2025 (9) TMI 1410 - AT - IBC

Appeal allowed; s.95 IBC petitions held not time-barred after limitation exclusion extended into 2024 for PIRP petitions filed Nov-Dec 2022

State Bank Of India Versus Rakesh Hariram Agarwal, Mr. Birendra Kumar Agrawal and Sarvesh Hariram Agarwal

NCLAT allowed the appeal and set aside the NCLT orders dismissing two s.95 IBC petitions. The Tribunal held the petitions were not time-barred: the ... Dismissal of two petitions filed by the appellant/Financial Creditor u/s 95 IBC for initiating insolvency proceedings against two personal guarantors of the principal borrower - date of default as mentioned in Part III of the petition u/s 95 IBC for computing the period of limitation - understanding of Order of the Hon’ble Supreme Court in Suo Motu W.P.(C) 3 of 2020 [2022 (1) TMI 385 - SC ORDER] - Is the PIRP barred by time?. Date of Default in Part III & Limitation - understanding of Order of the Hon’ble Supreme Court in Suo Motu W.P.(C) 3 of 2020 [2022 (1) TMI 385 - SC ORDER] - HELD THAT:- In the context of a CIRP or a PIRP, for initiating an action, the creditor is required to establish two facts which provides the cause for initiating it: existence of a debt and the default in repaying it. The default in paying the debt, therefore, provides one of the facts constituting the cause of action for initiating any of these proceedings. The date of default which is required to be provided in Part IV of a petition under Sec. 7 or 9, or Part III of a petition 95 only indicates the date on which one of the facts constituting the cause of action has arisen. As earlier stated, limitation for initiating a CIRP or a PIRP is not about constituting a cause of action, for about enforcing a cause of action. Therefore, the date of commencement of limitation need not necessarily be the same, and it depends on the facts of each particular case - Merely because the IBC has prescribed a Form of pleading, that does not ipso facto imply that the date of default in paying the debt and the date of commencement of limitation for commencing a CIRP or PIRP should not be different. And, this distinction should neither be lost sight of, nor should they be confused. Care must be taken to ascertain the precedential value of any judgement and it requires that care must be bestowed to identify the ratio of a judgement. It has been long decided that a judgement is a precedent for what it actually decides. Very unfortunately, the art of filtering a judgement through the right legal filters for decocting its ratio appears to be fast disappearing from contemporary legal research, which appears to put premium on faster results over the need to ascertain the ratio of a judgement. There is also on display an increasing tendency to use a couple of sentences in a judgement, or a catch phrase which a judge may have coined for conveying his opinions, quite out of context. To conclude this point, it must be held that the terminus a quo for commencement of limitation is 20.11.2018, the date of which the principal borrower had laid its debtor initiated CIRP proceedings under Sec. 10 IBC. The appellant has now produced a balance sheet of the principal borrower for the year ending 31.03.2019, which the board of directors had singed on 05.09.2019. If limitation period is computed from 05.09.2019, it would expire on 05.09.2022. The CIRP however, was laid 30.11.2022 (as regards C.A.246 of 2025) and 28.12.2022 (as regards C.A,282 of 2025) and here the counsel for the appellant relies on the Order of the Hon’ble Supreme Court in suo motu W.P.(C) 3 of 2020, [2022 (1) TMI 385 - SC ORDER]. Is the PIRP barred by time? - HELD THAT:- In the present case, as explained earlier, if limitation is reckoned from 20.11.2018 (the date on which the principal borrower had laid C.P.4442 of 2018 u/s 10 IBC), then limitation would expire on 19.11.2021. And, even if the second part of paragraph 5 (II) of the order in the suo motu writ petition is applied such balance period which is in excess of 90 days should be available in entirety. However, in terms of the above authorities of the Hon’ble Supreme Court, the entire period when cause of action was in a state of eclipse (between 15.03.2020 to 28.02.2022) is required to be excluded and must be added after 28.02.2022, by bringing the entire case before it within para 5(I) of the said Order. The adjudicating authority has not only overlooked Para 5(I) of the extracted suo motu order, but also applied the first part of Para 5(II) and from a wrong date as the terminus a quo. Now, if the entire period from 15.03.2020 to 28.02.2022 (approximately two years), limitation would be available till March, 2024. However, both the petitions to initiate PIRP involved in this batch of appeals were filed respectively in November and December, 2022. Needless to state they are within time. The Orders of the Adjudicating Authority (NCLT – IV, Mumbai) in C.P (IB) 15 of 2023 and C.P.(IB) 62 of 2023, dated 09.12.2024 are set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a petition under Section 95 IBC for initiating Personal Insolvency Resolution Process (PIRP) against a personal guarantor is barred by limitation where subsequent events after the date of default (including litigations, recovery certificate, debtor-initiated CIRP and acknowledgements in balance sheets) extend or revive the period of limitation. 2. Whether a notice under Section 13(2) of the SARFAESI Act can be treated as a demand/notice invoking the personal guarantee for purposes of computing the date from which limitation for a PIRP begins to run. 3. Whether the date of default specified in Part III of a petition under Section 95 IBC is determinative and immutable for computing limitation, or whether other facts and documents on record (including acknowledgements, filing of CIRP by the principal debtor, balance-sheet entries) can be relied upon to compute the period of limitation without formal amendment. 4. Whether an appellate tribunal may admit and consider additional documents not placed before the Adjudicating Authority, and if so, under what conditions and with what procedural safeguards. 5. How the Supreme Court's orders relating to exclusion of the period from 15.03.2020 to 28.02.2022 in the context of Covid-19 should be applied to compute limitation for a PIRP when the relevant terminus a quo falls partly or wholly before that eclipse period. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Limitation for Section 95 PIRP where subsequent events occurred Legal framework: Limitation Act applies to proceedings under the IBC by virtue of statutory application; limitation operates on the right to maintain an action (remedy) and not merely on the cause of action. Events which constitute acknowledgement of debt or crystallise liability can affect the date from which limitation is computed. Precedent treatment: Authorities have recognized that acknowledgements (including entries in balance-sheets and debtor's admission in proceedings) can extend or re-start limitation; there is no rigid rule that the date stated in the petition is the only date for computing limitation. Interpretation and reasoning: The tribunal must compute limitation based on facts that have effect of enlarging the period of limitation from the date of default as given by the creditor. Where the debt became subject matter of litigation (DRT OA leading to recovery certificate) and where the principal debtor itself filed a CIRP petition admitting liability, those events constitute matters which push the terminus a quo forward for computing limitation. The recovery certificate and the debtor's admitted liability in its own CIRP operate to crystallise and acknowledge the debt, thereby affecting limitation. Ratio vs. Obiter: Ratio - limitation for initiating PIRP may be computed from subsequent events (e.g., recovery certificate, debtor's CIRP filing, balance-sheet acknowledgement) that legally enlarge or revive the enforceable right, and not strictly from the date of default indicated in the petition. Conclusion: The terminus a quo in the present facts is the date of the principal debtor's CIRP filing (or alternatively the board-signed balance-sheet acknowledgement), not an earlier OTS acceptance, and therefore the PIRP petitions filed in November/December 2022 were within time once relevant exclusions are applied. Issue 2 - Whether Section 13(2) SARFAESI notice invokes personal guarantee Legal framework: Invocation of personal guarantee requires a demand/communication to the guarantor; statute does not prescribe a particular form of such demand. Section 13(2) SARFAESI notice is a statutory demand for repayment prior to enforcement of security interests. Precedent treatment: Some decisions have been interpreted to limit the effect of Section 13(2) notices as guarantee invocations; other authorities (and subsequent clarifications) accept that a Section 13(2) notice can be adequate to constitute a demand for purposes of invoking a personal guarantee where the terms of the guarantee make liability contingent on demand. Interpretation and reasoning: A Section 13(2) notice constitutes a demand for repayment in the statutory scheme of SARFAESI and is materially capable of being treated as notice invoking personal guarantee. Invocation of guarantee need not await physical possession under Section 13(4); the statutory demand itself suffices where the contractual obligation is triggered by demand. Therefore, the initial Section 13(2) notice served the demand function for triggering guarantor liability and subsequent events (DRT proceedings) rendered the matter litigable and the liability crystallised. Ratio vs. Obiter: Ratio - a Section 13(2) notice can amount to a notice invoking personal guarantee for the purpose of starting processes under the IBC framework, provided the contractual and factual matrix support such construction. Conclusion: The first Section 13(2) notice operated as a demand invoking the personal guarantee in the factual matrix; a later issuance purporting to withdraw the earlier notice cannot invalidate the crystallised demand or the recovery certificate produced by the DRT. Issue 3 - Binding effect of date of default in Part III and reliance on other facts without amendment Legal framework: Forms in IBC require date of default to be stated; Limitation Act and principles of pleadings require courts/tribunals to look at substance over form. The tribunals must apply limitation law to facts available, even if the date in the prescribed form differs. Precedent treatment: Authorities that urged strict reliance on the date given in the statutory form have been contrasted with decisions which allowed reliance on subsequent acknowledgements and material on record without formal amendment of the date in the form. Interpretation and reasoning: The date in Part III/Part IV shows when one fact of the cause of action arose (date of default) but is not conclusive for computing limitation where other events produce legal consequences (acknowledgement, recovery certificate, debtor's CIRP filing). The Limitation Act applies to IBC proceedings and requires the tribunal to compute limitation on the basis of all relevant facts; pleadings should be read as a whole and substance should prevail over form. Consequently, documents and occurrences which revive or extend limitation may be relied upon without formal amendment of the date of default in the petition form. Ratio vs. Obiter: Ratio - tribunals may compute limitation using facts and documents on record that have the effect of enlarging the limitation period notwithstanding the date of default stated in the prescribed petition form, and amendment of the Form date is not a precondition. Conclusion: The date of default in Part III is not immutable; the tribunal may and should consider subsequent events and admissions on record to compute limitation even where the date in the form remains unchanged. Issue 4 - Admissibility of additional documents at appellate stage Legal framework: Appellate rules permit production of documents under principles akin to civil procedure rules; procedural fairness (audi alteram partem) requires the other side to have opportunity to be heard on newly produced documents. IBC proceedings are summary in nature but appellate tribunals have power to receive additional documents subject to fairness. Precedent treatment: Some judgments disapproved reception of material at appellate stage without opportunity to the respondent; such decisions emphasize procedural fairness rather than an absolute bar on additional evidence. Interpretation and reasoning: There is no statutory prohibition on admittance of additional documents at the appellate stage. Where genuineness is not disputed and the documents materially affect the appeal's outcome, the appellate tribunal may admit them provided the other side is heard on those documents. This approach harmonizes remedial justice with procedural fairness; refusal to consider relevant undispited evidence would be a travesty of justice. Conversely, producing additional documents without affording the opponent a hearing would be impermissible. Ratio vs. Obiter: Ratio - appellate tribunal may consider additional documents not produced below if (a) genuineness is not disputed, (b) documents bear on the appeal's outcome, and (c) the other party is given opportunity to be heard on them. Conclusion: Admission of additional documents in the present appeals was permissible because genuineness was not disputed and the respondents were afforded a hearing; the tribunal properly considered such documents in computing limitation. Issue 5 - Application of Covid-era exclusion order to computation of limitation Legal framework: The Supreme Court's orders excluding the period from 15.03.2020 to 28.02.2022 from computation of limitation operate as an exclusion analogous to statutory exclusions under the Limitation Act, and the consequent 'balance period' rules (including the 90-day deeming provision) govern accrual of available limitation after 01.03.2022. Precedent treatment: Higher court rulings equate the Covid exclusion to statutory exclusion and direct that the excluded period be added after 28.02.2022, with the result that any balance of limitation as on 03.10.2021 becomes available from 01.03.2022, and where the balance exceeds 90 days that longer balance applies. Interpretation and reasoning: Where the legally relevant terminus a quo (e.g., debtor's CIRP filing or balance-sheet acknowledgement) yields a limitation period that would have expired during or after the COVID-eclipse period, the exclusion must be applied as directed: the period from 15.03.2020 to 28.02.2022 is excluded and the remaining balance is activated from 01.03.2022. Thus, in cases where the effective limitation post-acknowledgement extends beyond 01.03.2022, the petitioner is entitled to the balance period (not limited to 90 days where the balance exceeds 90 days). Ratio vs. Obiter: Ratio - the Covid-era exclusion must be applied as an exclusion under the Limitation Act principles, and the available balance of limitation after 01.03.2022 (including balances exceeding 90 days) governs timeliness of IBC petitions. Conclusion: Applying the exclusion period to the date of commencement derived from the debtor's CIRP filing or balance-sheet acknowledgement results in an available limitation window extending into 2024; the PIRP petitions filed in November/December 2022 fall within the available limitation once the exclusion is properly applied. OVERALL CONCLUSION Limitation for the PIRP must be computed by reference to subsequent legal events and acknowledgements that revive or crystallise liability (recovery certificate, debtor's CIRP filing, balance-sheet entries) rather than being rigidly tied to the date of default stated in the petition form. A Section 13(2) SARFAESI notice can effect a demand invoking a personal guarantee in appropriate cases; subsequent withdrawal of a prior Section 13(2) notice does not nullify crystallised obligations or recovery certificates. Appellate tribunals may admit additional documents where genuineness is undisputed and procedural fairness is observed. The Covid-era exclusion must be applied as an exclusion under limitation law, and when applied here the PIRP petitions were within time and should have been admitted for further adjudication.