Expression of OTS by corporate debtor amounts to an acknowledgement of debt, CIRP against guarantor was valid: NCLAT

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liability of corporate debtor

Case Details: Bijay Kumar Agarwal v. State Bank of India - [2022] 141 taxmann.com 546 (NCLAT-New Delhi)

Judiciary and Counsel Details

    • Justice Ashok Bhushan, Chairperson, Dr Alok Srivastava & Ms Shreesha Merla, Technical Member
    • Soumya Dutta, Adv. for the Appellant.
    • Joy Saha, Sr. Adv., Joydip Mukherjee, Ashwini Kr. Singh & Kuldeep Mallick, Advs. for the Respondent.

Facts of the Case

In the instant case, the principle borrower had availed financial facilities from the respondent – financial creditor and the appellant-corporate guarantor executed a deed of guarantee. On 10.01.2014, the account of the principle borrower was declared as a Non-Performing Asset (NPA).

Consequently, the financial creditor, by a letter dated 20.08.2014 invoked a bank guarantee against the corporate guarantor and called upon the corporate guarantor to make payment. Thereafter, the financial creditor filed an application u/s 7 of the IBC on 09.03.2018 against the corporate guarantor.

The NCLT admitted said application by the impugned order. Thereafter, an appeal was filed to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT.

The corporate guarantor alleged that the application filed by the financial creditor was time-barred and there was no acknowledgement of the debt by the corporate guarantor. Therefore, the extension of limitation shall not be allowed.

Further, the corporate guarantor contended that the principle borrower vide its letters dated 19.02.2016 and 29.03.2016 clearly expressed willingness to pay all the dues on the basis of a one-time settlement, which could be treated as acknowledgement within the meaning of section 18 of the Limitation Act, 1963.

The NCLAT observed that the liability of the corporate guarantor was co-extensive with the principle borrower and, therefore, letters issued by the principle borrower for One-Time Settlement (OTS) were a clear acknowledgement of debt on part of the corporate guarantor.

NCLAT Held

The NCLAT held that since acknowledgement was made by the principle borrower within a period of three years from the date of account being declared NPA, a fresh period of limitation had started from the date of such acknowledgement. Thus, the application filed by the financial creditor u/s 7 of the IBC on 09.03.2018 was within the limitation period of three years from the last date of acknowledgement.

List of Cases Reviewed

    • Order of NCLT – Kolkata in I.A No. 346/KB/2018, dated 14 – 12 – 2021 (para 27 ) affirmed.
    • Laxmi pat surana v. Union of India [2021] 125 taxmann.com 394/166 SCL 318 (SC) (para 26) followed.
    • J.C. Budhraja v. Chairman, Orissa Mining Corpn. Ltd. [2008] 2 SCC 444
    • Tribhuvanshankar v. Amrutlal [2014] 2 SCC 788
    • Shridhar Issar v. Bharnobari Tea & Industries AIR 2012 Cal. 71
    • State of Maharashtra v. Hindustan Construction Co. Ltd. [2013] SCC OnLine Bom. 181
    • Holdings Ltd. v. Bombay Oxygen Corpn. Ltd. [2017] SCC OnLine Bom. 1806 (paras 10,12,14,16 and 18) distinguished.

List of Cases Referred to

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