2026 (2) TMI 737 - AT - IBC

Limitation law: contractual guarantee claims are time-barred; parallel SARFAESI/DRT proceedings do not exclude limitation.

Applications under the contractual guarantee regime filed on 05.04.2023 were held time-barred under the limitation governing contracts because the right ... Application u/s 94 of the Insolvency and Bankruptcy Code, 2016 - limitation under Article 137 of the Limitation Act - invocation of guarantee - proceedings under the SARFAESI Act and exclusion u/s 14 of the Limitation Act - HELD THAT:- It is not in dispute that all the banks initiated proceedings under the SARFAESI Act, 2002 (‘Act, 2002’) by issuance of notice under Section 13(2) of the Act, 2002 and the proceedings initiated at the instance of the consortium banks are pending before the DRT, Chandigarh in which OA. No. 4524 of 2007 is filed by IDBI Bank, OA No. 5546 of 2017 is filed by State Bank of India and OA No. 4494 of 2017 is filed by Indian Bank (earlier Allahabad Bank). No merit in the present appeals because, firstly, the application under Section 94 is filed when the debtor who had committed a default and is unable to pay the said amount can apply through RP to the AA for initiation of the insolvency but limitation period of three years, as envisaged in Article 137 of the Act, has to apply to the said application as well. In the present case, not only that the NPA was declared in the year 2013 and 2014 but also the guarantee was invoked in the year 2016 and 2017. At that time, the Appellants who had extended guarantee to the CD which was already in CIRP, knew about the fact that such kind of application can be filed within a period of three years yet they chose to file the same on 05.04.2023 after the expiry of almost of six years. In such circumstances, the Tribunal had not committed any error in dismissing the application. Issues: (i) Whether applications filed under Section 94 of the Insolvency and Bankruptcy Code, 2016 by personal guarantors on 05.04.2023 are barred by limitation under Article 137 of the Limitation Act; (ii) Whether the pendency of SARFAESI/DRT/related proceedings can exclude time under the doctrine in Sesh Nath Singh (i.e. exclusion under Section 14 principles) so as to render the Section 94 applications within limitation.Issue (i): Whether the Section 94 applications filed on 05.04.2023 are time-barred under Article 137 of the Limitation Act.Analysis: Article 137 prescribes a three-year limitation period for suits founded on a contract or other liability. The right to proceed against guarantors accrued on invocation of the guarantee and on realization of default facts (including declaration of NPA and invocation dates). The applications were filed several years after the dates on which the guarantees were invoked and after the dates when NPA was declared. The delay was not shown to have been tolled by any event that would lawfully extend or exclude the limitation period.Conclusion: The Section 94 applications filed on 05.04.2023 are barred by limitation and therefore not maintainable. This conclusion is against the appellants (in favour of the respondents).Issue (ii): Whether the pendency of proceedings under the SARFAESI Act/DRT prevented the running of limitation for the Section 94 applications by operation of the principles in Sesh Nath Singh.Analysis: The Sesh Nath Singh principle concerning exclusion under Section 14 applies where proceedings were prosecuted in a wrong forum or where the party was prevented from proceeding in the chosen forum by reasons that justify exclusion. The facts here show independent proceedings under the SARFAESI Act and pending OAs before the DRT; however, those proceedings do not operate to automatically exclude the limitation for a Section 94 application. The circumstances relied upon do not establish that the appellants were prevented from prosecuting their Section 94 rights within the statutory period so as to attract exclusion under the Sesh Nath Singh reasoning.Conclusion: The doctrine in Sesh Nath Singh does not apply to exclude time in these cases; the contention based on pendency of SARFAESI/DRT proceedings is rejected. This conclusion is against the appellants (in favour of the respondents).Final Conclusion: The appeals are dismissed for being time-barred; the Section 94 applications filed on 05.04.2023 are barred by limitation and the proviso relied upon from Sesh Nath Singh is inapplicable in the present factual matrix.