Limitation in insolvency proceedings: personal guarantor liability cannot be extended as continuing guarantee without contractual basis.

Proceedings under Section 95 of the Insolvency and Bankruptcy Code were held time-barred because the date of default was fixed as 01.08.2012, while the insolvency demand notice was issued only in 2020; limitation under Article 137 of the Limitation Act, read with Section 238A of the Code, therefore expired before initiation. The attempt to treat the personal guarantor's obligation as a continuing guarantee failed because the loan was a single term-loan facility and the contract did not show a series of recurring transactions or any express continuing liability. The order admitting the guarantor into the insolvency resolution process was set aside and the appeal was allowed.

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Issues: (i) Whether the proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016 were barred by limitation on the basis of the date of default disclosed in the demand notice. (ii) Whether the personal guarantor's liability could be treated as a continuing guarantee so as to extend the limitation period.

Issue (i): Whether the proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016 were barred by limitation on the basis of the date of default disclosed in the demand notice.

Analysis: The notice under Section 95(4)(b) disclosed the date of default as 01.08.2012, while the demand notice was issued only on 20.01.2020. The Code treats default as non-payment of debt when it becomes due and payable, and the relevant limitation under Article 137 of the Limitation Act, 1963 is three years from accrual of the right to apply. Section 238A of the Insolvency and Bankruptcy Code, 2016 makes limitation applicable to proceedings under the Code. The earlier arbitral determination and its confirmation also showed that the debt and default were definite and already crystallised long before the insolvency notice.

Conclusion: The proceedings under Section 95 were barred by limitation and could not be sustained.

Issue (ii): Whether the personal guarantor's liability could be treated as a continuing guarantee so as to extend the limitation period.

Analysis: A continuing guarantee under Section 129 of the Indian Contract Act, 1872 extends to a series of transactions. The agreement in question was found to be a single term-loan facility and did not contain any clause making repayment or default a recurring or successive obligation. The creditor also failed to establish from the record that the loan arrangement or the guarantee was structured as a continuing guarantee. In the absence of such contractual basis, the date of default could not be shifted forward merely because the demand notice was issued later.

Conclusion: The plea of continuing guarantee was rejected.

Final Conclusion: The impugned order admitting the guarantor into the insolvency resolution process was set aside, and the company appeal was allowed as the initiation of proceedings under Section 95 was held to be time-barred.

Ratio Decidendi: For proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016, the limitation period runs from the definite date of default disclosed or otherwise established, and a creditor cannot extend or reset that date by invoking continuing guarantee unless the contract expressly supports a series of transactions creating such continuing liability.

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