Section 95 Application Maintainable—Personal Guarantee Enforceable through Security Trustee; Limitation Validly Extended

NCLAT held that the Section 95 application was maintainable as the personal guarantee was enforceable through the Security Trustee and the limitation period stood validly extended.

The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha (Technical Member), held that an application under Section 95 of the IBC against a personal guarantor is not barred by limitation if a revival letter acknowledging the debt and a valid demand notice have been issued within the statutory period. It further held that a creditor bank, even if not a direct signatory to the personal guarantee, has the locus standi to enforce it through the Security Trustee under the terms of the restructuring agreements.

In a significant judgment, the National Company Law Appellate Tribunal (NCLAT) dismissed an appeal filed under Section 61 of the Insolvency and Bankruptcy Code, 2016, by Shantanu Jagdish Prakash against the order dated 31.05.2024 passed by the NCLT, New Delhi Bench (Court-II), which had admitted a Section 95 application against him. The appeal was premised on multiple grounds, including limitation, absence of privity of contract, improper invocation of personal guarantee, lack of crystallized debt, undervaluation of asset sale, and procedural non-compliance under Section 100(2) of the IBC. The Appellant contended that the personal guarantee dated 03.06.2015 had been executed solely in favour of SBICAP, and not the State Bank of India (SBI), and that no valid privity of contract existed between him and SBI. He also argued that the guarantee stood unenforceable due to procedural lapses and that the application was time-barred.

The Appellant’s submissions revolved around the claim that the MRA dated 01.04.2013 was breached by lenders who failed to disburse a Capex LC limit of ₹108.49 crores essential for Educomp Solution Ltd.’s (ESL) viability. He further alleged coercion in executing the personal guarantee and pledging shares, despite the existence of adequate primary security. ESL, the principal borrower, was admitted into CIRP on 30.05.2017, and a resolution plan submitted by Ebix Singapore Pte Ltd. had since been approved. The Appellant also raised issues about SBI Singapore’s undervalued sale of Learning.com shares—assets of ESL’s subsidiary—alleging suppression of the auction process and a resultant loss to stakeholders.

The NCLAT, however, rejected all of the Appellant’s contentions. On the question of limitation, the Tribunal clarified that the earlier NPA classification on 31.03.2013 held no relevance following the restructuring through the MRA dated 25.03.2014. The Appellant’s execution of a Revival Letter dated 30.11.2016 extended the limitation period until 30.11.2019. Further, a demand notice issued on 22.06.2018 triggered a fresh limitation window, valid until 23.08.2021. Since the Section 95 application was filed on 31.03.2021, it was well within time. The Tribunal also observed that the invocation of the guarantee through the SARFAESI notice was valid, and no procedural breach under Clauses 9 and 17 of the guarantee deed had been established.

On the issue of privity, the Tribunal held that SBI, though not a direct signatory to the personal guarantee, was well within its rights to invoke the guarantee. It reasoned that security trustees hold such guarantees for the benefit of the lending consortium, and the rights of the creditors flow through the agreements, including the MRA and STA. Therefore, SBI’s locus standi could not be questioned merely on the ground of not being a signatory. The NCLAT further ruled that the existence of a pending counterclaim before the DRT did not dilute the creditor’s right to initiate proceedings under Section 95, as the debt stood crystallized and acknowledged by the Appellant.

In conclusion, the NCLAT found no merit in the grounds raised by the Appellant and upheld the Adjudicating Authority’s order admitting the application under Section 95 of the IBC. It reaffirmed the principle that the liability of a guarantor is coextensive and independent of the principal debtor and that technical objections or ancillary claims cannot obstruct the course of a duly filed personal insolvency resolution process. The appeal was accordingly dismissed.

Mr. Sunil Fernandes, Sr. Advocate along with Ms. Rajshree Chaudhary, Mr. Abhinav Kumar and Ms. Diksha Dadu, Advocates, represented the Appellant.

Mr. Akhil Anand, Ms. Vishrutyi Sahni and Ms. Muskaan Gupta, Advocates, appeared for Respondent No. 1.

---

Subscribers can access the Case, including Case Analysis, Ratio Decidendi, Headnotes, Briefs, Case Research, Cited Case Laws, Case Law Cross-references, and the latest updates on Statutes, Notifications, Circulars, Guidelines, Press Releases and more.

Click on the following Citation/Link to access these resources:

Read Judgment