Divyang Gopalbhai Soni vs Bank Of Baroda

(Arising out of the Order dated 04.09.2024 passed by the National Company Law Tribunal, Ahmedabad, Court-2 in C.P.(IB)/268 (AHM) 2024)

IN THE MATTER OF:

Divyang Soni S/o Gopalbhai Soni Flat No. 1, Subhashish Apartment, 1st Floor, Near Ishwar Bhuvan Road, Navrangpura, Ahmedabad, Gujarat ...Appellant Versus

Bank of Baroda Zosarmb Branch, Suraj Plaza-3, Sayajigunj, Vadodara- 390020, Gujarat ...Respondent

Present For Appellants: Mr. Manu Aggarwal, Mr. Shubham Budhiraja, Ms. Jagriti Singh & Mr. Shivang Singhal, Advocates.

For Respondents: None.

JUDGEMENT

(02.05.2025)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present appeal has been filed by the Appellant i.e. Divyang Gopalbhai

Soni under Section 61 of the Insolvency and Bankruptcy Code, 2016 ('Code'),

challenging the Impugned Order dated 04.09.2024 passed by the National Comp. App. (AT) (Ins.) No. 1988 of 2024

Company Law Tribunal, Ahmedabad, Court-2 (Adjudicating Authority) in

C.P.(IB)/ 268 (AHM) 2024.

2. Bank of Baroda who is the financial creditor is the Respondent herein.

3. The appellant has challenged the Impugned Order dated 04.09.2024 passed

by the Adjudicating Authority, in C.P.(IB)/268(AHM)2024, which dismissed the

Appellant's application under Section 94(1) of the Code as not maintainable. The

Appellant contended that the Adjudicating Authority passed the Impugned Order

dated 04.09.2024 without considering arguments, facts, or circumstances, and

asserts that the Impugned Order is a non-speaking order, legally unsustainable,

and unsupported by the facts and merits of the case.

4. It is the case of the Appellant that the Corporate Debtor despite this

recovery, the Appellant's application under Section 94(1) of the Code was

dismissed by the Adjudicating Authority as "not maintainable" without

addressing whether the Respondent's claims persisted post-auction or evaluating

compliance with Code's procedural mandates for personal guarantor insolvency.

The Appellant submitted that the order fails to consider the legal effect of

recoveries made during the DRT proceedings on the limitation period and does

not address the applicability of the Limitation Act and 238A of the Code.

5. The Appellant submitted that by virtue of the payments credited by the

Corporate Debtor, the limitation period has been revived under Section 19 of the

Limitation Act, 1963, thereby enabling the filing of the present application within

the prescribed time. The Appellant submitted that his application was well within

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the limitation period as prescribed under the Code, which mandates computation

of limitation from the date of default or the date of last acknowledgment or credit,

whichever is later. The Appellant stated that in the present case, the last credit

was made on 14.02.2024. The Appellant relies on the judgment of the Hon'ble

Supreme Court in Dena Bank v. C. Shivakumar Reddy [(2021) 10 SCC 330],

wherein it was held that the decree/order of the Debt Recovery Tribunal

constitutes a fresh cause of action, thereby extending the limitation period by

three years from the date of the last credit. The Appellant argued that since the

present petition CP(IB)/268(AHM)/2024 was filed on 06.08.2024 and registered

on 03.09.2024, it was within the limitation period, and the dismissal on limitation

grounds is therefore unsustainable.

6. The Appellant contends that the Adjudicating Authority exhibited a

prejudiced mindset when passing the Impugned Order dated 04.09.2024, failing

to adequately consider the Appellant's submissions and rushing to a decision. The

Appellant alleged that Adjudicating Authority, overlooked vital aspects and

ignored compelling evidence, disposing of the petition in the Impugned Order

dated 04.09.2024 despite the Appellant demonstrating the existence of ongoing

proceedings. The Appellant requested this Appellate Tribunal to set aside the

Impugned Order.

7. It is noted that M/s Shree Mukt Jewellers Baroda Pvt Ltd (hereinafter

referred to as the Corporate Debtor) had approached Bank of Baroda (the

Financial Creditor/ Respondent) to avail credit facilities. The Financial Creditor

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sanctioned certain credit facilities to the Corporate Debtor, and the Appellant, as

a personal guarantor, executed a Guarantee Agreement dated 28.09.2013 in favor

of the Respondent, guaranteeing the total sanctioned amount of Rs. 201 Crores in

respect of the cash credit facilities availed by the Corporate Debtor.

8. It is also taken into account that the Corporate Debtor was classified as a

Non-Performing Asset (NPA) by the Respondent on 27.02.2016. Subsequently,

the Respondent issued a Demand Notice dated 06.08.2016 and invoked the

personal guarantee furnished by the Appellant. The invocation of the personal

guarantee was effected through the said notice dated 06.08.2016, read in

conjunction with the terms and conditions of the Guarantee Agreement executed

by the Appellant. This invocation was consequent to the default by the Corporate

Debtor in repayment of the sanctioned cash credit facilities guaranteed by the

Appellant.

9. We note that in order to recover the outstanding dues from the Corporate

Debtor, the Respondent filed Original Application No. 551/2016 before the Debt

Recovery Tribunal-II, Ahmedabad, which was allowed by way of a decree/order

dated 09.01.2017. Subsequently, Recovery Certificate No. 14/2017 was issued,

now recorded as TRP No. 02/2023. In the said Recovery Proceedings, the DRT

scheduled the auction of the mortgaged property on 30.01.2024, which was

successfully conducted with the Respondent Bank receiving a highest bid of Rs.

22.42 Cr. for the property in question. Further, as per the Statement of Account

filed by the Respondent Bank in TRP No. 02/2023, the highest bidder has

Page 4 of 21 Comp. App. (AT) (Ins.) No. 1988 of 2024

deposited the entire sale consideration, thereby completing the auction process in

accordance with the Recovery of Debts Due to Banks and Financial Institutions

Act, 1993.

10. We note that the Adjudicating Authority by its order dated 04.09.2024,

dismissed the petition filed by the Appellant as not maintainable, holding that

recoveries made from the auction of mortgaged properties pursuant to a recovery

certificate do not constitute repayment by the principal borrower or guarantor and,

therefore, cannot extend the limitation period for the personal guarantor in terms

of the Limitation Act, 1963. The Adjudicating Authority further observed that the

petition, filed on 06.08.2024, was beyond the prescribed period of limitation and

did not comply with Section 238A of the Code, and accordingly disposed of the

matter as not maintainable.

11. The facts regarding the loan given by the Financial Creditor to M/s Shree

Mukt Jewellers Baroda Pvt. Ltd. as Corporate Debtor has not been disputed by

the Appellant. Similarly, the Appellant did not dispute that he has signed the

guarantee agreement dated 28.09.2013 in favour of the Respondent for Rs. 201

Crores in respect of cash credit facilities available by the Corporate Debtor.

Hence, these facts are being taken as undisputed facts.

12. At this stage, we take into consideration the guarantee agreement dated

28.09.2013, which reads as under :-

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Comp. App. (AT) (Ins.) No. 1988 of 2024

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13. Thus, we take into account the fact that the guarantee agreement dated

23.09.2013 is stated to be continuing and binding personal guarantee on the part

of the Appellant in favour of the Respondent. The guarantee agreement, clause 2,

further stated that the guarantee is an additional and without prejudice for any

security for application which bank may have from the personal guarantor on the

principal borrower and for which of rights and remedies in respect of are reserved.

The Clause 3 of the guarantee deed categorically mentioned that the guarantee

shall be continuing guarantee and shall not be considered as wholly or partially

satisfied or exhausted by any payment from time to time made to the bank or any

statement of any account or reason of account being created or any other at any

time or from time to time. This clause 3 further states that guarantee shall

continue in force notwithstanding the discharge of the principals by operation of

law. We note that similar rights have been accrued in favour of the Respondent

bank in clause 4, 5, 6 etc.

14. From this, it becomes very clear that the Respondent has absolute right to

invoke the guarantee agreement signed by the Appellant despite any operation of

law and other factors as discussed above.

15. The only point raised by the Appellant is regarding limitation based on

which application was filed by the Appellant under Section 94 of the Code which

had been dismissed by the Adjudicating Authority. In this connection, we note

that the Respondent has invoked the guarantee of the Appellant vide notice dated

06.08.2016, therefore, the filing of appeal against the same should have been done

Page 13 of 21 Comp. App. (AT) (Ins.) No. 1988 of 2024

by 05.08.2019 whereas the application was indeed filed under Section 94 of the

Code by the Appellant before the Adjudicating Authority vide C.P.(IB)/268

(AHM) 2024 on 04.09.2024, which is apparently much beyond the limitation

period.

16. The Appellant has made out the case that the Respondent has filed

Original Application No. 551/2016 before the Debt Recovery Tribunal-II,

Ahmedabad, which was allowed by way of a decree/ order dated 09.01.2017 and

decree passed Recovery Certificate No. 14/2017 was issued, which is now

recorded das TRP No. 02/2023. The Appellant submitted as per auction of the

mortgaged property the Respondent Bank has received Rs. 22.42 Crores qua the

property in question. It is the case of the Appellant that since the bank has

received the amount on 30.01.2024, hence, the law of limitation in respect of his

application filed under Section 94 of the Code before the Adjudicating Authority

should have been counted from 30.01.2024 rather than from 06.08.2016.

17. The Appellant also cited the judgement of Dena Bank (Supra), where in

the Hon'ble Apex Court held that the judgment and order/ decree of the DRT gave

a fresh cause of action and therefore there is an extension of three years from the

last credit, i.e., 14.02.2024, as the C.P.(IB)/268 (AHM) 2024 was filed on

06.08.2024 and the same was registered on 03.09.2024, hence the said petition

was well within the limitation period.

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Comp. App. (AT) (Ins.) No. 1988 of 2024

18. In this regard, we take into account the relevant para of Dena Bank

(Supra) which reads as under :-

"It is well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgement under Section 18 of the Limitation Act."

From above, it is noted that the judgment of Dena Bank (Supra) was

w.r.t., entries in the books of accounts of the Corporate Debtor w.r.t.,

acknowledgement under Section 18 of Limitation Act.

19. In this regard, we have also taken into account Section 19 of the

Limitation Act, 1963 which reads as under :-

"Section 19. Effect of payment on account of debt or of interest on legacy.

Where payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made:

Provided that, save in the case of payment of interest made before the 1st day of January, 1928, an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment. Explanation.--For the purposes of this section,--

(a) where mortgaged land is in the possession of the mortgagee, the receipt of the rent or produce of such land shall be deemed to be a payment;

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(b) "debt" does not include money payable under a decree or order of a court.

(Emphasis Supplied)

20. We would also like to see old provision for same as contained in the

Section 20 of the Limitation Act,1908 which reads as under:

"Effect of payment on account of debt or of interest on legacy.-- [(1) Where payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy, or by his duly authorised agent, a fresh period of limitation shall be computed from the time when the payment was made:] [Provided that * * * an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment.] (2) Effect to receipt of procedure of mortgaged land. Where mortgaged land is in the possession of the mortgagee, the receipt of the rent or produce of such land shall be deemed to be a payment for the purpose of sub-section (1).

Explanation.--Debt includes money payable under a decree or order of Court."

(Emphasis Supplied)

21. Section 19 of the Limitation Act, 1963, and Section 20 of the Limitation

Act, 1908, differ in scope, structure, and applicability. The 1963 Act's Section 19

specifically governs payments toward debt or interest on a legacy, resetting the

Page 16 of 21 Comp. App. (AT) (Ins.) No. 1988 of 2024

limitation period if made by the debtor or their authorized agent, provided the

payment is acknowledged in writing (except for pre-1928 interest payments). The

Limitation Act,1963 explicitly excludes money payable under court decrees from

the definition of "debt," narrowing its application to non-adjudicated liabilities.

In contrast, Section 20 of the 1908 Act broadly covered interest and part-

payments of principal, requiring acknowledgment for all payments and including

court-decreed debts. Structurally, the 1963 Act introduced a streamlined format

with a proviso and explanatory clauses. Additionally, the 1963 Act's exemption

for pre-1928 interest payments reflects legislative intent to address historical

liabilities pragmatically, whereas the 1908 Act imposed uniform

acknowledgment rules. These distinctions highlight the 1963 Act's focus on

clarity and procedural precision, particularly in segregating court-decreed

obligations from ordinary debts.

22. We would like to go in detail on the Explanation (b) of Section 19 of the

Limitation Act,1963 states "debt" does not include money payable under a

decree or order of a court. Thus, we note that the term "debt" in the context of

Section 19 of the Limitation Act ,1963 specifically excludes any money that is

payable under a decree or order of a court. In other words, if a court has already

passed a decree or order directing the payment of a certain amount, such an

amount is not considered a "debt" for the purposes of Section 19 of the Limitation

Act,1963. This means that if a payment is made towards satisfying a court decree

or order, such payment will not result in the computation of a fresh limitation

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period under Section 19 of the Limitation Act,1963. The benefit of extending the

limitation period through part payment is only available for debts that are not yet

decreed by a court. We may see implication by a hypothetical situation. For

instance in case, A owes B Rs.1 Cr. and makes a part payment before B files a

suit and obtains a decree, the limitation period for B to file a suit can be extended

as per Section 19 of the Limitation Act,1963.However, if B has already obtained

a court decree for Rs.1 Cr. against A, any payment made by A towards this

decreed amount will not extend the limitation period for execution of the decree

under Section 19 of the Limitation Act.1963.

23. In this backdrop, we note that in appeal before us, the amount was

recovered by the Respondent Bank due to auction of mortgaged property as a

result of decree passed by Debt Recovery Tribunal-II, Ahmedabad. Thus, in terms

of Explanation (b) of Section 19 of the Limitation Act ,1963, this recovery would

not considered as Debt and therefore does not impact/enhance limitation period

as pleaded by the Appellant. In fact, this goes against the cause of the Appellant.

24. From above, it is noted that payment on account of debt is required to be

made by the person liable to pay for getting fresh period of limitation which be

computed from the time of the payment was made. In this connection, we observe

that no payment was made by the Corporate Debtor or the personal guarantor for

the outstanding loan of Rs. 201 Crores. It is only on the sale of the mortgaged

property by the Respondent Bank based on the decree of the DRT in his favour

which was done in January, 2024 which has nothing to do with the payment which

Page 18 of 21 Comp. App. (AT) (Ins.) No. 1988 of 2024

should have been made by the Corporate Debtor or the personal guarantor to take

the benefit of the Section 19 of the Code.

25. In this connection, we also note Section 238 A of the Code which reads

as under :-

"Section 238A: The provisions of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be."

(Emphasis Supplied)

26. The aforesaid Section 238A of the Code stipulates that the provisions of

the Limitation Act shall be applicable to the proceedings before the Adjudicating

Authority. The same has also been taken into consideration by the Adjudicating

Authority in the Impugned Order.

27. At this stage, it will be worthwhile to take into consideration the order

passed by the Adjudicating Authority dated 04.09.2024 where the issue of

limitation raised by the Appellant has been dealt and the application of the

Appellant was rejected. The order reads as under :-

"Heard the Ld Counsel for the applicant. This application has been filed under sec 94 of IBC 2016 with a further affidavit on 06.08.2024. The applicant had executed a guarantee on 28.09.2013 for Rs 201.00 crores to the financial creditor (Bank of Baroda) to enable the Corporate Debtor Shree Mukt Jewellers Baroda P Ltd to obtain certain Page 19 of 21 Comp. App. (AT) (Ins.) No. 1988 of 2024

facilities and also mortgaged his property in favour of the financial creditor. The account was classified as NPA and a demand notice was issued on 06.08.2016 recalling the loan and invoking the guarantee and an application was filed before the DRT Ahmedabad. The DRT passed an order decreeing the debt due and payable on the Corporate Debtor and the guarantors vide its order dated 09.01.2017 and recovery certificate was issued. It is further observed that the financial creditor has been executing the order and auctioning the properties of the mortgaged properties and other assets. Such receipts of recoveries do not pertain to the repayment of the principal borrower or guarantor/s and is out of the mortgaged properties on which a recovery certificate has been issued, cannot extend the limitation period for the personal guarantor who is not complying with the provisions of Sec 36 of Limitation Act 1963. Further, this petition has been filed on 06.08.2024 which is beyond the period of limitation and does not comply with Sec 238 A of the IBC 2016. In view of the same, CP(IB) 268 of 2024 stands disposed of as not maintainable."

(Emphasis Supplied)

28. To recapitulate, we observe that the default by the Corporate Debtor and

subsequently notice to Appellant invoking the bank guarantee are undisputed. We

also note that the bank has issued guarantee which is in nature of continuing and

unconditional guarantee which has been legally invoked by the Respondent Bank.

We further observe that the DRT proceedings are under the Recovery of Debts

and Bankruptcy Act, 1993. It is reiterated that the action based on to decree

Page 20 of 21 Comp. App. (AT) (Ins.) No. 1988 of 2024

passed by the DRT was in respect of the mortgaged property held by the

Respondent. Hence, it cannot be case of the Appellant that such recovery shall

extend the limitation for personal guarantee given by the Appellant. The

argument therefore submitted by the Appellant are not tenable.

29. In conclusion, we do not find any error in the Impugned Order. The

Appeal devoid of any merit stand rejected. No cost. I.A., if any, are closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical) Sim

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