The National Company Law Appellate Tribunal (NCLAT), New Delhi, has reaffirmed that creditors can amend the date of default in insolvency proceedings against a personal guarantor, provided the amendment is sought before final adjudication. The Appellate Tribunal clarified that questions of limitation must be examined at the stage when the insolvency application is decided on merits, and not while considering an application for amendment.
Dismissing an appeal, the NCLAT upheld an order of the NCLT, Mumbai, which had permitted State Bank of India to amend the date of default in an application filed under Section 95 of the Insolvency and Bankruptcy Code, 2016. The Bench comprising Justice Ashok Bhushan, Chairperson, and Barun Mitra, Technical Member, observed that it is well settled that amendments to pleadings are permissible in insolvency applications under Sections 7 and 95 of the Code. It held that allowing such an amendment does not amount to expressing any view on the merits of the case and does not prejudice the defences available to the personal guarantor.
The case arose from credit facilities extended by SBI to A A Estates Pvt. Ltd., for which Saranga Agarwal had executed a personal guarantee in February 2012. Following default by the borrower, the account was classified as a non-performing asset in February 2015. The bank initiated proceedings under the SARFAESI Act and subsequently issued a loan recall notice dated April 5, 2016. An insolvency application under Section 95 of the IBC was later filed in January 2022.
During the proceedings before the NCLT, the bank was unable to trace proof of service of the earlier demand notice relied upon to establish default. In these circumstances, SBI moved an interlocutory application seeking to amend the date of default from March 2, 2015 to April 5, 2016, the date of the loan recall notice. The NCLT allowed the amendment and granted liberty to the personal guarantor to file a reply to the amended application.
Challenging this order, the personal guarantor argued before the NCLAT that the amendment introduced a time-barred claim and deprived her of the defence relating to invocation of the guarantee. It was contended that the amendment was sought belatedly and effectively permitted a fresh, barred cause of action.
Rejecting these submissions, the Appellate Tribunal held that allowing an amendment does not decide the issue of limitation. Whether the amended date of default renders the insolvency application time-barred is a matter to be examined by the Adjudicating Authority while deciding the application on merits. The Tribunal noted that the personal guarantor had been expressly given the opportunity to raise all available defences, including limitation.
Relying on the Supreme Court’s decision in Dena Bank v. C. Shivakumar Reddy, the NCLAT reiterated that amendments and filing of additional documents can be permitted at any stage before final adjudication. It observed that by allowing the amendment, the NCLT had neither withdrawn any admission nor taken away any vested defence of the personal guarantor. The Tribunal emphasised that permitting the amendment only facilitates effective adjudication of the real controversy between the parties.
Finding no prejudice caused to the personal guarantor and holding that all objections remain open for consideration at the final stage, the NCLAT found no infirmity in the NCLT’s order and dismissed the appeal.
