TaxTMI 
TaxTMI 
2026 (3) TMI 1436
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.... No. 1174 of 2023. 2. The Appellant is an Asset Reconstruction Company that was assigned the loan account of M/s Raj Poly Products Limited ("Corporate Debtor") along with all rights, titles, interest, and claims in respect of the loan facility granted by Janata Sahakari Co-operative Bank ("Original Lender") through an assignment agreement ("Assignment Agreement"). 3. The Respondent is the personal guarantor in both the Appeals, who had executed a Letter of Guarantee in favour of the Original Lender to secure the loan facility granted to the Corporate Debtor. Submissions of the Appellant 4. The Appellant contends that the Corporate Debtor needed funds for its working capital. The Original Lender vide a sanction letter dated 27th September 2013 and an agreement dated 19th December 2013 sanctioned a Term Loan/ Cash Credit Facility of Rs. 10,00,00,000/- (Rupees Ten Crores) ("Original Agreement") to the Corporate Debtor. 5. The Appellant contends that on 3rd December 2014, a Letter of Guarantee was executed by Mr. Rajendra Himmatlal Salot, the Respondent herein in the capacity of a Personal Guarantor to the Corporate Debtor in favour of the Original Lender to secure the O....
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.... of simple mortgage. Subsequently, the Corporate Debtor also submitted Affidavit-cum-Indemnity Bond dated 28th July 2017 and Irrevocable Power of Attorney to the Original Lender which were given as collateral to the Original Lender. 11. The Appellant states that the Original Lender vide a recall notice dated 10th April 2018 called upon the Corporate Debtor and the Respondent to make re-payment of outstanding Cash Credit Facility of Rs. 15,37,21,490/- (Rupees Fifteen Crore Thirty Seven Lakh Twenty One Thousand Four Hundred Ninety). 12. The Appellant states that the Original Lender issued demand notice dated 12th April 2018 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act") calling upon the Corporate Debtor to repay the outstanding Cash Credit Facility of 15,37,21,490/- (Rupees Fifteen Crores Thirty-Seven Lakhs Twenty-One Thousand Four Hundred Ninety Only) as on 31 March 2018. 13. The Appellant states that on 18th June 2018, the Original Lender vide a letter of intimation informed the Corporate Debtor that since it failed to make any payments within the statutory period of 60 days, ....
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....nal Guarantor Rules") in the manner and form prescribed therein. The Appellant called upon the Respondent to unconditionally pay the unpaid debt in default in full within 14 days from receipt of the demand notice failing which, insolvency resolution process under the Code would be initiated against the Respondent. 18. The Appellant states that the Respondent replied to the Demand Notice vide a letter dated 4th October 2022 raising frivolous averments in the reply. However, the Respondent did not dispute the amount that is due and payable to the Appellant herein. 19. The Appellant states that a Guarantee Invocation Notice dated 14th February 2023 was issued to the Respondent for repayment of outstanding amount to the Appellant. The Respondent replied vide letter dated 17th February 2023 wherein the Respondent did not dispute their liability to the Appellant. 20. The Appellant states that a Demand Notice dated 6th April 2023 under Rule 7 of the Personal Guarantor Rules was issued to the Respondent calling upon them to repay the unpaid debt in default in full within 10 days from receipt of the demand notice, failing which insolvency resolution process under the Code would be ....
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....at the Respondent and other Guarantors of the Corporate Debtors must be made to discharge their obligations under their respective Guarantees. The Appellant has deliberately suppressed the fact of these proceedings in its Insolvency Petition as well as in the present Appeal since the same unequivocally demonstrates the fact that steps had already been taken by the Original Lender to invoke the Respondent's Guarantee, and thus, the Appellant's Insolvency Petition was barred by limitation. 27. Subsequently, the Appellant claims that the Original Lender allegedly assigned all rights, titles, interest and claims in respect of the Cash Credit Facility in favour of the Appellant herein vide the purported Assignment Agreement dated 30.03.2019. 28. Thereafter, the Appellant without considering that the Respondent's guarantee was already invoked vide demand notice dated 12.04.2018, issued further demand notices on 23.09.2022 and 14.02.2023 to the Respondent under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 ("Personal Guarantor Rules"). 29. Consequently, ....
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....aced at pages 549 to 551 of Appeal Paper Book ("APB" in short) we find that there is clear indication of the names of all the Personal Guarantors therein which includes the present Appellant (and also the other two Appellants whose appeals are also under consideration before us). Para 11 of the Section 13(2) SARFAESI addressed to the Corporate Debtor notice which was also forwarded to the personal guarantors including the Appellant..." "20. Since the guarantee deed specifically mentioned that the guarantee was in the nature of an on-demand guarantee, the default was to arise on the part of the Guarantor only when the Demand Notice was issued as contemplated in the Deed of Guarantee. Thus, the period of limitation of the Personal Guarantor was to commence once the demand was made on the Guarantor by the Respondent No. 1 Bank. Hence, the Notice dated 04.06.2021 issued by the Respondent No. 1 Bank to the Personal Guarantor has to be treated to be Notice on Demand as contemplated in the Deed of Guarantee. The Rule 7(1) Notice dated 28.06.2021 had therefore rightly recorded that the debt was due on 04.06.2021 being the date of Demand Notice under Section 13(2) of the SARFAESI A....
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....tiation of the CIRP against the Appellant, the personal guarantor. In the above case, notice under Section 13(2) was issued on 04.10.2013 and application was filed after 7 years. Reasons for rejecting the application had been mentioned in paragraphs 11 and 12 which are as follows: - '11. In its reply, the Bank has submitted that although after sale of the mortgaged asset, part of the facility was realized, but no steps have been taken by the Bank against the Appellant for recovery of any dues. The notice, which is the basis of the Application, was issued on 04.10.2013. Nine years have been passed from issuance of the notice and no steps have been taken by the Bank so far for recovery of any amount from the Appellant. Default, which is claimed by the Appellant, at best can be said to be a technical default and when substantially, no steps have been taken by the Bank and the Bank's categorical case is that guarantee of the Appellant has not been invoked, it is the Bank, who after invoking the guarantee shall proceed against the Appellant. 12. We, thus, are satisfied that foundation which was laid down by the Appellant for initiating the CIRP against the Appellant, w....
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....scharge their obligations under their respective Guarantees. The Appellant has deliberately suppressed the fact of these proceedings in its Insolvency Petition since the same unequivocally demonstrates the fact that steps had already been taken by the Original Lender to invoke the Respondent's Guarantee, and thus, the Insolvency Petition is barred by limitation. 39. Even if it is assumed but not admitted that the Respondent's Personal Guarantee was not invoked vide Demand Notice dated 12.04.2018 under Section 13(2) of SARFEASI Act, 2002, the subject Guarantee in any case stood invoked on July 2018 vide the Arbitration Application preferred by Original Lender against the Respondent. 40. Considering the aforesaid, even after discounting the period to be excluded on account of Covid19, the limitation period for filing the Insolvency Petition u/s 95 of the Code expired in July 2023. The Insolvency Petition however was only filed by the Appellant in October 2023, and as such, the same is barred by limitation and rightly dismissed by the Ld. Adjudicating Authority vide the Impugned Order. 41. The Appellant was well aware of the fact of the Arbitration Proceedings initiated again....
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.... liabilities towards payment of the dues." The person at No. 3 in the said notice is the Respondent herein. Para 8 of said notice states that "Therefore, you are hereby called upon u/s. 13(2) of "The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002" by this notice to discharge in full your liability stated here under to the Bank within a period of 60 days from the date of receipt of this notice. Your outstanding liability due and owing to the Bank in respect of said Cash Credit facility is outstanding Rs. 15,37,21,490.50 (In words Rs. Fifteen Crores Thirty Seven Lakhs Twenty One Thousand Four Hundred Ninety and Paise Fifty Only). You are also liable to pay further interest at the contractual rate on the aforesaid amount together with incidental expenses, costs and charges etc." Accordingly, the Personal Guarantors herein committed default in their obligation under the Guarantee after expiry of 60 days from the date of receipt of notice dated 12.04.2018. The said notice is stated to have been served through R.P.A.D/By Hand. The acknowledgement of this notice is evidenced on Page 162 of the Petition, when this notice is stated to ha....
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....as further contended that the Adjudicating Authority has erred in calculating the period of limitation from the date of issuance of Section 13(2) Notice, i.e. 12th April 2018, instead of calculating from the date when the guarantee invocation letter was actually issued to the Respondent. Appellant contends that the Adjudicating Authority ought to have calculated the limitation period from the date of issuance of the demand notice invoking the guarantee, i.e. 23rd September 2022. 46. The Appellant further contends that the Respondent is the Personal Guarantor to the Cash Credit Facility availed by the Corporate Debtor. The Respondent vide letter of guarantee dated 3rd December 2014 is obligated to repay the outstanding dues of the Corporate Debtor. The Appellant had sent demand notices on multiple occasions, more specifically on 23rd September 2022, 14th April 2023 and 6th June 2023 invoking the liability of the Respondent in the capacity of a guarantor to the Cash Credit Facility availed by the Corporate Debtor. The Respondent in response to the above-said demand notices, invoking guarantee, did not dispute the amount due and payable to the Appellant but only raised frivolous co....
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..... Accordingly, the Personal Guarantors committed default on 16.06.2018. 51. The main contention of the Respondent is that the demand notice dated 12.04.2018 under Section 13(2) of the SARFAESI Act was also forwarded to the Respondent in his capacity as the Personal Guarantor of the Corporate Debtor. The demand notice specifically demands the respondent in his capacity as a guarantor to discharge his liability in full within 60 days from the receipt of this notice. Since this was addressed in his capacity as guarantor and not as the Director of the Corporate Debtor, therefore the personal guarantee stands invoked on 12.04.2018 and the limitation starts from that date onwards. Respondent contends that without considering that the Respondent's guarantee was already invoked vide demand notice dated 12.04.2018, it issued further demand notices on 23.09.2022 and 14.02.2023 to the Respondent under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 ("Personal Guarantor Rules"). Respondent argues that even after discounting the period to be excluded on account of Cov....
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....address of the guarantors and was claimed that this is an invalid notice. We find that such a denial is not a satisfactory and not much credence be given to such a reply. Thereafter, another demand notice under Rule 7(1) was issued by the Appellant on 06.04.2023 which was replied by the Respondent vide letter dated 14.04.2023. However, the Respondent again did not reply satisfactorily but disputed the amount which was due and payable. The respondent acknowledges earlier notices but contends that it is a fraudulent notice, which is in violation of Section 10 of the Civil Procedure Code and raises that he was already being prosecuted by the Appellant under the SARFAESI Act. 54. Respondent has contended that the following cases hold that a notice u/s 13(2), SARFAESI Act, to the Corporate Debtor is also sufficient notice invoking the guarantor's liability, and the limitation period commences thereon: a. Asha Basantilal Surana v. State Bank of India & Ors., Judgment dated 15.05.2025 in Company Appeal (AT) (Ins) No. 84 of 2025 b. Mavjibhai Nagarbhai Patel v SBI & Anr., (2024) SCC OnLine NCLAT 2014 c. Ujwal Gupta v. Union Bank of India & Anr., (2026) SCC OnLi....
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....er on separately invoked and furthermore their exists acknowledgement of debt in the books of accounts of the principal borrower which extends the limitation it for the personal guarantor also. Therefore, the facts of the present case are distinguishable and the above-mentioned judgments do not assist the case of the respondent. 57. Another ground which has been taken by the respondent is that the original lender had initiated arbitration proceedings against the corporate debtor wherein the respondent was also impleaded as a personal guarantor. And in their application under Section 84 of the Multi State Co-Operative Societies Act, 2002, ("Arbitration Application") the Original Lender has specifically pleaded that the Respondent and other Guarantors of the Corporate Debtors must be made to discharge their obligations under their respective Guarantees. As we have noted separately, the insolvency proceedings are independent proceedings and there is no bar for the appellant for initiating the proceedings under the code despite initiating arbitration proceedings. Therefore, such an argument come to the assistance of the respondent's case. Acknowledgment of debt in the Books of Ac....
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....mpany will have to contact Phoenix for all the future correspondences." [pg. 17] 62. Undoubtedly this acknowledgement extends the limitation for the Appellant and there is no satisfactory reply on record on this particular issue. 63. The above judgment of UCO Bank (supra) relies upon the judgment of Honorable Supreme Court A. Navinchandra Steels Private Limited vs. SREI Equipment Finance Limited and Ors. (01.03.2021 - SC) in which it was noted as follows: .... A conspectus of the aforesaid authorities would show that a petition either Under Section 7 or Section 9 of the IBC is an independent proceeding which is unaffected by winding up proceedings that may be filed qua the same company. Given the object sought to be achieved by the IBC, it is clear that only where a company in winding up is near corporate death that no transfer of the winding up proceeding would then take place to the NCLT to be tried as a proceeding under the IBC. Short of an irresistible conclusion that corporate death is inevitable, every effort should be made to resuscitate the corporate debtor in the larger public interest, which includes not only the workmen of the corporate debtor, bu....
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....FAESI Act issued to the Corporate Debtor and its Directors, including Respondents. Default will happen after 60 days as per Section 13(2) of SARFAESI i.e. on 16.06.2018 16.06.2018 Default arose 60 days from the date of receipt of the notice dated 12.04.2018. Notice dated 12.04.2018 was delivered on 18.04.2018. Date of default as per the Section 13(2) notice i.e. on 16.06.2018. 31.12.2020 Adjudicating Authority did not consider the acknowledgement of debt in the Independent Auditor's Report for the Financial Year 2019- 2020 We need to consider the acknowledgment of debt in the Independent Auditor's Report for FY 2019-20. Thus, three years would be available from this day as the CD acknowledges the debt under Section 18 of the Limitation Act, 1963. 15.06.2021 Adjudicating Authority considers 15.06.2021 as the end date of the 3- year period from 16.06.2018. 3-year period would not expire on 15.06.2021 as the CD had acknowledged the debt against the Appellant, which shall have the effect of a fresh period of limitation, and shall be computed from the time when the acknowledgement was signed and as the acknowledgement in the audit report for the financial y....
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....he acknowledgement in the audit report for the financial year 2019-2020 was made on 31.12.2020, 3-year period starts from this date. 71. The adjudicating authority has come to a conclusion that the limitation would begin on 28.02.2022 and continue for 90 days, ending on 29.05.2022, in terms of Clause 5(iii) of the order dated 10.01.2022 of Hon'ble Supreme Court^1. Thus, limitation would expire on 29.05.2022 as per the conclusions because the CD Debtor had acknowledged the debt against the Appellant on 31.12.2020, which will extend the period of limitation for three years after the COVID-19 exclusion expires, i.e., three years from 28.02.2022. Thus, we find that limitation would not expire on 29.05.2022. We further note that the Company Petition Nos. 1175 and 1176 were filed before the Adjudicating Authority on 13.10.2023 and basis above analysis, three years starting from 01.03.2022 would expire on 01.03.2025. Accordingly, we find that this petition is not barred by limitation and deserve to be entertained. 72. We also note that the Appellant's rights under the Code cannot be questioned by the Respondent while replying to the notices issued under Rule 7(1) of the Insolvency a....
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....would not expire on 29.05.2022 dated 23.03.2020 was brought to an end, permitting the relaxation of period of limitation between 15.03.2020 and 14.03.2021. While doing so, it was made clear that the period of limitation would start from 15.03.2021. 3. Thereafter, due to a second surge in COVID-19 cases, the Supreme Court Advocates on Record Association (SCAORA) intervened in the Suo Motu proceedings by filing Miscellaneous Application No. 665 of 2021 seeking restoration of the order dated 23.03.2020 relaxing limitation. The aforesaid Miscellaneous Application No.665 of 2021 was disposed of by this Court vide Order dated 23.09.2021, wherein this Court extended the period of limitation in all proceedings before the Courts/Tribunals including this Court w.e.f 15.03.2020 till 02.10.2021. 4. The present Miscellaneous Application has been filed by the Supreme Court Advocates-on-Record Association in the context of the spread of the new variant of the COVID-19 and the drastic surge in the number of COVID cases across the country. Considering the prevailing conditions, the applicants are seeking the following: i. allow the present application by restoring the order dated 23.03.202....