Amendment of Date of Default Permissible in Section 95 Proceedings Despite Limitation Objection
- REEDLAW
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REEDLAW Legal News Network reports: In a pivotal ruling clarifying procedural flexibility under personal guarantor insolvency proceedings, the Appellate Tribunal held that amendment of the date of default in a pending Section 95 application under the Insolvency and Bankruptcy Code, 2016 was legally permissible even at an advanced stage, where such amendment was necessary for effective adjudication of the real controversy and did not conclusively determine limitation or foreclose statutory defences available to the personal guarantor.
The National Company Law Appellate Tribunal, New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a company appeal, held that allowing an amendment to a pending Section 95 application to change the date of default was procedurally valid even at a belated stage of proceedings. The Tribunal clarified that such an amendment merely enabled proper adjudication of the underlying insolvency dispute and did not amount to a final determination on limitation, nor did it extinguish the personal guarantor’s right to raise all statutory objections, including limitation and invalid invocation of the guarantee, at the stage of final adjudication.
The Appellate Tribunal considered an appeal filed by the Personal Guarantor challenging the order of the Adjudicating Authority, which had permitted amendment of a pending application under Section 95 of the Insolvency and Bankruptcy Code by allowing a change of the date of default. The Financial Creditor had extended credit facilities to the Corporate Debtor, supported by a guarantee executed by the Appellant. Upon default, the account was classified as NPA and proceedings under the SARFAESI Act were initiated. While the Financial Creditor initially relied upon a demand notice under Section 13(2) of the SARFAESI Act as the basis for invocation of the guarantee, difficulty arose in establishing proof of service of that notice upon the Appellant. Consequently, during the pendency of the Section 95 proceedings, an application was filed seeking amendment of the date of default by relying on a subsequent loan recall notice, contended to constitute a valid invocation of the guarantee.
The Appellant opposed the amendment on the ground that it introduced a time-barred cause of action and deprived the Appellant of a valuable defence of limitation, contending that a fresh application based on the recall notice would have been barred by time. Reliance was placed on principles governing amendment of pleadings, including the bar against introducing time-barred claims, as laid down by the Hon’ble Supreme Court in Life Insurance Corporation of India Ltd. v. Sanjeev Builders Pvt. Ltd. and other decisions. It was argued that the amendment altered the very foundation of the case and amounted to setting up a new cause of action after expiry of the limitation.
The Tribunal noted that proceedings under Sections 7 and 95 of the Code permitted the filing of additional documents and amendments at any stage prior to final adjudication, as recognised by the Hon’ble Supreme Court in Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy and Another, REEDLAW 2021 SC 08512. It was further observed that this Tribunal had earlier permitted amendment of the date of default in personal guarantor proceedings, including in Sanjeeb Ranjeet Das v. Punjab National Bank. The Tribunal held that the amendment did not finally determine the issue of limitation, which remained open to be urged by the Appellant at the stage of adjudication on merits. The impugned order expressly preserved the Appellant’s right to file a reply to the amended petition and to raise all permissible defences, including limitation and invalid invocation of guarantee.
While reaffirming the settled principle that proceedings against a Personal Guarantor could be initiated only upon valid invocation of the guarantee, as recognised in decisions such as Ghanashyam Mishra and Sons Private Limited Through The Authorised Signatory v. Edelweiss Asset Reconstruction Company Limited Through The Director and Others, REEDLAW 2021 SC 04534. and Pooja Ramesh Singh v. State Bank of India and Another, REEDLAW 2023 NCLAT Del 04610, the Tribunal held that the question whether the recall notice constituted a valid and timely invocation of the guarantee was a matter to be examined during final adjudication. Allowing the amendment did not amount to adjudicating the merits of the claim, nor did it extinguish any accrued defence of the Appellant.
The Tribunal concluded that the amendment was necessary for effective adjudication of the controversy and did not suffer from legal infirmity. Since no prejudice was caused to the Appellant and all objections were left open, the order permitting amendment of the date of default was upheld, and the appeal was dismissed.
Mr. Arvind Nayar, Sr. Advocate with Mr. J. Rajesh, Mr. Aniruth Prushottam, Md. Arsalan Ahmed and Mr. Yashwardhan Agarwal, Advocates, represented the Appellant.
Mr. Harshit Khare, Mr. Prafful Saini and Mr. Ayuj Agrawal, Advocates, appeared for the Respondent No. 1.
Mr. Abhishek Anand, Mr. Karan Kohli and Ms. Palak Kalra, Advocates, appeared for the Respondent No. 2.
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