Acknowledgment of liability extends limitation in insolvency and a corporate guarantor may face resolution proceedings on default.

Subsequent acknowledgments of liability can extend limitation for a section 7 insolvency application, and the application was treated as within time. A corporate debtor that executed a continuing deed of guarantee was not excluded from insolvency proceedings merely because it guaranteed an individual borrower; the maintainability objection was rejected in the factual setting. Default was found proved from the disbursal of financial debt, the guarantee, repeated admissions of liability, and non-payment of dues. The application was admitted, a moratorium was declared, and an interim resolution professional was appointed, resulting in commencement of the corporate insolvency resolution process against the corporate debtor.

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Issues: (i) whether the application under section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation in view of the acknowledgments of debt; (ii) whether the corporate debtor, as guarantor for an individual borrower, was outside the scope of proceedings under the Insolvency and Bankruptcy Code, 2016; and (iii) whether default was proved so as to admit the application and commence the corporate insolvency resolution process.

Issue (i): whether the application under section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation in view of the acknowledgments of debt

Analysis: The default was followed by acknowledgments and admissions of liability by the borrower and also by the corporate debtor on later dates. Those acknowledgments were treated as relevant to limitation, and the reliance placed on a contrary authority was distinguished on the ground that no such subsequent acknowledgment existed there.

Conclusion: The application was held to be within limitation.

Issue (ii): whether the corporate debtor, as guarantor for an individual borrower, was outside the scope of proceedings under the Insolvency and Bankruptcy Code, 2016

Analysis: The corporate debtor had executed a continuing deed of guarantee and undertook liability on default of the principal borrower. The definitions of corporate debtor and corporate guarantor were considered, and the objection based on the guarantor being for an individual rather than a corporate person was rejected as unsustainable in the factual setting of the case.

Conclusion: The objection to maintainability on this ground was rejected.

Issue (iii): whether default was proved so as to admit the application and commence the corporate insolvency resolution process

Analysis: The record showed disbursement of financial debt, execution of guarantee, repeated admissions of liability, and failure to clear the outstanding dues. The application was found to be defect-free, the proposed interim resolution professional was found fit, and the requirements for initiation of insolvency proceedings were satisfied.

Conclusion: Default was proved and the application was admitted, with moratorium declared and interim resolution professional appointed.

Final Conclusion: The proceeding culminated in initiation of the corporate insolvency resolution process against the corporate debtor, with the attendant statutory moratorium and consequential insolvency directions.

Ratio Decidendi: Subsequent acknowledgment of liability can extend limitation for a section 7 insolvency application, and a corporate guarantor may be proceeded against where the deed of guarantee creates enforceable liability upon default.

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