liability of Corporate Debtor and Personal Guarantor are co-extensive in nature. Therefore, the provisions of the Limitation Act must be applied consistently to both the Corporate Debtor and the Personal Guarantor. The limitation period for both the parties will commence from the same date.
Brief Facts
This petition has been filed by M/s. Jammu And Kashmir Bank Limited (Financial Creditor/FC/Petitioner) under Section 95 of the IBC seeking an order for initiation of Personal Insolvency Resolution Process against Personal Guarantor (Personal Guarantor/PG/Respondent) of M/s. IndBarath Energy (Utkal) Limited (CD/ Principal Borrower).
The CD had availed credit facilities of Rs.429.22 Crores from the PNB led Consortium which includes Jammu & Kashmir Bank Ltd., Bank of Baroda, Corporation Bank, Union Bank of India and Karur Vysya Bank under a Working Capital Consortium Agreement dated 03.03.2015.A guarantee was provided for this amount by personal guarantor.
When the corporate debtor defaulted in repaying the debt, a demand notice was also issued to the personal guarantor to the CD requesting to pay the unpaid debt of the CD, amounting to Rs.26,43,82,869/- within 14 days from the date of receipt of the notice.
A reply was sent to the notice by the personal guarantor in which it pleaded that the claim was barred by limitation therefore the notice should be withdrawn.
The Personal Guarantor failed to repay the debt amount to the Financial Creditor within the time specified. Given this default, the Financial Creditor has preferred the instant petition under Section 95(1) of the IBC.
Contentions:
The respondent submitted that since the demand notice of the creditor was sent to the personal guarantor after the expiry of the Limitation period (calculated from the date of default of the CD), this petition is barred by limitation and thus not maintainable.
It was further submitted that the Resolution Plan of the Corporate Debtor under Section 31 of IBC, 2016 is approved. Then the Guarantee is void on the account of impairment of assets and personal guarantor deserve to be discharged.
The petitioner submitted that the Guarantee Agreement is a guarantee "on demand", and the limitation period in respect thereof commences from the date of demand by the Petitioner and that the present Petition satisfies all the ingredients of Section 95 of IBC
Decision of The Tribunal:
In State Bank of India v. Ghanshyam Surajbali Kurmi, 2022 this tribunal has held that “the Financial Creditor is also at liberty to initiate Insolvency Resolution Process against the Personal Guarantor; the resolution plan approved by the Adjudicating Authority is not for recovery but for revival. Further as per Section 134 of the Indian Contract Act, 1872, a guarantor is discharged of its liability towards the creditor only if the creditor on its own instance discharges the principal debtor through voluntary act of the creditor and not due to operation of law.”
Further, the Supreme court in Lalit Kumar Jain v. Union of India & others, 2021 has held that It is therefore clear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor's liability.
As far as the liability of the Personal Guarantor is concerned, relying on the Indian Contract Act, 1872, the Contract of Guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. The person who gives the guarantee is called the surety, the person in respect of whose default, the guarantee is given is called the “Principal Debtor” and the person to whom the guarantee is given is called the Creditor.
It is to be noted that the Contract of Guarantee is an independent contract and the liability of the Personal Guarantor is different from that of the Principal Borrower. In terms of provisions of Section 134 of Indian Contract Act, 1872, a surety is discharged by any contract between the creditor and the Principal Debtor by which the Principal Debtor is released or by any act or omission of the Creditor, the legal consequence of which is the discharge of the Principal Debtor.
In the instant case, the tribunal observed that the liability of the personal guarantor did not extinguish even after the approval of the Resolution Plan, provided that the debt owed to the FC has not been fully paid according to Clause 3 of the Guarantee Deed dated 03.03.2024. Upon the approval of Resolution Plan of the Corporate Debtor, all liabilities, claims, dues, and any waivers, reliefs, or exemptions pertaining to period prior to the approval date shall be deemed extinguished.
Notwithstanding the foregoing reference, the tribunal further observed that “such discharge shall be limited to the Corporate Debtor and shall not operate to release the persons who have provided guarantees, from their obligations to satisfy any payments to the creditors as mandated by the terms of the relevant contracts to which they are parties.”
The tribunal also noted that in cases of unequivocal guarantees, the guarantor's liability persists, and in the present case, there is no contract between the FC and the Corporate Debtor that could discharge the guarantor under Section 134 of the Indian Contract Act, 1872.
The next question before the tribunal was whether the claim was barred by limitation or not.
An application under IBC before this Authority is governed by Article 137 of the Limitation Act, 1963, which prescribes a limitation period of three years from the date the right to apply accrues. In this case, the Corporate Debtor's default date was 31.12.2014, so the Financial Creditor must file the application within three years from the said date of default.
The tribunal further noted that “the Personal Guarantor should be treated on an equal legal footing with the Corporate Debtor, as it is clearly established by the law that the liability of Corporate Debtor and Personal Guarantor are co-extensive in nature”
It was observed “therefore, the provisions of the Limitation Act, the tribunal observed, must be applied consistently to both the Corporate Debtor and the Personal Guarantor. The limitation period for both the parties will commence from the same date.”
In the present case, the notice to personal guarantor was sent after the expiry of limitation period counted from the date of default committed by the corporate debtor.
It was also observed that “the debt for which the guarantee was given has not been acknowledged therefore the fresh limitation period under section 18 of the Limitation Act cannot be started.”
In view of the above, the tribunal observed that this petition is barred by limitation therefore deserves to be dismissed. Accordingly, the present petition was dismissed.
Case Title: Jammu and Kashmir Bank Limited Vs. Mr. Kanumuru Raghu Rama Krishna Raju
Case Number: CP (IB) No.54/95/HDB/2022
Date Of Judgment: 18/11/2024
