NCLT Dismisses Insolvency Petitions Against Personal Guarantors, Cites Limitation and Prematurity

Mumbai: The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Shri Prabhat Kumar (Member Technical) and Justice Shri V.G. Bisht (Member Judicial), has dismissed a series of insolvency petitions filed by The Solapur District Central Co-operative Bank Ltd. against personal guarantors of M/s Aryan Sugars Limited . In its order dated May 27, 2025, the Tribunal found the petitions under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) to be either barred by limitation or premature, depending on the interpretation of the default date.

The lead case, C.P. (IB) - 1205/2023, involved Mr. Yogesh Sudhir Sopal , a personal guarantor for loans exceeding Rs. 322 crores extended to Aryan Sugars Limited . Four other similar petitions against other guarantors ( Alka Sudhir Sopal , Ujwala Yogesh Sopal, Sudhir Gangadhar Sopal, and Vilas Dagduappa Renke ) were also dismissed.

Case Overview

The Solapur District Central Co-operative Bank Ltd. ("Financial Creditor") sought to initiate insolvency resolution process against the personal guarantors for a total debt of Rs. 3,22,49,56,914/- (as on March 31, 2023) arising from three loan facilities sanctioned to M/s Aryan Sugars Limited ("Corporate Debtor") between 2010 and 2013. The guarantors had executed various guarantee agreements and undertakings.

The core legal question revolved around the enforceability of these personal guarantees, specifically concerning the date of default for limitation purposes and the nature of the guarantees.

Arguments Presented

Financial Creditor's Contentions (Represented by Mr. Gaurav Joshi, Sr. Counsel): * The guarantees were "on demand," meaning the limitation period commenced only when a demand notice was issued to the guarantors (May 2, 2023), making the default date May 18, 2023, and the petitions timely. * Alternatively, if based on the principal borrower's default (earliest being 2012-2014), the limitation was extended by subsequent payments, acknowledgments of debt by the new management of the Corporate Debtor, and the exclusion of the COVID-19 period. * A 2014 Memorandum of Understanding (MoU), which purportedly discharged the original guarantors, was allegedly fraudulent (as per a NABARD report) and not fully acted upon, thus not extinguishing their liability. * The withdrawal of earlier CIRP proceedings against the Corporate Debtor did not discharge the guarantors, as their liability is co-extensive and arises from separate contracts.

Personal Guarantors' Defence (Represented by Mr. J.P. Sen, Sr. Counsel):

* They were discharged from all liabilities under the Tripartite MoU dated September 2, 2014, when the management of Aryan Sugars changed.

* The NCLT had previously recorded in 2022 (in CP 4659 of 2018) that nothing remained recoverable from the Corporate Debtor after SARFAESI actions, implying their discharge.

* The petitions were barred by limitation, as the Corporate Debtor's account was declared NPA in 2013.

* The proceedings were premature as the guarantees were not invoked prior to the demand notice under Rule 7(1) of the IBBI Rules.

* The undertakings for some loan facilities were for indemnity and not direct guarantees.

NCLT's Analysis and Decision

The Tribunal identified two principal issues: 1. Whether the guarantors' obligation arose on demand or automatically upon the principal borrower's default. 2. Whether an obligation still existed under the guarantees considering the 2014 MoU.

The NCLT focused primarily on the first issue and its implications for limitation and prematurity.

Nature of Guarantee: The Tribunal, citing the Supreme Court in Syndicate Bank v. Channaveerappa Belleri (2006) , meticulously analyzed the guarantee clauses. It concluded: > "we are of the considered view that the guarantee as well as undertakings are in nature of continuing guarantees and the obligation of the surety thereunder is not dependent of demand by the beneficiary, but it runs from the date the principal borrower commits default."

The NCLT rejected the Financial Creditor's argument that the guarantees were "on demand" merely due to the absence of a fixed repayment time for the guarantor. It held that substance prevails over form, and the undertakings also constituted contracts of guarantee.

Two- Pronged Reasoning for Dismissal:

1. If Default Date as per Form C (Post-Demand Notice to Guarantor): The Financial Creditor, in its application (Form C), stated the default date as May 18, 2023 (14 days after the demand notice to the guarantor). The NCLT found that if this were the case, the application was premature. > "…the case of the Financial Creditor, as made out in Part III of Form 3 (Present application) is not maintainable if the date of default basis demand notice in form B is considered as no demand was made on the guarantor(s) prior to issuance of the demand notice, hence in term of decision of Hon’ble NCLAT in case of State Bank of India vs. Deepak Kumar Singhania (2025) ibclaw.in 153 NCLAT, the present application is premature."

2. If Default Date as per Principal Borrower 's Default (Continuing Guarantee): Having established the guarantees as continuing, the NCLT determined the default dates to be co-extensive with those of the principal borrower (28.12.2012, 30.06.2013, and 31.10.2014).

   Subsequent payments by the principal borrower (Rs. 12.68 Crores between September 5, 2014, and March 5, 2015) extended the limitation period to March 4, 2018.

   The Tribunal rejected the argument that a fresh default under the 2014 MoU (on March 31, 2015) extended limitation, as the Financial Creditor itself contested the MoU's validity to hold the original guarantors liable.

   Letters from the new management in 2018 seeking OTS information were deemed beyond the extended limitation period of March 4, 2018, and thus could not revive the debt against the original sureties. Even if considered a promise under Section 25(3) of the Contract Act, it would bind only the promisor (new management), not the original guarantors.

   The NCLT concluded: > "In view of discussion at Para 34 to 36 above, we are of considered view that the limitation period expired on 4.3.2018 and this Petition having been filed on 16.12.2023 is beyond the 3 years of extended limitation period, hence the Petition is not maintainable as being barred under Limitation on the basis of date of default stated in demand notice of the financial creditor."

Final Decision and Implications

Due to these findings, the NCLT dismissed C.P. (IB)/1205(MB)2023 and, consequently, the other four connected petitions. The Tribunal stated that since the petitions were either barred by limitation or premature, it did not need to delve into whether the guarantors' liability ceased due to the 2014 MoU or the earlier NCLT order regarding the Corporate Debtor's assets.

This judgment underscores the critical importance of correctly identifying the nature of a personal guarantee and the corresponding date of default for calculating the limitation period when invoking Section 95 of the IBC. It also highlights that a Financial Creditor cannot selectively rely on an agreement (like the MoU) for one purpose while disavowing it for another in the same proceedings. The Resolution Professional, Sh. Devarajan Raman , had recommended approval of the application, but the NCLT's findings led to a contrary outcome.