NCLT Dismisses SIDBI's Insolvency Application Against Personal Guarantor Due to Limitation Bar

Application filed by Small Industries Development Bank of India against Sh. Krishnakant Bagree dismissed as time-barred by National Company Law Tribunal, Indore Bench.

In a significant ruling, the National Company Law Tribunal (NCLT) Indore Bench has dismissed an application filed by the Small Industries Development Bank of India (SIDBI) seeking to initiate a personal insolvency resolution process against Sh. Krishnakant Bagree, the personal guarantor for Bagree Alloys Limited. The tribunal held that the application was barred by the statute of limitations.

The case revolved around a credit facility extended by SIDBI to Bagree Alloys Limited, which defaulted on its repayments. SIDBI subsequently classified the loan account as a Non-Performing Asset (NPA) on June 8, 2013, and issued several demand notices to the corporate debtor and guarantor. However, the personal insolvency application was filed on August 21, 2023, well beyond the three-year limitation period from the date of default.

Presiding over the case, Member Judicial Shri. Brajendra Mani Tripathi and Member Technical Shri. Man Mohan Gupta emphasized that the limitation period for filing such applications is governed by Article 137 of the Limitation Act, 1963, which stipulates a three-year period starting from the date of default. The tribunal noted that the invocation of the personal guarantee occurred on August 25, 2015, and the subsequent application exceeded the limitation period without any valid acknowledgment of debt within the prescribed timeframe.

The tribunal also addressed SIDBI's contention that a One-Time Settlement (OTS) proposal dated June 16, 2023, should be considered an acknowledgment to extend the limitation period. Citing the Supreme Court's judgments, the tribunal clarified that any acknowledgment must occur within the existing limitation period to be valid. Since the OTS proposal was made beyond the statutory period, it could not be used to revive the enforceability of the debt.

Furthermore, the tribunal highlighted that the liability of the personal guarantor is co-extensive with that of the principal borrower, as per Section 128 of the Indian Contract Act, 1872. Consequently, once the borrower's liability becomes time-barred, the guarantor's liability is also extinguished.

The tribunal's decision underscores the importance of adhering to the prescribed limitation periods in insolvency proceedings. It serves as a reminder to financial creditors to promptly initiate legal action to enforce debts, thereby safeguarding their financial interests.

Bottom Line:

Insolvency and Bankruptcy Code - Personal Guarantor - Application under Section 95 held to be barred by limitation as it was filed beyond the prescribed period of limitation and no valid acknowledgment of debt was made within the subsisting limitation period.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 95, Limitation Act, 1963 Article 137, Limitation Act, 1963 Section 18, Indian Contract Act, 1872 Section 128

Small Industries Development Bank of India v. Sh. Krishnakant Bagree, (NCLT)(Indore Bench) : Law Finder Doc Id # 2806111