Acknowledgment of liability and demand-based corporate guarantee kept the insolvency action within limitation and enforceable.

A Section 7 IBC application is within limitation where a written communication acknowledges liability and extends time under Section 18 of the Limitation Act; here, the corporate debtor's 27.09.2017 reply admitting non-payment and seeking that insolvency action not be initiated saved the filing from being time-barred. A corporate guarantee is an independent, demand-based obligation, and the guarantor remains liable unless the contract provides otherwise; invocation of the guarantee and the deed terms did not show discharge under Sections 135 or 139 of the Contract Act. The guarantor could therefore be proceeded against, and the insolvency admission order remained undisturbed.

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Issues: (i) Whether the Section 7 application was barred by limitation or saved by acknowledgment of liability; (ii) Whether the corporate guarantor could be proceeded against on the basis of the guarantee invocation and whether the liability stood discharged under the Contract Act.

Issue (i): Whether the Section 7 application was barred by limitation or saved by acknowledgment of liability.

Analysis: The relevant limitation for an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 is governed by Article 137 of the Limitation Act, 1963. The account of the principal borrower was declared non-performing on 29.07.2014, but the corporate debtor's reply dated 27.09.2017 admitted that the borrower had failed to pay and requested that insolvency action not be initiated. That communication amounted to acknowledgment of liability within the meaning of Section 18 of the Limitation Act, 1963 and extended the limitation period. The application filed on 01.08.2019 was therefore within time.

Conclusion: The limitation objection failed and the Section 7 application was not time-barred.

Issue (ii): Whether the corporate guarantor could be proceeded against on the basis of the guarantee invocation and whether the liability stood discharged under the Contract Act.

Analysis: A contract of guarantee is an independent contract, and the liability of the surety is co-extensive with that of the principal debtor unless the contract provides otherwise. Where the guarantee is payable on demand, limitation against the guarantor runs from the demand and non-compliance. The bank invoked the corporate guarantee on 08.12.2014 and later issued a demand notice, while the guarantee deeds permitted variation of loan terms and enforcement of securities without discharging the guarantor. The debtor's liability was thus a live and undischarged liability, and the facts did not attract discharge under Sections 135 or 139 of the Indian Contract Act, 1872.

Conclusion: The corporate guarantor remained liable and could validly be proceeded against under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Final Conclusion: The admission order was upheld, the appeal was rejected, and the insolvency process against the corporate debtor was left undisturbed.

Ratio Decidendi: In a proceeding against a corporate guarantor, a demand-based guarantee creates a separate enforceable liability, and a written acknowledgment of that liability within the limitation period extends time under Section 18 of the Limitation Act, 1963.

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