The national company law appellate tribunal (NCLAT) has dismissed appeals filed by Rajkumar Nandlal Dhoot and Pradeep Nandlal Dhoot, clearing the way for personal insolvency proceedings against them in connection with the massive loan default of Videocon Industries Ltd.
The two brothers, siblings of Videocon founder Venugopal Dhoot, had challenged orders passed in June 2024 by the Mumbai bench of the national company law tribunal (NCLT), which admitted applications filed by the State Bank of India (SBI) under Section 95 of the Insolvency and Bankruptcy Code (IBC) to initiate insolvency proceedings against them in their capacity as personal guarantors.
A two-member bench comprising justice Ashok Bhushan and technical member Barun Mitra upheld the NCLT’s orders dated 4th June and 14 June 2024, dismissing both appeals.
“We do not find any good ground to interfere with the impugned orders dated 4 June 2024, and 14 June 2024. Both the appeals are dismissed,” the appellate tribunal says.
The proceedings arise from defaults committed by Videocon Industries, which had availed rupee term loan and working capital facilities from SBI in May 2010. In August 2012, Rajkumar and Pradeep Dhoot executed personal guarantee deeds in favour of the bank.
Following defaults by the principal borrower, SBI issued demand notices in February 2018 invoking the personal guarantees. The bank sought ₹3,171.37 crore under the rupee term loan agreement and ₹795.57 crore under the working capital consortium agreement. Overall, SBI issued a demand notice of ₹5,353.78 crore in connection with Videocon’s defaults.
Earlier, SBI had initiated corporate insolvency proceedings against Videocon Industries under Section 7 of the IBC, and the Corporate Insolvency Resolution Process commenced against the company on 6 June 2018.
After non-payment by the guarantors, SBI moved the NCLT under Section 95 of the IBC, which permits a financial creditor to initiate insolvency proceedings against a personal guarantor. A resolution professional was appointed, who submitted a report under Section 99(1) recommending initiation of the personal insolvency resolution process against both brothers. The NCLT subsequently admitted the applications.
Before the appellate tribunal, the Dhoot brothers argued that SBI’s applications were barred by limitation. They contended that the limitation period should be computed from the date when Videocon first defaulted, relying on the Supreme Court’s ruling in Laxmi Pat Surana vs Union Bank of India. According to them, since a guarantor’s liability is co-extensive with that of the principal borrower, the insolvency applications were time-barred.
Rejecting the argument, NCLAT held that while the lender’s right to proceed arises upon default by the principal borrower, limitation against a personal guarantor depends on the terms of the deed of guarantee.
“There can be no doubt that the moment Principal Borrower committed default, right of lender to take proceeding commences. The limitation for taking action against the personal guarantor shall be as per the deed of guarantee and in case where deed of guarantee contemplates issuance of demand notice by the lender, after giving such demand notice, lender can initiate proceeding within three years from the date of default by the guarantor,” the tribunal observed.
Examining the guarantee deeds, the bench noted that they provided for payment 'on demand'. In such cases, the cause of action against the guarantor arises when a valid demand notice invoking the guarantee is issued and the amount remains unpaid.
“The personal guarantor who has executed the deed of guarantee was fully bound by the terms and conditions. When the clauses of the deed of guarantee provided for payment by guarantor on demand, the cause of action against the guarantor shall commence when the notice of demand is issued i.e. guarantee is invoked against the guarantor,” the tribunal says.
Since the guarantees were invoked in February 2018 and SBI filed the Section 95 applications in August 2020, the tribunal held that the proceedings were within the three-year limitation period.
The appellate tribunal also clarified that the Supreme Court’s ruling in Laxmi Pat Surana case, which dealt with Section 7 proceedings against a corporate guarantor, did not alter the settled legal position governing limitation in cases involving personal guarantors under on-demand guarantees.
With the dismissal of the appeals, the personal insolvency resolution process against Rajkumar Nandlal Dhoot and Pradeep Nandlal Dhoot will now proceed in accordance with the IBC framework.
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