State Bank Of India vs Ajay Agarwal

The State Bank of India, the Financial Creditor / Applicant herein has filed the application under Rule 7(2) of the Insolvency and Bankruptcy (application to Adjudicating Authority for Insolvency and Resolution Process for Personal Guarantors to Corporate Debtors) Rules 2019 and Section 95(1) of Insolvency and Bankruptcy Code for initiating insolvency proceedings against Mr. Ajay Agarwal / Personal Guarantor of the Corporate Debtor M/s. Ashok Magnetics Limited, Respondent herein.

Part-I of the application sets out the details of the Financial Creditor i.e. State Bank of India, (Stressed Asset Management Branch), having its office at Red Cross Building, Egmore, Chennai. Part-II of the petition sets out the details of the Personal Guarantor namely Ajay Agarwal having address at No.145, Devcharshan Apartments, Barnaby Road, Kilpauk, Chennai – 600 010, within the jurisdiction of this Tribunal. Part-III of the application sets out the particulars of debt i.e. total debt including interest / penalties as on 30.09.2020 as Rs. 60,09,76,978.61, dates of default as 17.01.2015 and 15.07.2017, details of properties in the name of the Corporate Debtor, details of the O.A. No. 152 of 2016 pending in DRT-II, (Chennai) against the Corporate Debtor and the proceedings pending under IBC against the Corporate Debtor vide C.P. No. 551(IB) of 2017.

Briefly the facts are that the Corporate Debtor M/s. Ashok Magnetics Limited which was initially incorporated in the name of M/s. AML Steel Limited vide incorporation dated 01.08.2005 and later incorporated in the name of M/s. Ashok Magnetics Limited on 27.04.2015, had approached the Financial Creditor for seeking term loan facility for purchase of 6 seater air craft. The Financial Creditor sanctioned the term loan of Rs. 1.10 Crore vide letter dated 07.12.2007 against the security of the air craft and the personal guarantee of Ashok Agarwal and Anita Agarwal, Managing Director and Director of the Company and the Corporate Guarantee of M/s. Ashok Memory (India) Private Limited. The Corporate Debtor at the time of availing term loan had executed the following documents.

The Corporate Debtor further approached the Financial Creditor seeking renewal cum enhancement of credit facilities and the Financial creditor sanctioned the limits of Rs. 25.77 Crores vide letter dated 18.11.2009. The Corporate Debtor and the Guarantor accepted the terms and conditions and executed the following documents on 19.11.2009.

It is stated that the sanction letter dated 18.11.2009 interalia stipulated the terms and conditions such as interest payable on the loan amount and security to be provided by way of primary and collateral to be shared on pari-passu basis by the Financial Creditor with Central Bank of India, Federal Bank forming a consortium. The above credit facilities were renewed vide letter dated 04.01.2011. The Corporate Debtor also executed the confirmation of balance dated 10.04.2012 confirming the balances in the credit facilities as on 31.03.2012.

It is stated that in consideration of granting the credit facilities to the Corporate Debtor, the Guarantors / Directors namely Ashok Agarwal, Anitha Agarwal, Ajay Agarwal and Ankit Agarwal executed the continuing guarantee agreements on 19.11.2009 and 18.09.2012 for a sum of Rs. 25.0 Crores guaranteeing jointly and severally for the amounts due to the Financial Creditors in the above facilities availed by the Corporate Debtor from time to time and also agreed that their guarantee shall be continuing until notice in writing, that the same is discharged, is given by the Financial Creditors to them.

It is stated that since the Corporate Debtor defaulted in repayment of the loan amount, the loan account was classified / treated as NPA on 17.01.2015. The outstanding liability as on 30.09.2020 in respect of cash credit account including undebited interest became Rs. 60,09,76,978.61. The Financial Creditor filed O.A. No. 152 /2016 before DRT Chennai for recovery of the outstanding loan amount which is pending adjudication. It is stated that on an application filed by Central Bank of India and State Bank of India vide CP/551/IB/CB/2017, the Corporate Debtor was admitted into CIRP vide order dated 04.09.2017. Since no resolution plan was approved by the CoC, an order for liquidation was passed on 09.11.2018.

It is stated that the Corporate Debtor had given an OTS letter dated 15.07.2017 to the Financial Creditor offering to pay a sum of Rs. 10.50 Crores as full and final settlement which was rejected by the Financial Creditor vide letter dated 18.07.2017. Thereafter the Financial Creditor caused a demand notice on 11.02.2020 against the Personal Guarantors, but despite that, the Guarantors did not make the payment which made the Financial Creditor file the application under Section 95 of IBC against the Personal Guarantors including the Respondent Ajay Agarwal.

The Guarantors namely Ankit Agarwal, Anitha Agarwal and Ajay Agarwal filed the writ petitions No. 17587, 17592 & 17595 of 2020 against the Financial Creditor before Hon'ble High Court of Judicature at Madras raising the issue of limitation and the Hon'ble High Court after hearing the parties permitted the Guarantors to raise the plea of limitation by putting Bank / Financial Creditor on notice and requested the Tribunal to decide on the basis of the materials placed, as to the maintainability of the application specially in the light of the plea taken by the writ petitioner / Corporate Debtor with regard to the bar of limitation and decide the same in accordance with law.

The Respondent filed the Reply / Counter Affidavit alleging that the petition is barred by limitation. It is stated that as per the petition, the date of default in respect of the guarantee is 17.01.2015, however the petition has been filed on 05.11.2020. The Respondent however admitted that the Corporate Debtor had borrowed a sum of Rs. 25.0 Crores (Rs. 20 Crores as fund based Cash Credit and Rs. 5 Crores as non-fund based Letter of Credit) from the Financial Creditor, State Bank of India for which the Respondent had stood as personal guarantor vide deed of guarantee dated 19.11.2009. It is stated that owing to slowdown in the Steel Industry, the Company could not sustain its business profitably and began to default in respect of the dues owed to its Creditors including the Petitioner / Financial Creditor which led to filing of Section 7 petition against the Corporate Debtor by the Financial Creditor on which CIRP was initiated vide order dated 04.09.2017.

It is stated that it is trite in law that the liability of principal borrower and guarantor is co-extensive and the liability of the guarantor is both joint and several to the principal borrower. Given the nature of liability cast upon the guarantor, where the Creditor fails to exercise its right against the guarantor even whilst exercising the same against the principal borrower within the period of limitation, the creditor is not permitted to exercise any right to enforce the guarantee after the prescribed period of three years from the date of default. Reference is made of the case State Bank of India Vs. Saksaria Sugar Mills (1986) 2 SCC 145 to state that as per Section 128 of the Indian Contract Act, the cause of action for the creditor commences on the date of default of the principal borrower and the Creditor in furtherance to the joint and several liability cast upon the Guarantor is free to proceed against the principal guarantor or both i.e. once the default occurs, the creditor has right to elect and when it elects to sue the principal borrower and not the guarantor despite the cause of action against the Guarantor commences co-extensively with that of principal borrower, upon the expiry of the period of limitation for suing the Guarantor, no proceedings can be maintained against the Guarantor.

It is stated that the debt of Guarantor i.e. the obligation of the Guarantor is independent to that of the principal borrower and merely because the debts are being recovered from the principal borrower, it will not result in any liability upon the Guarantor where the claim against the Guarantor is time barred which proposition has been also recognised by Hon'ble Supreme Court in the case of Syndicate Bank Vs. ChannaveeerappaBeleri & Ors (2006) 11 SCC 506. It is stated that the proceedings under the IBC are not the debt recovery proceedings and Article 137 of the Limitation Act, 1963 is applicable. In the present case, the debt of default is 17.01.2015 when the account of the Corporate Debtor was declared NPA and as such application is barred by limitation.

It is stated that the OTS letter dated 15.07.2017 given by the Corporate Debtor was without prejudice to its rights and defences and therefore the OTS letter cannot fasten the liability on the personal guarantor. Further, the OTS was rejected on 18.07.2017.

During the pendency of the application, the Applicant / Financial Creditor filed IA/1889/2024 seeking permission to file the guarantee agreements dated 08.12.2007, 19.11.2009 and 18.09.2012 executed by the Guarantor which application was allowed vide order dated 02.12.2024 and the guarantee agreements were taken on record with liberty to the Respondent to file objections if any.

The Respondent filed the objections alleging that the supplementary / subsequent guarantee agreements do not bear the signature of attesting witnesses nor the agreements are registered / notarized. The agreement even does not bear the common seal of the Company and several columns in the agreements are incomplete / unfilled.

We have heard Ld. Counsels for the parties.

Ld. Counsel appearing for the Respondent vehemently argued that the account of the Corporate Debtor had become NPA on 17.01.2015 which fact has also been stated in the application taking the date of 17.01.2015 as the date of default. Ld. Counsel submits that the Applicant has mentioned two dates of defaults which is completely erroneous as there cannot be two dates of default. The second date of 15.07.2017 given by the applicant is with a malafide intention to bring its case within the limitation of three years. Ld. Counsel submits that in the present case, the limitation expired on 16.01.2018 and as such the application is barred by limitation. Ld. Counsel submits that the demand notice under SARFAESI Act was issued on 19.10.2015 directing the Respondent to discharge in full, the liabilities as Guarantor. Second notice was issued on 22.08.2016. Another notice dated 14.02.2020 was issued before filing this application. Ld. Counsel submits that the first date of default is the date to be taken into account for the purpose of limitation. Reference is placed on the case of Piramal Capital and Housing Finance Limited Vs. Township Developers India Limited, CP(IB) No. 556/MB/2023. Ld. Counsel further argued that liability of the borrower and guarantor is co-extensive and as soon as the account becomes NPA, the bank / Financial Creditor is free to initiate proceedings against the Principal Borrower / Guarantor simultaneously or can choose against any of the above. In the present case, the Corporate Debtor is already under insolvency and the IBC did not bar the applicant from filing the application against the Guarantor / Respondent as soon as the account became the NPA.

Ld. Counsel submits that the reliance placed by the applicant on the case of Laxmi Pat Surana Vs. Union Bank of India & Anr. In Civil Appeal No. 2734 of 2020 that OTS letter dated 15.07.2017 issued by the Corporate Debtor amounts to an acknowledgment of liability by the Respondent and the limitation will start from 15.07.2017 does not hold merit. Ld. Counsel submits that in the case supra, the principal borrower was a firm and the guarantor was the Corporate Debtor. The acknowledgment was made by the Corporate Guarantor against whom the petition was filed and acknowledgment of debt was made by the principal borrower. In the present case, there is no acknowledgment of debt by the Personal Guarantor. The Corporate Debtor is the principal borrower which had acknowledged the debt alone and as such the acknowledgment made by the Corporate Debtor / Principal Borrower will not bind the Personal Guarantor / Respondent.

In support of his contentions, Ld. Counsel referred the cases (i). K. Paramasivam Vs. The Karur Vysya Bank Ltd. & Anr. in Civil Appeal No. 9286 of 2019; (ii) M/s. Reliance Asset Reconstruction Company Ltd. Vs. M/s. Hotel Poonja International Pvt. Ltd in Civil Appeal No. 4221of 2020; (iii). Laxmi Pat Surana, Promoter / Director and Shareholder of Surana Metals Limited Vs. Union Bank of India & Anr. in Company Appeal (AT)(Ins) No. 77 of 2020; (iv). Union Bank of India Vs. M/s. Surana Metals Limited in CP(IB)No. 346/KB/2019; (v). Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. in Civil Appeal No. 6347 of 2019; (vi). Bimalkumar Manubhai Savalia Vs. Bank of India & Chandra Prakash Jain in Company Appeal (AT) (Ins) No. 1166 of 2019; (vii). B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta and Associates in Civil Appeal No. 23988 of 2017; (viii). Lakshmi Ratan Cotton Mills Co. Ltd. Vs. Aluminium Corporation of India Ltd (1967)37 COMPCAS586(ALL).

Ld. Counsel further argued that OTS letter was signed by one of the Directors of the Corporate Debtor on behalf of the Corporate Debtor and not on behalf of the Guarantors. There was no instruction from the Guarantors whatsoever to give the said letter on their behalf as there is no communication to this effect. No Board Resolution has been placed to show the authority given by the Board of Directors to the Director to give the OTS letter. Ld. Counsel submits that the OTS letter in no way can extend the limitation. Reliance is placed on the case M/s. Reliance Asset Reconstruction Company Ltd. Vs. M/s. Hotel Poonja International Pvt. Ltd. in Civil Appeal No. 4221 of 2020 and Lakshmi Ratan Cotton Mills Co. Ltd. Vs. Aluminium Corporation of India Ltd., (1967)37 COMPCAS586(ALL). Ld. Counsel further argued that the OTS letter was issued without prejudice and has not been accepted. Even the amount of outstanding has not been acknowledged. Hon'ble NCLAT in the case of Bimalkumar Manubhai Savalia Vs. Bank of India & Chandra Prakash Jain in Company Appeal (AT) (Ins) No. 1166 of 2019 on the similar issue has held that OTS letter if not accepted cannot be treated as acknowledgment of debt. Ld. Counsel submits that the acknowledgment made by the Principal Borrower can only extend the limitation period against the Principal Borrower or its assignee and the same cannot be stretched for the purpose of making such acknowledgment binding on the other persons like the Respondent or the Personal Guarantor. Ld. Counsel submits that the liability of the Guarantor always flows only on the basis of the terms and conditions of the guarantee deed and not on the basis of the acknowledgment made by the principal borrower. Ld. Counsel submits that no doubt, the obligation of the Guarantor is co-extensive and co-terminus with that of the principal borrower to defray the debt, as explained in Section 128 of the Contract act, but the liability of the principal debtor and surety are separate although arising out of the same transaction. Ld. Counsel submits that irrespective of fact that the liability being coextensive with the principal borrower and guarantor, the liability of the guarantor would not depend on the acknowledgment of the Corporate Debtor. On the contrary it will only depend on the guarantee deed.

Ld. Counsel for the Applicant argued on the lines of the application and contended that one of the directors of the Corporate Debtor had signed the OTS letter on 15.07.2017 offering to pay a sum of Rs. 10.50 Crores as full and final settlement which was rejected by the Applicant / Financial Creditor on 18.07.2017. The application has been filed within three years from the date of OTS letter excluding the Covid affected period. In support of his contentions, Ld. Counsel referred the case of Laxmi Pat Surana Vs. Union Bank of India &Ors MANU/SC/0221/2021 where it was held as under.

Ld. Counsel submits that in the aforesaid case, the date of default was 30.01.2010, and the application was filed on 13.02.2019 based on the acknowledgment of liability letter executed on 08.12.2018. Ld. Counsel submits that Section 18 of the Limitation Act is applicable to the proceedings under IBC. If there is an acknowledgment of debt in the balance sheets or the OTS proposal, the period of limitation would gets extended if the acknowledgment is made before the expiry period of limitation which was also held in the case of Yogeshkumar Jashwantlal Thakkar Vs. IOB MANU/NL/0341/2020. Ld. Counsel submits that any acknowledgment in writing given by the Borrower shall be binding on the Guarantors in terms of the guarantee agreement. Ld. Counsel also referred the cases of (i). Sesh Nath Singh & Anr Vs. Baidyabati Sheoraphuli Co-operative Bank Ltd & Anr in Civil Appeal No. 9198 of 2019; (ii). Kishanlal Likhmichand Bothra Vs. Canara Bank in Company Appeal (AT) (Ins) No. 704 of 2020; (iii). Yogeshkumar Jashwantlal Thakkar Vs. IOB & Anr. in Company Appeal (AT) (Ins) No. 236 of 2020; (iv). Punjab National Bank Vs. Jain Wool House in S.B. Civil Regular First Appeal No. 304 of 2023; (v). Asset Reconstruction Company (India) Ltd Vs. Bishal Jaiswal & Ors in the Apex Court in Civil Appeal No. 323 of 2021, 3228, 3765 of 2020, 3 of 2021 and Civil Appeal No. 1569 of 2021 (Arising out of SLP No. 1168 of 2021); (vi). Dilip Ramchandra Mohite Vs. Edelweiss Asset Reconstruction Company Ltd & Ors in Company Appeal (AT) (Ins) No. 860 of 2021 and (vii). State Bank of India Vs. Thota Chandrakanth & Ors in CP(IB) No. 285/95/HDB/2021

We have given thoughtful consideration to the rival contentions, the case laws referred by the Counsels for the parties as well as the written submissions.

A perusal of the application and the documents reveals that the Corporate Debtor had availed a term loan of Rs. 1.10 Crores vide letter of sanction dated 07.12.2007. Mr. Ashok Agarwal, and Ms. Anitha Agarwal, stood as Guarantor and signed the guarantee deed on 08.12.2007. Relevant terms and conditions of the guarantee deed are reproduced as under.

The credit facilities were renewed / enhanced. The Financial Creditor / State Bank of India sanctioned the limits of Rs. 25.77 Crores vide letter dated 18.11.2009. All the four directors namely Ashok Agarwal, Anitha Agarwal, Ajay Agarwal and Ankit Agarwal signed the supplemental deed of guarantee for increase in overall limits on 19.11.2009 in favour of the Financial Creditor / State Bank of India. The relevant terms of the deed of guarantee are reproduced as under:

It is seen that, the Supplemental Deed of guarantee dated 19.11.2009 refers and modifies the Principal deed of guarantee.

The credit facilities were renewed from time to time and the Corporate Debtor also confirmed the renewal as well as enhancement of credit facilities accorded by the financial creditor.

The Corporate Debtor defaulted in repayment of the loan amount and its account was classified as NPA on 17.01.2015. In the application also, the Applicant has stated the date of NPA as 17.01.2015. The Liquidation proceedings are pending against the Corporate Debtor.

In the instant case, the Corporate Debtor had given an OTS letter on 15.07.2017 which is reproduced as under.

On a conjoint reading of the terms and conditions of the deed of guarantee and the OTS letter dated 15.07.2017, we find that in case of default made by the Borrower / Corporate Debtor in payment of the principal sum together with interest under the credit facilities, the Guarantors shall forfeit on demand paid to the Bank such principal sum together with interest and the guarantee shall be enforceable against the Guarantors. The Bank shall be entitled to act as if the Guarantors were the principal debtors to the Bank. The guarantee is a continuing one for the amounts advanced by the Bank to the Borrower which shall be irrevocable and enforceable against the Guarantors. The terms and conditions also find mention that any balance confirmation and / or acknowledgment of debt and / or admission of liability given or promise or part payment made by the Borrower to the Bank shall be deemed to have been made and / or given by or on behalf of the Guarantors themselves and shall be binding upon each of them. The Guarantors shall not be released or discharged of their obligations under the guarantee until the discharge of full liability by the Borrower. Clause 19 of the agreement specifically provided that any admission or acknowledgment in writing signed by the Borrower of the liability in relation to the credit facilities, shall be binding on the Guarantors and the Guarantors shall accept the correctness of any statement of account that may be served on the Borrower. It is also mentioned that any acknowledgment by the Borrower shall in addition to his personal capacity be deemed to act as the Guarantors duly authorized agent for the purposes of Section 18 and 19 of the Limitation Act, 1963.

In the supplemental guarantee which is for an amount of Rs. 25.77 Crores, all the Guarantors including the Respondent had agreed jointly or severally to pay to the Bank on demand upon default made by the Borrower the whole of the principal amount together with interest which was increased on their request from Rs. 1.10 Crore to Rs. 25.77 Crores.

In the instant case, the account of the Corporate Debtor was declared as NPA on 17.01.2015. After the account was declared as NPA, the Bank issued the SARFAESI notices and initiated the proceedings before the DRT, Chennai, but the Corporate Debtor in order to settle with the Financial Creditor gave a one time settlement proposal dated 15.07.2017 i.e. within the period of three years from the date of the account becoming NPA acknowledging availing of loan facilities from the consortium and servicing interest regularly till 2015. It had expressed their financial constrains and submitted that it has scouted an investor who is willing to pump in money so as to revive the Company. In order to purchase peace and settle the account in total, it gives offer of Rs. 10.50 Crores towards full and final settlement as against all the dues of the consortium members. The said OTS letter / acknowledgment is unequivocal and unconditional.

The terms and conditions of the guarantee deeds as referred above and the OTS letter clearly amount to acknowledgment in writing by the Borrower which also bind the Guarantors for the purposes of Section 18 and 19 of the Limitation Act. The guarantee is an irrevocable and continuing guarantee which is enforceable against the Guarantors on demand. It is true that the account of the Corporate Debtor was declared as NPA on 17.01.2015 and thereafter SARFAESI proceedings were initiated against the Corporate Debtor including filing of O.A. before the DRT, Chennai and initiating CIRP proceedings against the Corporate Debtor and the present application against the Guarantor has been filed on 05.11.2020 but by virtue of the OTS / acknowledgment dated 15.07.2017, the limitation for filing the petition under Section 95 against the Personal Guarantor will start w.e.f. 15.07.2017, on which date the debt was acknowledged within the period of three years from the date the account of the Corporate Debtor was declared as NPA by virtue of Section 18 of the Limitation Act, 1963. Even if the CIRP was initiated in the year 2018, the application against the Personal Guarantor could be filed in the year 2020 because of the fact that the guarantee of the Borrower is continuing and co-extensive on demand.

Although the Respondent has raised objection that the guarantee deed do not bear the signatures of attesting witness or the agreement is not registered or notarized, but no such objection was raised at the time of signing of deeds of guarantee. It is not the case that deeds of guarantee have not been signed or executed by the Guarantors including the Respondent. In these circumstances, no much emphasis can be given on this contention when there is clear admission of debt and default.

As regards contention that the OTS letter does not bear the signature of all the four guarantors or no Board Resolution was enclosed authorizing the Director to submit the OTS letter to the Bank, but the same cannot be construed that there was no consent from the Corporate Debtor to give this OTS letter. It is not the case that no OTS letter was given by the Corporate Debtor. Not placing the board resolution does not prove fatal to the case.

In the present case, there is nothing on record to indicate that the Guarantors at any time after signing of the OTS letter by the Director of the Corporate Debtor had retracted that no consent was taken from them while submitting the OTS letter with the Bank. Rather the said letter in clear terms binds the Guarantors in view of the guarantee deeds placed above and they are liable to repay the debt of the Banks jointly and severally with the Corporate Debtor.

It is true that in the present case, two dates of default have been given i.e. 17.01.2015 when the account of the Corporate Debtor was declared as NPA and 15.07.2017 when the OTS letter was given by the Corporate Debtor, but it is seen from the correspondences and the documents that for calculating the period of limitation, the Bank has placed reliance only on the date of default as 15.07.2017 when the OTS proposal was given by the Corporate Debtor. It is also true that the Bank during the said period after the account became NPA issued the SARFAESI notices as well as the notice on 11.02.2020 before filing the application but no such emphasis was given on the same in the application. It has been held in catena of judgments as referred above, that the date of default will be the date when the account turned into NPA. Since in the present case, there is an OTS proposal within the period of three years from the date the account was declared NPA, the period of limitation will start from the date 15.07.2017 in view of the provisions contained under Section 18 of the Limitation Act which is applicable in the proceedings under IBC as held in the case of B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta and Associates in Civil Appeal No. 23988 of 2017. Thus, we find that the applicant for the sake of information had given the date of NPA as the date of default but has placed reliance mainly on the date when the OTS letter was given for the purposes of limitation for filing the petition.

Admittedly, the initial deed of guarantee dated 08.12.2007 has been signed by two Directors i.e. Ashok Agarwal and Anitha Agarwal but supplemental deed of guarantee dated 19.11.2009 has been signed by all the Directors i.e. Ashok Agarwal, Anitha Agarwal, Ajay Agarwal and Ankit Agarwal acknowledging the debt on the basis of which the application has been filed. The Supplemental Deed of Guarantee refers to the Principal Deed of Guarantee and thus modifies the Principal Deed of Guarantee. The debt was renewed from time to time which is also not in dispute.

In the case of Laxmi Pat Surana supra, the principal Borrower had availed of credit / loan and committed default and the Corporate Debtor had offered guarantee in respect of the loan account which fact was not disputed. There was an acknowledgment of liability by the principal Borrower to pay the amount in question. The question before Hon'ble Supreme Court was whether the acknowledgment can be the basis to proceed against the Corporate Guarantor (Corporate Debtor). It was held that Section 18 of the Limitation Act posits that a fresh period of limitation shall be computed from the time when the party against whom the right is claimed acknowledges its liability. The Financial Creditor has not only the right to recover its outstanding dues by filing a suit but also initiate resolution process against the corporate person (being a Corporate Debtor) whose liability is co-extensive with that of the principal borrower and more so when it activates from the written acknowledgment of liability and failure of both to discharge that liability. It was held that fresh period of limitation is required to be computed from the date of acknowledgment of debt by the principal borrower from time to time and in particular the Corporate Guarantor / Corporate Debtor vide last communication dated 08.12.2018. The fact that acknowledgment within the limitation was only by the Principal Borrower and not by the Guarantor would not absolve the Guarantor of its liability flowing from the letter of guarantee and memorandum of mortgage. The liability of the Guarantor being co-extensive with the Principal Borrower under Section 128 of the Contract Act, triggers the moment the Principal Borrower commits default in paying the acknowledged debt. This is a legal fiction. Such liability of the Guarantor flows from the guarantee deed and memorandum of mortgage unless it expressly provides to the contrary.

In the present case also the liability of the Borrower / Respondent is co-extensive with the principal borrower. There is an OTS letter given by the principal borrower acknowledging the debt and the liability and its failure to discharge the liability. In terms of the guarantee deed / agreement which is a continuing guarantee, the OTS letter is also binding on the Guarantors and the limitation of filing the petition under Section 95 of IBC will start from the date the OTS letter was given. It is immaterial whether OTS was accepted or rejected as for computing the period of limitation, the acknowledgment of debt is to be seen which in the present case was on 15.07.2017. That being the position the petition is within the period of limitation.

There is no quarrel on the legal proposition that for maintaining a petition, the date of default has to be calculated from the date of first invocation notice but at the same time if there is an acknowledgment of debt by the Corporate Debtor which in terms of the guarantee agreement binds the Guarantors, the date of acknowledgment will be the date for calculating the period of limitation for filing the application. Since the liability of the Borrower and the Guarantor is co-extensive and as soon as the account becomes NPA, the Bank / Financial Creditor can initiate proceedings against the principal borrower / Guarantor simultaneously or can choose against any of the above. In the present case, the Financial Creditor initiated CIRP against the Corporate Debtor first in the year 2018 and thereafter filed the petition against the Personal Guarantor / Respondent in 2020 which is maintainable.

In the present case, the debt amount is more than the threshold limit required for initiating insolvency proceedings against the Personal Guarantor, Ajay Agarwal. The date of default is reckoned as 15.07.2017 i.e. when the OTS letter was given. This Application has been filed on 21.10.2020. The Applicant is entitled to a benefit of limitation from 15.03.2020 to 28.02.2022 as extended by Hon’ble Supreme Court in Suo Moto W.P. (Civil) No. 3 of 2020. Thus we are of the opinion that, the application is within limitation.

Considering the above facts and the case supra, we appoint the Resolution Professional who will collate all the facts relevant to the examination of the application for the commencement of the Insolvency Resolution Process in respect of the Personal Guarantor.

In the instant case, the Applicant has proposed the name of the Resolution Professional as Tharuvai Ramachandran Ravichandran (IBBI/IPA-002/IP-N00241/2017-18/10692). We therefore, upon verification of disciplinary status with the IBBI portal, appoint Tharuvai Ramachandran Ravichandran (IBBI/IPA-002/IP-N00241/2017-18/10692) (with AFA 31.12.2025) with Reg. No. IBBI/IPA-002/IP-N00330/2017-2018/10935 as Interim Resolution Professional in respect of the Personal Guarantor/Respondent.

The Resolution Professional is directed to examine the application as set out in Section 97(6) of IBC, 2016 who after examining, may recommend for the acceptance / rejection of the application as provided under Section 97(6) of IBC, 2016, within a period of 10 days as contemplated under Section 99(1) of IBC, 2016.

The Applicant is directed to serve copy of the application and the order on the Interim Resolution Professional.

List this application for report / hearing on 07.03.2025.