Tribunal holds personal guarantor remains liable despite corporate debtor’s resolution plan, but says petition under IBC was filed beyond limitation.
The Mumbai Bench of the National Company Law Tribunal (NCLT) has rejected State Bank of India’s insolvency petition against personal guarantor Dinesh Shahra, holding that the application was filed beyond the period of limitation.
The case arose from SBI’s petition under Section 95 of the Insolvency and Bankruptcy Code, 2016, seeking to initiate insolvency proceedings against Shahra in relation to the debt of Patanjali Foods Ltd., formerly Ruchi Soya Industries Ltd., for which he had executed personal guarantees.
SBI argued that the corporate debtor had defaulted on repayment of large credit facilities and that Shahra’s guarantees were invoked in March 2018 after he failed to clear the dues. The bank further contended that even though the resolution plan of the corporate debtor had been approved in July 2019, the personal guarantor’s liability continued independently and was not discharged by the plan.
Shahra, on the other hand, opposed the petition on multiple grounds. He claimed that the guarantee was invalid, that the resolution plan had extinguished the underlying debt, and that the financial creditor had already received substantial payments under the plan. He also challenged the quantum of debt and raised the issue of limitation.
The Resolution Professional appointed by the tribunal submitted a report recommending admission of the petition. The RP noted that the application satisfied the requirements of Section 95 and that the guarantor had defaulted after invocation of the guarantee.
In its ruling, the tribunal reaffirmed the settled legal position that approval of a resolution plan for a corporate debtor does not automatically discharge a personal guarantor. Relying on the Supreme Court’s judgment in Lalit Kumar Jain v. Union of India, the bench observed that the guarantor remains liable under an independent contract of guarantee, though any amount received by the creditor under the resolution plan must be adjusted while determining the remaining liability.
The tribunal also held that the guarantee agreements executed by Shahra established his status as a personal guarantor and that the statutory requirements under Section 95 read with Rule 7 of the 2019 Rules had been complied with.
However, the decisive issue was limitation. The tribunal found that the debt was invoked on 7 March 2018 and default occurred on 12 March 2018. After excluding the period from 15 March 2020 to 28 February 2022 in line with the Supreme Court’s Covid-era limitation orders, the limitation period expired on 26 February 2023. Since SBI filed the petition only on 21 March 2023, the application was held to be time-barred.
The NCLT noted that its earlier order condoning delay had been based on a mistaken understanding of the Supreme Court’s extension order. It further held that Section 5 of the Limitation Act could not rescue the petition in the present facts.
Accordingly, the tribunal rejected and disposed of Company Petition No. 385 of 2023.
Bottom Line :
Insolvency and Bankruptcy Code, 2016 Section 95 petition against personal guarantor - Approval of resolution plan of corporate debtor does not ipso facto discharge personal guarantor - Amount received under resolution plan must be accounted for while determining subsisting liability - However, petition filed beyond limitation is not maintainable and is liable to be rejected.
Statutory provision(s): Section 95, Section 99, Section 100 of the Insolvency and Bankruptcy Code, 2016, Section 128 of the Indian Contract Act, 1872, Section 5 of the Limitation Act, 1963, Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019
State Bank of India v. Mr. Dinesh Shahra, (NCLT)(Mumbai Bench - I) : Law Finder Doc id # 2983530
