NCLT Hyderabad Initiates Insolvency Process Against The Personal Gauartor Of Deccan Chronicle Holdings

Background Facts

L&T Finance Ltd. ("Petitioner") had sanctioned a term loan amounting to Rs. 25 Crores to M/s Deccan Chronicle Holdings Ltd. ("Principle Borrower") on 10.05.2013. The Petitioner and the Principal Borrower had entered into a Facility Agreement dated 13.05.2011, Demand Promissory Note dated 13.05.2011 and under a Deed of Guarantee Mr. Tikkavarapu Venkatarami Reddy ("Respondent/Personal Guarantor") was named as the guarantor to secure the repayment of the financial assistance availed by the Principal Borrower. On 31.01.2021, the total amount in default was Rs. 62,96,35,739.60/-.

When both Principal Borrower and the Respondent failed to repay the loan, arbitration proceeding was initiated by the Petitioner in 2012 against them. The Arbitral Tribunal on 15.03.2013 passed an Award, directing the Principal Borrower and the Respondent to pay an amount of Rs. 25,02,61,350/- along with interest @15% per annum from 27.01.2012 till payment/realization. However, the execution proceeding in respect of the Arbitral Award is pending before the High Court of Bombay.

On 19.07.2017, Corporate Insolvency Resolution Process ("CIRP") was initiated against the Principal Borrower and subsequently resolution plan submitted by SREI Multiple Asset Investments Trust Vision India Fund was approved on 03.06.2019.

Thereafter, on 20.01.2020 the Petitioner had issued a demand notice to the Respondent for payment of the amount due and payable under the Arbitration Award. The Respondent sent a response dated 03.02.2020 to the Petitioner, stating that since the Resolution Plan for the Principal Borrower has been approved by the NCLT on 03.06.2019, the Petitioner cannot maintain any proceedings against the Respondent.

Subsequently, the Petitioner filed a petition under Section 95 of Insolvency of Bankruptcy Code, 2016 ("IBC") before the NCLT Hyderabad Bench for initiating Insolvency Resolution Process against the Respondent. Ms Renuka Devi was appointed as the Interim Resolution Professional and had filed a report under Section 99 of the IBC, recommending the admission of the petition on the ground that despite issuing notice in Form-B the personal guarantor failed to make payment.

Issue

Whether the present Company Petition for initiation of Insolvency Resolution Process against the Personal Guarantor is barred by limitation?

Contentions Of The Petitioner

The Petitioner submitted that as per clause 16 of the Deed of Guarantee executed by Respondent, the guarantee agreement continues to be in full force till the debt owed to the Petitioner is cleared. The account of the Principal Borrower continues to be a live account as interest is being accrued on a regular basis and the dues of the Petitioner are yet to be fully cleared. It was also contended that the limitation in respect of the Respondent is to be reckoned from the date of demand and refusal/non-compliance by the latter, i.e. 02.03.2021.

Contentions Of The Respondent

The Respondent claimed that the Petition is time barred by virtue of Article 19 and 137 of the Limitation Act, 1963 as the Petitioner approached the NCLT after 8 years, as the debt payable by Principal Borrower became due on 08.06.2012 when the Petitioner exercised the "call option" under the Facility Agreement. Further, the Petitioner had failed to demonstrate acknowledgement of debt by the Respondent.

Decision Of The NCLT

The Bench relied on the Supreme Court decision in Dena Bank v C. Shivakumar Reddy & Anr., Civil Appeal No. 1650 of 2020, wherein it was held that:

"an application under Section 7 or 9 of IBC may be time-barred, even though some other recovery proceedings might have been instituted earlier, well within the period of limitation, in respect of the same debt…….however, it would have been a different matter, if the applicant had approached the Adjudicating Authority after obtaining a final order and/or decree in the recovery proceedings, if the decree remained unsatisfied. This court held that a decree and/ or final adjudication would give rise to a fresh period of limitation for initiation of Corporate Insolvency Resolution Process".

The NCLT Bench held that the petition was well within limitation and accordingly insolvency resolution process was initiated against the Respondent.

Case Title: L&T Finance Limited v Tikkavarapu Venkaram Reddy, CP (IB) No. 88/95 of IBC/HDB/2021

Counsel For Petitioner: Shri Vivek Reddy, Senior Advocate assisted by Shri Shabeer Ahmed, Shri V. Aneesh, Advocates.

Counsel For Respondent: Shri S. Ravi, Senior Advocate assisted by Shri A. Chandrasekhar, Advocate.

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