The Delhi bench of National Company Law Appellate Tribunal (‘NCLAT’) held that creditors can initiate insolvency proceedings against personal guarantors via a resolution professional ( RP )as per Section 95(1) of Insolvency and Bankruptcy, Code, 2016 (‘IBC’).
Dena Bank extended a credit facility of Rs. 32.15 crores to Morakhia Metals and Alloy Pvt. Ltd. (Corporate Debtor). A joint Deed of Guarantee was executed by Shrenik Ashokbhai Morakhia (Appellant) along with Mr Pankaj Kumar Morakhia towards the credit facility.
The Corporate Debtor’s account was declared NPA on 31.05.2015. On 04.03.2016, Dena Bank invoked the Personal Guarantee demanding repayment of Rs. 26.68 crore from the Appellant within 15 days. On 29.01.2018, the Appellant issued a Declaration-cum-Undertaking in favour of Dena Bank which assigned the loan facility to Reliance Asset Reconstruction Company Ltd (Financial Creditor).
The Corporate Debtor was admitted into the Corporate Insolvency Resolution Process (‘CIRP’) under Section 7 of IBC on 19.02.2020 and a Resolution Plan was also approved. A Demand notice was issued by the Financial Creditor for a claim of Rs. 27.81 Lakhs, and a Section 95 application was filed to initiate insolvency proceedings against the Appellant on 10.08.2021.
The Appellant contested the Section 95 application and NCLT Ahmedabad admitted the said application. The Appellant argued that since the default occurred on 04.03.2016, the Section 95 application filed on 10.08.2021 exceeds the three-year limitation period, which expired on 04.03.2019. Therefore, the application should be dismissed as time-barred.
It was also contended that Dena Bank, having already invoked the guarantee, could not have assigned the debt to the Financial Creditor, rendering the Assignment Agreement invalid.
It was found that the RP’s written consent in Form A, along with authorization from the Financial Creditor to sign the application on their behalf, was submitted to the NCLT, Ahmedabad Bench, and included in the appeal records. Therefore, the Financial Creditor’s application through the RP was valid.
The two-member bench, comprising Mr Justice Ashok Bhushan (Chairperson) and Mr Arun Baroka (Technical Member) held that Section 95(1) of IBC permits creditors to apply for an RP for initiating the insolvency resolution process against a Personal Guarantor.
The NCLAT observed that the notice demanded repayment of Rs. 26.68 crore within 15 days and the Appellant issued a Declaration cum Undertaking on 29.01.2018. Therefore, the declaration acknowledged the company’s debt to the Financial Creditor.
Moreover, the acknowledgment of debt is in writing which is sufficient to extend the period of limitation as per Section 18 of the Limitation Act. Hence, the application filed on 10.08.2021 is deemed to be within the extended limitation period.
While dismissing the appeal, the NCLAT held that a creditor can apply to the Personal Guarantor via RP.
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