2026 (2) TMI 1219 - AT - IBC

Limitation exclusion during pandemic requires prospective computation; remand ordered for fresh adjudication on invocation and acknowledgement.

Whether a petition under insolvency law was time-barred turned on applying the Supreme Court directions excluding 15.03.2020-28.02.2022 and computing the ... Exclusion of limitation period from 15.03.2020 to 28.02.2022 - computation of limitation post SMWP No. 3 of 2020 - invocation of a corporate guarantee by issuance of notice - acknowledgement of debt and extension of limitation u/s 18 of the Limitation Act - Section 7 petition maintainability on limitation grounds - HELD THAT:- As per the contention of Ld. Counsel for the Respondent, we take the notice given to the borrower under Section 13(2) on 04.09.2018 as the date on which, by issuing this notice, guarantee has been invoked, the period till 03.09.2021 was available to the Financial Creditor for preferring any application in this regard and as the limitation period has expired between 15.03.2020 to 28.02.2022 (the period highlighted by the Hon’ble Supreme Court in the aforesaid order) then, as argued by Respondent, only 90 days would be available more to the Appellant/FC for preferring any application under Section 7 of the Code in view of the direction no. 1 of the order of the Hon’ble Supreme Court which would end on 28.05.2022 and as the petition has been filed on 20.08.2023 the same would be barred by limitation. It is evident that there are certain facts which are not in dispute. It is not in dispute that the Respondent had stood corporate guarantor to the CD and the Financial Creditor has assigned the debt / loan to the Appellant on 15.05.2019. It is also not in dispute that the demand notice under Section 13(2) was issued by the original lender DNS Bank Ltd. to the borrower and corporate guarantor/Respondent on 04.09.2018 and other demand notices were issued by the FCs to the borrower and CD on 04.11.2019 and 18.02.2022 and ultimately the application under Section 7 of the Code was filed by the Appellant on 20.08.2023. Exclusion of limitation period from 15.03.2020 to 28.02.2022 - The date of default in petition has been shown as 19.11.2019 and it is concluded by the Adjudicating Authority that the date of default is 19.11.2019 as the time, as per the notice given on 04.11.2019 was available to the CD to pay the outstanding dues till 18.11.2022. In this scenario 3 years’ limitation would have expired on 18.11.2022. Since the last date of the limitation period was falling beyond the date stipulated in the order of the Hon’ble Supreme Court i.e. 28.02.2022 the whole of the period provided in direction no. 1 of the order of the Hon’ble Supreme Court i.e. from 15.03.2020 till 28.02.2022 would be excluded and thereafter the whole period which was available to the Appellant for filing of the appeal, on 15.03.2020 would be available to the Appellant and thus by assuming the date of default as 19.11.2019, which has been endorsed by the Adjudicating Authority, the petition of the Appellant was within the period of limitation. Invocation of a corporate guarantee by issuance of notice - acknowledgement of debt and extension of limitation under Section 18 of the Limitation Act - If we take the limitation as canvased by the Ld. Counsel for the Respondent No. 1 from the notice given under Section 13(2) of date 04.09.2018, than the acknowledgment made vide OTS dated 10.11.2019 (within three years from 04.09.2018) has further extended the limitation period till 10.11.2022, by virtue of section 18 of the Limitation Act and in this scenario also since the last day of limitation period was falling beyond the stipulated period as highlighted by the Hon’ble Supreme Court (from 15.03.2020 to 28.02.2022) this whole period would be fully excluded from computation of limitation and the petition filed on 20.08.2023 would be within the period of limitation. Need not to say that acknowledgement by the principal debtor is the acknowledgement by the guarantor as responsibility to pay the outstanding debt of the principal and guarantor is coextensive and the liability of the guarantor depends upon the default committed by the principal borrower. Therefore, the factual and legal position would suggest that the Adjudicating Authority has not considered the law laid down by the Hon’ble Supreme Court in Suo Motu Writ Petition (c) No. 3 of 2020 in its correct prospective and has also failed to take into cognizance Section 18 of the Limitation Act as also the averments made by the financial creditor with regard to acknowledgment of debt by principal borrower, which has been duly recorded by the Adjudicating Authority in para 2.7 of the impugned order. Therefore, in our considered opinion, the judgment passed by the Adjudicating Authority may not with stand the test of the law and therefore is liable to be set aside. There is no material before us with regard to the acknowledgment made by the principal borrower vide OTS proposal dated 10.11.2019 and in this scenario a fresh exercise is required to be done by the Adjudicating Authority wherein the contention of the Respondent No. 1 with regard to the invocation of guarantee from the notice given under Section 13(2) may also be considered by the Adjudicating Authority, the matter is required to be remanded back to the Ld. Adjudicating Authority for afresh consideration. However, it is clarified and has also been held by this Court in catena of judgments that whether the guarantee may be invoked by issuing a notice under Section 13(2) would depend on the facts and circumstances of each and every case, keeping in view the provisions stipulated in this regard in the guarantee deed and it is also to be considered that in a particular case the guarantee may be deemed to have been invoked by giving notice under Section 13(2), but in another case where notice under Section 13(2) of the SARFAESI Act has been given as well as a specific notice for invoking the guarantee has been issued whether in that case also the notice issued under Section 13(2) of the SARFAESI Act can be deemed to have invoked the guarantee, would be for the Adjudicating Authority to explore and to arrive at just and reasonable conclusions. Thus, the impugned Judgment passed by the Adjudicating Authority is hereby set aside. The Appeal filed by the Appellant is allowed. Issues: (i) Whether the Adjudicating Authority erred in holding the Section 7 petition time-barred by limitation; (ii) Whether the invocation date of the corporate guarantee and the effect of alleged acknowledgement (OTS) require fresh adjudication.Issue (i): Whether the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation.Analysis: The appeal examines application of the Hon'ble Supreme Court's directions excluding the period from 15.03.2020 to 28.02.2022 for computation of limitation, and whether the Adjudicating Authority correctly computed the balance limitation from the date of default recorded (19.11.2019). Relevant precedents interpreting exclusion of the pandemic period and its operative effect on the balance period are applied to the admitted facts and the impugned order.Conclusion: The Adjudicating Authority's conclusion that the petition was time-barred is set aside because the exclusion under the Supreme Court's order and related precedents required correct prospective application and further factual examination; the matter is remanded for fresh consideration.Issue (ii): Whether the guarantee was invoked by earlier notices (including a notice under Section 13(2) of the SARFAESI Act) and whether an alleged acknowledgement (OTS dated 10.11.2019) affects limitation, necessitating rehearing.Analysis: The invocation of a guarantee depends on the terms of the guarantee and the wording/content of the notice; an acknowledgment by the principal borrower can affect limitation under the Limitation Act. The Adjudicating Authority had recorded that the guarantee was invoked by notice dated 04.11.2019, but documentary proof of the alleged OTS acknowledgement is absent on record. Given unresolved factual disputes as to invocation and acknowledgement, these matters require fresh examination with opportunity to produce documentary evidence.Conclusion: The question of whether earlier notices invoked the guarantee and whether the OTS acknowledgement extended limitation is not finally resolved on the present record; the matter is remanded to the Adjudicating Authority for fresh adjudication after permitting evidence and hearing.Final Conclusion: The impugned order dismissing the Section 7 petition as time-barred is set aside, the appeal is allowed, and the Company Petition is restored to the Adjudicating Authority for fresh disposal after hearing and permitting tender of documentary evidence.Ratio Decidendi: The exclusion of the period from 15.03.2020 to 28.02.2022 must be applied prospectively to compute the balance limitation; whether a guarantee is invoked by a particular notice depends on the terms of the guarantee and the notice's content, and unresolved factual disputes on invocation or acknowledgement warrant remand for fresh adjudication.