NCLT Ahmedabad Holds Borrower’s OTS Proposals Extend Limitation Against Personal Guarantors

NCLT Ahmedabad Holds Borrower’s OTS Proposals Extend Limitation Against Personal Guarantors

Introduction

The National Company Law Tribunal has held that One Time Settlement (OTS) proposals made by a corporate debtor amount to acknowledgment of liability under Section 18 of the Limitation Act, 1963 and consequently extend limitation in insolvency proceedings against personal guarantors as well. The Tribunal ruled that since the liability of guarantors is coextensive with that of the borrower under Section 128 of the Indian Contract Act, such acknowledgments ensure to the benefit of the financial creditor.

Factual Background

Canara Bank had extended consortium credit facilities of ₹300 crore to Vishal Exports Overseas Ltd. in 2003. To secure these facilities, the personal guarantors, including Rushi Pradeep Mehta and his family members, executed continuing guarantees in September 2006.

When the account became irregular, recall notices were issued in July 2007, followed by SARFAESI demand notices in February 2008. Subsequently, the Debts Recovery Tribunal issued recovery certificates in December 2015. Enforcement actions continued thereafter, including attachment of shares in November 2024.

Between 2017 and 2024, multiple OTS proposals were submitted, including proposals by the corporate debtor, though none culminated in settlement. In December 2024, the bank issued a fresh demand notice quantifying total dues at approximately ₹95.24 crore, with the specific default amount at ₹38.42 crore.

The insolvency applications against the personal guarantors were filed in February 2025.

Procedural Background

Six insolvency petitions were filed by Canara Bank against the personal guarantors before the NCLT Ahmedabad. An interim resolution professional was appointed, who later recommended admission of the cases.

Issues

1. Whether OTS proposals made by the corporate debtor amount to acknowledgment of liability under Section 18 of the Limitation Act.

2. Whether such acknowledgment extends limitation against personal guarantors.

3. Whether DRT recovery certificates and continuing enforcement action keep the cause of action alive.

Contentions of the Parties

The financial creditor relied upon the continuing guarantees, recall notices, SARFAESI steps, the DRT’s recovery certificate, and the chain of OTS proposals from 2017 to 2024. It was argued that the repeated settlement proposals constituted acknowledgment of subsisting liability, thereby extending the limitation period. Since the guarantors’ liability is coextensive with that of the principal borrower, the same acknowledgment operated equally against them.

The guarantors denied execution of valid guarantee documents and questioned the authenticity of signatures. Some respondents further contended that they were minors at the relevant time or were residing abroad, distancing themselves from the affairs of the corporate debtor. It was also argued that the proceedings were barred by limitation and that guarantors alone could not be proceeded against in this manner.

Reasoning and Analysis

The Tribunal rejected the objections of the guarantors and found that the guarantee documents, read alongside the DRT findings and recovery certificate, sufficiently established the debt and the continuing default.

On limitation, the Bench gave decisive weight to the OTS proposals placed on record. It held that these proposals clearly amounted to acknowledgment of liability within the meaning of Section 18 of the Limitation Act. The Tribunal emphasized that where the liability of the guarantor is coextensive with the borrower, any acknowledgment by the borrower extends the period of limitation against the guarantors as well, unless specifically excluded by contract.

The Tribunal also held that the DRT judgment and recovery certificate constituted a continuing cause of action, and the subsequent enforcement steps further reinforced the live nature of the debt. Accordingly, the plea of limitation was rejected.

Decision

The NCLT admitted all six insolvency petitions against the personal guarantors, imposed a moratorium for 180 days, and confirmed the appointment of Sunil Kumar Kabra as Resolution Professional.