The borrower defaulted at the end of 2016. The bank came for its guarantor in 2020. Had the guarantor’s three years already run out? Watch the resort project stall in the Gallery, find the guarantor’s own date of default at the Bar, and test the deed at the Bench.
Archana Deepak Wani v. Indian Bank & Anr.
Comp. App. (AT) (Ins) No. 301 of 2023 · NCLAT, Principal Bench, New Delhi · 26.04.2023 · Justice Ashok Bhushan, Chairperson & Barun Mitra, Member (Technical) (per Ashok Bhushan, J.)
Start with the story. Climb when you want the rule behind it.
Provisions IBC ss. 3(11), 3(12) & 7 · Limitation Act Art. 137 · Contract Act s. 128Question Does a corporate guarantor default on the same day as the borrower?Outcome“…the application filed by the Bank under Section 7 cannot be said to be barred by time…” · Para 36
Seat one · five minutes · the story
The Gallery
One loan, one guarantee, two dates of default — and the demand that set them apart.
1
A resort, a loan and a sister company’s promise. On 23 March 2011 Poonam Resorts Ltd. signs a ₹62-crore term loan with Allahabad Bank (now Indian Bank). The same day its sister company, N Kumar Housing and Infrastructure Pvt. Ltd., signs a corporate guarantee for it. The security includes a hotel-and-clubhouse project on the guarantor’s land near Nagpur. Paras 1(i), 1(iii), 31.
2
The project stalls. In March 2012 the borrower tells the bank the project is delayed for reasons beyond its control and will miss its April 2012 start date. By April 2012 only ₹25 crore of the ₹62 crore has been paid out. Paras 1(ii)–(iii).
3
The account fails — and the bank writes to the guarantor. The loan is declared a non-performing asset on 31 March 2017; both sides treat 31 December 2016 as the borrower’s date of default. On 3 April 2017 the bank serves a SARFAESI notice on the guarantor: pay ₹45.05 crore within 60 days. Paras 1(iv)–(v), 3–4, 31.
4
Every forum at once. The guarantor goes to the Debts Recovery Tribunal, which on 3 April 2018 stops the bank from taking further SARFAESI steps against its land and project. In September 2018 the bank files for insolvency against the borrower and sues the guarantor for recovery at DRT Nagpur. Paras 1(v)–(vi).
5
The petition against the guarantor. In 2020 the bank files under section 7 against the guarantor itself. The guarantor challenges maintainability but never files a reply, and its right to reply is forfeited. On 24 February 2023 the NCLT, Mumbai admits the petition. Paras 1(vii), 32.
6
Two calendars. On appeal, the guarantor’s suspended director, Archana Deepak Wani, counts from the borrower’s default: three years ended on 31 December 2019, so a 2020 petition came too late. The bank counts from its demand: under this deed, the guarantor had not defaulted until it was asked to pay. Paras 3–4.
★
The appeal fails. On 26 April 2023 the NCLAT holds that the guarantor’s default was its own. This deed called for a demand, the April 2017 notice was that demand, and the guarantor’s default could not be placed on 31 December 2016. The petition was in time. The director is given one month to negotiate a settlement before the creditors’ committee is formed. Paras 31–33, 36–37.
Six expressions this page uses
Principal borrower — the party that took the loan; here Poonam Resorts Ltd.
Corporate guarantor — a company that promises the lender that another’s loan will be paid; here N Kumar Housing.
Default — non-payment of a debt that is due and payable; the trigger for a section 7 petition.
NPA — a non-performing asset: the bank’s classification once loan repayments stop.
Demand — the bank’s written call on the guarantor to pay; here the notice of 3 April 2017.
Limitation — the time limit for filing; three years for a section 7 petition, from when the right to apply arises.
Self-checkIf the borrower defaulted in December 2016, why was a 2020 petition against its guarantor in time?
Because the guarantor’s default is measured by its own deed. This deed contemplated a demand by the bank, and the demand came on 3 April 2017 with 60 days to pay. The guarantor’s default could not be placed on 31 December 2016, so its three years had not run out when the bank filed in 2020. Paras 26, 31–33.
Move to the Bar
Liable on the same day, but in default on another. How can one debt carry two dates of default?
Separate what is due from who is in default — then read the deed for the demand.
Bar · 1
Three questions the decision answers
1.
Is a corporate guarantor’s default the same default as the principal borrower’s — so that limitation for a section 7 petition runs from the same date against both? Paras 7, 26–31.
2.
On the facts, was the bank’s petition against the guarantor — filed in 2020, more than three years after the borrower’s default of 31.12.2016 — barred by limitation? Paras 32–33.
3.
Is the order admitting the petition sustainable, given the guarantor’s pleas of non-disbursement and of discretion under Vidarbha Industries? Paras 33–36.
A note on dates: the judgment records the filing as 05.02.2020 (Para 1(vii)) and elsewhere as 17.03.2020 (Paras 3, 4, 33). Nothing turns on the difference — both fall after 31.12.2019 and within three years of the bank’s demand of 03.04.2017.
Bar · 2
Two maps of the same default
Our reading of the mechanism · select a box, arrow or badge for its paragraph reference. Red, with a × badge, marks the appellant’s count from the borrower’s default — the route the Tribunal rejected for this deed. On small screens, swipe the chart sideways.
The dates that decided it: borrower’s default 31.12.2016 · demand on the guarantor 03.04.2017, with 60 days to pay · petition filed in 2020. Counted from the borrower’s default, the filing was late; counted from the guarantor’s own default after the demand, it was in time (Paras 3, 31–33).
Bar · 3
The holdings — our reading, then the Court
Five propositions to take into the briefOur reading is this page’s interpretation; The Court is verbatim, with paragraph numbers from the judgment.
Holding 1 · Q1 · “Due” from both, but “default” by each
Our readingWhen the borrower defaults, the debt becomes due from the guarantor too — liability is co-extensive. But “default” under s. 3(12) also needs the debt to be payable and unpaid by the debtor, and for a corporate guarantor the debtor is the guarantor. So the guarantor’s date of default can differ from the borrower’s.
The Court · Para 12“Section 3(12) uses two additional words i.e (i) “payable”; and (ii) “is not paid by the debtor”. The expression ‘debtor’ as used in Section 3(12), in the present case, is to be read as ‘Corporate Guarantor’.”
The Court · Para 26“The expression ‘is not paid by the debtor’ has to be given some meaning. … There can be default by the Principal Borrower and the Guarantor on the same date or date of default for both may be different depending on the terms of contract of guarantee.”
Holding 2 · Q1 · The deed, not the loan agreement, fixes the guarantor’s default
Our readingThe loan agreement and the guarantee are separate contracts. When the guarantor has to pay — and so when it defaults — is read from the deed of guarantee.
The Court · Para 26“It is well settled that the loan agreement with the Principal Borrower and the Bank as well as Deed of Guarantee between the Bank and the Guarantor are two different transactions and the Guarantor’s liability has to be read from the Deed of Guarantee.”
Holding 3 · Q1 · Where the deed contemplates a demand: no demand, no clock
Our readingThe guarantor is liable as soon as the borrower defaults. But where the deed contemplates a demand, limitation against the guarantor does not begin until the demand is made.
The Court · Para 31“When we look into the above clauses of Deed of Guarantee, it is clear that although the Guarantor immediately become liable on any default committed by the Principal Borrower but for initiating any action against the Guarantor, a demand is to be made. Without there being any demand to the Guarantor, it cannot be accepted that period of limitation against the Guarantor shall commence.”
Holding 4 · Q2 · The April 2017 notice was the demand; the petition was in time
Our readingThe notice of 03.04.2017 — issued under s. 13(2) of the SARFAESI Act — referred to the guarantee deed, called on the guarantor to pay and gave it 60 days. That was the demand. The guarantor’s default could not be placed on the borrower’s date, and the 2020 petition was within time.
The Court · Para 32“The above notice was issued to the Guarantor in reference to the Deed of Guarantee and the Corporate Guarantor was called upon to discharge their dues and the time was granted for 60 days to make the payment. We, thus, are of the view that default on the part of the Guarantor cannot be treated to be on 31.12.2016, when the Principal Borrower committed Default.”
The Court · Para 33“Issue No. II: In the facts of the present case, application filed by the Bank on 17.03.2020 was not barred by limitation.”
Holding 5 · Q3 · Admission stands — on this record
Our readingWith limitation answered, nothing else displaced the admission. The guarantor filed no reply and let its right to reply be forfeited, the ₹25-crore disbursement was undisputed, and Vidarbha Industries was distinguishable on its own reasons (Para 35).
The Court · Para 32“In the facts of the present case, where the Corporate Debtor did not file any reply and also did not file application for recall of order dated 23.11.2021 forfeiting right to file reply, the Adjudicating Authority did not commit any error in admitting Section 7 application.”
The Court · Para 34“…need no further consideration since disbursement to the extent of Rs.25 Crores is not disputed either in this Appeal or before the Adjudicating Authority.”
Disposition is not a new rule: the Tribunal recorded the appellant’s statement of readiness to pay ₹25 crore and allowed one month to negotiate a settlement before the Committee of Creditors was constituted; failing settlement, the IRP could proceed (Para 37). That window is relief on these facts, not doctrine. Nor did the Tribunal fix the exact date of the guarantor’s default or work out when its limitation would end — it held only that the default could not be placed on 31.12.2016 and that the filing was in time (Paras 32–33).
Bar · 4
Why the Court got there
Our readingThe Tribunal began with the statute. Article 137 runs from “when the right to apply accrues”, and section 7 allows a petition “when the default has occurred” — so the real question was when this guarantor defaulted (Paras 8–9).
Our readingTwo Supreme Court decisions on guarantees supplied the answer. A continuing guarantee is broken only when the guarantor fails its own obligation (Margaret Lalita Samuel), and a guarantee payable on demand is broken only when a demand goes unmet (Syndicate Bank).
The Court · Para 16 · on Margaret Lalita Samuel (SC)“The Hon’ble Supreme Court in the above case has observed that cause of action arises when the contract of continuing guarantee is broken i.e. breach is committed by the Guarantor to the guarantee given.”
Syndicate Bank (SC), Para 11 · reproduced at Para 17“In a case where the guarantee is payable on demand, as held in the case of Bradford (supra) and Hartland (supra), the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand.”
Our readingSyndicate Bank also refused to treat a borrower’s dormant account as a demand on the guarantor.
Syndicate Bank (SC), Para 15 · reproduced at Para 19“By no logical process, we can hold that ceasing of operation of accounts by the borrower for some reason, would amount to a demand by the Bank on the guarantor to pay the amount due in the account or refusal by the principal debtor and guarantor to pay the amount due in the accounts.”
Our readingBoth sides relied on Laxmi Pat Surana, where the Supreme Court said the creditor’s right against a corporate guarantor is triggered the moment the borrower defaults. The Tribunal read those observations in their setting: a case about whether a guarantor of a non-corporate borrower can face section 7 at all, run on the NPA date, and a passage built on acknowledgments under section 18 (Paras 20–25).
The Court · Para 22 · on Laxmi Pat Surana (SC)“The observations made by the Hon’ble Supreme Court in the above paragraphs were in reference to question no. (i) and the proceedings were initiated by the Bank treating the date of declaration of NPA as date of default for the Corporate Guarantor.”
The Court · Para 24 · on Laxmi Pat Surana (SC)“We may notice that the above observations are founded by next stipulation i.e. thus, when the principal borrower and/or the corporate guarantor admit and acknowledge their liability after declaration of NPA but before the expiration of three years therefrom … it is not possible to extricate them from the renewed limitation accruing due to the effect of Section 18 of the Limitation Act.”
Our readingThen the deed itself. Clause 9 speaks of the guarantee continuing “to be enforceable”, which the Tribunal read as showing that the deed “need to be enforced by the Bank”; clause 11 is the Bank’s liberty to give effect to the guarantee; and clause 12 provides for a demand “sufficiently served”. Read together, the deed contemplated a demand before action against the guarantor (Paras 27–31).
The Court · Para 30 · on clause 12 of the deed“Para 12 of the Deed of Guarantee contemplate ‘demand signed by Bank or its Manager’ with expression ‘sufficiently served’. Thus, the demand and served both are contemplated in Para 12.”
Move to the Bench
This guarantor’s clock waited for the demand. But what if a deed says nothing about a demand — or the notice is not really one?
Keep the liability, the default and the demand in three separate columns.
Bench · 1
Three over-readings to stop
Over-reading 01
Limitation against a guarantor always runs from the bank’s demand.
The error: treating this case as a universal rule that every guarantor’s three years start only on demand.
The Court · Para 26“There can be default by the Principal Borrower and the Guarantor on the same date or date of default for both may be different depending on the terms of contract of guarantee.”
The move: the deed decides. Find the demand clause first. Where the deed does not call for a demand, the borrower’s default may start the clock — the Laxmi Pat Surana line reproduced at Para 23.
Over-reading 02
No demand, no liability.
The error: reading the demand clause as postponing the guarantor’s liability itself.
The Court · Para 31“…although the Guarantor immediately become liable on any default committed by the Principal Borrower but for initiating any action against the Guarantor, a demand is to be made.”
The move: the demand moves the clock, not the debt. The amount is due from the guarantor on the borrower’s default (Para 26), and co-extensive liability under s. 128 is untouched (Para 13).
Over-reading 03
Any notice to the guarantor is the demand that starts the clock.
The error: treating every SARFAESI notice, recall letter or NPA intimation as the demand under the deed.
The Court · Para 32“The above notice was issued to the Guarantor in reference to the Deed of Guarantee and the Corporate Guarantor was called upon to discharge their dues and the time was granted for 60 days to make the payment.”
The move: test the notice against those features — addressed to the guarantor, tied to the deed, a call to pay, time to pay. A notice without them is outside this finding, and Syndicate Bank refused to treat a dormant account as a demand (Para 19).
Bench · 2
Both edges of the authority
For the creditor bank
Count from the guarantor’s own default
Plead the guarantor’s date of default. Set out the demand and the time to pay, not only the borrower’s NPA. Here Part IV of the petition proceeded on the NPA date; the demand notice on record carried the day (Paras 31–32).
File the deed and the demand. The demand clause (clause 12) and the notice of 03.04.2017 decided the case (Paras 30–32).
Answer “co-extensive” with the deed. Para 26 and Syndicate Bank (Para 17): the guarantor’s liability is read from its deed, and its date of default may differ.
Keep the merits tidy. An undisputed disbursement and the guarantor’s silence disposed of the other objections (Paras 32, 34).
For the corporate guarantor
Make the bank prove its demand — or show none was needed
Read the deed first. If the deed does not call for a demand, press the Laxmi Pat Surana line that the right is triggered the moment the borrower defaults (Para 23), and distinguish this case as a demand-clause case (Paras 26–31).
Test the notice. Was it the deed’s demand — addressed to the guarantor, tied to the deed, a call to pay with time to pay (Para 32)?
File a reply. Here the guarantor’s right to reply was forfeited, and the Tribunal relied on that in upholding admission (Para 32).
Make disbursement disputes concrete. The plea that most of the ₹62 crore never reached the borrower failed because ₹25 crore was undisputed (Para 34).
Bench · 3
Test the argument in your own brief
Is the section 7 petition against the corporate guarantor within time on this reasoning?Assume the borrower has defaulted and the creditor has filed under section 7 against its corporate guarantor. Answer all four; the result addresses limitation only — not debt, default on the merits or admission.
1. Does the guarantee deed contemplate a demand by the creditor before action against the guarantor?Demand and service clauses carried this deed — Paras 27–31.
2. Has a demand been made on the guarantor under the deed — tied to the guarantee and calling on it to pay?The notice of 03.04.2017 gave 60 days — Paras 31–32.
3. Was the petition filed within three years of the guarantor’s default after that demand?Article 137 runs from the guarantor’s own default — Paras 9, 32–33.
4. Was the petition filed within three years of the borrower’s default, counting any written acknowledgment?The Laxmi Pat Surana clock — Paras 23–24.
Pending
Answer the four questions to see how Archana Deepak Wani applies.
An argument check, not a prediction of admission. It does not decide whether a particular letter is a valid demand, the effect of a given acknowledgment, or any COVID-period exclusion. Paragraphs refer to the judgment.