Creditors can Initiate Insolvency Proceedings against Personal Guarantors via RP as per Section 95(1) of IBC: NCLAT

The Delhi bench of the National Company Law Appellate Tribunal (NCLAT) ruled that creditors can initiate insolvency proceedings against personal guarantors through a resolution professional (RP) as per Section 95(1) of the Insolvency and Bankruptcy Code, 2016 (IBC). This decision came in a case involving Dena Bank extending a credit facility to Morakhia Metals and Alloy Pvt. Ltd. The corporate debtor's account became a non-performing asset (NPA) on May 31, 2015, and the bank invoked the personal guarantee of the appellant, Shrenik Ashokbhai Morakhia, demanding repayment. Subsequently, the loan facility was assigned to Reliance Asset Reconstruction Company Ltd, the financial creditor, who initiated insolvency proceedings against the appellant under Section 95.\r

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The appellant contested the application, arguing that it was time-barred as the default occurred in 2016, and the application was filed in 2021, exceeding the three-year limitation period. However, the NCLAT found that the appellant had issued a Declaration-cum-Undertaking in favor of Dena Bank in 2018, acknowledging the debt, which extended the limitation period as per Section 18 of the Limitation Act. The NCLAT held that the application filed in 2021 was within the extended limitation period and that creditors can apply to personal guarantors via RP for insolvency resolution.