Corporate guarantor liability under insolvency law upheld, and written acknowledgment extended limitation for the Section 7 application.

Section 7 insolvency proceedings may be initiated against a corporate guarantor for the guaranteed debt even where the principal borrower is not a corporate person, because the guarantor's liability is coextensive with the borrower's default and the IBC definitions are broad enough to cover such liability. The application was also not barred by limitation: Article 137 applied, and a valid written acknowledgment within the limitation period, including the last acknowledgment dated 08.12.2018, renewed time under Section 18 of the Limitation Act, 1963. The appeal was disposed of, leaving the proceedings before the Adjudicating Authority undisturbed.

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Issues: (i) Whether an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 can be initiated against a corporate guarantor when the principal borrower is not a corporate person; (ii) Whether the Section 7 application filed beyond three years from declaration of the loan account as NPA was barred by limitation.

Issue (i): Whether an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 can be initiated against a corporate guarantor when the principal borrower is not a corporate person.

Analysis: Section 7 enables a financial creditor to initiate the corporate insolvency resolution process against a corporate debtor on occurrence of default. The expressions "debt", "claim", "financial debt", "financial creditor" and "default" are broad enough to include liability arising from a corporate guarantee. The guarantor's obligation is coextensive with that of the principal borrower under Section 128 of the Indian Contract Act, 1872. Once the principal borrower defaults, the corporate guarantor may itself be treated as a corporate debtor in respect of the guaranteed liability. The definition of "corporate guarantor" does not restrict Section 7 proceedings only to guarantees given for debts of another corporate person.

Conclusion: The issue was decided against the appellant and in favour of the respondent.

Issue (ii): Whether the Section 7 application filed beyond three years from declaration of the loan account as NPA was barred by limitation.

Analysis: Section 238A of the Insolvency and Bankruptcy Code, 2016 makes the Limitation Act, 1963 applicable to insolvency proceedings. The relevant limitation period is governed by Article 137, but it can be extended by a valid acknowledgment in writing under Section 18 of the Limitation Act, 1963. Acknowledgment by the principal borrower and by the corporate guarantor within the limitation period gave rise to a fresh period of limitation. The last written acknowledgment dated 08.12.2018, read with the admitted liability and guarantee documents, was sufficient to renew limitation for the Section 7 application.

Conclusion: The issue was decided against the appellant and in favour of the respondent.

Final Conclusion: The corporate guarantor could be proceeded against under Section 7, and the insolvency application was held to be within limitation, so the appeal was disposed of without disturbing the proceedings before the Adjudicating Authority.

Ratio Decidendi: A corporate guarantor may be proceeded against under Section 7 for the guaranteed debt upon default by the principal borrower, and limitation for such an application can be extended by a valid written acknowledgment under Section 18 of the Limitation Act, 1963.

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