A Bank extended credit facility to M/s. Jaiveer Construction (JC), a proprietary firm of the appellant. The loan amount was disbursed to JC, the Principal Borrower. Gupta Foods Ltd. (GFL), of which the appellant is also

The facts of the case are similar to the case of Laxmi Pat Surana vs. Union Bank Of India & Anr (In The Supreme Court Of India, Civil Appellate Jurisdiction Civil Appeal No. 2734 OF 2020) decided on 26th March 21. Two central issues arise for our determination in the given question: (i) Whether an action under Section 7 of the Insolvency and Bankruptcy Code, 2016 can be initiated by the financial creditor (Bank) against a corporate person (being a corporate debtor) concerning guarantee offered by it in respect of a loan account of the principal borrower, who had committed default and is not a "corporate person" within the meaning of the Code? Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) propounds the manner in which Corporate Insolvency Resolution Process (CIRP) may be initiated by the "financial creditor" against a "corporate person being the corporate debtor". Section 7 is an enabling provision, which permits the financial creditor to initiate CIRP against a corporate debtor. The corporate debtor can be the principal borrower. It can also be a corporate person assuming the status of corporate debtor having offered guarantee, if and when the principal borrower/debtor (be it a corporate person or otherwise) commits default in payment of its debt. Actually, a right or cause of action would ensure to the lender (financial creditor) to proceed against the principal borrower, as well as the guarantor in equal measure in case they commit default in repayment of the amount of debt acting jointly and severally. It would still be a case of default committed by the guarantor itself, if and when the principal borrower fails to discharge his obligation in respect of amount of debt. For, the obligation of the guarantor is coextensive and coterminous with that of the principal borrower to defray the debt, as predicated in Section 128 of the Contract Act. As a consequence of such default, the status of the guarantor metamorphoses into a debtor or a corporate debtor if it happens to be a corporate person, within the meaning of Section 3(8) of the Code. Thus, action under Section 7 of the Code could be legitimately invoked even against a (corporate) guarantor being a corporate debtor. The principal borrower may or may not be a corporate person, but if a corporate person extends guarantee for the loan transaction concerning a principal borrower not being a corporate person, it would still be covered within the meaning of expression "corporate debtor" in Section 3(8) of the Code. Whereas, upon default committed by the principal borrower, the liability of the company (corporate person), being the guarantor, instantly triggers the right of the financial creditor to proceed against the corporate person (being a corporate debtor), therefore, there is no substance in the argument that since the loan was offered to a proprietary firm (Principal borrower - not a corporate person), action under Section 7 of the Code cannot be initiated against the corporate person even though it had offered guarantee in respect of that transaction. Therefore, the first argument by GFL is not sustainable. (ii) Whether an application under Section 7 of the Code filed after three years from the date of declaration of the loan account as Non-performing Asset being the date of default, is not barred by limitation? Notably, the provisions of Limitation Act have been made applicable to the proceedings under the Code, as far as may be applicable. For, Section 238A predicates that the provisions of Limitation Act shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the NCLAT, the DRT or the Debt Recovery Appellate Tribunal, as the case may be. In the present case, acknowledgments were made by the principal borrower as well as the corporate guarantor after declaration of NPA from time to time and lastly on 8th January 2019, which was the basis of filing of subject application under Section 7 of the Code on 23rd March, 2019. The fact that acknowledgment within the limitation period was only by the principal borrower and not the guarantor, would not absolve the guarantor of its liability flowing from the letter of guarantee and memorandum of mortgage. The liability of the guarantor being coextensive with the principal borrower under Section 128 of the Contract Act, it triggers the moment principal borrower commits default in paying the acknowledged debt. Section 18 of the Limitation Act, however, posits that a fresh period of limitation shall be computed from the time when the party against whom the right is claimed acknowledges its liability. The financial creditor has not only the right to recover the outstanding dues by filing a suit, but also has a right to initiate resolution process against the corporate person (being a corporate debtor) whose liability is coextensive with that of the principal borrower and more so when it activates from the written acknowledgment of liability and failure of both to discharge that liability. Suffice it to conclude that there is no substance even in the second ground urged by the appellant regarding the maintainability of the application filed by the respondent financial creditor under Section 7 of the Code on the ground of being barred by limitation. A fresh period of limitation is required to be computed from the date of acknowledgment of debt by the principal borrower from time to time and in particular the (corporate) guarantor/corporate debtor vide last communication dated 8th January, 2019. Thus, the application under Section 7 of the Code filed on 23rd March, 2019 is within limitation.