Tribunal Affirms That Part-Payment by Borrower Extends Limitation Period for Guarantor Under IBC
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) Principal Bench, New Delhi, has upheld the liability of a personal guarantor in the case titled "Arvinder Kaur v. Santanu Kumar Samanta and Another," reiterating the principle that part-payment of a debt by the corporate debtor extends the limitation period for the guarantor as well. The bench, comprising Mr. Justice N. Seshasayee and Mr. Indevar Pandey, dismissed the appeal filed by Arvinder Kaur, challenging an order admitting a petition under Section 95 of the Insolvency and Bankruptcy Code (IBC) against her as a personal guarantor.
The case stemmed from a series of financial transactions where the respondent bank had advanced loans to a corporate debtor, with Arvinder Kaur providing a personal guarantee. When the corporate debtor defaulted, the bank classified the loan as a Non-Performing Asset (NPA) and initiated recovery actions. Despite several proposals for settlement, no conclusive repayment was made until a part-payment on February 3, 2021. This payment became pivotal in extending the limitation period for initiating insolvency proceedings against the guarantor.
The appellant argued that the application under Section 95 of the IBC, filed on September 28, 2023, was time-barred, as the limitation period should have ended in 2019 based on earlier acknowledgments of debt. However, the tribunal dismissed this contention, affirming that the part-payment made in 2021 effectively extended the limitation period. The judgment emphasized that the liability of a guarantor is co-extensive with that of the principal borrower, and any part-payment or written acknowledgment by the borrower binds the guarantor as well.
Furthermore, the tribunal clarified that the dismissal of earlier recovery proceedings for default does not extinguish the debt or affect the maintainability of proceedings under Section 95 of the IBC. The bench found no merit in the appellant's arguments and dismissed the appeal, thereby reinforcing the legal stance on guarantor liabilities and limitation extensions in insolvency cases.
Bottom line:-
Application under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) is not barred by limitation if part-payment of debt is made within the limitation period, as it extends the limitation period. Liability of guarantor is co-extensive with that of the principal borrower, and part-payment by borrower binds the guarantor.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 95
