Invocation Of Guarantee Does Not Preclude Financial Creditor From Initiating CIRP: NCLT Kolkata

The Tribunal further held that once for the same set claim one petition is admitted against any of them, the second petition under section 7 of IBC cannot be admitted. The Tribunal also held that the IBC proceedings are distinct from recovery actions before the Debt Recovery Tribunal (DRT). It held that “Invocation of a guarantee and the filing of a recovery proceeding under a different statute does not preclude the Financial Creditor from initiating CIRP under the Code, provided the debt and default continue.”

Background

UCO Bank had extended various capital facilities to AMPL which were secured by a corporate guarantee given by Vasupujya Enterprises. After repeated defaults, the account of the corporate debtor was classified as Non-Performing Assets (NPA) in 2014. AMPL defaulted even after execution of a Master Restructuring Agreement in 2014. The Bank issued a notice under SARFEASI Act and later initiated recovery proceedings before the DRT. Thereafter, it filed a petition under section 7 of the IBC seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Guarantor.

The Applicant submitted that the limitation period was extended through multiple acknowledgments and payments made by AMPL by which the corporate guarantor was equally bound as per clause 29 of the Deed. It relied on the Supreme Court's judgment in Laxmi Pat Surana where it was held that the acknowledgement by the corporate debtor extends the limitation period for filing a petition against the guarantors. Simultaneous applications under section 7 against the borrower and the guarantor are permissible.

Per contra, the Respondent submitted that the petition was time barred as no fresh cause of action existed since the guarantee was invoked only in 2019. Multiplicity of proceedings against the borrower and the guarantor are not permissible and that the acknowledgments made by the corporate debtor do not extend the period of limitation for application against the guarantors.

Analysis

The Tribunal held that payments made by the corporate debtor till 23.08.2018, revival letter of 2017, audited balance sheets and the Supreme Court's suo moto order during COVID collectively extended the period of limitation for the purpose of filing the present petition.

It held that “Each such payment… would constitute an acknowledgment under Section 18 and would restart the limitation period afresh from the respective date of payment.”

It further observed that the creditor is not mandated to exhaust all remedies against the borrower from moving against the guarantor. Relying on the NCLAT's Judgement in Naresh Kumar Aggarwal, it held that the IBC does not contain any such provision which prohibits the creditor from initiating parallel proceedings against co-obligants. On Invocation of Guarantee, it held that the guarantee in the present case is a continuing guarantee and the initiation of proceedings before the DRT did not bar proceedings under the IBC.

Accordingly, the present petition was admitted.

Case Title: UCO Bank Versus Vasupujya Enterprise Private Limited

Case Number: CP (IB) No. 141/MB/2024

Order Date: 02/09/2025

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