S.95 IBC Plea Found Within Limitation Due to Debt Acknowledgment: Supreme Court Upholds NCLAT Ruling [Read Order]

Supreme Court Affirms Debt Acknowledgment Extends IBC Limitation Period

The Supreme Court has recently upheld a National Company Law Appellate Tribunal (NCLAT) ruling, clarifying the crucial issue of limitation periods under Section 95 of the Insolvency and Bankruptcy Code (IBC). The apex court’s decision centers on the acknowledgment of debt and its impact on extending the timeline for initiating insolvency proceedings.

The Case: Acknowledgment as Key Factor

The core of the matter revolved around whether acknowledgments of debt in a corporate debtor’s balance sheets could extend the limitation period for initiating insolvency proceedings against a personal guarantor. The NCLAT had previously ruled in favor of extending the limitation, a decision now affirmed by the Supreme Court.

Supreme Court’s Reasoning

The Supreme Court agreed with the NCLAT’s perspective, emphasizing the significance of the following:

• The corporate debtor’s balance sheets contained clear acknowledgment of debt.
• A clause in the guarantee deed explicitly linked these acknowledgments to the guarantor.
• This linkage effectively brought the case within the purview of Section 18 of the Limitation Act, thus extending the period for initiating insolvency proceedings.

Impact on Insolvency Proceedings

This judgment has significant implications for creditors seeking to initiate insolvency proceedings against personal guarantors. It reinforces the principle that consistent acknowledgment of debt by the corporate debtor, particularly when linked to the guarantor, can legitimately extend the limitation period. This provides creditors with a wider window to pursue legal recourse.

The decision highlights the importance of meticulous record-keeping and clear contractual clauses that explicitly connect corporate debt acknowledgments to personal guarantees. This ensures that creditors are not unfairly barred from pursuing valid claims due to technicalities regarding limitation periods. The judgment also brings more clarity regarding the application of the Limitation Act within the IBC framework, a welcome development for all stakeholders.