Debt acknowledgment by the principal borrower extends the limitation period for insolvency proceedings against personal guarantors.

The Appellant, an Asset Reconstruction Company, acquired a loan account belonging to M/s Raj Poly Products Limited ("Corporate Debtor/CD") from the Original Lender via an Assignment Agreement dated 30.03.2019

The Respondents are Personal Guarantors ("PG") who executed Letters of Guarantee in 2014 to secure the CD’s credit facilities

Following defaults, the Original Lender issued a notice under Section 13(2) of the SARFAESI Act on 12.04.2018, calling upon both the CD and the Respondents to discharge their liabilities

The CD acknowledged the debt in its Independent Auditor’s Report dated 30.12.2020 (for FY 2019-20)

The Appellant subsequently issued demand notices under Rule 7(1) of the Personal Guarantor Rules in September 2022 and April 2023

The Adjudicating Authority (NCLT) dismissed the Section 95 insolvency petitions on 03.09.2024, holding them barred by limitation by calculating the three-year period from the 2018 SARFAESI notice

1. Whether the issuance of a notice under Section 13(2) of the SARFAESI Act constitutes an absolute invocation of a personal guarantee for calculating the limitation period for insolvency proceedings under the IBC.

2. Whether an acknowledgment of debt in the financial statements/auditor's report of the Principal Borrower (Corporate Debtor) extends the limitation period against the Personal Guarantor under Section 18 of the Limitation Act, 1963.

The court applied Section 18 of the Limitation Act, 1963, which stipulates that a written acknowledgment of liability signed by the party against whom a right is claimed results in a fresh period of limitation

It relied on the Supreme Court’s ruling in Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal (2021), which settled that entries in a balance sheet constitute valid acknowledgment

It further applied the principle from UCO Bank v. M/s Poddar Mech Tech Services Pvt Ltd (2024), holding that acknowledgment by a principal borrower is deemed acknowledgment by the guarantor

Additionally, the court invoked Section 238 of the IBC regarding the overriding effect of the Code and the COVID-19 limitation extension orders passed by the Supreme Court in Suo Moto Writ Petition (C) No. 3 of 2020

The Tribunal found that while the Section 13(2) SARFAESI notice was issued on 12.04.2018, the NCLT erred by ignoring the subsequent acknowledgment of debt in the CD's Independent Auditor’s Report dated 31.12.2020

The NCLAT reasoned that under Section 18 of the Limitation Act, this acknowledgment by the CD effectively extended the limitation period for the PGs as well

Applying the Supreme Court's COVID-19 exclusion period (15.03.2020 to 28.02.2022), the Tribunal determined that since the acknowledgment occurred during the pandemic, the balance of the three-year limitation period only began to run from 01.03.2022

Consequently, the three-year window would expire on 01.03.2025. As the Appellant filed the petitions on 13.10.2023, the actions were well within the prescribed legal timeframe

The Tribunal further clarified that IBC proceedings are independent of SARFAESI or Arbitration, and the Appellant was correct to follow the specific demand notice procedure under Rule 7(1) of the Personal Guarantor Rules

The Tribunal concluded that the acknowledgment in the CD's books of accounts fresh-started the limitation period for the Respondents

Accordingly, the appeals were allowed, and the petitions C.P. (IB)/1174/MB/2023 and C.P. (IB)/1175/MB/2023 under Section 95 of the IBC were reinstated for entertainment by the Adjudicating Authority