Limitation and guarantor liability in insolvency: Article 137 applies, BIFR suspension periods may be excluded, and the guarantee survives

For section 7 insolvency applications, limitation under Article 137 of the Limitation Act applies through section 238A of the Insolvency and Bankruptcy Code, and time spent in suspended recovery proceedings under section 22(1) of the Sick Industrial Companies Act may be excluded when computing the three-year period. The computation must account for the dates of invocation of the corporate guarantee and the pendency of BIFR references, including periods excluded by statute. A corporate guarantor's liability remains coextensive with the principal borrower's liability until the secured debt is satisfied, and an assignee of the original lender may proceed against the guarantor. Discharge and limitation objections were rejected on these principles.

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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 pendency of proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985. (ii) Whether the corporate guarantor could avoid liability on the basis of the asserted discharge of obligations or the limitation plea.

Issue (i): Whether the application under section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation in view of the pendency of proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: Article 137 of the Limitation Act, 1963 applies to applications under the Insolvency and Bankruptcy Code, 2016 by virtue of section 238A. The limitation period had to be computed with reference to the date of invocation of the corporate guarantee and the period during which proceedings before the BIFR were pending. The first reference had been registered and later dismissed as time barred, so the period from filing of that reference until dismissal was excluded under section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. The period between dismissal of the first reference and filing of the second reference was counted, and the subsequent pendency of the second reference till repeal of the Sick Industrial Companies (Special Provisions) Act, 1985 also impacted computation. On that computation, the section 7 application was filed within three years.

Conclusion: The limitation plea failed and the application was not barred by limitation.

Issue (ii): Whether the corporate guarantor could avoid liability on the basis of the asserted discharge of obligations or the limitation plea.

Analysis: The corporate guarantee continued to subsist until satisfaction of the secured liability. The liability of the guarantor was coextensive with that of the principal borrower, and the acknowledgment of liability by the principal borrower was treated as binding on the guarantor. The assignee of the original lender was entitled to proceed against the corporate guarantor in the same manner as the borrower, and the contention of discharge or waiver was not accepted.

Conclusion: The guarantor remained liable and the contention that the obligations stood discharged was rejected.

Final Conclusion: The insolvency application against the corporate guarantor was maintainable and within limitation, and the appeal failed.

Ratio Decidendi: For a section 7 application against a corporate guarantor, limitation under Article 137 is computed subject to exclusion of periods when recovery proceedings are suspended by section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, and the guarantor's liability remains coextensive and enforceable until the guaranteed debt is satisfied.

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