### Limitation for Insolvency Proceedings Against Personal Guarantor Commences from Date of Demand Notice Invoking Guarantee

In brief

The question

Whether the Section 95 application was barred by limitation because the cause of action allegedly arose when the Principal Borrower defaulted in 2016, rather than when the guarantee was invoked in 2018?

The court held

The Court held that the applications under Section 95 were not barred by limitation as the cause of action against the Personal Guarantors was triggered by the demand notices issued in February 2018, not the underlying default of the Corporate Debtor in 2016.

It also directed

The NCLAT upheld the Adjudicating Authority's orders admitting the insolvency process against the Appellants and dismissed both appeals.

01Facts

The Appellants (Personal Guarantors) executed Deeds of Guarantee in 2012 to secure Rupee Term Loan and Working Capital facilities for the Corporate Debtor, Videocon Industries Ltd.

¶ 2(i)

Following defaults by the Corporate Debtor in 2016, CIRP was initiated against it in June 2018.

¶ 2(ii)

The State Bank of India (Respondent) issued specific demand certificates/notices to the Appellants on 02.02.2018 and 20.02.2018 for outstanding dues.

¶ 2(iii)

Statutory demand notices in Form B under the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, were issued on 23.07.2020.

¶ 2(iv)

The Bank filed Section 95 applications against both Appellants on 31.08.2020.

¶ 5, 8

The Adjudicating Authority admitted the applications on 04.06.2024 and 14.06.2024, leading to these appeals on the grounds of limitation.

¶ 1-2

02Issues

i.Whether the Section 95 application was barred by limitation because the cause of action allegedly arose when the Principal Borrower defaulted in 2016, rather than when the guarantee was invoked in 2018?

¶ 5

03Law Applied

The Court primarily applied Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) regarding the initiation of insolvency proceedings against personal guarantors.

¶ 1

It relied on the principle from *Syndicate Bank v. Channaveerappa Beleri* (2006) 11 SCC 504, which establishes that if a guarantee is "on-demand," the limitation period against the guarantor begins only when a demand is notice is issued, provided the debt is live against the principal borrower at that time.

¶ 16

It further applied the precedent from *Pooja Ramesh Singh v. State Bank of India* (Co. App. (AT) (Ins) No. 329 of 2023), confirming that a guarantor’s liability is governed by the specific terms of the Deed of Guarantee.

¶ 17

The court also distinguished *Laxmi Pat Surana v. Union Bank of India* (2021) 8 SCC 481, noting that while it establishes co-extensive liability, it does not override specific contract clauses regarding demand-based triggers for limitation.

¶ 14-15

04Reasoning

The Court rejected the Appellants' argument that limitation began automatically in 2016 upon the Corporate Debtor’s default.

It observed that under Clause 8 of the Deed of Guarantee and Clause 2.1 of the Supplemental Joint Deed, the Appellants' liability was "unconditional" but specifically triggered "immediately on demand being made."

¶ 9-10

The Court reasoned that in "on-demand" contracts, the cause of action for the purpose of limitation arises only when the demand notice is issued and remains unsatisfied.

¶ 17, 20

Since the Bank issued demand certificates in February 2018 when the debt against the Corporate Debtor was still live (as CIRP only began in June 2018), the limitation period of three years commenced in February 2018.

¶ 18-19

Consequently, the Section 95 applications filed in August 2020 were well within the prescribed three-year period under Art. 137 of the Limitation Act.

¶ 19