Tribunal Holds Defect in Filing Authority Curable, Application Within Limitation, Initiates Insolvency Resolution Process Against Mr. Pratik Jain
In a significant decision dated October 5, 2026, the National Company Law Tribunal (NCLT), Indore Bench, admitted an insolvency petition under Section 100 of the Insolvency and Bankruptcy Code (IBC), 2016 against Mr. Pratik Jain, the personal guarantor of M/s Sagar Autotech (Jabalpur) Private Limited. The petition was filed by M/s ASREC (India) Limited, the assignee of Volkswagen Finance Private Limited, the original lender, in respect of an outstanding financial debt amounting to approximately Rs. 3.95 crores.
The case arose from default by the corporate debtor on a substantial inventory stock funding facility provided by Volkswagen Finance, secured by personal guarantees executed by Mr. Jain, a director of the corporate debtor. Upon default, Volkswagen issued a Loan Recall Notice and subsequently a statutory demand notice (Form B) invoking the personal guarantee. Following failure to discharge the debt, Volkswagen assigned the debt to ASREC, which was later substituted as the financial creditor in the ongoing proceedings.
The Respondent challenged the maintainability of the application primarily on the ground that the original petition was filed by a representative whose Power of Attorney had expired prior to filing, rendering the application void ab initio. Additionally, Mr. Jain contended that the application was barred by limitation, improperly served, and lacked valid guarantee documents.
The Tribunal, after a thorough examination of the pleadings, documents, and submissions, rejected these objections. It held that a defect in the authority of the person filing on behalf of a company is curable and does not oust the Tribunal's jurisdiction. The assignment of debt and substitution of ASREC in the proceedings effectively cured the defect, with the substituted applicant stepping into the shoes of the original lender. The Tribunal relied on the Supreme Court precedent in United Bank of India v. Naresh Kumar (1996) 6 SCC 660, which supports the curability of defects in authority by subsequent ratification or substitution.
On the limitation issue, the Tribunal clarified that for personal guarantors, limitation runs from the date of invocation of the guarantee by a written demand, not merely from the borrower's default. Both the Loan Recall Notice dated November 11, 2019, and the Form B demand notice dated October 4, 2021, were held to be valid invocations. The original application filed on March 29, 2022, was within three years from these dates, and the amended application filed in January 2024 related back to the original filing, thus being timely.
The Tribunal further accepted that service of the demand notice was presumed as the notice was sent by speed post to the last known address of the Respondent, and the Respondent failed to produce evidence to rebut this presumption. Although initial pleadings mistakenly annexed guarantee deeds executed by another person, the correct deeds executed by the Respondent were on record and filed subsequently. Minor discrepancies in amounts claimed were not fatal at the admission stage, where the Tribunal's satisfaction is limited to existence of debt and default.
The Resolution Professional appointed under Section 97 had initially recommended rejection due to the missing guarantee deeds but revised the recommendation to acceptance after the correct documents were furnished. The Tribunal emphasized that the Report of the Resolution Professional under Section 99 is only recommendatory and not binding.
Consequently, the Tribunal admitted the application, initiating the insolvency resolution process against Mr. Pratik Jain. A moratorium was imposed for 180 days, during which no legal proceedings can be initiated against the Respondent. The Resolution Professional was directed to publish a public notice inviting claims and to facilitate the preparation and submission of a repayment plan by the Personal Guarantor.
This ruling reinforces the principle that procedural defects relating to authority can be cured and that limitation for insolvency proceedings against personal guarantors runs from the date of formal invocation of guarantee. It also highlights the Tribunal's pragmatic approach in focusing on substantive rights rather than technicalities in insolvency matters.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Personal guarantor insolvency - Defect in authority of person who originally filed Section 95 application on behalf of company is a curable defect and does not render proceedings void ab initio - Assignee stepping into shoes of original lender and substituted in same proceedings can continue petition - Limitation against personal guarantor runs from invocation of guarantee by written demand - Loan Recall Notice and Form B demand notice constituted invocation - Application held within limitation and admitted under Section 100.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 95, 99, 100; Indian Contract Act, 1872 Section 128; Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 Rule 7(1), 7(2)
M/s ASREC (India) Limited v. Mr. Pratik Jain, (NCLT)(Indore) : Law Finder Doc Id # 2995427
