NCLT Delhi Admits Cedar Hospitality into CIRP, Holds Borrower’s OTS and Balance Sheet Entries Extend Limitation Against Corporate Guarantor
Introduction
The present judgment concerns a petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 by Bank of India against Cedar Hospitality Private Limited seeking initiation of Corporate Insolvency Resolution Process on account of default arising from a corporate guarantee. The Delhi Bench of the National Company Law Tribunal admitted the petition and held that acknowledgements of debt by the principal borrower, including One Time Settlement proposals and balance sheet entries, extended the period of limitation against the corporate guarantor as well.
Factual Background
Bank of India had extended financial assistance to Golf Technologies Private Limited in 2013. In connection with the loan facilities, Cedar Hospitality Private Limited executed a corporate guarantee deed dated 8 January 2013 securing the obligations of the principal borrower.
The borrower committed default on 31 March 2013, and the account was classified as a non-performing asset on 18 January 2014. Thereafter, Bank of India issued a notice under Section 13(2) of the SARFAESI Act on 5 February 2014 invoking the corporate guarantee.
Subsequently, the Debt Recovery Tribunal issued a Recovery Certificate in favour of Bank of India on 29 August 2017. The outstanding amount claimed by the Bank as on 30 January 2025 was ₹140.49 crore. During the intervening period, the principal borrower submitted multiple One Time Settlement proposals dated 1 September 2015, 14 July 2020, 21 September 2023 and 12 March 2024. The borrower also reflected acknowledgement of debt in its balance sheets.
Procedural Background
Bank of India filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the NCLT Delhi seeking initiation of CIRP against Cedar Hospitality Private Limited as corporate guarantor. The corporate debtor opposed the petition primarily on the ground of limitation. It argued that the default had occurred in 2013 and the account had become NPA in 2014, rendering the petition time-barred. The matter was heard by Judicial Member Jyotsna Sharma and Technical Member Anu Jag Mohan Singh. After examining the documents, acknowledgements of debt and legal position on limitation, the Tribunal admitted the petition and appointed Shailesh Chandra Ojha as the Interim Resolution Professional.
Issues
1. Whether the Section 7 petition filed against the corporate guarantor was barred by limitation.
2. Whether acknowledgements of debt made by the principal borrower extended the limitation period against the corporate guarantor.
3. Whether One Time Settlement proposals submitted by the principal borrower constituted valid acknowledgements under Section 18 of the Limitation Act.
4. Whether entries in the audited balance sheets of the principal borrower amounted to acknowledgements of debt.
5. Whether encashment of a cheque allegedly connected with an OTS proposal amounted to acceptance of the settlement proposal.
6. Whether Cedar Hospitality Private Limited had committed default warranting initiation of CIRP under Section 7 of the Insolvency and Bankruptcy Code.
Contentions of Parties
Bank of India contended that Cedar Hospitality Private Limited continued to remain liable as corporate guarantor for the loan facilities extended to Golf Technologies Private Limited. It submitted that the debt and default stood established through the loan documents, invocation of guarantee, Recovery Certificate issued by the Debt Recovery Tribunal and the outstanding liability of ₹140.49 crore.
The Bank further argued that limitation stood extended by acknowledgements of debt made by the principal borrower. It relied upon the One Time Settlement proposals submitted on 1 September 2015, 14 July 2020, 21 September 2023 and 12 March 2024. It was submitted that these OTS proposals constituted acknowledgements of liability under Section 18 of the Limitation Act.
The Bank also relied upon entries in the audited balance sheets of the principal borrower acknowledging the debt. It contended that acknowledgements by the principal borrower extended limitation not only against the borrower but also against the corporate guarantor.
Cedar Hospitality Private Limited contended that the petition was barred by limitation because the default had occurred in 2013 and the account had been declared NPA in 2014. According to the corporate debtor, the limitation period had expired long before filing of the Section 7 petition.
The corporate debtor further argued that the OTS proposals did not amount to unconditional admissions of liability sufficient to extend limitation. It also claimed that encashment of a cheque of ₹25 lakh in August 2025 amounted to acceptance of its OTS proposal by the Bank.
Reasoning and Analysis
The NCLT Delhi first examined the objection relating to limitation. The Tribunal noted that the borrower account had become NPA on 18 January 2014 and that a Recovery Certificate had subsequently been issued by the Debt Recovery Tribunal on 29 August 2017.
Relying upon the Supreme Court decision in Dena Bank v. C. Shivakumar Reddy, the Tribunal held that issuance of a Recovery Certificate gives rise to a fresh cause of action for initiating proceedings under the Insolvency and Bankruptcy Code. Consequently, the Recovery Certificate issued in 2017 provided a fresh starting point for limitation.
The Tribunal then considered the effect of the OTS proposals submitted by the principal borrower. It observed that the borrower had submitted OTS proposals on 1 September 2015, 14 July 2020, 21 September 2023 and 12 March 2024. These proposals constituted acknowledgements of debt and extended the period of limitation under Section 18 of the Limitation Act.
The Tribunal specifically held that acknowledgements of debt made by the principal borrower also extend limitation against the corporate guarantor. The Bench observed that it is settled law that acknowledgements by the principal borrower bind the guarantor in relation to extension of limitation.
The Tribunal also relied upon the Supreme Court judgment in Asset Reconstruction Company v. Bishal Jaiswal, wherein it was held that entries in audited balance sheets amount to valid acknowledgements of debt under Section 18 of the Limitation Act. The balance sheet entries of the principal borrower acknowledging the debt were therefore treated as valid acknowledgements extending limitation.
The Tribunal further applied the exclusion period recognised during the COVID-19 pandemic from 15 March 2020 to 28 February 2022. Taking this exclusion into account, the Tribunal held that the limitation period stood extended until 10 September 2024. The subsequent acknowledgements in 2023 and 2024 further reinforced continuity of liability and kept the claim alive.
On the issue relating to the ₹25 lakh cheque, the Tribunal rejected the corporate debtor’s contention that encashment amounted to acceptance of the OTS proposal. The Tribunal noted that the cheque had been temporarily encashed but was later refunded and the OTS proposal had been expressly rejected. Accordingly, no concluded settlement came into existence.
The Tribunal then considered whether the petition satisfied the requirements of Section 7 of the Insolvency and Bankruptcy Code. It found that the debt and default were duly established and that the amount in default exceeded the statutory threshold prescribed under Section 4(1) of the Code. The Tribunal also found that the petition was complete in all respects and that there existed no legal impediment to admission of the petition.
Decision
The NCLT Delhi admitted the petition filed by Bank of India under Section 7 of the Insolvency and Bankruptcy Code, 2016 against Cedar Hospitality Private Limited. The Tribunal held that acknowledgements of debt made by the principal borrower, including OTS proposals and balance sheet entries, extended the limitation period against the corporate guarantor as well. The Tribunal further held that the Recovery Certificate issued by the Debt Recovery Tribunal in 2017 gave rise to a fresh cause of action. Accordingly, the Tribunal initiated the Corporate Insolvency Resolution Process against Cedar Hospitality Private Limited and appointed Shailesh Chandra Ojha as the Interim Resolution Professional.
The Tribunal also declared a moratorium under Section 14 of the Insolvency and Bankruptcy Code prohibiting institution or continuation of suits, transfer of assets, enforcement of security interests and recovery proceedings against the corporate debtor during the CIRP period.
In this case the appellant was represented by Advocates Karan Gandhi, Vidhika Kapoor and Sikhar Tiwari. Meanwhile the respondent was represented by Senior Advocate Ashim Vachher and Advocate Saiba M Rajapl.