Limitation Period To Reset When Part-Payment Of Debt Is Made By Personal Guarantor U/S 19 Of Limitation Act: NCLT Delhi

Background of the Case

UCO Bank, the applicant and creditor-initiated proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016 against the respondents Nishu Goel and Ajay Goel, who were also the personal guarantors for the financial facilities extended to the Principal Debtor, M/s VCRM Petrochemicals Pvt. Ltd. The deed of guarantee was executed on 31.05.2017 and the Principal Debtor account was declared as a non-performing asset (NPA) on 31.03.2018. This led to issue of notice under Section 13(2) of the SARFAESI Act, 2002.

Subsequently, the assets of Nishu Goel were taken into possession and the were sold on 15.11.2019 to recover a certain portion of the debt. When the Corporate Insolvency Resolution Process (CIRP) was initiated with later resulted in failure of forming a resolution plan, the company was ordered to be liquidated. During the ongoing liquidation process, the bank received partial repayments on certain dates, but the debt remained unsatisfied, prompting the filing of insolvency applications against the personal guarantors.

The respondents (personal guarantors) contested the proceedings arguing that the applications were barred by limitation under Article 137 of the Limitation Act, 1963 as three years had elapsed since the date of default. The judgement of B.K. Educational Services Pvt. Ltd vs Parag Gupta and Associates were also brought up by the respondents stating that the insolvency application must prescribe to the limitation period.

Given the continued default and the insufficiency of recoveries, UCO Bank invoked the provisions of Section 95 of the IBC Code seeking the insolvency process against the persona guarantors. Under Section 95(4) of IBC, the RP was satisfied with no evidence of debt repayment by the guarantors and recommended admitting the applications.

Contention of both the parties

The Appellants contended that there was a default on the financial facility extended by the bank. They also stated that the account of Principal Debtor was classified as non-performing asset and despite several recovery efforts the debt remained unpaid in full. They stated that the personal guarantors were liable for the repayment of the remaining debt. The appellant agreed that they received partial repayments on certain dates, but the debt remained unsatisfied, prompting the filing of insolvency applications against the personal guarantors. They stated that according to Section 19 of the Limitation Act, 1963, any part-payment of a debt extends the limitation period. As a result, the parties were within the limitation period of filing the appeal.

The respondents (personal guarantors) contested the proceedings arguing that the applications were barred by limitation under Article 137 of the Limitation Act, 1963 as three years had elapsed since the date of default. The respondents also argued that the claimed payments being the result of a legal process should not extend the limitation period under the limitation act, 1963 as the section requires the acknowledgement or payment to be made by the debtor or an authorized agent.

Judgement of the Court

The National Company Law Tribunal (NCLT), New Delhi, admitted the insolvency applications filed by UCO bank under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2017, against the personal guarantors. The Tribunal held the applications were filed within the prescribed limitation period, relying on Section 19 of the Limitation Act, 1963, which allows the limitation period to reset when part-payment of debt is made. The arguments of respondent in response to the limitation period were dismissed by the Tribunal, emphasizing that they are valid under the law. Consequently, the tribunal-imposed moratorium on the debts of the personal guarantor and directed the RP to conduct negotiations and allowed the guarantors to submit the repayment plans under Section 105 of the IBC code.

Case Title: UCO Bank Vs Smt. Nishu Goel

Case Number: IB-355/ND/2024

Tribunal: National Company Law Tribunal (NCLT), Delhi

Coram: Justice Subrata Kumar Dash (Member Technical) and Justice Ashok Kumar Bhardwaj (Member Judicial)

For the Applicant: Adv. Brijesh kumar Tamber, Adv. Prateek Kushwaha

For the RP: Adv. Shivani Jaiswal

For the PG: Adv. Mohit Jolly, Shikhar Bhardwaj, Adv. Tushar, Anand, Adv. Tanisha Gopal

Date of Judgement: 18.12.2024

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