NCLAT: Company Cannot Complain of Inadequate Service If Registered Office Non-Functional for Years

The National Company Law Appellate Tribunal (NCLAT) at Delhi has dismissed an appeal by the suspended director of AS Infracon Pvt. Ltd., ruling that a company cannot claim denial of natural justice when it has allowed its registered office to remain non-functional for years. The tribunal also upheld the initiation of insolvency proceedings against the company, rejecting arguments that the petition was barred by limitation.

Case Background: Guarantee Default and Insolvency

The dispute arose from a ₹7 crore secured business loan sanctioned by the Small Industries Development Bank of India (SIDBI) to Kosas Exports Ltd. in February 2014. AS Infracon Pvt. Ltd. executed an unconditional and irrevocable deed of corporate guarantee on the same day, securing the loan. After the borrower defaulted, SIDBI classified the account as a non-performing asset in November 2015 and issued a recall notice in March 2016. A notice invoking the guarantee was issued in July 2016.

SIDBI filed an insolvency petition under Section 7 of the Insolvency and Bankruptcy Code (IBC) against AS Infracon as corporate guarantor. The National Company Law Tribunal (NCLT), Kolkata Bench, admitted the petition in October 2024, appointing an interim resolution professional. The suspended director, Renu Lalit Agarwal, challenged this order before the NCLAT.

Arguments: Service Deficiencies and Limitation

The appellant contended that the guarantee invocation notice and the insolvency petition were never properly served on AS Infracon, as its registered office had been closed for over five years. It was argued that SIDBI was aware of this but deliberately failed to serve the company's directors or use alternative addresses, violating principles of natural justice. Additionally, the appellant claimed the Section 7 petition was barred by limitation, as the alleged default occurred in 2016 and the petition was filed in 2023.

SIDBI and the interim resolution professional countered that repeated attempts at service were made through post and email over seven months, and the company's non-appearance was due to its own failure to maintain a functional registered office. On limitation, they pointed to one-time settlement (OTS) proposals from the principal borrower in 2019 and 2020, which acknowledged the debt and extended the limitation period under Section 18 of the Limitation Act.

Legal Analysis: Service and Limitation Issues

The NCLAT examined the record of proceedings before the NCLT, noting that the tribunal had issued notices on multiple occasions between February and September 2024, including by speed post and email. The postal returns indicated the addressee could not be located, but the tribunal ordered fresh service based on updated particulars.

The appellate tribunal found no violation of natural justice. It observed that maintaining a functional registered office is a statutory obligation under the Companies Act , and a party cannot benefit from its own default. "Having admittedly allowed its registered office to remain non-functional for several years in breach of its statutory obligations , it is not open to the Corporate Debtor, through the Appellant, to contend that notice sent to that very address … amounted to inadequate service," the bench ruled.

On limitation, the tribunal applied the principle that an acknowledgment of debt by the principal borrower binds the guarantor under the guarantee deed. Clause 22 of the deed provided that any acknowledgment by the borrower would be treated as an acknowledgment by the guarantor. The OTS proposals of June 2019 and November 2020 were held to be valid acknowledgments, extending limitation. Since the Section 7 petition was filed in May 2023, it was within the extended period.

The tribunal also rejected allegations of mala fide conduct by SIDBI, noting that the appellant had produced no material to substantiate the claim.

Key Observations

The NCLAT made several notable observations:

  • "Where service has been attempted through more than one mode, it does not suffice for a party to impugn service by demonstrating the failure of one mode while remaining silent as to the other."

  • "A party cannot rely on documents evidencing a live and acknowledged debt for one purpose (to demonstrate bona fide settlement efforts) while disowning the same documents' legal consequence ( extension of limitation ) for another."

  • The tribunal emphasized that the appellant did not dispute the loan, the guarantee, or the OTS proposals, and no defence was taken that the debt had been discharged.

Decision: Appeal Dismissed

The NCLAT found no merit in the appeal and dismissed it, upholding the NCLT's order admitting the Section 7 petition. The corporate insolvency resolution process against AS Infracon will continue. The judgment reinforces the principle that companies cannot evade insolvency proceedings by neglecting their statutory obligations regarding registered offices, and that acknowledgments of debt by principal borrowers can bind guarantors for limitation purposes.