2020 (11) TMI 801 - AT - Insolvency and Bankruptcy

Time Limitation - Deed of Guarantee - failure to prove default or not - legally enforceable debt or not - Whether dismissal of such reference in the given circumstances would attract Regulation 19(7) of BIFR Regulations to hold that such reference was never made for having been declined to be registered? - HELD THAT - The answer lies in Regulation 19 itself. Regulation 19(3) provides that a reference may be filed either by delivering it at the office of the Board or by sending it by registered post. Regulation 19(4) provides that on receipt of a reference the Secretary/ Registrar shall cause to be endorsed on each reference the date on which it is filed or received in the office of the Board. Regulation 19(5) provides that if on scrutiny, the reference is found to be in order, it shall be registered, assigned a serial number and submitted to the Chairman for assigning it to a Bench. Regulation 19(6) provides that if on scrutiny, the reference is not found to be in order, the Secretary/Registrar may by order decline to register the reference. In the instant case the first reference was, after its receipt, registered and assigned case number 160/2001. It was placed before the Bench, which took up the reference on 25th June, 2002 for consideration so as to determine the status of company s sickness. However, the reference came to be dismissed as being time barred. It is therefore manifestly clear that the reference was registered and came to be dismissed on consideration. Therefore, Regulation 19(7) would not come into play and the period from filing of reference with BIFR under Section 15(1) of SICA on 2nd March, 2001 till its dismissal on 25th June, 2002 will have to be excluded within the purview of Section 22 of SICA providing for suspension of legal proceedings including institution of suits for recovery of money or for enforcement of security against the industrial company or any guarantee in respect of any loans or advances granted to the industrial company. Admittedly, the second reference case was filed on 21st February, 2003 before BIFR, therefore period from 25th June, 2002 till 21st February, 2003 (calculated at 241 days) has to be counted towards the limitation period. From 21st February, 2003 till 1st December, 2016 second reference case of the Corporate Debtor was pending consideration before BIFR and on 1st December, 2016, with enforcement of I B Code, the SICA, 1985 was repealed. Thus, the period of limitation for triggering of CIRP at the instance of Assignee SASF against the Corporate Debtor would commence from 1st December, 2016 till application under Section 7 was filed on 12th March, 2019. This is rightly calculated by Responded at 831 days - the period counting for limitation will be 241 days 831 days 1072 days i.e. 35 months and 12 days. It is abundantly clear that the application under Section 7 at the instance of SASF against the Corporate Debtor came to be filed well within three years from the date of invocation of corporate guarantee on 3rd December, 2001. It is also settled law of the land that the period of limitation does not commence until the account is live i.e. not duly settled by payment of outstanding dues and/or there is no refusal from the Guarantor towards its obligations. The liability of the Guarantor being coextensive to the liability of the Principal Borrower and the acknowledgment of liability by the Principal Borrower, in terms of letter dated 20th December, 2016 forming Annexure R-7 to the Reply affidavit (page 64), is binding on the Guarantor and he cannot wriggle out of its liability to discharge its obligations towards SASF. It goes without saying that in terms of Clause 11 of the Corporate Guarantee dated 16th July, 1997, the Corporate Guarantor is liable to be proceeded against by the lender or its assignee in the same manner as if it was the Principal Borrower/ Debtor. The application filed by the Respondent under Section 7 of I B Code for triggering CIRP against Respondent Corporate Guarantor on 12th March, 2019 was not barred by limitation - Contention raised by the Appellant as regards plea of limitation and other contention in regard to discharge of obligation of Appellant Corporate Guarantor towards SASF are accordingly repelled. Appeal dismissed.

Summary

Issues Involved:
1. Application of Limitation Act, 1963 under Section 238A of the Insolvency and Bankruptcy Code, 2016.
2. Calculation of the limitation period for filing an application under Section 7 of the I&B Code.
3. Effect of proceedings before the Board for Industrial and Financial Reconstruction (BIFR) on the limitation period.
4. Validity of the invocation of Corporate Guarantee and its effect on the limitation period.
5. Acknowledgment of debt by the Principal Borrower and its impact on the Guarantor's liability.

Detailed Analysis:

1. Application of Limitation Act, 1963 under Section 238A of the I&B Code:
The tribunal emphasized that Section 238A of the I&B Code extends the provisions of the Limitation Act, 1963 to proceedings before the Adjudicating Authority. It cited the Supreme Court's judgment in "B. K. Educational Services Private Limited Vs. Parag Gupta and Associates" to assert that Article 137 of the Limitation Act applies to applications under Section 7 and 9 of the I&B Code. The right to sue accrues when a default occurs, and if the default occurred over three years prior to the filing of the application, it would be barred under Article 137, unless Section 5 of the Limitation Act applies to condone the delay.

2. Calculation of the Limitation Period:
The tribunal examined the timeline of events starting from the invocation of the Corporate Guarantee on 3rd December 2001. It excluded the period during which the first reference was pending before the BIFR (2nd March 2001 to 25th June 2002) and the period from the dismissal of the first reference to the filing of the second reference (25th June 2002 to 21st February 2003). The second reference was pending until the repeal of SICA on 1st December 2016. The tribunal concluded that the limitation period for filing the application under Section 7 began on 1st December 2016 and the application filed on 12th March 2019 was within the three-year limitation period.

3. Effect of Proceedings Before BIFR:
The tribunal noted that the first reference was dismissed as time-barred by BIFR on 25th June 2002. However, it held that the period from the filing of the first reference to its dismissal should be excluded from the limitation period under Section 22 of SICA. The tribunal also excluded the period during which the second reference was pending before BIFR, up to the repeal of SICA on 1st December 2016.

4. Validity of Invocation of Corporate Guarantee:
The tribunal confirmed that the Corporate Guarantee was invoked on 3rd December 2001, and this date was crucial for calculating the limitation period. The tribunal rejected the appellant's argument that the invocation of the guarantee did not constitute a continuing cause of action. It held that the cause of action survives until the liability is discharged and the terms of the guarantee are satisfied.

5. Acknowledgment of Debt by Principal Borrower:
The tribunal held that the acknowledgment of liability by the Principal Borrower on 20th December 2016 reset the limitation period. It stated that the acknowledgment by the Principal Borrower is binding on the Guarantor, and the liability of the Guarantor is coextensive with that of the Principal Borrower. The tribunal relied on Clause 11 of the Corporate Guarantee, which allows the lender or its assignee to proceed against the Corporate Guarantor as if it were the Principal Borrower.

Conclusion:
The tribunal concluded that the application under Section 7 of the I&B Code filed by the respondent on 12th March 2019 was within the limitation period. It dismissed the appellant's contentions regarding the plea of limitation and the discharge of the Corporate Guarantor's obligations. The appeal was dismissed with no orders as to costs.